City Council - Regular Meeting

Turn this on. I'm getting popcorn for that one. first. Yeah, we are. Whoa. What's going on? She's the wrong person to be up here. Yeah, I'll do it here in a minute. boy.

All right, let's uh call the study session. Oh, sorry. Thank you. Okay, we'll call the study session to order tonight at 6 PM. Let's go ahead and do the roll call. Everybody needs to push their button. All right. Council member Wilsey here. Council Deputy Mayor Elers here. Council member Kenna here. Council member Rinky here. Council member Hawksteader here. Council member Evers here. And Council Member Malcolm here. You got to push your button. I got you. There you go. Thanks.

All right. So, we're all here. We're going to go ahead and uh our agenda, we're going to do the 2026 legisla state legislative recap first and uh so we will call on communications director Carman Palmer and then Bill Clark, our city's lobbyist, please.

All right. Thank you, Mayor. Um we're gonna start off here and Bill, I was just going to ask you, do you want to say anything from the get-go or would you like me just to dive in? uh maybe just a few introductory, you know, remarks just to kind of orient people to um how things kind of played out generally. So, this was a 60-day short session. It's the second year of the two-year cycle. Um which means they do supplemental budgets. The budgets last year are two-year budgets. These the budgets this year are supplemental adjustments to the operating budget, the capital budget, and the transportation budget. Um, you know, typically the short session is um has a has a smaller policy agenda, but for the last number of years, the short sessions haven't been like that. And obviously the big ticket item this year that the legislature took on was uh the state income tax. significant um kind of changes in how they dealt with the budget issues and that it used to be that the budgets kind of stayed within their lanes that there were certain funding sources that funded capital and those stayed in the capital budget and certain sources that funded transportation and those stayed there. This year's budget there's money moving all around like use of one-time funds. They they not only have to have a budget that's balanced for this two-year bianium but also for the four-year revenue outlook. And so with the state income tax, um, assuming that that withstands legal challenge and voter challenge, which both of which will likely occur over the next two years, you know, they still had to had to divert significant amounts of money from the left one pension that we'll discuss later, from the climate commitment act, from the public works assistance account. So the the kind of structural budget issues really dominated, I think, what the legislature dealt with. So with that said, they got out on time. um you know, could have been better, could have been worse. Uh and then many legislators are kind of

jumping right into kind of campaign season because it's uh 2026, all House members are up for reelection and then half the Senate. So, that's kind of where we're at in in some.

All right. Thank you, Bill. I will go through each of the the things items that were on your legislative agenda. I'll kind of do a recap and then have Bill chime in with all of the things to help clean up anything I missed. Um, so let's just jump right in. Um, if you recall, um, I know a number of you are new, but last autumn in anticipation of each session, the council passes its legislative agenda. It's a bit of an art and a science because um, this is you telling the community these are the things we're watching at the state. Um, this is also you telling the staff and the mayor how how to respond. Often very quickly we have to respond to things to get the information in while they're moving. Um, but there's you have to try to anticipate what's coming and keep it specific. So you have very clear direction but also broad because every year there are things we just don't anticipate um that I don't think anyone anticipates will hit until it hits and then they tend to move fast. So, your broad categories, um, there were three of them. Keep housing affordable in Sumar. We tried to go with very broad categories that were statements in a very divided session that would most people could agree on. Um, and then let the details fall out from there how you get there. But, um, I think most people can agree housing affordability is an issue. Uh, and then the agreement starts to go away. Um, as I go through these, um, you'll see which ones we the city was opposing, neutral on, or promoting. There were ones we were promoting. The green and the red flips. So, if we were opposing something that passed, it's red because it passed. If we were promoting something that did not pass, it's red. So, green and red are kind of did the city get its way, right? Sometimes that is a did pass, sometimes that's a did not pass. Um, our capital ask actually had been originally for the River Grove pedestrian bridge. We did shift that because we realized we had asked for that last year. It didn't make it and

the project is in a place where it needs a lot of money for something to change um more than the state would have in a short session, especially a short session with budget issues. So, we actually pivoted on that one and changed it to the Heritage Park building. Again, this building needs more funding than this, but because we're at the start of that, this money is seed money. uh the more when you go out for grants and other sources you can talk about other funders the better off you are to be successful at getting future grants. So uh we actually did not ask for 150,000 we asked for 750,000 um to have the state build the prominade portion um and that got cut down to 150,000 but still it puts it on the map it puts us on the radar um so that was a success. Um, we did oppose a bill that would have forced the cities to allow up to two mobile units per lot. That did not pass, but it did get some traction. So, the other piece of this is stay tuned. Usually something that got a lot of discussion in one session, but didn't pass. Odds are you're probably going to see it in future sessions. Um, there was also a lot you will see a theme um a lot of zoning still in this one. Um, requiring businesses in residential zones. Um and then you'll see next requiring residential and commercial zones. So it was a little hard to track what the state wanted of us other than perhaps to um get into local planning. Uh the businesses and residential zones did not pass. Um we were neutral on the residential and commercial zones because it applies only in cities over 30,000 which is obviously not Sumner. However, usually once things like that pass, they tend to start to come down in population and will probably affect us or they talk about the cont contin contiguous UG um which then usually brings in Sumner. But, um for right now um even with that, we're still pretty neutral. They they did approve a lot of amendments that made this bill a lot easier, gave cities

flexibility to still be trying to protect their commercial zones while bringing in more residential. Uh there was also a bill that passed uh that was about permit timelines. Um as we read through it, it mostly does not affect Sumner. Pretty much everything they were targeting, we already do. So we are neutral on that one. Finally, um the big one was uh they did take funding uh out of the public works assistance account. Uh my knowledge is we don't have any projects right now, but this is an account that we often relied on, as did most cities, to get lowinterest loans. Um the re and there's a lot here that I will let Bill chime in in a minute. The reason I put this item under keeping housing affordable is um I think it's really important for our residents to understand that if we have to do a large project um and we need to fund it. If we don't have funding in this public works assistance account at low interest, we have to go out on the open market and pay market interest rates which is higher which means especially in utility account uh projects, we have to pass that on to the utility payer. someone has to pay that higher amount. So it actually makes these projects more expensive that gets passed on to the utility payers or the residents and that's why it's a negative under keeping housing affordable because the loan game is it does mean projects in every city got more expensive to do but they still have to be done. Bill, can I turn it over to you for some of the details on this one?

Yeah, sure. And just a note on a couple of the ones you mentioned earlier on the housing and land use side. Um you know like the mobile dwelling units bill and also the allowing businesses in residential zones. I think those bills have been around. I think they'll continue to be around like even next year. But I think legislators and you know some of the business community local governments obviously have thought through like what does that really look like? Right? Theoretically, if you had two campers or two trailers or two tiny homes that would be on each lot connected to water somehow connected to sewer, but without an actual permanently approved water and sewer connection and things like that, people are starting to really realize, I think, the problematic nature of that bill. Uh, something like it similar to it passed in the state of Oregon and there are already problems in the state of Oregon with that law. So, I I think that'll continue to be around. Same with allowing businesses within residential zones once you start to look at, you know, parking, drive-through windows, things like that, liquor licenses. So, these bills will be around, but I think um they have kind of a target on them or a kind of mark on them just in terms of their practicality. the major kind of land use housing bill was the last one that one that's marked as neutral which was driven by former Governor Gregoire and Challenge Seattle which is a group of the major kind of corporations who've identified the amount of kind of underutilized commercial land that could be converted to residential use um only in cities over 30,000 with a number of kind of limitations to ensure that there's some amount of of commercial space that was the major kind of housing issue of the year and I think with that bill passed passing. I think a lot of the big kind of housing pieces that the legislaturator's worked on the last really four years are all kind of done

and once we get through the end of 2026, most of Puet Sound counties in those cities will have updated all of their GMA comp plan. So, um I think it may be the case that there'll be less kind of meddling in, you know, some of the local zoning stuff because all the local zoning stuff has has recently been updated. So, as the public works account, um, this is the how I would characterize it. It could have been a lot worse in that the legislature does take the cash from the account, and the cash comes from utility tax, real estate excise tax, solid waste tax, and loan repayments. Uh, so it takes the cash, but it backfills it with state bonds, meaning debt that the state takes. Um so while it still allows the public works board to do another round of infrastructure loans for local governments and about half of those go to cities um the the future is not great because this this tendency to take the cash and then backfill it with bonds means that this program just competes against all of the other capital budget programs, right? Whether it's low-income housing or outdoor recreation or funding for schools. and it was created to have its own funding account. So it continues to be a battle to try to keep funding within that account. The other thing that was notable on this issue is there's a proviso for the state treasurer's office to look at other types of funding models for local government infrastructure meaning uh use of state debt to directly fund infrastructure which the way I read it means instead of the cash within the public works account. So, um, could have been worse on this one, but it's still going to be a battle going forward.

