Everett finance staff report stronger January revenues, council debates 20% fund-balance policy and reserve use

City of Everett finance officials reported stronger-than-expected January revenues and reviewed year-end accounting adjustments on March 19 as the Budget Finance Committee discussed the city’s 20% fund-balance policy and the structure of reserve funds.

Heidi Relantez, finance director, and Jamie Lee Graves, assistant finance director, told the committee that January general government revenues exceeded projections by $173,430, bringing total collections to just over $11,600,000 for the month. “January revenues came in stronger than expected with total general government revenues exceeding projections by $173,430 bringing us to just over $11,600,000 for the month,” Relantez said. Graves added that business-and-occupation receipts were a primary driver: “B and O tax receipts are up $391,102 or, 11.7%.”

The increase followed mixed results across other revenue streams. Utility taxes were 8.8% above budget, while sales tax receipts were $108,369 (about 3.4%) below budget; staff reminded the committee that sales tax has a two-month reporting lag, so January receipts reflect November economic activity. Building-permit activity declined from 91 permits in January 2024 to 52 in January 2025, but staff said several projects remain in the pipeline and they do not currently regard the decline as a concern.

Why it matters: the committee reviewed how those monthly results feed into longer-term forecasting and the council’s fund-balance policy. Relantez and Graves said the city’s 2025 original budget had built in assumptions about the aerospace sector’s recovery after a 2024 Boeing labor strike. “In our reforecasting process, we do consider the 2 month duration of the strike,” Relantez said, noting the city adjusted its 2024 budget via Budget Amendment No. 3 to reflect strike impacts, including a $2,000,000 reduction to B&O tax revenue and a $250,000 reduction to sales tax.

Staff also reviewed preliminary December 2024 results, stressing those figures remain preliminary until year-end accruals and the state audit are complete. The preliminary December report showed general government revenues under budget by $6,400,000 (3.9%), primarily because of timing on grant reimbursements and operating transfers that departments request late in the year and that are received or accrued in the following year. An updated preliminary report to be circulated will show roughly 99.1% of the 2024 revenue budget collected, the officials said, and that expenditures are coming in about 4.6% under budget.

The committee spent substantial time on fund balance and reserves. Per current city policy, the budgeted ending fund balance must be at least 20% of budgeted operating revenues; Relantez emphasized that the dark-blue bars on the committee’s chart represent the policy minimum while the light-blue bars show actual ending balances, which have historically exceeded the 20% minimum. The audited 2023 actual ending fund balance was reported at $49,000,000. Committee members referenced earlier balances—$55,200,000 in 2021 and $45,800,000 in 2022—and staff said those differences reflected one-time transfers in 2022: nearly $5,000,000 to the Capital Improvement Program (CIP 1) and nearly $4,000,000 to police and fire pension funds.

Council members asked about the rationale for the 20% threshold and alternatives such as using expenditures rather than revenues as the basis for the calculation. Graves explained the 20% target equates roughly to three months of operating expenses and provides liquidity for cyclical revenue collections (property taxes peak in May and November; B&O is quarterly). Relantez noted that applying the policy to expenditures rather than revenues would increase the required ending fund balance because expenditures exceed the projected revenues in the coming year.

On reserve funds, staff outlined several dedicated funds and their revenue sources: CIP 1 receives general-fund contributions (the budget book shows an annual contribution; staff said a $6,000,000 recommended contribution was derived from a facility study but the city has contributed $3,000,000 annually), CIP 2 receives the first-quarter percent of real estate excise tax and funds projects in the comprehensive plan, CIP 3 receives the second-quarter percent for parks and street improvements, and CIP 4 holds less regularly funded resources intended for major renovations or new facilities and receives proceeds that reimburse the fund that originally purchased property. Staff also described pension, health benefit reserve and self-insurance funds; pensions rely on actuarial valuations (a state requirement), and health benefit reserves use actuarial valuations or a 16-week-reserve rule to size holdings.

Several council members spoke in favor of maintaining the 20% policy as a conservative fiscal posture given uncertainties at the federal level and potential unfunded mandates. “I support leaving it at 20%,” said Councilman Raine. Others warned that doubling the actual ending fund balance would likely reflect deeper cuts or sequestering funds rather than reinvesting in community services. Finance staff said they are not recommending changes to the financial policies at this time but invited council feedback and reiterated that policy reviews occur annually during the budget process.

No formal motions or votes were taken by the committee during this session. The committee recessed and planned to reconvene after the council’s regular meeting to continue a discussion about how budget information is provided to council.

Ending note: Finance staff said the books will not be fully closed until June when the state audit is complete; the committee will receive updated preliminary reports and the 2024 audited results in June for further review.