City Council Budget and Finance Committee

Bellingham's Budget and Finance Committee confronted two sobering realities on May 19th: dramatic utility rate increases of 11-13% annually and a structural budget deficit requiring service cuts in 2026. The committee received detailed presentations on both the city's infrastructure financing crisis and Mayor Lund's no-growth budget philosophy for the coming year. The utility rate discussion dominated the morning, with consultant Gordon Wilson presenting a forecast showing water rates increasing 11% annually for four years, wastewater rates jumping 18% for two years then 12% for two more, and combined utility bills rising from $135 to an inflation-adjusted $246 by 2045. These increases stem from deferred maintenance at the wastewater treatment plant following the 2022 cancellation of the solids project, plus water system upgrades including massive pipe replacement for 1920s-1930s era infrastructure and new storage facilities like King Mountain Reservoir. Staff recommended expanding the customer assistance program by removing age and disability restrictions, potentially tripling participation from 741 to over 2,200 households. This expansion would cost other ratepayers an additional $1.50-$3.50 monthly but would still leave the majority of struggling renters unserved since they don't pay utility bills directly. Council Member Lilliquist challenged several major capital projects, citing public comments suggesting $70 million in potentially unnecessary infrastructure upgrades. He requested independent review of the rate study, particularly questioning a Meridian Street upgrade that may be driven by outdated industrial zoning rather than realistic development patterns. Mayor Lund's 2026 budget memo marked a stark departure from previous years, identifying no new priorities or investments while warning of necessary service reductions. The structural deficit continues worsening as expenses outpace flat revenues, with the general fund largely consumed by staff salaries and contractual increases.

**AB 24547 - Water System Plan and Utility Rates (No formal vote - direction provided)** - Staff recommendation: Adopt 5-year rate schedule with 11.8% combined increases in 2026, 12.2% in 2027 - Council direction: Support expanding customer assistance program to all income-qualified households - Council direction: Reduce nonprofit housing discount from 25% to 20% to minimize rate impact - Council direction: Hold Lake Whatcom watershed fee constant (not subject to water rate increases) - Council direction: Implement annual monitoring trigger if assistance program costs exceed projections **AB 24558 - 2026 Budget Development Process (No formal vote - informational)** - Mayor's priorities: Public safety, housing programs, internal services - No new budget investments proposed due to structural deficit - Budget introduction scheduled for August/September with public hearings

**Mike Olinger, on rate increase urgency:** "Delaying this only makes it worse. So the more that we try to push this down the road, instead of talking about like today we're talking about 12 and 13 percent rate increases in water and even higher in wastewater, that only extrapolates and makes those numbers higher if we delay this out and push it out another year or two." **Gordon Wilson, on Bellingham's affordability challenge:** "If you have middle of the road utility rates but very low incomes, the result is income that they have to pay in order to pay their utility bills because the incomes are low, the rates are not exceptionally high but they're also not exceptionally low." **Council Member Lilliquist, on infrastructure costs:** "I am concerned about the rate schedule. I'm not part of the public works committee, and so I really haven't weighed in on this. But those numbers are scary large, and I really want to interrogate them. Talking about the doubling and tripling of rates, this schedule already shows the rates will double by 2032 and triple by 2038." **Council Member Hammill, on unserved populations:** "Survival budget in Whatcom County as of two years ago was 119,000 for two adults, one infant and one preschooler. And survival budgets are basically like housing, childcare, food, transportation, healthcare, technology, does not include savings for emergencies use or future goals like college or retirement. So this is like literally survival budget." **Chair Anderson, on transparency:** "I think for just transparency it would be good to make sure that that's a line item in the bill so that people know that that extra $6 a month is going to a low income assistance and that helps people gauge what that extra cost is." **Mayor Lund, on budget priorities:** "Instead, it seeks to identify areas where we are going to endeavor to minimize our impacts as we establish the city on firmer financial footing. This budget requires us to make hard choices. We will have to reduce some services and some programs." **Council Member Lilliquist, on capital project review:** "If we could potentially shave ten percent off those capital costs find a few big projects that maybe the tank didn't be that large or maybe it didn't need to be that soon because they're so large adjusting that schedule if it's realistic would bring down these curves."

