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Mill Creek finance staff warn of structural deficit; general fund, surface-water reserves at risk by 2027
Summary
City finance staff presented preliminary revenue projections showing slow sales-tax growth, higher insurance/jail costs and long-term structural deficits. Staff warned the General Fund and surface‑water fund balances could fall below reserve targets by 2027 unless revenue options or policy changes are adopted.
City finance staff and the city manager presented preliminary revenue projections on Oct. 7 that show the city moving into a structural deficit beginning in 2025 and a risk that both the general fund and the surface‑water fund could fall below required reserves by 2027.
City Manager Martin (surname in transcript) summarized the budget context and staff additions in recent years, telling the council the “fundamental problem here is our top line growth. It's revenue. It's not our cost structure.” He said the city’s full‑time equivalent staffing is about 63 and reminded council that prior staffing and annexations changed service levels.
The finance presentation outlined key assumptions and new information affecting revenue projections: sales tax showed zero growth through August 2025 (staff projected 0% in 2026 and 1% in 2027), while real-estate excise tax (REET) receipts had been higher than budgeted in 2025 but are projected to slow. Staff said the sales-tax shortfall across the two‑year period would reduce available general‑fund revenue by roughly $214,000 — about the annual cost of roughly 1.0–1.5 patrol‑officer FTE, according to staff illustrations.
Other cost pressures flagged to the council included litigation and insurance: the city’s liability premiums (WCIA) rose substantially — staff said WCIA premiums increased by about $340,000 from 2021 to 2025 (a 187% rise cited in the presentation) — and criminal‑justice changes could increase jail costs; staff cited a state code citation (spoken in the meeting as “RCW 46.6214 0.502”) that would increase mandatory jail time for repeat DUI offenses and translate into potential monthly jail costs the presentation equated to a significant fraction of a public-safety FTE.
Finance staff offered a timeline for near-term decisions: revenue options will be brought forward next week, a preliminary 2026 property‑tax levy will be presented, and the city will hold public hearings and adopt levy and mid‑biennium budget adjustments in November; property‑tax certification to the county is scheduled for Nov. 26.
Staff also described capital-fund adjustments, recommending a 30% design-first approach for projects rather than full funding in the near term to limit cash exposure while pursuing external grants or borrowing.
What’s next: staff will return Oct. 14 with revenue‑option choices (including potential utility taxes and a transportation benefit district), and a proposed property‑tax levy; the council will consider levy hearings and mid‑biennium adjustments in November.
Ending: Council members asked for comparative staffing and per‑capita data, and staff said they will return with revenue options and additional analysis in subsequent meetings.
