With annexation in Chehalis nearing a vote, the Chehalis City Council has an abundance of financial numbers to consider, including anticipated revenues and expenditures.
However, the figures are very conservative, and city staff are strictly encompassing what is known. Annexation comes with many moving parts, especially some that make Chehalis unique, such as the potential merger of the Chehalis Fire Department and Lewis County Fire Districts 5 and 6.
City Manager Stacy Denham provided the council with a summary of revenues and expenditures from 2026 through 2033, focusing on the impacts to the city’s general funds and combined funds solely in the urban growth area (UGA). The numbers do not include revenues from future housing or economic development or future tax options that could be imposed such as a public safety tax. Nicholle Stanhope, city finance director, said the projected revenues are “based on who we are today.”
“We went with the most conservative dollar number coming in and then the most aggressive money going out to make sure that we’re capturing the worst-case scenario of what would happen,” Denham added. “We reasonably believe that the revenues coming in would be more, but we also reasonably believe that the expenditures going out are going to be less.”
Starting in 2026, the city currently estimates that it will rake in $2,035,623 to the general fund and $3,386,697 to its citywide funds combined through annexation revenues. In just the general fund, the city projects a collection of $1.12 million in property taxes, $645,000 in sales and use taxes, $508,750 in services, and $498,000 in licenses and permit fees, among other revenue streams.
For expenditures, city staff estimate spending $654,271 out of the general fund in 2026 in the UGA, including $460,694 for services, $388,000 for salaries and wages, and $225,000 in benefits. This leaves an anticipated ending cash balance of $1,381,352 from the general fund. Through its combined funds, the city will spend $744,421 to leave an ending cash balance of $2,642,276.
What starts to happen over the ensuing six years in these conservative projections is that the city collects more property taxes while sales and use taxes and utility business taxes fluctuate. Licenses and permit fees will bring in a significant stream in 2026 before flattening out in 2027 and beyond, according to the projections. Revenues for services will also peak in 2026 before dropping in 2027 and then slowly increasing over the next three years.
Expenditures will climb significantly after 2026, however. In 2027, the city anticipates spending $2,826,550 out of its general fund, with the biggest jumps coming from salaries and wages ($388,000 in 2026 to $981,000 in 2027) and benefits ($225,000 in 2026 to $550,000 in 2027).
As those numbers continue to climb in the following years, the city’s ending cash balance in its general fund in just the UGA will start to shrink, first slowly and then rapidly after 2030. By 2031, the city anticipates an ending cash balance of $112,140 from its general fund in the UGA and an ending cash balance of a negative $561,910 in 2032. Staff attributed increases in salaries, wages and benefits to the addition of more firefighters, as well as increasing workloads for the fire department and law enforcement.
“If things continue the way they are currently, and there’s no interception of other funds coming in, so that means no impact fees, it would take until 2032 to start showing a negative number in the general fund,” Denham said. “If there’s no change except for costs going up and there’s no change in revenue coming in, every municipality, whether we annex or not, we’re going to be subject to this. There’s not a lot of extra expenditures. It’s just the cost of things are going up, and our revenues are staying flat. Nobody can sustain that.”
In contrast, the city’s ending cash balance for all of its combined funds will actually start to slowly increase from 2026 to 2029 before dropping rapidly in the 2030s. The city anticipates an ending cash balance of $1,342,628 in its combined funds by 2033, just three years after it expects $2,725,921 in its ending cash balance in the UGA.
Again, city staff stressed to councilors after they expressed concern that the numbers are only what they can verify right now and that these will not look like the actual numbers once annexation takes place. Additional revenues could stem from a council-approved public safety tax or a property tax lift, according to Denham, as well as the possibility of impact fees, which would help offset costs for infrastructure.
Denham said the amount of usable land currently in the UGA is “fairly significant” and allows for different kinds of housing and economic development. He added that changes still must occur in the city’s budget to make sure the city doesn’t face running in the red in the future.
“The only way you can really reverse that is to find new sources of revenue that’s going to come in and be able to bolster up the general fund,” Denham said of the future projected negative ending cash balances in 2032 and beyond in the UGA. “You can have some type of property tax lift where you’re actually paying more for property tax. The other thing is a public safety tax and/or making sure that you’re bringing in new businesses that you’re going to get sales taxes coming in and having a reliable source of income coming in. Those are really the only ways possible that I’m aware of to actually offset those costs.”
Councilor Kevin Carns also pointed out that balancing a budget could entail making cuts. While Denham acknowledged that cuts may be an option in the future, he and city staff believe annexation brings potential for income and revenue, namely in future sales taxes, property taxes, real estate excise taxes, transportation benefit district sales taxes, and other options the council chooses.
For more information on what annexation in Chehalis might look like, visit https://tinyurl.com/ycx3u32r.