Any questions before I move on? All right, the next one. We were uh, you know, trying to flip the script. We knew it would be a a difficult budget, a lot of questions about funding, and before the session started, we heard feedback that um, state level legislators were kind of feeling like it was an us them with cities. You know, cities were whining. Um, so we were trying to flip that narrative a little bit and help them understand that protecting our funding is an increase in state revenue because all of our roads and businesses here in Sumner generate future state revenue. So we were trying to get them to not see it as an eitheror but as funding cities is an investment in future state revenue um sources. Not sure how successful we were at that narrative but um there are some wins and losses on this one. Um the first one is just because the public works assistance account actually fits in both categories. So just a reminder that was a shared revenue that um was difficult. Uh you probably saw this one got a lot of uh publicity um taking um left one left one pension funding. Um that account did have quite a bit of funding in it. So I think the media kind of categorized it as oh my gosh they're sweeping the funding which wasn't so much the concern. The concern was cities still have to pay. We still have people on left one we are paying expenses for. And while there was perhaps a surplus of funding in that account, the state took it for themselves rather than give it to the cities who are paying out of their general fund to pay specifically left one costs. So um cities tried for an amendment that some of that if it was considered addition excess excess revenue should go to cities for their costs and that amendment did not pass. So it passed without that amendment. Um we actually uh WCIA asked us to support a bill called uh that was about thirdparty litigation. I don't know too

much about this but apparently people are investing in litigation particularly against cities as if it's like an investment. You know I pay in this much for uh you know to pay the attorney's fees and then when there's the payout from the cities we get it. So it's driving some of these claims against cities um looking for payouts. Um, so we supported that bill, but unfortunately it did not pass. Um, we opposed a bill. Actually, this one should have been green. My apologies. My little system did not work. We opposed a bill that would require cities to bargain the use of AI. Um, the big problem with that bill is it was written not really with a full understanding of AI. So, it was very broad. It almost felt like we would have to bargain if I could Google something. Um, that did not pass. That should be green. Um, so that one did not pass. Uh we did oppose there was a bill for an excise tax on payroll um as it was proposed. It did not to my knowledge I don't think there was ever an amendment to exclude cities. So some of the city payroll salaries would um would actually fall under this and so the city would actually be paying the state um a tax for paying salaries. That did not pass. So that's a that's a win. Um we supported an increase in the small works roster contract limits and that one did pass. Actually, that one passed uh the House floor while we were meeting with our House of Representatives. So, it was kind of fun to see one bill we were tracking pass through one house while we were there. Uh what that does is it resets. There was a limit of um when you have to go out to bid versus using the small works roster over time, you know, when that stays still but projects get more expensive. Um this bill caught it back up to the intent of where it had originally been set for the size of projects. So that helps give public works a little more efficiency. Um they did also pass a bill that gives us more flexibility um for using REIT funding, the real estate excise tax funding. Uh

as I'm sure as Bill mentioned, and I will turn it over to him in just a second, um you know, the big item for this session no one I think can argue is the millionaire's tax or the state income tax. Um one thing and then there's a lot of feelings on that. The way the one thing the city is really watching is one of the balancing concessions proposed was um sales tax uh alleviating some of the sales tax which it did pass with some alleviations of sales tax for hygiene items um and I think diapers um which will affect the city because the city takes in sales tax. We are not going to get any other revenue from the millionaire's tax. So essentially the state's taking more taxes and the concessions are coming on the backs of the cities which we're saying oh hey there wait a minute. Um there are also some proposals that are even worse um for cities not saying theoretically they might not be a good idea for taxpayers but they are also talking about sales tax holidays um entire weekends when there would be no sales tax which is a further blow to the city. Um, I never heard, and I don't know if Bill could, you know, especially a city like Sumner, when you think about large ticket items like vehicles and furniture, um, and RVs that you tend to only buy once, um, that could be a significant change to our sales tax, uh, revenue. Um, and then the one uh, we opposed that did did not pass would have required uh, cities to allow camping, storage of personal items, and public spaces. So, this one was telling cities we could not have cleared if someone um you know stored their personal items or decided to set up camp in Loyalty Park, Heritage Park. Um we had some big issues added most as did most cities with that one. Um not that we don't want homeless to have services, but the balance of how we use our public spaces for recreation,

ADA, and gathering. Bill, I'll turn it over to you for this sess section.

Sure. Yeah. Yeah, I mean, as I mentioned at the outset on the overall kind of budget and tax revenue picture, I think there's a lot of, you know, concern about how the state kind of put together the budget this year and how they did so last year. Um, you know, we're not necessarily in a recessionary period or a rainy day period, but the state took about 900 million from the rainy day account. uh it diverted money from the climate commitment act account which is climate commitment act account is revenue from carbon auctions from the largest emitters of carbon. So mainly uh refineries and pulp and paper mills and things like that. Um it functionally works like a carbon tax. Those monies went into other things. You know LA three years ago you had the capital gains tax. They did decrease the rate of the estate tax where Washington last year increased their estate tax rate to the highest in the country by like 15%. there just overall concern that that there have been this period of kind of tax increases but the revenue is not materializing and so are you in fact seeing some amount of kind of capital flight or business flight as people who might be subject to income tax on millionaires or capital gains tax or estate tax choose to organize their lives elsewhere to avoid those taxes within Washington state and kind of what those what those long-term impacts will be not on the state but also on local governments and then Like Carmen said, you know, there was this interesting kind of back and forth between the legislature and its support for the income tax and Governor Ferguson who supported the income tax with the kind of condition that a significant amount of the tax revenue would need to be offset by tax reforms. and there was kind of a period of time where it wasn't sure exactly what that would look like, but one of the things it did was provide

sales tax exemptions on certain products. What that means is it's both exempt from sales tax at the state level and and exempt from sales tax at the local level. So, while the state theoretically will collect more tax revenue when the income tax is ultimately implemented, with the tax exemptions, it's a it's a net loss for local governments on sales tax collection. There was an effort early on in the income tax to dedicate some of the revenue to uh local criminal defense costs. That didn't stick together. What the al what the legislature ultimately did was include this kind of intent language to offset revenue losses to local governments with tax measures next year. Similar to kind of how Jason and Carmen and others will recall when we shifted from um origin based to destinationbased sales tax. You pay sales tax based on where the object is shipped. For a city like Sumar, that's a loss of revenue because of the because of the warehousing district that exists and how much product that subject to sales tax would leave the city. The state came up with kind of sales tax mitigation that was somewhat helpful. It wasn't a 100% replacement for the lost sales tax revenue. So, I think that's the kind of thing that the cities will, you know, many cities will focus on next year to make sure they're kept as whole as possible as the state continues to go through. I think this cycle we're in, it's probably a, you know, seven-year cycle of kind of tax reform overall. So, I I don't think we're done with kind of major kind of tax reform. And then we'll see what happens. I think the income tax will go to the ballot this fall and then they'll whe whether it gets repealed or not there'll be a legal challenge as well. So it's not the ink is not the ink is barely dry on it and there's going to be legal challenges plus the ballot measure.

I think bill too to add on to that the other thing is we don't you know just like everyone we don't know the full repercussions you know as we're going out for a project like Heritage Park and talking about getting private donors to to you know pay pay into that. Will there be as many private donors with that available funding for charitable giving? Um, if there is, you've seen all the questions about tax, you know, wealth flight. Um, also business capital flight. That's the term I was looking for. Also, when 54, I believe it's 54% of our property tax revenue is coming from the industrial north end. You know, the little worry about keeping business here in Sumar in Washington because they're paying 54% of our property tax revenue. um if they leave and those values start going down, then that means the the amount the percentage the homeowners have to pay goes up. So, as a property taxpayer, I'm watching that one, too. Um so, those are some of the balancing things. We just don't know yet the impacts that could hit a city like ours.

All right. So, Council uh Deputy Mayor Elers is first. I'm sorry. Go ahead. Yeah. Hey, thank you for the presentation. I just had a couple questions on the um uh HB 2255, the um litigation one. I think that one was one that was that did not pass. Is that something that you think will come up again in future sessions that will be continued because I feel like that was one of the big ones I was hoping would would go through? Seemed like a pretty reasonable one.

It seemed like a reasonable one and it seemed like one, you know, without a lot of conflict, I would think. But Bill, do you have any read on that? Yeah, I think there and there there's more than one bill in this category, right? The state, not only local governments, but state agencies and others have seen these huge increases in um personal injury verdicts, liability against the state for negligence for, you know, DCYF and the foster care system and stuff. And so, not only is it um regulating third-party revenues from litigation where you in essence sell the right to recover for civil litigation damages, but also uh limitations on um punitive damages or damage caps, which many other states have done, including states that are kind of similar politically to Washington, right, that have a similar kind of political profile just because of these spiraling costs. And I mean there was a I think it was close to a billion dollars that the state had to put into the state budget this year just to cover litigation costs and and uh damage verdicts against the state. So uh the key thing on that will be I think when the state takes action to make sure that it also includes local government protections as well.

Bill, was that probably just a function of there's only 60 days and they had such big things they were trying to get through like the millionaire's tax. Yeah, it's that and it's also I mean the the main organization opposing anything in this area is the trial lawyers association which is a you know politically very powerful group and so um I think the issue will come back and ultimately the state's going to have to do something because it just keeps paying out more and more money um in a way that it's just not sustainable. Okay. Okay. Council member, are you done? I have one more. Oh boy.

