County reserves dangerously low

Record spending reveals unsustainable pattern

Ten minutes after the commissioners unanimously decided to give millions of your tax dollars to build luxury homeless housing, the County’s CFO, Mark Lane, presented the 2025 preliminary budget.

A year ago, the commissioners faced a historic $2 million deficit — after 12 months of cash giveaways to agencies like the Olympic Peninsula Humane Society and Peninsula Behavioral Health, that number has more than doubled. On Tuesday, it was revealed that future projects are at risk because County leaders have allowed reserves to dip dangerously low.

How much money the County will bring in

Next year’s revenue is expected to bring in $54.2 million, half of which, an estimated $26.7 million, will come from taxes. That is $976,000, or 3.78% more tax revenue than the previous year. Grants (primarily federal) should bring in another $4.7 million. Overall, the County expects a relatively small rise in revenue compared to the previous year — an increase of just 0.6% or $358,000.

Taxes account for 49% of the County’s revenue.

Of that $26.7 million in tax revenue, 46%, or $12.3 million, will come from property tax, and 39%, or $10.3 million, will come from sales tax, which has slowed considerably due to inflation and high interest costs.

“We are facing some significant employment headwinds,” Lane told the Board before listing a few of the tax-generating retail businesses that have closed, like Big Lots and Rite Aid, or are furloughing, like Interfor (lumber). The McKinley Paper Mill closed last month and is expected to cause a $1.1 million loss in tax revenue for the County and City of Port Angeles.

The tax portion of the general fund comes mainly from property and sales tax.

County expenses grow, exceeding revenue

Lane’s presentation then shifted to expenditures in 2025, which assumes the County will be fully staffed (an unlikely scenario). The County forecasts spending $58.5 million — a $4.5 million increase from 2024 and $4.2 million more than anticipated revenues. Of next year’s expenses, 69%, or over $40 million, is allocated for county employee payroll and benefits.

County payroll and benefits for 344 employees account for nearly 70% of expenses.

While the chart above shows the outgoing money by type of expenditure, the following chart shows the same amount of spending by program area (or department). Public safety — meaning the Sheriff’s department, public defense, prosecution, juvenile services, and courts — accounts for 58% of next year’s spending (over $34 million).

The Sheriff’s Department receives the most significant allotment, over $17 million.

The next chart shows where the nearly 344 full-time county workers are employed by department. Similar to the previous chart, about 58% of county employees work in public safety.

Over 200 County employees work in Public Safety (Sheriff, Prosecution, Juvenile Services, and Courts).

The County anticipates adding three employees to manage the Recompete grant-funded program and four positions for nursing staff in the Sheriff’s Department to handle inmates’ medical needs (jail medical staff had been filled by contract employees but will now become in-house).

Why “unrestricted reserves” are important

The following chart shows that the County had $8.1 million in unrestricted reserves five years ago. Those funds can be used for any county spending, such as “rainy day” expenses or payroll. Unrestricted reserves grew as high as $9 million in 2021 but have now plummeted to under $2 million. Regarding the substantial drop of over $5 million from 2021 to 2022, Lane said, “This is when we had to deploy dollars in support of the Lower Dungeness Floodplain Restoration Project. Those numbers rebounded to $4.7 million in 2023 as a lot of the funding was returned.”

In 2022, the Jamestown Tribe unexpectedly breached a dike that protected communities from flooding near the Dungeness River. The County asked the Tribe to stop removing the dike, but the Tribe refused. The County proposed a temporary, economical solution to protect the community, but the Tribe demanded a much costlier option that ultimately closed Towne Road. The County was forced to spend millions to avert disaster, which may be why the reserves experienced such a drastic decline in 2022.

Unrestricted reserves dipped by over $5 million in 2022 and never fully recovered.

Lane told the commissioners, “Our unrestricted reserves have been showing a pretty substantial decrease over the last few years, and certainly, this level of trajectory of compression in our unrestricted reserves really is not sustainable and is going to require some corrective action.” He added, “This is not where we need to be from a budgetary standpoint.”

It appears the County’s appetite for spending has outpaced revenue for several years, but County leaders have been able to draw from unrestricted funds to bridge the gap. At the current rate, dwindling unrestricted reserves could be exhausted entirely in just over a year. As a result, CFO Mark Lane and county administrator Todd Mielke have asked each department to reduce their operating budget by 7% to close the gap. “We cannot continue to rely on reserves to balance the equation,” Lane added earnestly.

