## Meeting Overview On a bright sunny afternoon in June 2025, the Budget and Finance Committee of the City of Bellingham gathered for what Committee Chair Lisa Anderson called "our last committee meeting on this wonderful sunny day." The meeting convened at 4:05 PM in Council Chambers, with committee members Lisa Anderson presiding as chair, Michael Lilliquist present in person, and Daniel Hammill joining remotely. The single item on the agenda was the first quarter financial review of 2025 — a comprehensive look at where the city stood financially after the first three months of what Finance Director Andy Asbjornsen described as "the first quarter of our first annual budget." This quarterly review provided the first substantial checkpoint for Bellingham's 2025 budget performance, coming at a time when the city faces significant financial pressures. The presentation revealed a mixed picture: some revenue streams holding steady while others showed concerning declines, and a looming budget gap that would require difficult decisions in the months ahead. What made this meeting particularly significant was its role as a preview of challenges to come — the data showed potential shortfalls that could affect city services if not addressed proactively. ## First Quarter Financial Performance Finance Director Andy Asbjornsen began his presentation with an important caveat about the timing of financial data. "This is our most current information, even though we're always looking back in time and trying to project what's going to be forward," he explained, noting that sales tax data they were reviewing reflected March transactions received at the end of May. The cornerstone of the city's revenue — sales tax — told a story of stagnation that has become all too familiar to city leaders. "Sales tax is one of our primary drivers of our revenue within the city of Bellingham," Asbjornsen said, walking through data that showed the city collecting about $13.4 million in the first five months of 2025. While this was "right on par with what we've seen in the first five months of the previous years," it represented a troubling flatline in growth. The sales tax trend painted a stark picture when viewed over time. In 2021, the city collected about $30 million in sales tax. That grew to $32 million in 2022, then to about $33.6 million in 2023 (removing an unusual outlier in June). But 2024 saw a slight decline to $33.3 million, and 2025 was tracking similarly flat. "We're really flattening out," Asbjornsen noted, describing how the green line for 2025 was "almost behind or buried in that yellow line" for 2024. Making matters worse was the impact of inflation on this flat revenue. Asbjornsen had updated slides to show "what the inflationary factor of the sales tax growth has been. So even though we've been very flat at about 13.3, 13.3 now 13.4 over the last three years, the equivalent purchasing power has declined each of those three years as that power of the purchase is worth less." When Council member Lilliquist asked about budget performance, Asbjornsen confirmed they were "tracking pretty much along with budget, but we're just seeing this. It's very, very flat. We're not seeing the growth. And we have seen just a little bit of a decline in the last two months." The budget itself had been conservative — "budgeted very very flat" — which explained why they were meeting projections despite the concerning trends. ## Sector-by-Sector Revenue Analysis The breakdown of sales tax by economic sector revealed specific areas of concern. The top five categories — representing about 50% of the city's sales tax revenue — showed mixed performance. Most troubling was construction and building supplies, which had dropped about 25% compared to the previous year, translating to approximately $340,000 less in sales tax revenue. "Construction of building used to be... at least number three last year," Asbjornsen explained, pointing to charts showing the dramatic decline. "This is seen about a 25% reduction in the current year." This decline was particularly concerning because, as he noted, construction activity "really spurs other sales tax activities as well if we can get that construction moving along." Interestingly, motor vehicle and fuel sales had actually jumped to the number one position after running the data through May, up from number two after the first quarter. Asbjornsen attributed this to external factors: "After the tariff scares and some other information coming from the feds, I think it kind of spurred some purchases. And then this jumped back to number one, adding two more months of sales tax activity." The other sectors rounding out the top five were food and drinking establishments, general merchandise stores, and sporting goods, hobbies, and musical instruments retailers. These categories had remained relatively stable, providing some buffer against the construction sector's decline. Lodging tax, while not a major revenue source for the general fund, served as an indicator of tourism activity and regional economic health. The news here was similarly discouraging. "In 25 we're seeing even more of a decline here, about $40,000 less year over year from 2024," Asbjornsen reported. This represented a continuation of concerning trends, as lodging tax had been "extremely flat" from 2022 through 2024. ## Housing Market Dynamics The housing market data presented a complex picture that touched on both revenue generation and broader economic indicators. On the development side, the first quarter had shown some positive signs, with 272 housing units permitted through March, driven largely by a strong March that saw 200 units by itself. "March is a really good month," Asbjornsen noted, though he cautioned that "these often don't come in very evenly." Despite this positive start, the city was still targeting 800 new housing units for the full year. Development Services Director Blake [last name not provided