All right. Can you I was just curious on the House Bill 1622 as well. I think we talked about that one, the AI and bargaining and I think that we were talking about that we're that potentially we have to the use of AI has to be added into bargaining that I saw that was on the red thing. It didn't go through. Can you kind of elaborate a little bit on that one? Does that mean that if if our bargaining units are using AI that we now have to like

So that one didn't that one did not go through. Um, I think our concern on that one is it it's already written into when if the use of AI affects some of our staffing, that's already something that would be bargained. What concerned us about this one is it just was going to require us to be able to bargain just purely the use of AI. And the bills seemed to not understand how integral AI is already in everything we're doing, all the systems we're using. That's why I use the joke that really isn't a joke about Google is that that is using AI and you know if we had a bargain can staff go ahead and Google something um is just quite a quite an extra challenge we didn't see there because the protection is already there if the use of AI affects someone's job um you know it's used to the extent that it's affecting someone's role here that's already something that would be bargained

so is that meant to be green then because it didn't pass is that good and that was yes that's the one I messed up and did Sorry, I missed that. Okay. I was like, why is it again? Okay, that's what I was I thought this was a simple system, but the double negative. Sorry, might you might have said that. I might have missed it. I was just like I was trying to figure out I was like isn't that um okay

and also too on that that AI bill is interesting in that u I think you know one of the major reasons it did not pass was that the state agencies through office of financial management they run their projections of what what's the cost to the state if it passes and it would have been a huge cost to state agencies right I mean it would have been north of $5 million in the first couple years there was a you know probably 10 different kind of major AI related pieces of legislation this year and and each one I mean it was hard to get agreement on how AI should even be defined and so it wasn't clear under this bill um I mean as Carmen said if you're if there's an adoption of a AI technology and what that means is that you are replacing employees with the use of AI meaning you're going to reduce employment because of AI you already have to collectively bargain over that this was just simply the use of new AI technologies. Even if it's not reducing employment or wages, you would have to collectively bargain over that. And there was disagreement over whether local governments or state agencies should even have to do that because they're doing that largely to provide cost savings. It's not negatively impacting employment or wages. And so is that a should that be a you know bargainable decision by the employer? Both state agencies and cities thought not. And I think that was the right thing for the legislature because they're still trying to figure out how to even define what AI is.

I got Can I go off script and have ask a question? Yeah. Let's see if I I got you right here. Go ahead. Try it. Well, now it's red. You did it. Okay. So, I was curious, Bill, if you were following this one. So, Senate Bill 5925 is not one we had on our radar. Um, but I just was curious. I've I've read about it. I'm not sure what that actually does that impact cities at all. The idea like um the attorney general's office has additional civil investigation. They have more rights and things like that. I just feel like that was when it was in the news. Just wondering if you had any any kind of thoughts on that.

Yeah, I know of the bill is a pretty controversial bill because it modifies kind of expands the investigative powers of of the attorney general's office. I think it could be used to investigate both, you know, private entities and also local governments, but I wasn't that deep in it. So, I just I couldn't say definitively, but I I can get you more information on it. I I would love to hear more on that one. I just I read about it and I was trying to figure out how the implications it could affect businesses in the city, could affect the city. I just was Yeah, I'd love to hear feedback if you have a chance. Yeah. Okay. Thank you. Good. Okay. Council member Kenna.

Yeah. Carmen. Carmen Bill. Thank you. Um the questions going to back to the um the item about the millionaire's tax and the sales tax holidays and those types of things. Um I think my two questions would be on the items that it sounds like there was a carveout for. I think you mentioned diapers and wipes. I I was watching actually a little bit of the debate when that was going on. And so, um, I was curious if there's any type of analysis and what kind of impact, if this withstands any challenges, what type of impact that could have to, um, our revenues. And uh kind of the second off the back of that is I was curious how our um representatives um were in that conversation cuz when I was uh tuning in, I saw one half of the aisle that was advocating for all those uh dispensations in the bill and I didn't I wasn't paying attention to our specific legislators, but I know generally they've been very well spoken of in terms of fighting for us and our uh interests and priorities. So, um, yeah, just types of the analysis if we have any impact on that and then how they were speaking up for us.

Sure. Um, I my gut and I'll kind of look. I don't think we know yet because we get broad buckets coming in on the reports. We don't, you know, we don't get how much is spent on diapers or hygiene items at FredMyer. I'm not even sure anyone is even clear on exactly what a hygiene item is, what that's going to expand to or not. you know, shampoo, uh, you know, where would that go? Um, I do know that, you know, the the legislators that, uh, represent Sumar both in the 25th and the 31st are, um, are ours. So, they are in general lower taxes and in fact, you know, had advocated separate of the millionaire's tax for some sales tax holidays or some tax exemptions on things like diapers and hygiene items. Um I didn't track how, you know, I don't think that affected their um support. You know, I don't think that flipped them to a support for the millionaire's tax, but those um you know, compete uh not competing, those balancing items were did come actually from the our side of the table originally as ideas to help out taxpayers. Did I kind of summarize that either Jason or Bill? Did I get that? Okay.

Yeah, that's about right. I think I mean I've heard in passing that like the sales tax impacts on cities for the items that were made exempt from sales tax, assuming that that holds up, um would be in the neighborhood of about $300 million a year statewide. Uh but though that's just rough numbers right now, so that's still something that the legislature is going to have to figure out. And then on the kind of political dynamics, yeah, I mean it was uh it was the vote for the income tax was on partisan lines. Um it had I think 51 Democrats supported it. There were I think six or seven that voted no with all the Republicans. I think people are aware there was there was more than 24 hours of continuous debate on the House floor and you know numerous amendments right 70 80 amendments. Um the majority of those amendments were to try to limit the bill to add additional tax exemptions to reduce the size of it to I mean make many many changes to it. Very few of those passed. There were a few kind of clarifying amendments but it was pretty much right down partisan lines with I think seven Democrats not voting for it ultimately. And uh council member Ken, I'll just add that AWC's position on this as it got closer towards passage was how do we protect cities at this point? How do we ensure that any um revenue that the state is gaining that cities aren't left out of? Because obviously we are going to see some decrease in sales tax from those hygiene items. We're also going to see a decrease in sales tax from the services sales tax that they are rolling back. we'll probably also save some money ourselves because we have are subject to that sales tax. Um, but they did, the legislature did carve out some language that says that they will continue to evaluate that and work with cities to identify how some of that new

tax revenue can go back and uh backfill the city losses. Uh, but there's there's a lot of revenue that would have to be made up to make all the cities whole and what they'll be losing. Thank you. Anything else or moving on? Council member Malcolm. Yeah, just a a quick I guess if you could expound a bit on uh HB2442, the re flexibility. It seems a little broad to me. Can you tell me a bit more about what that might mean?

I will tell you I will start and then I'm going to have to pass it off because I know just enough on that one. Um, real estate excise tax is a tax that's collected um when you sell property. Um, and that comes a portion of that comes to the city. Uh, it used to be very limited what we could spend that on and it is still limited, but it's less limited. The details on those limitations are where I start to lose.

Yeah. My understanding of this bill is so there's two types of rate. There's re one and re two. Both parts come to the city and there's limitations on what you can use. rate $2 more versus rate one. And this bill helps bring that together and says if you can use it for one, you can also use it for two. Affordable housing was one of the main proponents of why they they did that, but it also just broadens the use of rate. Bill, am I missing anything else on that? Yeah. No, that's about right. Jason, it just combines the usage, doesn't expand it really. Correct. Okay. Thank you. That's what

All right. Uh the third one category uh go beyond thoughts and prayers. Um you hear this a lot when something um very tragic happens and so this was our trying to unify everyone around public safety. There are very differing ideas how we get there on public safety but everyone would like to feel safe. Um who here we go and I forgot to change the header on this one. I There we go. It's like, wait a minute. Um, there was a bill that would help us with public defense services. The the short version of this is in the judicial branch. A lawsuit required cities uh set the um defense services um rules. Is that the right word?

They set up new indigent defense standards which limits the number of cases a public defender can handle in an annual period. And uh it's an unfunded type uh mandate and it's also very difficult to achieve based on the number of criminal defense attorneys that are practicing in the state of Washington. So the cities were all asking for funds to help pay for that increased cost in public defense services and it did not pass. Thank you.

Yeah. uh chief had asked us to put on our agenda. Uh there was a last session introduced um a bill a bill about for uh supporting law force aviation and while we do not own a plane or any other kind of aviation other than a drone uh we do use the ones around us either from Pierce County or King County. Um so I to my knowledge that was never even considered never heard saw that one rise uh in the list of things being many many things being considered. Um the one that you likely heard about in the regular press um was the around the automated license plate readers um which is actually even the bill title was a bit of a misnomer and not completely understanding the systems including the one we have uh the flock cameras that because they can actually look for other characteristics and we have even solved uh drive by shooting during the session based on looking at a characteristic. Um, somehow the victim when being shot at did not get a license plate number, but did, you know, could give us the description of the vehicle. Um, it had numerous amendments, including allowing us to pull for descriptions, not just license plates, which was great. Um, it allows 21 days storage. It does fix uh what was becoming a huge issue and takes uh the the footage of this out of the public records. Um, so that was a huge win for cities. Um, so on the balance, there was a few more things we would have liked. Um, we would have liked them to define a little bit better. There's a reference to it. They can't be near schools or healthcare facilities or churches, and it's very vague on what that means. Uh, we would have preferred them to define it, but on the whole, it's a win that this passed. There was more that helped us use the flot camera system than hurt us. So, uh, you you saw this a lot in the media, so I wanted to be sure to clarify that on on the balance, um, this actually helps us. Um, one that kind of snuck through that

