Cosmopolis reviews lean 2026 budget as sewer arrears and bond shortfall loom

Cosmopolis city officials presented a preliminary 2026 budget Wednesday that is balanced on paper but leaves the city with a thin general fund reserve and several key risks that could force rate increases or budget amendments.

Tara Dunford, the city's CPA, led a workshop-style review of the document and said the packet now circulating is the first full version the council will formally discuss at a Nov. 5 public hearing. Dunford said the preliminary revenue forecast projects a modest 3 percent increase over 2025 and that a 1 percent property-tax increase would bring in about $4,300.

Dunford warned that the budget's headline figures mask two large fiscal uncertainties. First, the sewer fund currently shows an anomalous $470,000 surplus in the draft because staff did not include a final charge from Aberdeen in the expense column; Dunford said Aberdeen is negotiating new rates and that the city modeled a worst-case scenario in which charges roughly double.

"We are showing currently a significant increase of $470,000," Dunford said, adding that the number is a placeholder until the Aberdeen negotiations conclude. "Most likely, their rates will double as well. We have that reflected in the current budget numbers. If that changes, we would update accordingly."

Second, Dunford described an accounting problem and cost overrun tied to the 2020 city hall bond project. She said bond and capital items were commingled and that the project ran about $430,000 over the initially budgeted amount. Contractors have largely been paid, but the fund shows a material shortfall that staff proposes to address in part with real-estate excise tax (REET) proceeds and by closing older bond funds and transferring their excess balances to the general fund.

"We had $3,000,000 of bond proceeds," Dunford said. "Part of the issue is that the construction contract may have tried to be close to $3,000,000 but then Harbor Architects and other items weren't factored in. We have a shortfall. We're hoping to resolve a good chunk of this with real estate excise tax."

Dunford told council she contacted bond counsel and was advised that closing older bond funds and transferring excess proceeds to the general fund is permissible under state law; she recommended that council consider a budget amendment to implement those transfers. She said the amendment would not entirely eliminate the shortfall but could cover a substantial portion of it.

Council members asked multiple questions about whether sale proceeds should be used to plug the city hall shortfall or retained for other capital projects. A public commenter urged the council not to direct proceeds from a potential lot sale solely to the building deficit but to consider other uses; Dunford and staff acknowledged the trade-offs and reiterated that REET money is restricted to capital projects by state statute.

On revenues and rates, Dunford recommended the council consider modest utility-rate increases to shore up fund balances and noted Cosmopolis is already at the statutory cap for the retail B&O-style tax (0.002 as implemented locally). She suggested a baseline 3 percent CPI-type adjustment for water rates but stressed that larger increases could be required depending on final capital and Aberdeen contract outcomes.

Public process and next steps Council opened and closed the required public hearing on revenue sources at the workshop. City attorney and staff emphasized there will be additional public hearings as the budget moves through the November and December meetings, providing residents more opportunities to review changes and offer comment.

During public comment, a local developer, Kelly Daniels, told council a recent Oct. 7 resolution appears to set different water and sewer tap fees and inspection fees than the schedule proposed by staff; Daniels asked staff to reconcile the discrepancy before council adopts any new fee schedule. Council agreed to research the issue and return with clarification.

Council actions - The council voted to accept a FEMA grant to buy bunker gear for the fire department; the grant requires a small local match that staff said is budgeted and will be paid from the fire equipment reserve. (Motion moved and seconded; approved by voice vote.) - A proposed resolution setting water and sewer connection fees for a waterfront townhouse project was discussed but tabled so staff could reconcile the fee schedule with the city's prior resolution and municipal code.

Why this matters If negotiations with Aberdeen result in significantly higher sewer/EMS charges, Cosmopolis may need to raise utility rates or reallocate restricted funds to balance future budgets. The recommended budget amendment to transfer older bond proceeds and use REET would reduce but not eliminate the city hall shortfall, leaving remaining policy choices for council in November and December.

The council will hold additional public hearings on the preliminary and final budgets; staff said the mayor's budget letter will be posted ahead of the Nov. 5 packet and that any changes between versions will be highlighted in subsequent meetings.