Some expenses are still not reflected in the 2025 preliminary budget. For example, $2.6 million in departmental and capital requests haven’t been factored in. Additionally, the County is currently undergoing labor contract negotiations, so salary and benefits haven’t been settled for some work groups.

Lane explained why it’s important to maintain a general fund reserve level of at least 20%. If the County wishes to issue bonds to finance infrastructure projects, investment banks and rating agencies require a minimum level of reserves for the County to receive the best financial terms — the lower the reserves, the higher the County will pay to borrow money. Potentially, low reserves could cause the County to be denied funding.

“The reality is that whether it’s five years, ten years, 15 years from now, we are starting to look at aging infrastructure needs that are going to need to be addressed. Traditionally, the best way to deal with that is to be able to finance and issue debt,” explained Lane. “Not to sound like a broken record, but the preliminary budget that does not have everything fully baked into it, in terms of cost, currently reflects our reserves dropping down to 19%.” Lane told the commissioners that his presentation was “flashing a red light at us that we need to make some changes.”

Reserves dropping below 20% could restrict County infrastructure improvements.

Storm clouds on the horizon

The challenges facing the County aren’t limited to just next year. An increasing amount of property is being swallowed up by Tribal Trust Land and falling off the County tax rolls, and property tax increases (for those who must still pay) are limited to only 1% a year. Real Estate Excise Tax revenue is down 9% this year and was down 28% the previous year, which puts pressure on the general fund to support capital expenditure needs (which are growing with the aging infrastructure).

The County’s future looks bleak. Rising insurance costs have driven increased expenses, and personnel costs have grown 6.8% yearly since 2021. Workers Comp and L&I rates are rising rapidly, jail medical costs have doubled in the past six years, and inflation has hit the County’s fleet of vehicles, fuel, equipment, capital projects, and software licensing. Public defense costs have increased 38% since 2020 and are poised to grow from $2.2 million to over $6 or $7 million by 2027. The State currently provides $70,000, or 3%, of defense funding to the County and has not announced plans to provide more.

The road to fiscal responsibility

The rate of diminishing reserves has signaled that making changes is paramount to avert financial ruin, but the commissioners don’t seem to be curtailing their spending spree. Commissioner French strongly supports a tax hike for culture and heritage programs — he envisions it being used by the Salmon Coalition to teach children to fish. In March, Commissioner Ozias floated the idea that tax dollars could be used to subsidize local media, and last month, he expressed interest in UBI, or Universal Basic Income, a program that would pay people regardless of whether they are employed or not. All three commissioners renewed a contract for a poet to perform readings in libraries, tattoo parlors, and plant nurseries — a program that has siphoned $10,000 from taxpayers.

One notable financial blunder contributed significantly to draining reserves. In February 2023, County Engineer Joe Donisi presented a plan to complete Towne Road using only grant funding with zero County dollars spent. Commissioner Mark Ozias grossly exaggerated the number of petitions and signatures that the County had received asking that Towne Road remain closed. Despite warnings from the County’s engineer and legal advisor, the Board agreed to halt the project. That delay unnecessarily cost the County hundreds of thousands. Project costs have spiked every time Commissioner Ozias or the Board have delayed completing the road (ten times now) or insisted on features like the $80,000 curb.

The commissioners’ waffling over a 0.6-mile stretch of County road, combined with the Tribe’s early dike removal, are only two avoidable events that have cost taxpayers millions and have contributed to the looming cuts and the possibility that our infrastructure may crumble before we can finance repairs.

In addition to asking every department for deep cuts, the County is considering a rate fee increase, which could bring in an additional $350k-$400k. The County’s reckless spending means residents could be paying more for building permits, planning and zoning fees, and even getting the County to approve a new fence, deck, water heater, roof, or retaining wall.

Like three guys buying rounds of drinks for everyone in the bar, the commissioners have been very generous in spending our money. But it’s 2:00 am, the bartender just turned the lights on, and it’s time to figure out who will pay the tab and how.

Public input sought by the County

County officials will embark on a three-stop “Budget Road Show” to solicit public input and present the 2025 Administrator-recommended budget.

• Wednesday, October 9th, 11:30 AM, Port Angeles at the Red Lion Hotel.

• Tuesday, October 22nd, 11:30 AM, Sequim at the Sunland Golf Club.

• Friday, October 25th,11:30 AM, Forks at Blakeslee's Bar & Grill.

County Administrator Mielke and the Commissioners are considering adding a fourth event billed as a “Budget Town Hall Meeting” to answer questions and take comments.