Community Budget Forum - Regular Meeting

Snohomish County Council is called to order for our finance budget and administration committee. Today is Tuesday, 05/12/2026 at 10AM. We're meeting in the Jackson Boardroom and also remotely. I'll read the script for public comment, and then our clerk will take role. We'll We'll take public comment beginning in person and then remotely in Zoom. Click on the hand icon to raise your hand. If you're calling in by phone, press 9 to raise your hand and 6 to unmute. Each speaker will have three minutes to speak, and please start your comment with your name and city of residence. Next is roll call. Committee Chair Dunn? Here. Vice Chair Nearing? Here. Committee Member Lo?

Present.

Committee Member Mead? Here. Committee Member Peterson? Here. There are five members present. Thank you. Next is public comment. Did anyone wish to provide public comment? There's no one in person. Any hands? No. Hands are raised. Okay. So we'll close public comment and move on. We have, one action item, and it's motion 26 dash one seven six.

Thank you, chair Dunn. Good morning, council members. For the record, Jim Martin, council staff. Post motion twenty six dash one seven six would authorize amendment one to the contract with the Resilient Strategies LLC. The executive's office approved the initial contract as a not to exceed amount of $50,000 falls within their authority. The initial contract ran through 12/31/2025 with the county having the option for up to two one year extensions. In December 2025, the county notified resilient strategies that we were executing the first of those options and extending the contract through 12/31/2026. This amendment modifies a not to exceed amount to $110,000 to account for work that will be completed in 2026. Requested action is to move to GLS on May 20 for consideration.

Thank you. Questions from counsel? Any object objection to consent on the twentieth? Okay. Hearing and seeing none, that'll move to the twentieth on the consent agenda. So that concludes our action items. We have one discussion item today. So every quarter, we receive our finance report from the executive's office. So we ask Kara Main Hester, our Chief Budgeting Officer, to give an oral report this time. Thank you.

Absolutely. And thank you for having me here. So today, we're going to go over the twenty twenty five Q4 revenue and economic report. This does feel a little bit like living in the past, and we will we will talk about that as we get towards the end. So first up, so we'll talk about economic results as they were in q four twenty twenty five.

Of course, if anyone listens to the news this morning, you will realize that these are maybe even a little rosier than the current news would suggest they will be. We'll talk about the general fund and where we are on both our revenue and our fund balance, REIT revenue, and then I want to talk a little bit about how we're hoping to change the scheduling of these reports, just to give you a heads up on what we're thinking. So first up, some very few slides on economic results for 2025. Just generally, I pulled a couple items out of our report. The report's about 16 pages long, lots more charts and graphs and words there.

But looking at GDP, you can see that Q4 twenty twenty five GDP was at 0.7%. So that's across the whole nation. In other words, our gross domestic product did not grow very much in Q4, significantly down from Q4 twenty twenty four. That usually has a direct line to what our economic results are in Snohomish County. Consumer confidence has also continued to decline year over year, and that has been true coming into 2026.

So because of that, we would expect that since a lot of our kind of variable revenue is based on sales tax, we're going to expect our revenue projections to go down over time. So another economic results slide. So looking at this, this is Snohomish County's unemployment rate, 2022 to 2025. That blue line at the very top that's above 5%, that is the results for 2025. So our unemployment is up above 5% here in Snohomish County.

Our rate was 3.6% in December 2024. That's a significant increase in Snohomish County. I also wanna mention that workforce participation is also generally down. So, generally, there are fewer people employed in Snohomish County than we had. I mean, obviously, there are fewer people employed in Snohomish County than we've had. There's also fewer people participating in the workforce, which is always a sign of economic decline. People give up after a while of not being able to find a job. So, what does that mean for our general fund revenues? Which is where we mainly focus our work for this economic and revenue forecast. So, this is a busy slide.

I will be focusing on a different presentation in the future, but stay with me on this one. I'm hoping this maybe has I know you guys are not actually, you guys are looking at the screens behind me. So, let's focus on that top total revenue number. So, our preliminary actuals in 2025 were just over $319,000,000 Our projected, so it's about $720,000 below projection. So 2025, from a revenue standpoint, came in, frankly, pretty darn close to what our projections were.