# Bellingham Grapples with Massive Utility Rate Increases and Budget Constraints ## Meeting Overview The Bellingham City Council Budget and Finance Committee convened on May 19, 2025, for what would prove to be a sobering morning of difficult fiscal realities. Chair Lisa Anderson presided over the 81-minute session, joined by Committee Member Michael Lilliquist in chambers and Committee Member Daniel Hammill participating remotely. The meeting tackled two weighty issues that together paint a picture of a city facing significant financial pressures: dramatic utility rate increases necessitated by aging infrastructure and regulatory requirements, alongside a 2026 budget process constrained by structural deficits. The meeting's gravity was captured early by Council Member Lilliquist, who described it as "a really unhappy morning" while acknowledging the administration's responsible approach to confronting the city's fiscal challenges. The discussions revealed the difficult balancing act between maintaining essential services, addressing long-deferred infrastructure needs, and protecting vulnerable residents from the burden of necessary rate increases. ## Water System Plan and Massive Utility Rate Increases The morning's most substantial discussion centered on a comprehensive presentation about the city's water system plan and the significant utility rate increases required to address decades of deferred infrastructure maintenance and regulatory compliance. Interim Public Works Co-Director Mike Olinger opened by explaining the context: "A lot of this began with the cancellation of the wastewater solids project back in 2022. At that time, if you'll remember, we talked about some of the work that would need to be done at the wastewater treatment plant as what a lot of us like to refer to as the deferred maintenance that was deferred because we were expecting a lot of those buildings and structures to go away." The infrastructure crisis is particularly acute in the water system, where significant portions of the city's pipe inventory date to the 1920s and 1930s post-war growth period. "Right now within our inventory we have a significant amount of pipe that is in that 1920s to 1930s era," Olinger explained, "and a lot of that pipe is reaching that hundred-year-old mark and is starting to fail and we need to plan to ramp up that program in replacement." Gordon Wilson, a consultant with FCS Bowman, delivered the stark financial reality through detailed rate forecasts. The proposed increases are dramatic by any standard: water rates would increase 11% annually for four years, followed by 9% increases for the subsequent five years. Wastewater faces even steeper increases at 18% for two years, then 12% for two more years. When combined across all utilities, residential customers face a 13.3% increase in 2026, followed by 13.5% in 2027. "Anything over about 3% or 4% is considered to be above inflation," Wilson noted, emphasizing the severity of these increases. "It increases the burden on customers in relation to inflation and income growth. And you've got a lot of that." The cumulative impact is staggering. Wilson projected that by 2045, the average single-family residential utility bill would rise from today's $135 per month to what would feel like $246 in today's purchasing power. "That's what it means to have all those years of above inflation increases," he explained. Olinger stressed the urgency of implementing these increases, warning that delay would only compound the problem. "Delaying this only makes it worse," he said. "The more that we try to push this down the road, instead of talking about like today we're talking about 12 and 13 percent rate increases in water and even higher in wastewater, that only extrapolates and makes those numbers higher if we delay this out and push it out another year or two." Council Member Lilliquist expressed deep concern about the magnitude of these increases, noting they would double rates by 2032 and triple them by 2038. "Those numbers are scary large, and I really want to interrogate them," he said, requesting that the administration seek "another set of eyes" on the rate projections to verify their necessity. ## Affordability Crisis and Customer Assistance Program Expansion Wilson's affordability analysis revealed Bellingham faces a particularly challenging situation regarding utility costs relative to income. Among the 12 largest Washington cities with single water providers, Bellingham ranks 10th to 12th in median household income but maintains middle-of-the-road utility rates. This combination creates an affordability burden where Bellingham residents pay 2.3% of median household income for utilities — higher than any other surveyed city. The situation is more dire for low-income residents. Those in the 20th income percentile face utility costs representing 11.2% of their income. Wilson noted that Bellingham has "a two-humped income distribution. A lot of high and low and not a lot in the middle. The incomes at the low end are lower than those in most other communities." To address this affordability crisis, the presentation outlined potential expansions to Bellingham's Customer Assistance Program (CAP). Currently, the program serves 741 households but is restricted to seniors and disabled individuals. The proposed expansion would eliminate age and disability restrictions, making all low-income utility customers eligible regardless of age or disability status. The expansion could increase participation two to three times, potentially serving 1,500 to 2,200 households. However, this expansion would add costs passed on to other ratepayers — between $1.29 to $3.28 per month depending on the scale of expansion. Council Member Hammill highlighted the broader context of need, referencing data showing that 60% of Whatcom County's 42,000 households fall below the survival budget threshold of $119,000 for a family of four. "The delta between what I would regard is tens of thousands of households that in some way could qualify for some kind of assistance with the utilities and what's listed here in this report is tremendous," he observed. The discussion revealed a significant gap in assistance for renters, who comprise 55% of Bellingham households. The current program only serves customers who pay utility bills directly, leaving out many low-income renters whose utilities are included in rent. Wilson mentioned that expanding to serve this population through a rebate program could increase the participant pool sevenfold, but would significantly increase costs to other ratepayers. ## Watershed Fee and Capital Project Scrutiny One potential area for cost relief emerged through discussion of the Lake Whatcom watershed fee. Staff recommended holding this fee constant rather than subjecting it to the same percentage increases as water rates. This approach would save approximately $47 per month for the average household by 2045. However, Council Member Lilliquist, wearing "my Lake