Council hears detailed finance briefing; staff says city will rely on $2.6 million in reserves for 2025 budget

Finance Director Steve Hoagland told the Anacortes City Council on March 3 that the city uses fund accounting required by state auditing rules and that the 2025 budget relies on $2.6 million in cash reserves to balance the general fund.

Hoagland said fund accounting is required by generally accepted accounting principles and by state law (RCW 43.09.200), and that the system the State Auditor prescribes is published in the BARS manual. "Fund accounting ... better illustrates accountability," he said, adding that governmental funds use modified-accrual accounting while enterprise funds use full-accrual accounting.

Why it matters: Hoagland and council members discussed how the difference in accounting methods affects how revenues and expenditures are reported and the city’s ability to plan for multi-year utility projects and one-time capital outlays.

On specific fund balances and year-end results, Hoagland reported the general fund held about $12.6 million in cash at year end and that the budgeted 2025 fund-balance draw for the general fund is $2.6 million. He said the water fund had roughly $6 million in cash, the sewer fund spent nearly $5 million from reserves related to the outfall project, ER&R held about $533,000, and the street impact fee fund had about $6.06 million in cash.

Council members and staff discussed several topics that could affect future budgets: flat sales-tax receipts in recent years; the planned or completed use of reserves for one-time capital projects such as the fiber build-out; the city’s policy on minimum reserves; and an anticipated FEMA reimbursement related to a 2021 coastal trail failure that staff said they currently estimate at about $2.5 million under the Stafford Act alternative reimbursement process.

Solid waste: Councilmember Walters and Hoagland discussed a State Auditor caution about the solid-waste fund’s low cash level. Hoagland said the city implemented a full, immediate rate increase tied to county tipping-fee changes, rather than phasing it in, so the fund should collect more user fees in the coming years to rebuild reserves.

Impact fees: Hoagland walked the council through the city’s impact-fee reconciliation showing first-in, first-out spending and noted the city must spend impact fees within 10 years of collection. He reported street impact fees held about $6.06 million in cash, parks impact fees about $201,000 and fire impact fees about $419,000.

Council questions and next steps: Councilmembers asked for additional detail on how state-level budget changes might affect the city, on the accounting treatment of internal service activities (for example, IT), and whether some functions should be moved out of the general fund into separate internal-service or construction funds. Hoagland said staff will continue to monitor revenues and expenditures, hold open positions where appropriate, and return to council if adjustments are needed.

No formal vote was taken on policy during the presentation; the item was a discussion and information update.

Closing note: Hoagland emphasized the difference between planned drawdowns of reserves for one-time capital projects and ongoing operating deficits, and councilmembers signaled interest in a longer-term conversation about revenue strategy and reserve policy.