Woodinville finance director says FIT caution flag reflects planned reserve use, not fiscal distress

Fritz, Woodinville's finance director, told the City Council on Jan. 20 that a cautionary flag from the Washington State Auditor's Financial Intelligence Tool (FIT) reflects a planned, modest dip in general-fund cash used to pay for capital projects rather than a sign of financial distress. "The cash position in 2022 was higher than the cash position in 2023," Fritz said, noting a drop of roughly 0.8 percent'about $320,000 on a roughly $43 million fund balance.

Fritz said the FIT metric measures year-over-year change in ending cash and investments and should be interpreted in context. He told councilmembers that planned spending from reserves paid for capital improvement projects in 2023, and that major revenue lines and conservative budgeting have helped the city maintain a healthy operating margin. "In 2023, we actually spent out of the general fund dollars $3,500,000 of our savings," he said.

Fritz also summarized the state auditor's recent accountability work, saying audit manager Haji Adams provided written comment that auditors "did not identify any concern around financial condition or our ability to operate." He said preliminary unaudited numbers for 2024 show a roughly 3 percent increase in cash position, which would reverse the FIT caution next year.

On the biennial 2025-26 budget, Fritz said the General Fund shows a neutral operating margin of about $12,000 across the two-year period, while all operating funds considered together have an intentional, planned negative operating margin to draw down reserves for specified activities. He highlighted two funds going negative by design: the lodging-tax fund (spending above a $50,000 policy reserve to fund grant awards) and the development services permitting fund (operating as a fee-funded program tied to cyclical development activity).

Councilmembers asked how cost overruns on capital projects would be covered. Fritz replied that it depends on the project and the fund: overages may be absorbed by dedicated reserves (for example, REET or other earmarked revenue), drawn from the general fund if needed, or handled by deferring other projects. Councilmember Evans said the city's "save to build" approach has helped Woodinville avoid deficits many neighboring cities have faced.

Mayor Millman read aloud a paid advertisement that said Woodinville faced "our second consecutive budget deficit." Fritz responded that while the city has had planned deficits in some years to use reserves for intended capital work, that characterization was out of context; he reiterated that the city closed 2023 with a positive operating margin of about $3.3 million.

Fritz concluded that the FIT cautionary flag is appropriate for prompting questions but not, in Woodinville's case, evidence of mismanagement: "The cautionary flag on the FIT tool is not an area of concern," he said, noting the city's long practice of saving for CIP projects rather than borrowing for them.