Whatcom management hat," expressed concern about this approach. "Each pound of phosphorus removed or prevented is going up in cost because we've already done major intercepts of stormwater," he noted, warning that flat funding might prove unrealistic long-term. Lilliquist also raised significant questions about the capital improvement projections driving the rate increases. He referenced public comments suggesting some infrastructure projects might be oversized or unnecessary, citing specifically a $7 million upgrade to Meridian infrastructure that might be based on outdated industrial zoning assumptions rather than likely future residential development. "If we could potentially shave ten percent off those capital costs, find a few big projects that maybe the tank didn't need to be that large or maybe it didn't need to be that soon," Lilliquist argued, "adjusting that schedule if it's realistic would bring down these curves." Chair Anderson supported this scrutiny, suggesting the city examine funding needs over a shorter three-year timeframe rather than the full 10-year projection. "I would appreciate maybe an analysis of how much money do we really need to spend over the next three years, which hopefully will buy us one year in planning to re-evaluate those costs," she said. ## Budget Transparency and Implementation Concerns Chair Anderson raised important questions about transparency in how assistance program costs are communicated to ratepayers. She requested that the city's new utility billing system clearly show the monthly contribution each customer makes toward low-income assistance as a separate line item. "I think for just transparency it would be good to make sure that that's a line item in the bill so that people know that that extra $6 a month is going to a low income assistance," Anderson explained. "That helps people gauge what that extra cost is." She also suggested implementing monitoring triggers that would bring the assistance program back for council review if costs exceed certain thresholds, rather than waiting the full three years for the scheduled review. ## Staff Recommendations and Council Direction Despite the challenging numbers, staff presented a unified set of recommendations acknowledging both infrastructure needs and affordability concerns: - Adopt a five-year rate schedule with water increases of 12% in 2026-27, then stepping down - Sewer increases of 19% in 2026 and 26-27%, then stepping down - Stormwater increases of 3% annually - Hold Lake Whatcom watershed fees constant - Triple the customer assistance program over two years by eliminating age/disability restrictions - Increase nonprofit low-income housing discounts from 10% to 25% - Partner with Opportunity Council for streamlined program administration Deputy Administrator Forrest Longman emphasized the timeline pressure: "We will be looking for direction to move forward with creating a resolution with all of the said fees and that needs to be adopted in June in order for us to get these underway by January of next year." The council members expressed general support for expanding assistance eligibility while requesting further analysis of the underlying capital cost projections. Anderson summarized the direction: "I think the three council members have articulated support to move towards the category of not just low-income seniors and those low-income with disabilities but looking at a system where we can implement for people who meet those financial thresholds." ## Mayor's 2026 Budget Framework The meeting's second item provided context for the utility rate discussion by outlining the city's broader financial constraints. Mayor Kimberley Lund presented her 2026 budget development framework, acknowledging that "the city continues to navigate a challenging financial situation and the structural budget deficit that we identified in 2025 has only been exasperated and expenses continue to decline while revenues remain flat." Unlike previous years, the mayor's memo identified no new budget priorities or investment areas. "Instead, it seeks to identify areas where we are going to endeavor to minimize our impacts as we establish the city on firmer financial footing," Lund explained. The budget framework prioritizes three areas: - Public safety, including evaluating resources to maintain current service levels - Programs and policies supporting housing expansion across the community's needs - Internal services, systems and people enabling effective city operations Mayor Lund was candid about the implications: "This budget requires us to make hard choices. We will have to reduce some services and some programs." Council Member Lilliquist praised this approach as "the only responsible approach to take," while Chair Anderson assured residents about priorities: "The last thing for me is, well, the first thing that I'm like the sword I would fall on is maintaining our downtown bike patrol." Anderson also warned residents to expect visible service reductions: "Some reduced services may be our parks aren't mowed as frequently... you're not going to see me out in traffic with the weed eater but it's tempting." ## Looking Ahead and Public Input The budget timeline shows formal introduction in August with public hearings in September, providing a four-month window for community input. Mayor Lund encouraged feedback via email to her office or council, with Deputy Administrator Janis Kaller noting that more structured public engagement opportunities, including through the city's engagement platform, would be provided as the budget process advances. The discussion highlighted ongoing strategic planning processes that may provide future relief, including a public safety strategic plan examining potential alternative revenue sources for police and fire services. The administration also continues analyzing opportunities to shift certain programs from general fund to dedicated revenue sources, such as using jail tax funds for alternative response programs previously supported by the general fund. ## Closing and What's Ahead The committee adjourned at 11:21 AM with clear direction for staff to return with refined recommendations incorporating council feedback. The urgency of June adoption for utility rates to take effect in January 2026 creates pressure for quick resolution, while the broader budget challenges will require sustained attention through the summer and fall. The meeting exemplified the difficult balance local government faces between infrastructure responsibility and affordability concerns. As Council Member Lilliquist observed, these conversations force recognition of "hard realities" while seeking ways to "minimize impacts" on residents already struggling with housing and living costs. The path forward requires threading the needle between essential infrastructure investments, expanded assistance for vulnerable residents, and fiscal sustainability — all while maintaining the public services that define Bellingham's quality of life.