I honestly did not track a whole lot was, uh, addressing electric assisted bicycles and electric motorcycles. Um, this is one place where the law has not kept up with technology and we hear these complaints. Um, it it was quite a hot topic if you were at Sar University sitting in in the park session. um understandably because you have what's essentially a dirt bike or a motorcycle on a sidewalk or on a park pathway and you know as played out in summer university we had a gentleman say you know and when I call the police they do nothing well because they can't do anything because it's not against the law because the laws have not kept up with these technologies so a a officer cannot write a ticket for you know being doing something stupid and dangerous there has to be a law that was broken um So, it's a start. Uh 6110 kind of started that process. It by no means completed completely fixed the issue, but uh at least we are on the path on an electric motorcycle apparently. Um one that we did oppose would propose essentially the elimination of common traffic stops. Um it didn't outright eliminate it. This was a bill that was introduced last session. Um, I don't think it even popped back up this session, but it it so overburdened any traffic stop with paperwork that it would be difficult to continue pulling over traffic. Um, another bill that was proposed last year that we had on our agenda that we were worried about um would reduce the punishment for juveniles committing crime. Um, especially in a community like Sumner where we had two juveniles um shooting at people in the WCO parking lot. um we opposed this bill um and it was not considered this session. Um the one that did pass that did get a lot of attention and we worked on but it did pass uh but with some improvements um was called the step housing bill and that would require us to outright allow

transitional emergency housing in any zone including residential zones. Um the other thing that has us concerned is that it it treats um we have to treat that house not as a commercial space but as a residence a single family residence um which we provided some feedback we felt was not optimal for the safety of the people in that house. They are they are not a this you have people coming in and out. It's not quite the same as a single family living in that same house. Um it did pass. It did get some improvements with amendments. um uh that we are able to uh have services and I know I can rely on Bill to walk through the amendments just a little bit better. Um but that one did pass. Bill, that's a good segue to turn it over to you.

Yeah, I think the um a a bill like this has been around for I think this was the third year. Um and so it was one of the major bills that was pursued by the Washington Low-Income Housing Alliance and a lot of the low-income and and homelessness housing groups. Um, a few of the changes including include that implementation date to move it to back to 2028 or the next comp plan update, whichever is sooner. Um, and also, I think, language that makes it clear that there's not a not preferential treatment for step housing or transitional housing, but more kind of a non-discriminatory type policy. Meaning, if you're allowing housing, singular or multif family housing, you would have to regulate step housing in the same fashion. You could still have the same types of um size limits, height, things like that. You just couldn't have regulations that are discriminatory against STEP or other kind of special needs housing types.

Any questions on this section? All right. Uh those are our three sess sections from your legislative agenda. Just a little bit looking ahead as we said uh you know the the thing with the session is there's what's happens in the session and then you're also kind of building your next looking forward into the next session your future legislative agenda that I will be in front of you and about what seems to go really fast in a few months but it seems to go within a blink of an eye. We are back discussing the upcoming session. So, um, as Bill kind of talked about in the beginning, this brutal was a word used by some people. Um, this was a lot more than a typical short session. Um, it could have, as you saw, a lot of things. I didn't even, you know, I hit on the highlights there. For every bill you saw, there were probably 10 other bills that we were watching or tracking. Um, there were was a lot. Um, and is that a hint of things to come in 2027 when we're back into a long session? Um it's a it's a tough balance for cities because you know in some areas the state expanded revenue options for cities but then it put the burden on cities to take not the hit but you know the public raised taxes on people. Um, so that's a difficult place to be in because we do need revenue sources, but it's tough when you all are at the front lines and you're seeing this um not so much with something that passed this session, but with something that passed last session with the increasing um law enforcement. Uh, in order to get those state grants, a city has to pass a 0.1% um sales tax. And so you're seeing headlines saying more and more cities are raising sales tax. Well, they have to in order to access that promised funding in order to fund the muchneeded additional officers. Um, we already talked about the income

tax. I think we did that. Not not sure about the larger repercussions. Um, also again like I kind of highlighted when we were going through it, especially when it comes to the zoning, not really any clear direction. Wanting businesses and residential zones, wanting residents and business zones, they they seemed a little all over the map with the different bills. if you tried to look at them together, you couldn't see a direction. Um, and then the last thing is, we've talked about this um, year over year, it seems like the last at least three times I've been before you with the state legislature, which I know some of you are new, um, is just in general, if we can see any direction, it's the consolidating more power at the state level and more local, what used to be local decisions at the state level. Um, and what are the unexpected impacts to cities? Um, one I don't think we saw until this year is one of the places the state did to cut its own budget was at the auditor's office, but the city has to do a state audit and the city has to pay for the state audit and we have to pay whatever they say. So that cut at the state level actually ended up costing the city more money through our audit. So, it seems like as the years go on, we start to discover some unintended ways the state uh choices affected us that we didn't even catch during the um session. And to uh Deputy Mayor Elfer's point, that one about the attorney general's ability to investigate anyone, it did not carve out cities. So, not really sure what the intent is there or how it will impact us. Bill, anything on this or Jason before I move on? No, I would just say the thing that that stood out to me this session is that um that kind of fifth bullet about there's so many issues where there's policies moving in kind of conflicting directions, right? That's the same on like you know state tax policy and revenue both for the state but also for like economic development and what that plays like. Um housing and land use

there's conflicting policies, energy, there's conflicting policies. Um, so it's it's hard to like, you know, I mean, I think people think that, well, because we have kind of control of state government by one party that there's a wellthoughtout coherent policy agenda on all these different issues. And, you know, there's really not. They're different ideas in the House and Senate. There's different ideas in the in the governor's office. Um, so it's hard to hard to see exactly where some of these issues go, but, you know, soon enough we'll be we'll be back at it again. So,

all right. And then, yeah, just one last thing. Um, especially with that that theme of more and more what used to be local decisions happening at the state level, we did more this year um letting our residents, our businesses know um that things that they traditionally would come before you all to talk about, if they wanted to impact, they had to go to the state level. One thing I want to make clear is what we did is we were just very transparent with um the the testimony and the messages Mayor Bowman was sending in so that people would know what their city was saying. Um and when we were telling people they might want to get involved, inviting them to get involved, we also told them they could disagree with us. So we we were very careful not to tell them vote the same way you know the city does on this one, but get involved and make your voice heard even if you disagree with us. The the big point is we have already heard the sentence said from one of our residents, I I don't buy the city can't control this. I don't buy it went to the state. And that's exactly what it did. The decision went to the state. So just trying to get our residents to understand that whether they agree or disagree with us, if they have a passion for that topic, uh right or wrong, many of those topics now they have to play out in Olympia rather than in this room. That's all I have unless there's any other questions or comments from Jason or Bill.

Council member Alers. Well, I just want to say thank you for doing that. I really appreciated seeing those emails that I think that's a really important part going forward if we're going to have less authority. We're the people that people get that when the community comes in, they want to talk to us. And so I think for the city to make it clear that we are happy to be a conduit but we're much less able to make decisions that actually can help directly our constituents. Um so I really appreciate the communication. Thank you Carmen for that and thank you Mayor Bowman. Anyone else? City administrator. Okay. Bill, anything? Nothing for me. Thanks for everybody tonight. Okay. Thank you for being here. Carmen, you good? I'm good. Thank you so much.

All right. Thank you. Thank you. Okay. So, at this point, we're going to move to item two, which is fiscal year 2025 financial review. And I'd like to call on Chief Financial Officer Cassandra Raymond. Good evening everyone.

There we go. Good evening everyone. So I am here tonight to talk about our 2025 financial review. We'll be taking a look at all of our funds at a high level and then digging in a little bit deeper into our general fund. Um I'm going to try this clicker again. So this review that we come to council annually for is really part of our overall financial accountability plan. Uh that plan begins with our departments. We have ongoing reviews by our departmental man directors as well as our budget managers along with regular finance reviews. At our finance and personnel committee we bring monthly a report on the sales tax. The sales tax is the largest revenue source into the general fund and it's something that we track closely. I appreciated the comment um in the earlier presentation about you know what kind of impact are these legislative changes potentially going to have on our sales tax because it is a large source of revenue and it is the most volatile. Um and Miss Plameumber was correct. You know we we don't get data at that granular level to really kind of see what that impact is going to be. So I will be watching closely along with everyone else. Um we also at the finance and personnel committee bring detailed budget amendment reviews. Uh we bring a budget amendment quarterly to city council along with a midbenial amendment um at the end of the first year of the bienium. What we bring to council is really at a high level. It details the programmatic changes and a summary of the changes. Um my thanks for our finance and personnel committee because we go through it line by line. Um it's important for that transparency along with city staff, city council, and our committee. We are also we have oversight from the state auditor's office. Uh we are audited annually that's by RCW. We have three separate audits. We have a single I'm sorry we start with our financial audit which is auditing our financial statements to ensure that they are representing um a materially accurate picture on the date

of the statements. We also have a federal audit. We call that a single audit. That audit looks at all of our federal grants. It looks at our federal grant participation and it looks at each individual grant and it ensures that we are um adhering to the requirements of that particular grant. Every grant we have has its own set of requirements in a federal omnibus and we are audited against those set of testing criteria. We also have an accountability audit. That accountability audit looks at not only are we adhering to state policies, federal policies, are we adhering to our own policies and procedures. Um it's a varied list of what they're looking at for our most recent completed accountability audit topics included. Um annually they look at the open public meetings act. We'll look at uh public works procurement, look at, you know, the way that fleet is handled. Um it's a it's a variety of different items. Um and then I already touched on the budget. We adopt a banual budget. We adopt two years at a time, but we split that out into a individual year spending plan. So we're able to analyze each year individually. It gives us better management data. Um but we adopt at the bianial level. And then of course our um quarterly amendment and our midbanial budget amendment. And then we bring back a final budget amendment at the end of that two-year term. What I'll be focusing on tonight when we're talking about each of our individual funds is the fund balance. And that really is the excess of operating revenues over the operating expenses. Um a negative fund balance is a deficit. We are not permitted by our um by the state auditor's office to go into a deficit. If we have an account that goes into a deficit position, we are required to offset that uh generally by use of general fund dollars. We do have reserve requirements set by council

