Tumwater sees volatile sales-tax months; consultant warns of $13M "shadow deficit" without priority changes

Tumwater's finance director and an outside consultant presented the city's quarterly financial update and a 10-year baseline fiscal assessment, showing short-term revenue volatility and longer-term structural pressure on general-government operations.

Troy Niemeyer told the council August produced "an outstanding month for sales tax collection," with approximately $1,082,000 collected in August — the highest August total in three years in the data shown — and year-to-date collections about $121,000 (roughly 1.8%) higher than the prior year. Niemeyer cautioned that sales tax is volatile month to month and that earlier months in 2025 had been weaker, leaving the year-to-date total slightly behind budget through July until August helped close the gap.

Niemeyer's quarterly update also noted other revenue and expenditure items: public-safety sales tax (a voter-approved county measure that began collections in mid‑2024) had a solid August; business-and-occupation tax (B&O) revenue was ahead of prior-year expectations overall; building-permit revenue had already exceeded the year's budgeted total through August; and general-fund expenditures across departments were about 10% below expected levels for this point in the year, providing a cushion if revenues remain weak. He also said enterprise fund reporting can be skewed by big capital projects that have not yet incurred expenses or received reimbursements; for example, major water capital projects were shown as low in the report because billing and construction had not yet started.

On the economy, Niemeyer noted GDP's rebound in the second quarter (revised to +3%) after a first-quarter contraction, but he flagged labor-market risk: initial jobless claims for August were the highest in three years and the unemployment rate had ticked up. He also reported inflation at about 2.9% overall and 3.1% core (excluding food and energy), and that recent tariff court developments were adding uncertainty.

The council then heard a baseline 10-year financial model from Morgan Shook of Eagle Northwest, built as a tool to test scenarios for the city's general-government funds. Shook said the model separates payroll-driven costs (police and fire dominate) from nonlabor costs (transportation and infrastructure), and projects three levels of service demand (core, existing commitments, enhanced services). Using the city's current budget assumptions and departmental submissions, Shook presented a cumulative structural gap — a "shadow deficit" — between the city's current budget and the estimated cost of delivering core and additional services.

Shook described the shadow deficit as approximately $13 million when comparing the 2025 budget to the identified core needs and existing commitments. He cautioned that figure is cumulative, has grown over multiple economic cycles and is sensitive to local revenue growth, notably sales tax, which can expand in good years and contract in downturns. "This helps you understand the relationship between decisions and the cost structure relative to what's happening in the economy and your ability to raise taxes off of that," Shook said.

Council members asked for the model file and a work session to run scenarios. Shook and staff said they could share a working version of the model and design scenario runs that show the budgetary impacts of staff additions, different wage agreements, or revenue options. Staff said the model will be useful as the council finalizes strategic-plan priorities and begins early budget work for the 2027–28 biennium.

Clarifying details from presentations and Q&A: August sales tax approximately $1,082,000; year-to-date sales tax about $121,000 (1.8%) above last year; general fund expenditures about 10% below expected through August; the model shows a cumulative funding gap on the order of $13 million (presenter described this figure as a longer-term cumulative difference between current budgets and the identified service needs); building-permit revenue has already exceeded the year's budgeted amount; single-audit work for the city's federal funds is underway and budgeted at about $80,000.

No formal council action was taken on the 10-year model itself. Council members asked staff and consultants for: the model workbook for hands-on scenario testing, a possible council work session to run scenarios, and follow-up reports tying the model to specific budget options for the next biennium.

Speakers: [{"name":"Troy Niemeyer","role_title":"Finance Director","affiliation_type":"government","affiliation_name":"City of Tumwater","first_reference":{"timecode":"01:09:00","transcript_line_range":[4140,4144]}},{"name":"Morgan Shook","role_title":"Consultant","affiliation_type":"business","affiliation_name":"Eagle Northwest","first_reference":{"timecode":"01:23:42","transcript_line_range":[5662,5666]}}],"authorities":[{"type":"statute","name":"State property-tax 1% levy limit (historical context)","referenced_by":["Morgan Shook"]},{"type":"other","name":"Thurston County public-safety sales tax (voter-approved 2023)","referenced_by":["Troy Niemeyer"]},{"type":"other","name":"Capital Facilities Plan (CFP)","referenced_by":["Alyssa Jones Wood","Troy Niemeyer"]}],"actions":[],"discussion_decision":{"discussion_points":["Sales-tax collections are volatile month to month; August 2025 was unusually strong while earlier months were weak","Enterprise fund reporting is skewed by timing of capital projects and reimbursements","Consultant presented a 10-year baseline model showing a cumulative "shadow deficit" of roughly $13 million between current budgeted resources and identified service-level needs"],"directions":["Staff and consultant to provide a working copy of the 10-year model for council scenario testing","Schedule a work session to run scenarios and tie model outputs to next biennium budget choices"],"decisions":[]},"clarifying_details":[{"category":"sales_tax_august","detail":"Sales tax collected in August 2025 (presented as highest in three years)","value":"1082000","units":"USD","approximate":true,"source_speaker":"Troy Niemeyer"},{"category":"sales_tax_ytd_change","detail":"Year-to-date change in sales tax vs. prior year","value":"121000","units":"USD","approximate":true,"source_speaker":"Troy Niemeyer"},{"category":"general_fund_expenditures","detail":"General fund expenditures versus expected percent through August","value":"-10","units":"percent","approximate":true,"source_speaker":"Troy Niemeyer"},{"category":"shadow_deficit","detail":"Consultant's cumulative difference between current budgets and identified core/existing/enhanced needs over 10 years","value":"13000000","units":"USD","approximate":true,"source_speaker":"Morgan Shook"},{"category":"single_audit_cost","detail":"Estimated cost for external audit work (single audit of federal funds)","value":"80000","units":"USD","approximate":true,"source_speaker":"Troy Niemeyer"}],"proper_names":[{"name":"City of Tumwater Finance Department","type":"agency"},{"name":"Eagle Northwest","type":"business"},{"name":"Capital Facilities Plan","type":"other"}],"community_relevance":{"geographies":["Tumwater","Thurston County"],"funding_sources":["sales tax","B&O tax","grants","connection fees"],"impact_groups":["taxpayers","utility ratepayers","city employees","permit applicants"]},"meeting_context":{"engagement_level":{"speakers_count":2,