Clallam County officials presented a three‑year financial forecast at a special county meeting, warning that one‑time grant revenue and persistent cost pressures will likely produce operating deficits starting in 2026 and could exhaust the county’s general‑fund reserves by 2028. County staff said the shortfalls stem mainly from the end of large 2025 grant advances, continued growth in labor and benefit costs, and an unexpectedly steep run‑up in insurance and risk management expenses.

County Chief Financial Officer Mark (CFO) said the county received $4,000,000 in Health Care Authority reentry grant advances in 2025, a one‑time inflow that materially improved 2025 results but will not repeat. “What we are projecting is our revenues next year, 02/1926, are projected to decrease 5.6%,” Mark said, adding that projected revenue growth for 2027 and 2028 is anemic: about 0.9% and 1.7%, respectively.

The forecast uses the county’s 2025 adopted budget as a starting point and layers in assumptions for taxes, intergovernmental payments and contract escalators. Staff told commissioners they modeled property‑tax growth constrained by the statutory 1% annual limit plus assumed new construction of roughly 3% per year; overall tax revenue was modeled to grow about 2.1% annually. Sales‑tax growth was assumed to be roughly 2.4% annually under staff assumptions.

Mark called out three revenue categories that drove the 2026 drop and the weak multi‑year outlook: the HCA reentry advance, a one‑time larger recompete grant in 2025, and other variable intergovernmental streams. “We received $4,000,000 of HCA reentry grant advances in 02/2025. That’s not going to be repeated next year,” he said.

On the expenditure side, payroll and benefits represent roughly 70–71% of the general fund budget. Staff included placeholders for ongoing labor‑contract costs and noted four bargaining units remained open. The Department of Retirement Systems’ recent actuarial update led staff to assume significant employer pension contribution rate reductions taking effect July 1, which staff said will reduce benefit costs in 2026, but that one‑time positive effect did not offset other pressures.

Commissioners and staff emphasized insurance and risk‑management costs as a major driver of the projected deficits. Finance staff said general liability, property and workers’ compensation costs have increased roughly 20% annually in recent years and assumed continued increases for the forecast period. “When you have 20% increases year over year when your overall tax revenue is growing at 2%, what ends up happening is by 2028 our insurance costs increase at a dollar amount greater than the tax revenue increase,” Mark said.

Staff also described new and growing revenue lines: a Medicaid reimbursement program the county expects to begin billing in the second half of the year (staff estimated roughly $486,000 in 2025, growing to a full year thereafter) and a court cost reimbursement process for involuntary treatment (ITA) work that staff said could generate additional revenue depending on regional capacity. A pair of interlocal agreements with the cities of Sequim and Port Angeles and other service agreements comprise the largest portion of the county’s goods‑and‑services revenue and were modeled with modest growth; staff included a placeholder increase to reflect ongoing discussions about cost sharing of criminal justice services with cities.

The forecast projects the county’s reserves at about $14.9 million at the starting point in 2025. Under the baseline assumptions presented, staff showed reserves falling to an estimated $11.0 million in 2026, $4.3 million in 2027 and a negative $3.9 million in 2028. A second scenario that factors historically observed payroll underspend reduced the shortfalls but still left reserves sharply lower (roughly $12.7 million in 2026, $7.9 million in 2027 and about $1.5 million in 2028 under that approach).

Commissioners and staff discussed options to close the gap: expenditure reductions, use of reserves, and new revenues. Finance staff said models show that a levy increase in the approximate 30¢–35¢ per $1,000 assessed‑value range would be roughly in the ballpark of closing the modeled shortfall through 2028, depending on exact assumptions. Commissioner French and others noted that any revenue proposal would be one of multiple levers, including service‑level changes and further internal cost reductions.

Public safety‑related costs and the state’s public‑defense and caseload standards were highlighted as another risk. Common public defender Harry Gadsnik’s staffing needs could increase under the court’s caseload standards, staff said; the county is still assessing how much additional staffing or space will be required as the state implements changes over a multi‑year period.

Staff also highlighted capital and one‑time requests: departments submitted roughly $3.8 million in new general‑fund capital requests for 2026 (in addition to carry‑forward projects). Commissioners and staff discussed treating some recurring payroll underspend as a designated source for capital needs but emphasized that relying on vacancy‑driven underspend to fund ongoing obligations is risky and reduces transparency.

The board scheduled a follow‑up meeting at 5 p.m. to review specific revenue and expenditure options. No formal decisions or votes occurred at the special session; staff said they will return to the board with recommended packages of options that could include combinations of cuts, reserves use and potential ballot measures.

The county’s finance team urged the board to consider multiple pathways and noted that many assumptions remain uncertain — especially timber revenue, grant renewals and insurance market behavior — so the forecast will be revised as staff refine inputs and as labor negotiations conclude.