financial policies that were adopted some years ago. Currently, we require 8% of the general fund operating expenditures to be held as a reserve. Um, and then so that 8% reserve plus our unreserved fund balance equals what we'll refer to as our total fund balance. As we're looking um at our at all of our funds, I will say um decreases in fund balance in specific fund types are anticipated um capital funds, internal service funds, and we'll talk about that as we move through the slides, but those are normal to see um as we acrue balances for for specific projects or specific programs and then draw those down for our planned work plan. So starting in our general fund, we increased our general fund balance from 2024 to 2025 by about $2.2 million. Had about $100,000 in increased energy and communications tax. That is everything from Puget Sound Energy for electric and natural gas to our own water, sewer, and storm water utilities and uh telecommunication, refues, and uh cable television. Our sales tax was the bulk of our increase from 2024 to 2025. Uh we saw a slight increase in our non- construction related sales tax and then we saw about a $1.3 million increase in our construction related sales tax. And that ties directly back to the developments that we see in the pipeline from year to year. Those are always going to vary by timing. And that's why we really analyze those two different revenue streams separately. Looking at both non- construction, which is more recurrent, and construction, which is a onetime revenue. We look at our department expenditures. We ensure that they are staying within those budget amounts. And um our departments were within those budgeted amounts. We did have some transfers that were budgeted in the bianium uh that we initially planned to have in the first

year that have been deferred to the second year. Usually those are transfers meant to support capital projects and what we see is design activities happening in the first year of the bianium and then construction which were funding by transfers happening in the second year. Um I'll hold off on any questions for the general fund because I've got about six slides at the end that focus on the general fund. Can of course. Okay. Council member Alers, Deputy Mayor Alers, sorry. I just said clarifying question. So I just was going through the last slide before this. You said there's an 8% reserve. Can you just clarify what that 8% of what 8%?

So, it's 8% of the budgeted operating expenditures. So, it doesn't include capital in that. And really what that 8% is for is um any changes in cash flow, any changes in economic pressures or indicators. It's having that cushion to make sure that we can make meet our operating expenses. And that's in just the general fund or every fund. That is just in the general fund. We do have reserves in water, sewer, and storm water. Um water and sewer also have an eight have a 15% reserve and then storm water has an 8% reserve. So that's a 10. So 8% reserve of the budgeted the total budgeted annual capital expenses. Uh the operating expenses operating expenses of operating expenses. Okay. Not capital expenses.

Not capital. Do we have a reserve for capital at all? Uh the reserve for for capital is really just considered the fund balance. So in those funds that we are acrewing for later capital purchases. So that's going to be your utilities, your capital funds as well as uh some internal service funds. That's what the fund balances is designed to do. And when we see those on the financial statements, if it has been something that is being acred for capital purposes, you'll see that is uh committed. Okay. And how did we you said it was put in place? 8%. Is that just a is that an industry standard? Is it a just a

Yes, that's a really good question. I appreciate it. Um, it was an industry standard back when the council rules when the council financial policies were adopted. Um, that's something we'll be bringing back as part of this upcoming budget cycle to look at are these still the appropriate reserve levels or do we need to look at changing the reserve levels or do we want to change the reserves so that a certain portion of one-time revenues or other, you know, singular bumps get moved into a capital kind of a capital reserve. Okay, thank you for explaining. Stay tuned. That's going to be a good conversation.

Thank you. uh general fund reserves. This is our fund number 002. We didn't have any 2024 activity. This fund was developed, I want to say probably 15 to 16 years ago, and this was from some one-time revenues. This was set up as a rainy day fund. Carries about um $980,000 in it. In order to access that fund to appropriate any of the balance, it requires a city council supermajority. So, uh, we typically, so I've been here about 13 years and we have not accessed that fund. Our building reserve fund. This is funded by an annual transfer in from the general fund. It has a balance of about $450,000. What we have here is we transferred about $100,000 a year. Uh, that was put into place some years ago. that's part of our property tax receipts and that is to acrue for major building repairs or improvements. We've used um that fund for such things as roof replacement. We have some some support budgeted in that fund for um window window replacement here at city hall. U we've used that fund for local match for other facilities. Um we did see that fund balance increase. We didn't have any programs in 2025 for actuals, but we do have funding in that fund that is pledged to help offset um help support the window replacement here at city hall. Um our capital reserve fund, this is fund 004. This fund holds the reserve, holds the proceeds from the sale of the summer Meadows golf course. We did see the fund balance in this go down and that is as expected. um that is transfer of golf course proceeds to support the public works operations facility that supports the governmental portion of

that facility. Um and that was a budgeted appropriation for that support. As we move into our special revenue funds, um special revenue funds are those it's a very specific category of funds set out by the state auditor's office. These are funds that are supported by a restricted revenue that is not necessarily a user user fee. The first one we have is our complete streets fund. This is funded solely by Washington state transportation improvement board grants um called complete streets. That fund balance did go down. We expect to see that as we work through the work the work plan from that grant. Um our drug enforcement fund, there's really minimal activity. This fund used to have um a lot more activity about say about a decade ago um when there was more of a regional uh narcotics enforcement team. There's minimal activity. This fund is restricted for very specific uh public safety uses. Um it's generally used a little bit each year for either acquisition of um of body armor or ballistic ballistic armor or um some training. So, we did see that fund balance go down a little bit. It was a couple of thousand dollars and that was for some training and some uniforms. Uh tourism tax. This is supported by tourism revenues. This is the portion of the um elac revenues that comes into the city. We collected about 95% of our forecasted tourism revenues, but we had lower than forecasted expenses. Primarily that's going to be timing based. Um and as we see as we move through the second year of the bienium and those budgeted appropriations are are executed then we'll see that that fund balance adjust. Um the ARPA fund continues spend down of federal funds. This is the last year. So everything had to be obligated in prior years. Everything has to be spent by the end of

2026. We still have a little bit of funding left in that that's primarily targeted for uh cyber security and we will get that closed out. I'm not anticipating any clawback. It's it's important to me that we don't leave anything on the table. Our debt service funds are specifically just for that for debt service. Uh fund 200 is our overall debt service fund. The way the accounting works is you're going to see debt service for governmental activities here in this fund 200. Any debt service that is related to utilities, you're going to see in the utility funds. But here we have uh really two issues in fund 200. This supports the 2023 LTGO. It's a limited tax general obligation debt issue that we used to construct the new facility at the cemetery. This also has local improvement district number 78. That was to support improvements at 136 in Valentine. Uh that is our only active non-utility LI. An LI um just as a refresher happens when we have a very specific project that is going to benefit a specific set of property owners. The city issues the debt upfront. It completes the project and then the property owners that benefited are assessed by a proportionate share of that debt over a period usually of 10 years. So um 136 and Valentine has a couple of years left on it. And then our LI guarantee fund. This is fund 221. This doesn't have any programmed or actual activity and it won't. This is a statutoily required fund. We have to keep in 10% of all outstanding um local improvement district or conduit debt. We have to keep that as a reserve. We don't get to touch it until that debt is is paid off. And that really is to protect the bond holders um in case any of the property

owners were to default on their assessments. So we are um on an annual basis we come to finance and personnel committee with a report on our active LIDs. We have two one is governmental, one is utility based. Um for those that aren't in that committee we have on those two active LIS we don't have any delinquencies. Um everything is paid as scheduled. Um both of those are primarily in a um commercial area and so they've just been going along like clockwork. When we get into our capital funds, here's where we'll see a mix. We will see in some cases the fund balance will increase. That's usually because of either transfers in from the general fund or grant revenues. In a lot of cases, we will see the fund balances begin to decrease. And these are the ones where that is expected. That's happening when we are acrewing funds either by transfers, grants, or other supports. And then we are executing that that capital work plan. In the sidewalk capital fund projects include our our ADA compliance, our volunteer sidewalk program, Elm Street sidewalks, um sound transit sidewalks, the Rivergrove pedestrian bridge, and that funding is supported by grants as well as general fund support in the way of transfers out. Our REAT fund, which we talked about earlier, we collected about 97% of our forecast. That's a hard one to forecast. It is 100% dependent on real estate activity. Um there is absolutely nothing that we can do besides just being a fabulous city that is going to control how real estate transactions happen. Um so that activity is dependent and then we program out transfers from REIT to support capital projects through the budget process. Um and Miss Palmer got it exactly right ear or Mr. Wilson got exactly right earlier. Uh the new legislative changes for REIT one and REIT two are now just REIT. So,

parks capital, some really exciting projects. We did see our fund balance go down as we completed some of these um progress milestones. Those projects include Heritage Park, a Frier Avenue Trail, which is exciting to see. That project has been going on I think as long as I've been here. Um Hobs Alley and Reineer View Park. That funding includes grants as well as local funds, which is our REAT funding. Um, refunding supports capital projects such as parks development, parks acquisition, as well as streets and facility capital. And then on our street capital fund, uh, Steuart Road Bridge, big one, uh, the very tail end of some final cost for State Rail 410 and 166, that was primarily landscaping as well as the final portions of Wooden Maine. Um, and then some preliminary work on Washington Street as well as academy bike lanes. uh funding in our street capital fund includes state and federal grants, impact fees, and other contributions. And so we're always going to see those funding coming in and then going right back out as we complete those capital projects.

