Community Government

City planning for reduction in sales tax revenue

The city of Gig Harbor will have about $20 million more to spend in the 2027-’28 budget cycle than it did in 2025-’26, counting a combination of tax revenue, savings and borrowing. But the city is also bracing for a looming budget crisis and plans to use $2 million in reserve funds to weather a projected loss of sales tax revenue.

Community Sponsor

Community stories are made possible in part by Peninsula Light Co, a proud sponsor of Gig Harbor Now.

In a previous meeting, the city’s lobbyist warned that the state government’s ongoing budget shortfall could have a Great Recession-like impact on local jurisdictions in the coming years. City finance director Scott Larson told the council during a draft budget presentation on Sept. 28 that the city lost about 8% of its sales tax revenue during the recession years of 2008 through 2010.

If the city lost about the same percentage in sales tax revenue today over a two-year period, it would mean a loss of about $744,000. Larson presented a range of sales tax revenue loss between 5% and 10%, in the range of $465,000 to $930,000.

The good news, he said, is that the city has a strategic reserve fund of just under $2 million, which it can use to “weather something less than the Great Recession a couple of years ago.”

Shared revenue also at risk

However, he said, there is another hitch. The city receives about $500,000 in shared revenue from the state, a category that includes liquor excise tax, motor vehicle fuel tax and criminal justice distributions. That money could be at risk, too.

Looking much further down the line, Larson said Gig Harbor will also lose revenue when its Hospital Benefit Zone expires in 2041. The Hospital Benefit Zone allows Gig Harbor to use sales tax revenue for public improvements in the area around St. Anthony Hospital. The city receives about $2 million per year from the benefit zone and used revenue from it to build the recently opened Gig Harbor Sports Fields.

Larson also said the city will have $8.2 million in grant money in 2027, and a little more than $5 million in 2028. That grant money is restricted in its use, because grants are tied to specific projects.

“We have at least two projects in our budget that basically have grant placeholders,” he noted. “That includes the North Creek culvert replacement as well as the new police boat. We’re still trying to identify a grant to fund those requests.”

MFTE target area

At the Sept. 28 meeting, the council also adopted a resolution of intent to set the target area for the recently passed multifamily tax exemption. The target area encompasses the entire city of Gig Harbor. The council will hold a public hearing on the proposed target area at 5:30 p.m. Oct. 12.