in transcript] had indicated there were "quite a bit in the hopper permits that are ready to issue, but that people haven't necessarily pulled the trigger on moving forward with their projects yet." The broader housing market showed interesting dynamics when comparing 2024 to 2025. Active listings had increased significantly — about 200 more homes on the market in March 2025 compared to March 2024. This increased supply might explain the uptick in Real Estate Excise Tax (REIT) revenue that Asbjornsen reported: "Through May, actually, we've had an increase of $500,000 of REIT that we've received as a city. So there has been more home sales this year than we've seen in the prior year." However, average listing prices remained high at about $850,000. When Lilliquist asked for clarification, Asbjornsen confirmed this was "average listing price, not median," which explained why it differed from commonly reported median home price figures around $688,000. ## Technical Budget Questions The meeting included several detailed exchanges about budget technicalities that revealed the complexity of municipal finance. Lilliquist raised questions about apparent discrepancies in REIT budget percentages between different quarters, noting "I thought like first quarter and second quarter read kind of came in identical and we budgeted them identically. How are they different from each other?" Asbjornsen explained that while "both the REITs are equal... about 830,000 apiece," the budgets appeared different because "there's actually a grant project that was also budgeted within one of the REITs. And so that is skewing the numbers a little bit." He acknowledged this was less than ideal: "I'd prefer not to budget any grants within REIT, but it is expected to receive a little bit more revenue this year, but not from the real estate excise tax." This exchange highlighted the challenge of tracking municipal finances when grant funding and special projects create complications in otherwise straightforward revenue categories. As Asbjornsen noted, "We had to put it somewhere," and this would likely be addressed with footnotes in future reports and possibly a budget amendment to move the grant funding to a more appropriate category. ## The Capital Investment Surge One of the most striking aspects of the first quarter report was the dramatic increase in capital spending. "The city has actually been doing a really good job with our capital budget this year," Asbjornsen reported. "Often you'll see that line further out in our capital, not as close, but there's been almost 10 million in land purchases between the Greenways Fund and also the watershed fund." This capital spending surge included major infrastructure projects across the city. "We have the Meter and James Street bridge replacements going on. SOC is going on right now. And also the Woburn facilities," Asbjornsen listed, adding "the sewer with meridian and rotor as well." The watershed fund alone had seen significant activity with "about $6 million in land purchases." The wastewater fund was budgeting major projects including "the Meridian Street at about 14 million, rotary lift station at 6.4 million, and Post Point has several projects as well." This level of capital activity was unusual for the first quarter and demonstrated the city's commitment to infrastructure improvement despite revenue challenges. However, it also highlighted the financial pressures the city faced in balancing current operations with necessary long-term investments. ## The Looming Budget Gap The most sobering portion of the presentation came when Asbjornsen displayed the general fund projections that showed the city's emergency reserves gradually disappearing if current trends continued. The chart showed a declining trend from 2025 through 2028, with reserves potentially falling below recommended levels. Committee Chair Anderson took a moment to address this directly for the public record: "I just wanted to make a comment for the public... This does not necessarily mean this is where we will end up. But if we don't make any changes to our expenditure and we our revenue stays flat, this is what would be projected." The projection showed the city ending 2025 with about a $4.5 million gap in its emergency reserve, growing to $5-6 million in 2026. "There's about a $4.5 million gap here that we're looking to reduce, to do as much as we can within 25, but really also focusing out to 2026," Asbjornsen explained. Anderson was careful to reassure residents that this was a planning tool, not a prediction: "We will have reserves. This is just if we stay on course without correcting under the current economic situation, this is what we'd expect. But we will make sure that doesn't happen." ## The Mayor's Budget Instructions To address the projected shortfall, Mayor Kimberley Lund had already issued budget instructions to all city departments. These instructions represented a significant shift toward fiscal restraint and careful prioritization of city services. The instructions asked departments to "evaluate all open positions to ensure they are still consistent with departmental needs and priorities" and to "consider how existing resources could be reprioritized to address new needs and priorities." Most significantly, all general fund and internal service fund departments were asked to "submit options to reduce your budget by five and 10%." Asbjornsen emphasized the careful approach being taken: "Please clarify how the reductions would impact service levels and any short and long term implications. So we really want to look into the budget. I know that it'd be challenging to implement all of those cuts, but we want to do it as the to maintain as much service as possible and, and do it at the least impactful way." This represented what he called "just an exercise to really review everything within every departmental budget so we can evaluate what reductions are possibly able to be