## MODULE S1: STUDY GUIDE **Meeting ID:** BEL-CON-BFC-2025-05-19 A structured study guide helping readers understand the meeting's content and context. Written for a general civic audience — assume no prior knowledge of the issues. ### Meeting Overview The Bellingham City Council's Budget and Finance Committee met on May 19, 2025, for 81 minutes to discuss two critical financial challenges facing the city: dramatic utility rate increases needed for aging infrastructure and the city's structural budget deficit affecting the 2026 budget. ### Key Terms and Concepts **Water System Plan:** A comprehensive long-range planning document that identifies infrastructure needs for the city's water utility, including pipe replacement, storage expansion, and regulatory compliance projects. **Customer Assistance Program (CAP):** A utility bill discount program that currently provides 25%, 50%, or 75% discounts to qualifying low-income households headed by seniors or disabled individuals. **Debt Service Coverage Ratio:** A financial metric requiring the city to maintain 1.7 times the revenue needed to pay debt obligations, ensuring the city can secure bonds and loans for infrastructure projects. **Alice Households:** Asset Limited Income Constrained Employed households - working families who earn too much to qualify for traditional assistance but struggle to afford basic necessities. About 40% of Bellingham residents fall into this category. **Structural Budget Deficit:** A persistent gap between revenues and expenses where costs grow faster than income, requiring ongoing budget cuts or new revenue sources. **General Fund:** The city's main operating fund that pays for basic services like police, fire, parks, and administration through taxes and fees. **Lake Whatcom Watershed Fee:** A separate charge on water bills that funds environmental protection efforts for the city's primary drinking water source. **UGA (Urban Growth Area):** Designated areas around the city planned for future development and annexation, which must be included in infrastructure planning. ### Key People at This Meeting | Name | Role / Affiliation | |---|---| | Lisa Anderson | Committee Chair, Fifth Ward Council Member | | Daniel Hammill | Committee Member, Third Ward Council Member (attended remotely) | | Michael Lilliquist | Committee Member, Sixth Ward Council Member | | Mayor Kimberley Lund | Mayor of Bellingham | | Mike Olinger | Interim Public Works Co-Director | | Forrest Longman | Deputy City Administrator | | Gordon Wilson | Senior Project Manager, FCS Group consultant | ### Background Context Bellingham is facing a perfect storm of financial challenges. The city's water and sewer infrastructure, much of it built in the 1920s-1930s, is reaching the end of its 100-year lifespan and beginning to fail. Meanwhile, environmental regulations require expensive upgrades to the wastewater treatment plant, and the city must plan for water storage expansion to serve growing areas. These infrastructure needs coincide with a structural budget deficit in the general fund, where expenses are growing faster than revenues, forcing difficult choices about city services. The situation became more acute in 2022 when the city cancelled a major wastewater project, leaving deferred maintenance that now must be addressed. The city has been proactive in controlling costs through a position review process, but the magnitude of needed infrastructure investment requires significant rate increases that will burden residents who are already struggling with housing costs. ### What Happened — The Short Version City staff presented a sobering financial reality check in two parts. First, they outlined utility rate increases of 11-12% annually for the next several years to pay for aging infrastructure replacement and regulatory compliance. These increases would more than double average utility bills by 2032. To help residents cope, staff proposed expanding the customer assistance program to all low-income households, not just seniors and disabled individuals, which would add $1.50 to $3.50 monthly to other customers' bills. Second, Mayor Lund presented her 2026 budget priorities, acknowledging the city faces a structural deficit requiring service cuts. Unlike previous years with new initiatives, this budget will focus only on maintaining current levels of public safety, supporting housing programs, and preserving essential city operations. Council members expressed concern about the magnitude of rate increases and requested additional review of infrastructure cost projections, while supporting expansion of assistance programs for struggling residents. ### What to Watch Next • Staff will return to the June council meeting with a resolution incorporating