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Anacortes Q1 finance update: sales tax up vs. last year but building-permit receipts remain weak
Summary
City finance staff told the council the city's first-quarter revenues show modest gains in some sectors but continued weakness in building permits and real estate excise tax receipts, and that the city has been drawing reserves to balance budgets.
At a City Council meeting on April 21, 2025, finance staff presented the city's first-quarter budget update and warned that while some revenue streams show upticks, the city is in its third year of largely flat tax revenues and continued drawdown of cash reserves.
Finance staff member Mr. Hoglund told council that sales tax through the first quarter of 2025 is up about 4.5% compared with the first quarter of 2024 but remains below the city's 2022 peak. Hoglund said a boost in March receipts was driven in part by boat sales tied to the Seattle Boat Show (January sales are reported in March receipts) and by construction activity related to the city's outfall project.
Other details presented: - Utility taxes were reported up roughly 15.2% compared with the prior year; electricity and natural gas collections drove that increase and staff noted a new Washington "Climate Act" fee that raised costs for natural gas beginning June 2024. - Lodging-tax receipts were reported at about 11.9% of the annual budget through the first quarter, consistent with expectations because the tourism season produces a larger share of receipts later in the year. - Real estate excise tax (REET) receipts were described as lagging historical norms. Staff reported approximately $81,000 in REET receipts through the first quarter but also noted internal data inconsistencies when reconciling some historic permit and revenue records. - Building-permit revenue for January through March was reported at about $55,000 this year compared with $77,000 in the same period last year; permit counts and revenue are well below pre-2020 levels, the presentation said.
Hoglund and councilmembers discussed consequences: the city has used cash reserves over recent years to smooth revenues, but reserves are declining and the finance team is preparing for tighter budget choices for 2026 if revenue streams do not strengthen. Hoglund said the city is scrutinizing vacancies before refilling positions and will continue to monitor burn rates and revenues.
Councilmembers pressed for further analysis and policy options. Councilmember Young asked staff to explain the drivers behind the 2022 peak and how to close the gap between current receipts and historical highs. Councilmember Cleland McGrath asked that the June council retreat include a clear accounting of reserve drawdowns and recurring subscription costs that now appear in annual operating budgets.
Why it matters: the trajectory of sales tax, real estate excise tax and building permits affects the city's ability to fund ongoing services without relying on one-time reserves. Finance staff said they will return with more detail as the budget process for 2026 begins.