made through that process." The goal was transparency and collaboration: "All the department heads will get together to really present everything within their budget and really talk through all the budget priorities." ## Waterfront Development and Lift Funding Council member Lilliquist used the opportunity to ask detailed questions about the Waterfront Construction Fund, which had started the year with a $13.5 million balance. This fund, Asbjornsen explained, was "really established for the future Bay Street Connector down to the waterfront," part of the city's obligations under an interlocal agreement with the port. The fund operates as a Local Infrastructure Finance Tool (LIFT), receiving $1 million annually from the state based on sales tax generated within the designated area. "The state actually provides us with that million dollars based on their portion of sales tax. So it doesn't cost the community any more, but it's out of their portion of the sales tax," Asbjornsen explained. The Bay Street Connector project was projected to cost around $60 million whenever it moves forward. When Lilliquist asked about the risk of not meeting performance criteria to receive the annual funding, Asbjornsen was confident: "You basically have to spend a million to get a million. And we've we're ahead of the pace, especially when greenery and laurel were put into place down on the waterfront. So we're significantly ahead of the pace." The waterfront projects already completed, including Greenway and Laurel installations, had generated enough qualifying expenses to meet the state's requirements well into the future, providing security for the annual million-dollar payments. ## Fund-by-Fund Analysis The presentation included detailed analysis of the city's various funds, each telling part of Bellingham's financial story. The Medic One fund, always closely watched because "revenues almost equal expenditures," showed typical performance with costs slightly exceeding revenues by about $75,000 in the first quarter. Development Services faced challenges with "planning check services are down almost 400,000 this year," indicating reduced development activity flowing through the review process. This aligned with the broader construction trends seen in sales tax data. The city's enterprise funds showed mixed performance. Water and wastewater utilities were performing well, benefiting from rate structures and steady demand. Storm water utility faced some challenges but remained stable. The golf course continued its historical pattern of modest losses, while parking services showed positive performance. Internal service funds, which provide services to other city departments, demonstrated the complexity of municipal finance. The facilities fund showed significant activity related to the ongoing SOC Phase Two project, while technology funds reflected ongoing infrastructure investments. ## Economic Context and Uncertainty Asbjornsen concluded his presentation by acknowledging the broader economic uncertainty facing all municipalities. "It's really hard to say what's going on in the economy. We see kind of fearful purchases when people are trying to purchase things in advance of tariffs, maybe hitting still unknown when it comes to what's going to go on with the federal funds rate." Recent jobs reports had been strong, he noted, which typically keeps the Federal Reserve from lowering interest rates. "The unemployment was still sitting at about 4.2%. So there's not been a lot of changes within that economic environment to have the fed really move on any changes on that side." This uncertainty made budget planning particularly challenging. "But we sit and wait every day, bring something new. But it's really hard to forecast in this environment," Asbjornsen admitted, capturing the challenge facing municipal finance professionals nationwide. ## Next Steps and Timeline Looking ahead, the city had established a clear timeline for addressing the budget challenges. Revenue forecasts would be updated in June and again in early September, providing more current data for decision-making. Draft departmental work plans and budget requests were due in July, followed by intensive budget balancing sessions in late August and September. The 2026 budget would be presented to council on September 29th, representing the culmination of months of careful analysis and difficult decisions. "In July, draft work plans and budget requests are due into the budget department to be evaluated by the mayor's office. And then late August and September, that will go through all the budget balancing and final decisions," Asbjornsen outlined. The process was designed to be collaborative and transparent, ensuring that all stakeholders understood the trade-offs involved in municipal budgeting during challenging economic times. ## Closing Reflections As the meeting concluded, Committee Chair Anderson expressed appreciation for the regular financial updates. "I personally appreciate our monthly visits on this because all the questions I've had have already been answered before this session," she noted, highlighting the value of regular financial monitoring. The meeting provided a clear snapshot of Bellingham's financial position at a critical juncture. While the city maintained stable operations and continued investing in essential infrastructure, the combination of flat revenues and increasing costs created pressures that would require careful management in the months ahead. The proactive approach taken by city leadership, from detailed analysis to early budget instructions, demonstrated a commitment to addressing challenges before they became crises. With another full city council meeting scheduled for 7:00 PM that same evening to address the Transportation Improvement Program, the day represented the ongoing work of municipal governance — balancing financial realities with community needs while planning for an uncertain economic future.

