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Council reviews FY26 budget preview and debates adopting a local 1% grocery tax
Summary
City staff walked the council through FY26 budget highlights, projected reserves and pension risks while councilmembers debated whether to adopt a local 1% grocery tax to replace a repealed state levy (estimated local revenue loss $360k–$500k); no ordinance was adopted and discussion will continue.
City finance staff presented a preliminary FY26 budget review showing a projected general fund fund balance of about $14.6 million and an undesignated surplus (after designations) of roughly $6.8 million, but they flagged longer-term liabilities — notably a police pension that staff said is about 57% funded — as a major fiscal risk.
Joanie, a member of the finance team, led the review of special funds, capital projects and the general fund process, noting the budget is preliminary and will change as enterprise and internal service funds are finalized. Staff pointed to revenues the city cannot control (assessed value, state distributions) and explained the use of prior-year surpluses and ARPA designations for proposed capital work. Staff also warned of projected reductions in local use tax (an estimated $360,000 reduction tied to state-level changes) and of potential impacts from the planned repeal of a statewide 1% grocery tax effective Jan. 1, 2026.
Council discussion shifted to whether Washington should adopt a local 1% grocery tax that would take effect when the state repeal occurs. Staff explained filing deadlines and timing for making a locally adopted tax effective. Councilmembers offered contrasting positions in a long exchange: some argued the change is effectively continuity (residents already pay the tax), that allowing the revenue to lapse could create a recurring $360k–$500k hole and would impede paying for pensions and infrastructure; others said adopting a local grocery tax would amount to creating or maintaining a local sales burden and raised competitiveness concerns for local retail.
Staff also summarized specific capital projects and funding sources: Catherine Street second-phase design (~$1.54M), stormwater projects funded via stormwater bonds (approximately $2.1M for the Southeast Square project), and continued use of the home-rule sales tax revenue for infrastructure. Dennis and Brian (public works/capital staff) answered technical questions about MFT, stormwater and the allocation of TIF funds.
The council did not vote on a grocery tax ordinance at this meeting; staff recommended additional review and a Committee of the Whole discussion. The council did adopt, by unanimous vote, a resolution approving the joint funding agreement for the Safe Routes to School project (8–0) and introduced four first‑reading ordinances that will return for second readings on March 17.
Next steps: staff will refine enterprise and capital numbers, return with additional detail and the council indicated it may host further budget discussions and a Committee of the Whole session before any vote on local tax changes.
