Anacortes Council Hears Public Comment on Proposed 1% Property-tax Levy, Utility and Sewer Rate Options

The Anacortes City Council held a statutorily required public hearing Oct. 6 on the city’s proposed 2026 revenue sources, including consideration of a 1% increase to the city’s property-tax levy.

City finance staff reported the draft 2026 revenue projection at about $111,588,000 and said the property-tax levy is the city’s largest single tax stream at $8,500,000. Staff explained that a 1% increase in the levy would add roughly $85,000 to that total; using the example in staff’s presentation, a home assessed at $750,000 would see the city portion of the tax rise about $9.84 per year (the city portion of the sample bill was shown as $983.94). Finance staff also explained that because state assessment changes alter the millage rate, the council controls the total levy amount (the dollar levy) rather than the millage rate itself.

The hearing mattered because council will use these revenue projections to finalize the 2026 operating and capital budgets and because staff outlined several potential rate actions that would affect utility ratepayers and the general fund.

Finance director (staff) presentation and council discussion

City finance staff reviewed the major revenue categories underlying the draft budget. Highlights presented to council included: - Property-tax levy: $8,500,000 (city portion). A 1% levy increase equals approximately $85,000. Staff said the city typically asks for the 1% increase because inflation erodes purchasing power; staff estimated inflation and other pressures reduce real purchasing power even if the 1% is taken. - Sales tax: staff used August receipts, projected them to year end, and added a 2.5% growth assumption to arrive at a 2026 sales-tax estimate of about $5,900,000. - Private utility tax: projected to collect just over $2,500,000 for 2026 based on receipts through July and historical patterns. - Real estate excise tax (REET): staff showed an illustrative 5% annual growth scenario, noting the CFP relies on REET for many capital projects but that REET is volatile. - Service fees and CPI assumptions: the projection assumes a 3% CPI increase applied annually to service revenues; operating costs were shown growing at 4% in staff’s model.

Staff walked council through alternative revenue options to close an identified gap between proposed expenditures and projected revenues. Staff said a hypothetical 2% utility tax on the city’s water, sewer and storm utilities would generate roughly $612,000 for the general fund (staff clarified that estimate excludes other wholesale water purveyors that resell municipal water). For utilities rate adjustments, staff presented two examples: a $5 per month increase to storm system charges that would generate about $410,000 in 2026, and a 6% sewer rate increase that staff estimated would yield roughly $540,000 over the planning horizon (staff noted the modeling assumes a baseline 3% CPI increase already baked into the revenue rows shown).

Public comment and questions

Two residents spoke during public comment. A resident identified as Shiwamu of Anacortes urged council to disclose the combined effect of valuation-driven increases, new construction, and any levy increase before taking action; the speaker said many households have experienced substantial increases in assessed values and urged transparency about total tax burden. A second speaker, identified as Anna Cortes (Anacortes), asked whether utility-tax revenue flows to the utility funds or to the city’s general fund. Staff replied that the utility tax is assessed on the utility and the utility remits that tax revenue to the city’s general fund; charges that are billed directly for water, sewer or storm go to the respective utility fund, but the tax revenue itself is general-fund revenue and is not restricted to utility spending.

Council members asked clarifying questions about the distribution of water consumption between residential and industrial customers, how wholesale customers are treated for tax purposes, and whether the proposed utility-tax examples included wholesale customers (they do not). Councilmembers also pressed staff on the timing of capital projects that depend on REET and discussed sequencing options including pushing nonessential capital projects into later years if revenue streams do not strengthen.

Next steps and staff direction

Staff said the draft budget, department requests and revenue projections will be further reviewed with the mayor and departments; council will see an operating budget and the proposed allocations for capital projects, with the potential for quarterly true-ups and budget amendments. Staff also said that fee and rate proposals that would change customer bills (for example, storm or sewer rate increases) will require additional council discussion and action before they take effect. The public hearing was opened and then closed on Oct. 6.

Council did not take final action on the 1% levy or any rate changes at the Oct. 6 meeting; the hearing provided the formal public comment and the staff report that will inform later budget decisions.

Ending

Councilmembers and staff indicated the budget discussion will continue in coming weeks with additional materials, and staff offered to provide more detailed data on topics raised, including a breakdown of water-fund cash balances and potential grant opportunities related to wastewater projects.