### Meeting Overview The City of Bellingham Budget and Finance Committee met on June 9, 2025 to review the city's financial position for the first quarter of 2025. Finance Director Andy Asbjornsen presented an overview of revenue trends, major expenditures, and budget projections, with particular focus on the city's declining emergency reserves and upcoming budget challenges for 2026. ### Key Terms and Concepts **General Fund:** The city's primary operating fund that pays for basic services like police, fire, parks, and administration. Currently facing a budget gap as expenses outpace revenues. **Emergency Reserve:** Money set aside for unexpected expenses or revenue shortfalls. The city aims to maintain $21.5 million but currently faces a $4.5 million gap that could grow to $6 million by 2026. **Sales Tax Revenue:** One of the city's primary revenue sources, currently running flat at about $13.4 million through the first five months of 2025, showing no growth after inflation. **Real Estate Excise Tax (REIT):** Tax on property sales that funds capital projects like affordable housing and transportation. Running stronger than expected in 2025 due to increased home sales. **Capital Expenditures:** Major infrastructure investments like land purchases, building construction, and equipment. The city has been very active in 2025 with nearly $10 million in land purchases. **BLS Transport:** Basic Life Support ambulance services provided by the fire department that generate revenue through billing. Temporarily down $350,000 due to billing service transition. **Waterfront Construction Fund:** A special Local Infrastructure Financing Tool (LIFT) fund collecting $1 million annually from the state to save for the future Bay Street Connector project to the waterfront. ### Key People at This Meeting | Name | Role / Affiliation | |---|---| | Lisa Anderson | Committee Chair, Fifth Ward Council Member | | Michael Lilliquist | Committee Member, Sixth Ward Council Member | | Daniel Hammill | Committee Member, Third Ward Council Member (remote) | | Andy Asbjornsen | Finance Director | ### Background Context This financial review comes at a critical time for Bellingham. Like many cities across Washington, Bellingham is facing the challenge of flat revenue growth while service costs continue to rise. Sales tax revenue, historically a reliable growth engine, has plateaued for three consecutive years even as inflation erodes purchasing power. Meanwhile, the city has ambitious capital projects underway, including major sewer infrastructure upgrades and land acquisitions for parks and watershed protection. The city is preparing for its 2026 budget process with instructions already sent to departments asking them to identify potential 5-10% budget cuts. This reflects the reality that without significant changes, the city's emergency reserves could be depleted by 2028. The first quarter review provides an early snapshot of whether revenue trends are improving or if more aggressive budget balancing will be needed. ### What Happened — The Short Version Finance Director Asbjornsen walked through comprehensive slides showing that most city revenues are tracking close to budget expectations, but growth remains stubbornly flat. Sales tax revenue through May showed no meaningful growth compared to previous years, while construction-related taxes have declined 25%. The city's ambitious capital spending is proceeding well, with major land purchases and infrastructure projects underway. However, the general fund faces a projected $4.5 million deficit that could grow without intervention, prompting the mayor to ask departments for budget reduction scenarios. ### What to Watch Next - Second quarter financial review expected in July or August - Department budget submissions due in July with proposed 5-10% reduction options - September budget balancing meetings where difficult decisions will be made - September 29th presentation of the 2026 budget to council ---

**Q:** What was the total sales tax revenue through the first five months of 2025? **A:** $13.4 million, which is flat compared to previous years and shows no real growth. **Q:** How much is the city's emergency reserve fund gap projected to be? **A:** $4.5 million in 2025, growing to $5-6 million by 2026 if no corrective actions are taken. **Q:** What major construction sector showed a 25% decline in sales tax revenue? **A:** Construction of buildings, which generated about $340,000 less in sales tax this year. **Q:** How much does the Waterfront Construction Fund receive annually from the state? **A:** $1 million per year through the LIFT program, as long as the city meets spending criteria. **Q:** Why was BLS transport revenue down $350,000 in the first quarter? **A:** The fire department changed billing services, creating a gap as the old service stopped and new service started. **Q:** What percentage budget reductions were departments asked to prepare? **A:** 5% and 10% reduction scenarios for all general fund and internal service fund departments. **Q:** How much has the city spent on land purchases in the first quarter? **A:** Nearly $10 million between Greenways Fund ($4 million) and watershed fund ($6 million). **Q:** What is the average home listing price in Bellingham as of March 2025? **A:** Approximately $850,000, which is average listing price (not median). **Q:** How many housing units were permitted through the first quarter? **A:** 272 units through March, with the city targeting 800 units for the full year. **Q:** When will the 2026 budget be presented to council? **A:** September 29, 2025, following budget balancing meetings in late August and September. **Q:** What is the target amount for the city's emergency reserves? **A:** $21.5 million, which the city is currently about $4.5 million short of reaching. **Q:** How much property tax revenue came in during the first quarter? **A:** Very little, since the first tranche of property tax doesn't hit until April. **Q:** What major infrastructure projects are currently underway? **A:** SOC phase two, Meter and James Street bridge replacements, and Meridian Street and rotary sewer projects. **Q:** How much more REIT revenue has the city received compared to last year? **A:** An additional $500,000 through May due to increased home sales activity. **Q:** What economic factors are making revenue forecasting difficult? **A:** Uncertainty about federal interest rates, potential tariffs affecting purchasing behavior, and generally unpredictable economic conditions. ---