Can you take a question? Of course. Council member Evers. Thank you, Cassandra. I'm just curious, um going back to those funds, uh the new sales tax, is it 0.1% from last year? Is that involved in this or not? It will be. It's not quite yet. Uh so so we are looking at 2025 um the transportation benefit district which will be the recipient of that additional 0.1% sales tax begin January 1st of this year. Okay. So we will see that um in subsequent reports. Um it's very happy to see in January we got our first $814 for TVD. So all right it all in one place.

Well you know in the past you take your first dollar that you received and you frame it put on the wall. You know this is just a transfer in from from the state treasure. So, I can't do that, but I was still excited. Thank you. So,

uh facilities, capital funds, this is our final uh capital fund. Uh project expenditures include the operations facility. That's our big one that's supported by both uh proceeds from the sale of the Summer Meadows Golf Course for the governmental portion as well as issued revenue debt for the water, sewer, and storm portions. uh city hall solar panels that was grant supported and we are already seeing good good return on that um and then some mill work in the lobby. So, we get into our utility funds, uh, water, sewer, and storm. On all of these, our water revenues were consistent with our forecast question. Of course,

council member, Deputy Mayor Elers, you're moving to utility fund. So, I had to ask a question on the general fund just because I was just I got stuck on that fund 002, the general reserve. What I heard you say was it doesn't really have any like it's not specifically for a project. It's a onetime thing. It's got 980,000 in it. It's not like we're not putting money into it every year to reserve for anything specific to so that one. Do you have any thoughts on that? Like that. Do you think that's a good fund? Is something that could be thought out again? Can you give me a little more? That's an interesting one. I didn't didn't quite know what to like. I like the reserves. It's nice. This feels like it's having like a bunch of money under the mattress without any real

and that and that's kind of what this one is. So, in general, our financial policies encourage and recommend that we spend onetime revenues on onetime expenditures. We never want to want to get in a position where we're taking a one-time revenue and we're programming it in for expenditures that are going to be recurring because as that onetime revenue is exhausted, then you're you're left funding it with some other method. Um, this fund was put into place. It predates me. I believe it was I believe it was additional development revenues um that at that point council looked and said we're going to take these and we're going to put these over into a reserve fund. We're going to keep it as a rainy day fund but we're going to restrict it. And so it's not designated for anything in particular, but we're going to make it so that in order to access it, to program it out through budget, it's going to require a supermajority of city council because we want to be sure that we're spending it on something that, you know, is is something that one time that that it's important for us to do. We don't we haven't added to it. Um I think that's going to be part of the conversation coming up into this budget is what do we want to do with that fund and do we want to start adding to it? Do we want to start taking some of the fund balance from the general fund which has been acrewing over the years because of you know increased collections of construction related sales tax? Do we want to take some of that and do we want to move it into this fund or do we want to change the requirements? What do we want to do with it? And that's really going to be a policy decision, but it's one that we have queued up to talk about in this budget cycle.

Good. Thank you. Sure. Council member Evers.

Yes. I was curious. Um, I was planning on emailing email emailing you and having a half an hour of your time, but maybe now I only need 15 minutes so far. So, you've got 15 minutes off me begging you. But I'm just curious about um when I did this before, I worked with somebody that was related to somebody on the council now, but he he made a very very good point because you're always looking at sales tax and this person kind of warned us or me that, you know, we were getting a lot of construction related sales tax 20 years ago. Is that um I don't know if it's as much as it was maybe back then, but I mean is that something that you always kind of have to keep an eye because that's a one time

Yes. thing 100%. And hold that thought. I've got a slide coming up that'll show the history of the construction sales tax. I'm usually like one step ahead of not not intentionally, but thanks. Sure.

Okay. Utility funds. Uh water, sewer, and storm. all of our revenues were consistent with with our forecast and that's to be expected. You know, we we keep current on reviewing and adopting a rate model. Um and so we want to see those those revenues that are that are consistent with those rate models. Um the rate models as they're built, they're not only providing for operational costs, but they are also providing um funds to be acrewed for capital work. And so we expect to see in some of those funds that fund balance go down as again as we complete that capital work. Um in the water fund we worked on the west well as well as Alder Concaid Stewart road bridge and the water manes often our street projects especially our large ones. We're going to see those in the street fund but we're also going to see components of those in the utilities because it just doesn't make any sense to put in a big street project and not update your utilities while you've already got everything dug up. So that's what public works keeps telling me in our sewer fund projects include both collection and treatment. And so that's important. And one of the things that's unique about the way our fund structure is for that treatment is when we have capital projects that impact our wastewater treatment facility. We have financial participation from the city of Bonnie Lake under the interlocal agreement we have executed. uh they have a portion of um they have an ownership interest in a portion of the flow and the portion of the treatment capacity and they also not only have that ownership interest in the portion of the capacity but they participate in the funding for both the operational cost as well as the capital costs out of the treatment facility. The utility bond reserve fund. Uh this is fund 403. It's got about $1.7 million in it. This is from a prior bond issue where the bond covenant required us to hold a certain position back as a reserve and just in case the city ever

defaulted on the debt service on the bond payments and of course the city doesn't default there wasn't a default that bond has been matured for a while. We have kept that fund um kind of there just in case we needed to establish a new reserve for our water sewer debt uh that we issued for the operations facility and the one we have upcoming for the bioolids modernization project. It's looking like we will not need to hold that reserve. Um and frankly the auditor's office doesn't like seeing this. They want us to take that fund take that fund balance and split it back out to the water sewer and storm account. So, in our next one, you'll probably see this fund go away um as it's no longer needed and we'll just take those funds and allocate them back out to the utility funds. Um in storm water, again, re revenues consistent with forecast and the big projects were the White River restoration and then of course the decamp facility were the primary projects in 2025. Not to say there weren't a lot of other smaller projects, but those really took up the line share of the funding. So those enterprise funds are our proprietary funds. Um enterprise funds are those that are generally treated more of a business. They're funded with user fees. And so besides just water, sewer, and storm, we also have our cemetery funds. We have an operating fund, which is 410, as well as our development fund, which is 415. Um, our operating fund is annually going to be subsidized by the general fund. Um, but in 2025, our our revenue for our actual revenue met or exceeded our forecasted revenue, which is great. And so, we actually saw a little bit of an increase in the fund balance. It does not negate the need for that general fund subsidy. Uh, we subsidized between 200 and $215,000 on an annual basis. um and that's necessary to really meet the functions of that

cemetery operating fund. We also have a development fund. Uh 10% of all lot sales get uh deferred into our development fund and that's just for what it sounds like. It's capital development out the cemetery. In 2025, we completed our cemetery irrigation project. We actually saw that um referenced in our last budget amendment. Now that we have the irrigation automated, we no longer need one of the seasonal positions that were budgeted for 2025 and so we were able to reduce that. Uh the final enterprise fund that we have in this 400 series is Metroan Animal Services. The fund balance increased a little bit, not very much. This fund operates with a razor thin margin. It always has and it will continue to do so. Um in 2025 we saw some decreased revenues because staffing shortages resulted in less open hours. Um when that happens though we also see that decrease in the labor cost and so there's a little bit of an offset there. We also participated in mold remediation um in the beginning of 2025. Of course, the shelter was shut down for an extended period of time um due to an incursion of mold that was found in the building. And under the interlocal agreement, city of Puallup actually owns that building, but we do have a fiscal responsibility to share in those uh remediation costs. And that was about $35,000. We then move into our internal service funds. Internal service funds are those that are also treated like a business, but the user charges that support them are not external customers, they're internal customers. So, we take the budgets for these internal service funds and we run it through a rate model and it depends on what the fund purpose is

on how how it's allocated out, but it's allocated out as assessments to the user funds, the general fund, um, water, sewer, storm, and uh, metro and cemetery. So the unemployment insurance fund uh we're always going to see that fund balance decrease and it should u this fund should never carry a fund balance. We are self-insured for unemployment. Claims are processed upon receipt. Uh so we get a bill from the employment security department. If we have someone who is claimed for and is eligible for unemployment, we pay that bill and then we assess it back out to the department that that employee was initially charged to. Uh fleet operations. This handles all of the maintenance and operations for our rolling stock as well as our heavy equipment and a lot of our light equipment. It's supported by user funds. It's based on a rate model for fleet costs. It's weighted by the type of equipment that is being maintained. Um the fund balance went down. We have increased supply costs and we have increased fuel costs and we are going to see that through 2026. um you know the the same things that are affecting each of us individually at the pump are affecting our fleet operations fund as well. And so we are going to see that hit come through as well. Information services, this is our um this is all of our information technology. I don't have the numbers off the top of my head. I meant to look that up. But the number of software packages that we are supporting increases every single year. Um the more and more technology is available, the more and more technology that we take advantage of to make things more efficient for not only our staff but our constituencies. Um that is relating resulting in increased information technology costs. We are also seeing increased demands on our IT staff um for cyber security. You know we are we're a target um we see it

