Community Government

As city works out biennial budget, projections show expenses outpacing revenue by 2031

In opening her draft budget presentation on Oct. 6, Mayor Mary Barber assured city council members and city staffers that for the next two years, Gig Harbor is in a “very solid financial position.”

But Barber also warned that the city is facing severe economic headwinds and “stretching resources while we have diminishing revenues.”

For eight hours spread over the course of two study sessions on Oct. 6 and Oct. 8, city council members and staff worked through a draft of the city’s 2027 – 2028 budget. The budget process began in the summer, and the city is now working out what the final version will look like. The City Council will vote on a final budget late this year.

While the city is not in an immediately perilous position, it is planning for difficult times ahead. In a summer study session, the city’s analyst likened the coming years’ fiscal impacts to those jurisdictions faced during the Great Recession.

Revenue sources coming to an end

The city’s expenses could exceed its revenue as soon as 2031. Several one-time and expiring revenue sources are propping up the city’s income over the next few years. Barber noted in her letter to council that the council will “need to have conversations about managing level of service expectations with the available resources. … [W]e can’t continue to provide the expected level of service without additional revenue.”

Still, despite these challenges, the city plans to continue to grow. It is looking to hire a few new people, including another full-time communications staffer, and plans to seek grant funding for some budgeted items, such as a new police boat. The city will also pursue several new projects, including the Judson subarea plan and a community gathering space. Barber wrote in her letter that she believes those “are critical to our long-term success.”

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Barber acknowledged that it will be difficult to fit these projects into the city’s planning timeframe. Washington state requires jurisdictions to overhaul their development codes, and “ever-escalating costs and the demands of state regulations restrain us further, but this represents a very strong plan to move our community forward during the next two years.”

“When the current budget was presented to Council in late 2024 there was a strong note of caution about the coming crunch between available income and projects,” she wrote. “That is even more evident today and we must discuss funding options moving forward.”

Capital projects biggest planned investment

Over the next two years, the city expects $235 million to flow through all its funds. This includes the city’s beginning fund balance of $56.3 million, as well as projected and other financing revenues and transfers.

The city expects $123.8 million of that to come from new revenue. Sales tax remains the city’s largest revenue source, while property taxes, utility charges, and certain dedicated special revenue funds make up a majority of the rest of the city’s revenue.

But the city will dip into its savings over the course of the next two years. The city expects to end the biennium with $25.1 million less than it started with, primarily due to previously planned major capital investments.

Capital projects, at $79 million, are the city’s biggest spending category, outpacing day-to-day operations. This reflects the city’s focus on building and upgrading infrastructure rather than expanding programs.

Expenses projected to outpace revenues by 2031 — or earlier

The city expects expenses to grow faster than revenue in the coming years. The city projects that expenses will outpace revenue by 2031.

“For a number of years, our revenue climbed much faster than inflation, primarily due to development that was going on within the city. However, since 2022, that’s fallen off,” City Finance Director Scott Larson said. He said this is due to growing needs and community expansion. Gig Harbor’s population stands at around 13,000 people. Larson said the city will need more staff to maintain service levels.

He also said that even though the city’s financial outlook appears to be solid in the short term, the city may soon face “a gap that needs to be filled either through changes in legislation or changes in local policy.”

“If we want to be able to continue to have things like economic development studies, Judson subarea plans, or match dollars for new police boats and the like, we’re going to have to search for money elsewhere,” he said.

A major revenue source, a voter-approved portion of the Transportation Benefit District tax rate may affect when the city expects to see expenses outpace revenue.

Transportation Benefit District

Taxes collected from the Transportation Benefit District cover street maintenance and street capital projects. The voter-approved rate expires in March 2030. Voters must decide whether to renew the rate.

If voters opt to let the tax rate expire, expenses could outpace revenue earlier than expected, specifically if the city has to cover street maintenance from the General Fund. Larson said at the Oct. 6 study session that this could “pull that timeline closer” than the projected date of 2031.

He said that the Transportation Benefit District “over the next biennium, will have a fairly substantial drawdown. We get about $3.3 million a year in [Transportation Benefit District] revenue. We’ve been accumulating over a few years, and we estimate that we’re going to spend a chunk of that balance down based on the proposed budget.”

After ending with almost nothing in reserve last year, the fund that pays for day-to-day street maintenance is basically running on empty. Until now, the city has kept it afloat by moving money over from the General Fund every year. But starting with this biennial budget, the city is switching the source of street maintenance funding from the General Fund to the Transportation Benefit District Fund.

Larson also said the city plans on “spending down” special revenue funds, such as impact fee funds, hotel and motel funds and refunds.

“Those primarily will be supporting streets and parks and a little bit of capital facilities, other capital facilities,” he said.

New borrowing, one-time investments

The city also needs to build and upgrade its water, sewer and stormwater infrastructure over the next biennium. However, instead of paying for it all at once, the city plans to borrow about $19.5 million in utility revenue bonds. Ratepayers will be responsible for paying back the borrowed money, and will see this reflected in their utility bills.

The city also plans to put money from a temporary bump in sales tax revenue toward a number of one-time investments. These include an economic development plan, the Judson subarea plan, and initial funding for a community and event space. It will also budget some of that revenue toward a new police boat, while hoping to find grant money to fully fund the new boat. If the city cannot win grant money for a new boat, it may not be able to purchase one.