So that's fantastic. I think if you look at 2026, that's where we have some caution flags. So projected revenue for 2026, and this is based on a I didn't write it down. I believe it's a three and a half percent revenue increase on Washington State sales tax. Do not quote me on that.

I can get you that number. So 2026, we're projecting our total revenues at $323,000,000 That is $4,400,000 less than what our twenty twenty five, twenty twenty six adopted budget planned for. And that, of course, reduction will carry into the following year. So as we're planning for 'twenty seven, 'twenty eight, that means we have pretty weak revenue forecast going into 'twenty seven and 'twenty eight. And this has to do with two things.

First, sales tax is is less than we expected. Typically, over the last thirty years, we've had a 5%, sales tax increase year over year, but it's extremely variable. So while we do tend to see 5% growth, we have seen incredible contractions in sales tax year over year, particularly during the Great Recession. And we are seeing lower sales tax proceeds than that 5% typical rate that we're used to. The other factor is that new construction is also very slow.

We are seeing that both in the state, we're seeing it nationwide, and we're seeing it in our own permitting department here in Snohomish County. So that means our property tax revenue, while we can raise 1% per year under the property tax levy, that and then we usually get a bump because it's plus new construction. If new construction is flat, that means these numbers are going to be pretty darn sluggish. Now, there is thought to be a whole bunch of pent up demand in the construction industry. I'm going to say it out loud, but no one knows when it's going to come.

So if you look at some of the revenue forecasts for other cities and for so for instance, looking at some of the economic and revenue forecasts for Western Washington, what you see is there's thought to be a really significant increase in new construction in the future. No one knows when that future is. The longer that we have high inflation, which our inflation numbers were reported to be over 3% this morning, the longer we have high inflation, the longer we will see sluggish construction, which means less property tax revenue for the county. Oh, and don't forget construction is a major driver of sales tax too. So we're just in a very sluggish, slow revenue time.

So that projection then will go forward into twenty seventwenty eight. I do want to caution everyone, this is a Q4 twenty twenty five plan that you're looking at. Those revenue numbers for twenty seventwenty eight and the expenditure numbers have not been updated based on our current budget projections. So, I just want to caution everyone, this is not a budget presentation, this is a look back presentation. So, those two right hand columns don't depend on those too much right now.

On the expenditure side, so for the 2025 expenditures, we ended the year at $355,000,000 We are in a biennial budget, so we had to change the way we approach this. So, the remaining 2026 column is the remaining budget out of the biennial budget. So, effectively, if you look at the salaries and wages line, we had an overall amount for 2025 and 2026. What is shown in the 2026 column is the remaining budget over the two years. So it's just simple subtraction based on the actuals we came in at 2025.

So that means everything kind of rolls forward. If you scroll down and look at the projected current year under expenditure, so second line from the bottom, that is an underexpenditure number over the two years. So, it was $5,500,000 and $5,500,000 approximately, 5.2, 5.2, that now all goes into twenty twenty six's column, because you get the remaining budget and that roll forward of both the under expenditure and any over expenditures we have. So, from a technical standpoint, all of our departments are within their budget at this point in time. Because they had two years of budget, we've only been through one year and five months or four months.

But that bottom number that should catch your eye, negative $17,000,000, At the 2025, that was the projected overexpenditure for three departments that are overexpending their budget right now. Now I will say we've since gotten updated numbers for those departments. That number is now less. So they have been working hard to try to stay where they can within their budgets or do as much as they can. That number is less.

So I can get you updated numbers, particularly the sheriff's office, and the sheriff's office is providing sheriff's office and corrections numbers to us on a monthly basis that I think council also has council analysts have access to too. So, overall, we do expect to be over budget in 2026. Departments that are not those three departments are meeting their underexpenditure targets at this point in time. So that is fantastic. That will be helpful to our budget. But this is all going to affect fund balance. That's what we really care about here. So And let me head on to the next slide. Okay. So this is our general fund fund balance.

This is inclusive of the revenue stabilization fund. And so on the left hand side, you see our 2023 fund balance. That blue bar has our fund balance just above $100,000,000 We see it creep up in 2024 and then creep down in 2025. So our fund balance is just above $80,000,000 And then 2026, we see that our fund balance goes below the green line. The green line is our liquidity line.