on a daily basis in banking. we see on a daily basis in attempts to uh fish staff. So cyber security is an ever evolving and ever growing um demand on our IT department and again all the all of their operating and capital costs are supported by the user funds. We base that on equipment as well as FTEES in a weighted rate model. And then finally we have our fleet replacement fund. Uh we acrew funds for each piece of rolling stock or heavy equipment that is scheduled to be replaced. Um in 2025 we ordered 10 vehicles we received 10 vehicles. That's huge. Um in the past like decade since I think even before co a little bit we were seeing lead times even for patrol cars you know for 14 to 16 months. Um, so the fact that we ordered 10 and we received 10 is awesome. We did receive one vehicle from a 2025, I'm sorry, 2024 order that was an animal control truck and then we ordered another animal control truck in 2025 that we haven't received yet. So, we're always going to see kind of some timing changes in how that fund balance is used. Uh, fiduciary funds, these are kind of the um the these are the workh horses. These fiduciary funds are funds that we act in a fiduciary basis. We act as a trust. Um these are generally not available for co-mingling into any operating funds. Cemetery endowment. Uh again per our code 10% of all lot sales are dedicated to perpetual care. Uh the principal cannot be used. Only the interest can be transferred to support cemetery operations. The interest is relatively minor. So we just leave it in a perpetual care fund. Developer impact fees. Um we collect impact fees for streets, parks, fire. Um all those are collected into this fund. We don't forecast revenues into this

fund mostly because they're development driven. It's more it's a little bit more difficult to forecast. These are appropriated as needed to support specific projects and that's done through the budget process or the whether it's adoption or the amendments. Firefighters pension. Uh we do have many of you may remember we had our own fire department before we annexed to the fire district and so we still have some participants uh in firefighters pension. This is funded through a state shared revenue as well as a general fund subsidy. We continue to see that fund balance go down. Uh we have a little bit of a fund balance but primarily the state shared revenue is not sufficient to cover the costs and so that's where we see the subsidy coming in from the general fund. At some point, this fund will be retired, but we do still have active participants. And then finally, the employee trust fund. Um, we're not going to see much in here. This accounts for dependent care assistance. So, we have a program where our employees can elect to have deductions withdrawn from their pay um for dependent care assistance programs, which is child care, and then as it's withdrawn, they can submit a claim and receive that back. We're always going to see um this this fund balance kind of vary. It's either going to go up or down depending on the timing of when those employees are uh requesting reimbursement of those funds. Any questions on anything non-general before we dive a little bit deeper into the general fund? Okay, so the general fund is our main operating fund. Think of the general fund as this includes everything that not required to be accounted for elsewhere. Just at a glance, um our revenues versus expenditures, our property tax, development and building revenues, charges for goods and services, and

other revenues and expenditures are all within our projections or a revised budget. As I mentioned earlier, our sales tax revenue was above our projections. That's primarily uh due to construction related sales tax and I've got a slide on that as we move forward. And then energy and communications tax revenue again we were about a hundred a little over $100,000 above our projections on that one. When we look at our revenues versus the expenditures uh so looking at our bienial budget we received about 51% of our revised revenues. We expended about 45% of our revised expenditures. And when I say revised, that's our adopted budget plus any amendments that have already been adopted by city council. And so what we're seeing is we're right on track with our revenues. When we adopt a banial budget, again, we adopt programmatically year one and year two, but our department directors and our budget managers have the ability to spend those appropriations at any point within the bienial period. And so we may see some expenditures that are, you know, kind of frontloaded in the first year. A lot of them are are held until the second year. And that's really just kind of being fiscally conservative. It's making sure that there's enough um expenditures to carry through that second year. Sales tax, uh it's 36% of our general fund revenue. It is the largest, but it's the most volatile really coming into our general fund. is the one that is most susceptible to economic and inflationary pressures. Um, as we mentioned earlier, this is destinationbased. Um, so the sales tax is charged based on where the um where the goods are delivered or purchased. Again, subject to inflation and economic pressure. Uh 2025 increased our over the projections uh primarily in construction related activity. Kind of have a breakdown over here on how our sales tax and this is our current one. So, this

does include the the uh 0.1% for the transportation benefit district. Um, see, on a $10 purchase, the total is $10.96 cents of that sales tax, the city receives a dime. I'm sorry. Can we go back one chart, one more? Uh, council deputy mayor Elpers, is this the right one?

Yeah, I just was curious. on the um 2526 budget revised I'm seeing that you know from the from the current year so 2025 the half half the budget cycle we're we're 23 in revenues and 21 and a half in expenditures so we're doing good but then in the revised overall we're three $2 and half million dollars short um do you have any it looks like it looks like our expenditures are 48 million and our uh revised revenues are 45 so I'm just looking at that where where's that what's happened with that $2.5 million that we're looking like our expenses are higher than our revenues. Yep. So, we had some onetime transfers out that were um programmed in and those will end up coming out of the fund balance. So, two and a half million is coming out of fund balance. Okay.

And I can follow up with you on a breakdown of that. That'd be I would like that. Yes. Thank you. Um happy to bring that to finance and personnel committee if that works for you. Okay. Thank you.

Sure. There we go. Let's see if it stays here. So, looking at 2025, uh, as we look at our sales tax remitts, this is a breakdown of who is remitting sales tax in within the city. Retail and trade picks up about 53% of that. Um, construction for 2025 was about 23%. You can see manufacturing and warehousing is small. It's 2% and that really relates back to destinationbased sales tax. Um, you know, our manufacturing and industrial center, it's producing things, but it's producing things to send out. It's not bringing things bringing sales in. Um when the switch was made to destination based sales taxing, you know, over a decade ago, um we did have that sales tax mitigation that was alluded to earlier in the legislative update. Um that phased out, I believe, about two years ago. Um so manufacturing and warehousing really the value that they bring to Sumner is in the property taxes, not necessarily the sales tax. Uh food and accommodation picks up about 4% and then 18% other. other is going to be everything from professional services. Um there's a lot of things in there. We've got about 400 plus individual remitters on a monthly basis. Um and so we are reviewing those yeah monthly. Um our non- construction looking at our budget to actual our non-construction came in right at our forecast about 7% up. Our construction related came in at about 150% over our forecast. So overall, our actuals were about 17%. But council member Evers, as we look back, and this looks back to 2019. I've got

data going back to 2008, but it may the graph gets a little bit messy, but we can see that that constructionbased sales tax is really going to be dependent on what's in the development pipeline. Um, some years it's going to be more, some years it's going to be a lot less. One of the things we're always looking at is how much more buildable land do we have because that's really going to be the limiting factor and it's why we consider the construction related sales tax to be one one time. We've got a fair amount that was in the pipeline last year and this year as we're looking at our multifamily and some of the redevelopment, but redevelopment is where we're going to start seeing as those buildable lands decrease, we're going to start seeing that construction weighted in the redevelopment. We also see construction sales tax on um on our own developments. So the public works operations facility um White River Restoration, we see it on the developments, not our project, but um on the development of the Sun Meadows Golf Course into its new purpose. So as we see those things, but last year and this year we've got some big developments. Um we'll see those decrease. Council member Kenna. Hey,

Cassandra. Is this graph adjusted for inflation? Because it it does seem like there's a a market trend, but I I also know costs have exploded uh on a lot of things over this timeline. So, is that a part of this as well? It is not. That's a good question. Thank you. These are just simply just straight actuals. Okay. Thank you.

Okay. And then we move into property tax. uh property tax. We had an assessed valuation of about $5.6 billion for 2025. Um we levied a little over $5 million in property tax. 4.36 of that came directly into the general fund. Another 350,000 of that was dedicated to the city council strategic reserve. And then another 330,000 of that was dedicated to streets for operations and capital. We use that and we use almost every penny of that every year. We leverage that for for grant opportunities for our streets. Um again, total amount levied a little over 5 million. We collected 5.022. So there was a bit that was uncollected, but we do consider property tax to be 100% collectible. It is a primary lean on the on the property through Pierce County. Um so we'll see that come in in 2025. I like this graph. Um, even though we consider the amount 100% collectible, I think this graph does a really good job of showing the cash flow of the property tax because it's collected really in two big tanches at the at Pierce County and then those are distributed back out to the city after after the Pierce County collections.

Council member Malcolm. Um, yeah. Uh, thank you. I'm just curious on this full property tax calculation. How much of that is residential versus other? I mean, if you were to divide that, you know,

so um and I can certainly follow up with some with some kind of more broken out numbers. We have assessed valuation which then leads into the calculation for the for the levy. And we can break that out by single family resident. That's usually what we use is the average taxable value of a of an of a single family residence. But we also have those assessed valuations for commercial, for multifamily, for mobile home park. And I can certainly I can follow up with those. Um, very broadly, our MIC picks up a little over half of the assessed valuation and therefore um the overall property tax levy and then the rest is kind of the residential area. And then that residential further breaks down into single family, multif family and and mobile.

It's about half and half. Mhm. But they're also So, okay. And we're only seeing 2% sales tax from that end of town. The rest of it comes from this from the residential side of town. Yes. Thank you. Sure.