today's feedback on utility rates and assistance program expansion • The city will conduct additional analysis of infrastructure costs, potentially getting "second eyes" on major capital projects • The formal 2026 budget will be introduced in August/September with public hearings • Council will re-evaluate the expanded assistance program in three years, with potential triggers if costs exceed projections ---

## MODULE S2: FLASH CARDS **Meeting ID:** BEL-CON-BFC-2025-05-19 **Q:** What are the proposed water utility rate increases for 2026 and 2027? **A:** 11% for water and 18-19% for wastewater in 2026, followed by similar increases in 2027, then stepping down to 9% annually through 2030. **Q:** How many households currently participate in Bellingham's Customer Assistance Program? **A:** 741 households currently receive utility bill discounts through the program. **Q:** What are the three discount tiers in the current Customer Assistance Program? **A:** Eligible households can receive 25%, 50%, or 75% discounts on their utility bills based on income level. **Q:** What restriction currently limits participation in the Customer Assistance Program? **A:** Only low-income households headed by at least one senior (elderly) or disabled adult are eligible to participate. **Q:** What would be the estimated monthly cost impact on other ratepayers if the assistance program is tripled over two years? **A:** Approximately $3.28 per month additional cost for typical single-family households by the third year. **Q:** Why does the city need these dramatic utility rate increases? **A:** Aging infrastructure from the 1920s-1930s is failing, environmental compliance requires expensive upgrades, and the city must expand water storage and main replacement programs. **Q:** What is Bellingham's debt service coverage ratio requirement? **A:** The city must maintain 1.7 times the revenue needed to pay debt service to qualify for bonds and loans. **Q:** How does Bellingham compare to other Washington cities in terms of income and utility rates? **A:** Bellingham has the 10th-12th lowest median income among major WA cities but middle-of-the-road utility rates, making bills harder to afford. **Q:** What happened to the wastewater solids project in 2022? **A:** The project was cancelled, leaving deferred maintenance at the wastewater treatment plant that now must be addressed as separate projects. **Q:** What percentage of Bellingham residents are renters? **A:** Approximately 55% of Bellingham households are renters, many of whom wouldn't benefit from utility bill discounts if utilities are included in rent. **Q:** What is Mayor Lund's approach to the 2026 budget? **A:** Unlike previous years, no new priorities or investments are proposed; instead, the focus is minimizing impacts while maintaining public safety, housing programs, and essential city operations. **Q:** What is the Lake Whatcom watershed fee and how is it being treated? **A:** A separate water bill charge funding drinking water source protection; staff recommends holding it constant rather than increasing it with water rates. **Q:** What is a "survival budget" in Whatcom County? **A:** As of two years ago, $119,000 annually for two adults, one infant, and one preschooler to cover basic needs like housing, childcare, food, and transportation without savings. **Q:** How many Whatcom County households fall below the survival budget threshold? **A:** Approximately 60% of the county's 42,000 households, representing tens of thousands of families. **Q:** What alternative is being considered to help renters who don't pay utility bills directly? **A:** A rebate program similar to Bellevue's, providing annual rebates to income-qualified households regardless of direct utility bill payment. **Q:** When must the utility rate resolution be adopted? **A:** By June 2025 to allow implementation of the new rates by January 2026. **Q:** What trigger mechanism did Chair Anderson request for monitoring the assistance program? **A:** If costs to other ratepayers exceed $5 per month, the program should come back to council for review rather than waiting three years. **Q:** What infrastructure project on Meridian is being questioned? **A:** A $7 million pipe upgrade that may be unnecessary if future zoning changes from industrial to residential uses, reducing required capacity. **Q:** How much cash reserve does the watershed program currently have? **A:** Approximately $20 million in reserves, which staff believes is sufficient for the five-year planning period. **Q:** What will utility bills feel like in 2045 compared to today? **A:** In today's purchasing power, bills would feel like $220-246 per month compared to the current $135, even after accounting for inflation. ---