It's about 14% of our revenue. And that green line is shows that in 2026, we're just barely by a couple $100,000 underneath liquidity in 2026. I can confirm to everyone we did not have to take out a liquidity loan this spring. We are watching carefully to see if we'll have to do it this fall. And then the fund balance, if we maintain the current course with absolutely no changes, You will see that in 2027, our fund balance is just above $20,000,000 And then in 2028 and beyond, we are effectively at a zero or negative fund balance position.

That means we've run through all of our revenue stabilization fund by 2029. As I said, if nothing changes, if we make no changes. I think that's all I want to show you on this or talk about on this chart. Does anyone have any questions? Because I realize I just showed you like the two medias things. I don't have another slide on the general fund. I was going to talk about REIT next. So any questions on the general fund or anything you saw there?

Questions? Well, on slide five, the chart Mhmm. I think it's helpful to have what was budgeted in 2025. So we have the preliminary actuals, and then what was budgeted.

Yeah. So it's a little bit of a catch 22 on a biennial budget. So what was budgeted for the biennium is $354,900,000 plus $360,700,000. So that is actually the budgeted amount. But I can do a better job of showing you the biennial budgeted number and then totaling these up. So I will definitely make that change in future in the future.

Because you're assuming 2025 was half of 2026 in a biennial budget, but I

no. Sorry. The 2025 numbers you see up there are actuals. That's what we actually spent. Right. And so then the expectation is what you'd spend in 2026 is the remainder of your budget.

Okay.

But I can do a better job of showing that in the future. It is a busy chart. And with going to biennial, it didn't translate well. How about that?

Right. Like, the difference between what was budgeted and then what was spent. But with the biennial budget, it's not necessarily two years of the same amount. We wanted departments to be planning a year out and Yep. Having more more of a nuance than just twice. Exactly. That's exactly Two twenty twenty five minutes. Okay.

Yeah. And I think one of the things that may be helpful in the future is well, anyways, let me work on it. How about that? That's my answer on that one. Any other questions here? I recognize I'm the bearer of really fantastic news right now. Okay. And with regards to REIT, so our REIT results in 2025, so real estate excise tax, was $24,100,000 It was point 3% less than 2024. So speaking to that very sluggish real estate economy that we've been watching. So we're down 25 as compared to '24.

We did have a very conservative budget projection, so there was actually $1,000,000 excess of REIT than our budget projection. So we thought the sky was really going to fall, and it only kind of fell. So had a conservative budget projection. We do expect twenty twenty six to be similar to 2025, and, again, that's really consistent with what our permitting folks have told us, Though the longer the longer we see high inflation, the worse it will get. So we're not changing anything necessarily for 2026.

And, obviously, into 2027, we'll have pretty conservative reap projections. But the cautionary tale here is once the economy changes and developers can afford to start building again, we expect that to happen very, very quickly, and no one knows when that will happen. Okay. And then for future schedule, we're going to try to go so sales tax comes sales tax receipts come in two months behind. So, for instance, it is currently May 12.

We got sales tax for February at the April. We do not have March's sales tax proceeds. So, I'd like to get this on a little bit more of a quarterly, close to the quarter schedule for everyone, particularly so we can see budget to actuals and things like that. That will make more sense when we're looking at it really within forty five days of us putting down the quarterly report. What we won't have is really clear revenue projection numbers because sales tax just lags so far behind.

So we just want to caution everyone on that, but we can we can do a better job of of providing you these quarterly reports based on the data we have at the time. And I think that would probably be a little helpful for folks. And then Jim did counsel me. It was very kind of him. Historically, I had thought the economic and revenue forecast team needs to meet before you were provided these, and that's not the case. So these reports will not necessarily have to align with those very important meetings that we have for the economic and revenue forecast team. So just want to say we're going to try to get these more closer to when the quarter ends. Any other questions? Suggestions?

Questions? Okay. I think the quarterly reports on revenue is helpful. I think more on expenses is going to be critical moving forward.

Yeah. Appreciate that. Okay.

Okay. Any other comments or anything to wrap it up, Jim? Okay. Okay. Then that concludes our agenda, and we're in recess until our 11:00 committee hearing meeting.