Uh Summer property tax. This is um a graphic that I think is great because it really illustrates out um you know the property tax is about 22% of the general fund revenue um for just Sumar's portion. And you can see we are that kind of aqua color of the overall property tax levy. Uh we receive about 7.7% of that. The remainder is made up from the schools uh fire the state as well as some smaller junior taxing jurisdictions, the port of Tacoma, uh flood control zone, the library um and then the library capital bond. We will see this come before council in uh September. will be coming to you for our levy consideration for tax year 2027. Uh even though we we adopt a banual budget, the property tax levy is an annual exercise and has to be adopted annually. One of the other revenue streams into our general fund that is uh significant is our building permit revenues. Um in 2025 we received about 81% of our adopted revenues. That's just the general fund portion. So that's not the SDC's and that's not um portions that go to the utilities. So that is our building permits, our plumbing permits, and our mechanical permits. On this graph, you'll see we had a lot of permits come in uh through the pipeline in 2024. We knew that that was going to be a lot because 2023 had a lot that was just kind of sitting as pending. So we expected to see them in 2024. We then dropped the budget in 2025. As we develop that budget, we're working with dev services to kind of gauge what's there. 2025 actually came in a little bit under what we had forecast, but we expect to see by the end of the bienium, we expect to see that um kind of making up that that offset development review revenues. And I

actually should have switched these slides because the development review revenues happen before the building permits. And we can see in 2025 we received about 111% of our adopted revenues. So this is zoning and subdivision fees, plan check fees, and land use uh review fees. And again, same format. 2023 was a little bit lower. We saw things come in to the pipeline in 2024. We knew that that was kind of like a lot of the things. So we dropped the budget for 25. We came a little bit higher in those development review for 25. And so that's why we expect to see in 26 kind of those come forth into the building permits. And so we'll expect to see those building permits kind of make up that that shortfall that they had in 2025. General fund expenditures I mentioned before 2025 is the first year of the banial budget and our department directors and budget managers have the latitude to use that bianial appropriation at any point within that first or second year. That being said, we still are monitoring the budgets. You know, if we're looking at a departmental budget and they're over 50% at the end of the first bienium, especially if they're really high, then we're going to go back and we want to take a look and we understand why that is. Um, non-EP departmental was about 190% of the overall budget. We had some furniture costs and we had some additional membership costs. That will work itself out by the end of the bienium. But it's important that when we see those kind of variances in the expenditures for the departments that we know why it happened and we know what the trend is going to be through the remaining um through the second year of that bienium.

Can you take a question? Sure. Deputy Mayor Alers.

Yeah. I'm just curious on the um the sales tax a couple slides back on the sales tax with the um the construction and all that stuff. I was just uh one of the things I was wondering is something when we do the budget cycle. I think I would looking at the projects Summoner's doing in the sales taxes. I just feel like we're probably almost the number one developer with like the White River restoration project, the operations facility, some of the sewer plant stuff. So, I'm just curious, is there a way to go back and see that? Because I think some ways we could basically predict sales tax a lot more reasonably if we're if we look at like, hey, we got 30 million to spend on the White River restoration project this year. We have these projects. So I to me I'm just curious if that's a is a big ask if that was something because I was that would be something we would very much like some of the sales tax you can't predict the developers are they going to build apartments are they going to do this but pretty much the city's programmed projects that were already they're three-year projects it seems like we can predict that so I'm just as far as sales taxes being very volatile clearly it is but if we're planning to spend it we've already got it approved it pretty much is guaranteed money unless the uh contractor doesn't remit it but um I'm just curious is that something that we could look at a little bit or is that I don't I don't know how big of an ask that is, but I would love to to know how that looks.

Let's let's definitely have some conversations about that. I think it's a big ask because I think that there's a lot of data that we need to winnow through to do that and um you know there's just some capacity issues. That being said, the data is there. Um you know, we've we've got the contracts that have been adopted. We know what the sales tax rate we can back into that at to to some extent. You're right about the developers to go back in history and say, you know, of of that of that plum colored line, you know, this much was city projects. I think that's that's the big ask part of it. Okay. So, maybe just forward it. Yeah. Okay. Yeah. But let's definitely have that conversation as we get into the budget because I think it's good information to have.

I want to ask him a question. What would you do with that information? Well, I'd say that portion of the sales tax is fairly predictable and then you're only what it does is it shrinks the amount of risk you're taking because you have you have a certain percentage of sales tax if it's like so that number you have there is 2.3 2.23 million of sales tax in 2025 was the actual collected I would say 1.2 two million just just thrown from shooting from the hip is from sum projects with the projects we did last year and maybe that's off by whatever but so then all of a sudden you're really predicting like we're making an estimate on the budget going forward and saying we're not sure if developers are going to contribute a million dollars of sales tax revenue or 500,000 which means that your predictability is significantly higher y

because your your sum projects are very predictable so I think it would help us on the budget cycle how much uh risk we feel like we're taking with sales tax I think that's fair

thank So then finally uh our general fund financial model. This is something we'll be talking about in depth during our budget cycle. Uh this is a model that we keep maintained for our general fund. And what we're looking at is when do our operating revenues start to not be able to support our operating expenditures? And what you'll hear often is when do those lines cross? Um right now what we're looking at is by the end of the 2728 bianium we start to see those lines cross. We start to see kind of a structural imbalance where we are restricted to the amount we can increase property tax. We are again you know continuing to develop on buildable land. So, you know, there's some forecasting with the sales tax and yet our operating expenditures continue to increase, you know, at least the the the rate of inflation and in some cases like we're seeing right now with fuel supply at at kind of an accelerated rate. And so, our revenues cannot keep up right now with our operating expenditures. And so we are always keeping this model refined so that we know when that's coming because really the time to have those conversations isn't at the end of the 202728 bienium but it's this banium right as as we start to come into it. So we'll be really delving into this as part of the budget process. Um but I you know just kind of wanted to give that introduction to the general fund financial model. With that I believe that is all of my slides. I'm happy to answer any questions. questions.

Council member Hawksteader. Yeah, thank you, Cassandra. I I want to say thank you. I don't get the pleasure of sitting on your committee, so I know it's the best committee uh from what I hear. Thank you. So, to get to get these thorough explanations is is just great. Um, I really appreciate your rule on the one-time uh grants or funds on the onetime um expenditure or the item that we have. We've seen some neighboring cities getting some budget crisises where COVID money came in, big plans happen, and now we got some problems. So, what a wonderful rule that is. Um, and I just appreciate overall it just seems we're pretty fiscally conservative and smart about these things, you know, and so I just want to say thank you.

Thank you very much. that that comes down to council policy decisions. So, my thanks goes to you guys. Questions? Okay, Council Member Ranky. Uh, just real quick, I don't think it's Cassandra, maybe Jason or even maybe Ryan. Um, on the fuel stuff, have we talked about doing anything to change the way we're doing stuff with uh consumption to try to save money? This has happened before in the past. I know. I know in the fire service we did a lot of stuff where we did try to use least amount of fuel as possible but have we looked at anything like that or started to or are we going to think about that in the future?

No, that's a great point. We have um definitely been doing things over the years by switching to hybrid vehicles, electric vehicles. Um that being said, I think we could always look at ways to, you know, not allow vehicles to idle. Um and that's something that, you know, I'm sure Mr. Johnson be happy to talk to his staff about doing. But yeah, it point well taken and um we are doing the best we can with with the technology at our our disposal. Council member Evers,

I guess the the the graph I don't want to be on the jumbotron. Um on on the the graph that shows us, you know, the line is crossing or whatever. I mean, is there anything I mean, in I guess we'll probably see it in the budget, right? But there's is there anything that that this makes you nervous uh as far as that line going up or anything that you think we might have to do? I'm putting you on the spot. I know. I'm just kind of I'm I'm retired now, so I kind of have CNBC on all day long in the background, and I just I'm a little nervous about the economy maybe going forward this year. And um so

I think there is so much volatility right now in the economic pressures that are facing all of us that I think that um we're going to have some some conversations because really when you're looking at when those lines cross, you have a couple of different options. You can reduce your expenditures or you can increase your revenues.

And and how do you do that? Um there's some tools in our toolbox that we'll be bringing forth to the budget workshop and through the budget on what are some possibilities for increasing those revenues. Um, we've been for years looking at ways to make our operations more efficient. You know, whether that's been outsourcing some things or changing how we do things. Um, we've kind of picked all the lowhanging fruit for reducing expenditures. So, now it's how do you cover your essential services and your expanded value added services with the revenues that you have or how do you grow the pie? Um, I will say it it all makes me nervous still.

Council member Malcolm.

Um, thank you, Cassandra. It was a really good uh presentation. Um, not necessarily a question, but just a I guess it is a question. It's an ask. I'm really looking forward to to learning more about u what I perceive as an imbalance between our MIC and the residential portion of town. It feels like a lot of the weight at least on the ongoing annual stuff. I know at the permit level, some of the fee level that those are like onetime fees or where they construct and build that they do have a big impact, but the annual property tax and sales tax feels kind of sure you've got all sorts of information on why it is, but it just feels out of balance to me. I'd love to learn more about that. I'm looking forward to more conversation around that. Good. Me, too.

Anyone else? All right. Thank you very much. All right. Thank you. Yeah. Thank you. Thank you. Okay. So, I'd like to call on city administrator Jason Wilson for the city administrator report. Thank you, mayor. Just two items for tonight. Uh, first off, reminder, we have a fifth Monday this month. So, next week we do not have a meeting. So, enjoy your your evening off. And then, uh, following up on um the following Saturday on April 3rd, we do have the daffodil parade. Um, check your email. She Atlanta Hoover sent you an email that goes over all the specifics of how you can participate in the daffodil parade where council member will pick you up and drop you off in what time? April 4th, correct?

April 4th, I'm sorry, is the Saturday the 4th. But all right, that's it. Okay. Council meeting agenda calendar. Nothing. That's really uh your your council members if they have anything that they need to change. No changes. All right. And then the council committee meeting agenda calendar are all good. All right. Good. All right. No executive session tonight, so we're going to adjourn at 7:46 p.m.