Anacortes finance director outlines flat tax revenues; council approves small first-quarter budget amendments

The Anacortes City Council received a first-quarter finance update on April 21 and approved a limited first-quarter budget amendment to cover a retired police canine and several replacement computers.

Finance Director Hoglund briefed the council on revenue and expenditure trends through March, noting that first-quarter receipts typically represent about 25% of annual budgets but that timing differences can skew that figure. Property tax receipts arrive in two main tranches (May and November), and the department expects continued flat sales tax receipts compared with the citys 2022 peak. Hoglund said March sales tax growth this year was driven largely by boat sales tied to regional shows and by activity related to the citys outfall project; construction-related sales remain weak and building permits are down from earlier years.

Hoglund also reported utility tax receipts up about 15.2% year over year through the first quarter, with most of that increase from electricity and natural gas. He cited a Washington climate-related natural gas fee that took effect in June 2024 as a factor increasing natural-gas costs and receipts. Real estate excise tax (REET) receipts were lower than historical norms: staff reported roughly $81,000 in REET receipts through the first quarter and 69 home sales in the same period, producing a lower average per-sale yield than prior years. Lodging tax remained roughly consistent with prior years through the first quarter.

Hoglund said the city has been using cash reserves to balance budgets in recent years and that reserves have declined; parks cash balance was reported at about $183,000 at the March snapshot and the fund had drawn down $257,000 in reserves in the adopted budget. The road maintenance fund showed a negative balance in the March data (about $10,000) because state excise and utility tax allocations for March had not yet been processed. Utility funds, by contrast, were described as healthy; the water operating fund was reported with an $18.6 million cash balance (including capital), and other utility funds showed positive balances in the materials presented.

Councilmembers asked about the causes of the 2022 sales tax peak (building activity and large projects), the citys reliance on reserves, and steps staff are taking to manage hiring and expenditures. Hoglund said staff are reviewing vacant positions before refilling them and that some flexibility exists to shift staff among utility and rate-funded programs if necessary. He said the city is in the early stages of the 2026 budget process and will bring detailed revenue and expenditure projections to the council retreat and future budget discussions.

On a related item, the council unanimously approved Ordinance 4098 on first reading to amend the budget for two first-quarter items: $15,000 from restricted opioid settlement funds to purchase a replacement police canine (the department named the dog Zeke) and the use of replacement-reserve funds to purchase computers that cannot be upgraded in-place. The canine purchase included a limited initial training package and a health guarantee as explained during the meeting.

Council discussion emphasized careful monitoring of reserves, continued scrutiny of vacancies, and planning for the June council retreat to set priorities and review longer-term fiscal strategy.