# Facing the Numbers: Whatcom County Grapples with Structural Budget Crisis The Whatcom County Council convened in special session on Tuesday morning, September 16, 2025, to confront a stark financial reality that has been years in the making. In the sterile chambers of the County Courthouse, Deputy Executive Allie Panucci delivered a sobering presentation that laid bare the county's structural budget deficit—a gap between revenues and expenses that threatens to drain reserves and fundamentally reshape county services. Six of seven council members gathered at 9:03 a.m., with only Tyler Byrd absent, for what would prove to be a technical but consequential discussion about the 2025-26 Mid-Biennium Budget Review. The hybrid meeting format allowed both in-person attendance and remote participation, though the weight of the financial challenges ahead felt heavy in the chamber. ## The Structural Crisis Revealed Deputy Executive Panucci wasted little time in establishing the gravity of the situation. Armed with charts and projections, she painted a picture of a county government caught in an unsustainable trajectory where "our expenses are outpacing our revenues" across virtually all county funds. "The cost to provide these services are outpacing our annual revenues," Panucci explained, noting that this isn't a sudden crisis but rather the culmination of structural imbalances that have been building for years. "So we've been looking for both short-term and long-term actions to try to stabilise the budget, better stabilise our services, and ideally not kind of be in budget crisis every year." The charts she presented told a stark story. Without intervention, the county's general fund balance would dip below policy targets by 2028, eventually reaching zero or negative territory within another biennium. Even more acute was the road fund situation, where the adopted 2026 budget would "fully deplete the road fund balance" and send it into illegal negative territory. "We would be legally out of balance in that fund, so we would have to do some intervention there," Panucci stated matter-of-factly about the road fund crisis. ## The Inflation Factor A significant portion of the county's revenue challenges stems from a problem beyond local control: the erosion of purchasing power due to inflation. Panucci displayed charts showing how the real value of property tax revenues has declined dramatically since 2021, losing approximately $3.6 million in purchasing power in the general fund alone. The culprit is Washington State's 1% annual cap on property tax increases, a limitation that Council Chair Kaylee Galloway asked Panucci to explain for public understanding. "Washington State has a cap on how much local jurisdiction can increase property taxes year to year. That's 1%," Panucci explained. "And it's 1% of the total dollar amount collected. So it's not that your tax can only go up 1%. It's how much the county can collect as a whole." This distinction is crucial for taxpayers to understand. Individual tax bills can vary based on assessed property values, but the county's total collections are capped at 1% growth annually—a rate that "is below even in a low inflationary environment that we were seeing for a decade before the pandemic," according to Panucci. The county's use of "banked capacity"—accumulated unused taxing authority from previous years—provided some relief in 2024, but Panucci characterized this as essentially a one-time correction. "This was kind of a necessary correction to restore purchasing power that had been eroded by 15 years of inflation," she said, quoting Finance Director Rydell. ## The Search for Solutions Acknowledging the scope of the challenge, Panucci outlined the county's approach to finding solutions. The Executive's Office conducted an extensive review process, collecting information from every department about potential reductions and asking all departments to inventory their services, identifying what was mandatory versus discretionary. "These summary sheets are available online for the public," Panucci noted. "There's also a detailed spreadsheet. We're going to continue to evolve this information." However, the review yielded sobering results. "There are few areas of county spending that can really be easily reduced," Panucci admitted. "When you start really looking under the hood and like what is our money being spent on these are services that matter to people." The challenge is compounded by the fact that many supposedly "discretionary" services were actually added in response to community needs that council members hear about regularly. "I'm not saying there aren't things to cut that are discretionary that are not core obligations of county government. Just saying those things are not easy to cut because they were added to address some issue at some point in time." ## The Human Cost of Budget Cuts Panucci emphasized that budget reductions often have cascading effects that can end up costing more in the long run. Deferred maintenance leads to larger infrastructure costs down the road. Reductions in mental health services can result in more calls to first responders. And losing long-term employees means losing institutional knowledge that's expensive to replace. "I think all of us in this room inherited some of that right," Panucci said, referring to the consequences of past deferred decisions. "If we look at the cost of building let's say a jail today versus 20 years ago or a sheriff's today versus 20 years ago it's really really different." ## Proposed Budget Adjustments Despite the challenging landscape, the Executive's Office has identified several potential approaches for the mid-biennium review. The proposals include cutting at least 13 vacant positions and freezing 9 others, targeting approximately $2.8 million in spending reductions. The largest component of these reductions would come from the Sheriff's Office, where Panucci proposed freezing nine vacancies that have been unfilled, achieving approximately $1.25 million in savings. "It is challenging. I'm sure you will hear from the sheriff this is not a preferred approach but it is a way to achieve some one-time savings without impacting the level of service that we experience today because these positions have been vacant." Due to technical budget constraints, the Sheriff's Office reductions would appear as cuts to non-personnel budget categories, with salary savings transferred back to cover training and equipment costs as needed. In Health and Community Services, the proposed reductions include cutting 12 vacant positions as part of an effort to reduce the department's general fund allocation by $1 million over the biennium. Council Member Todd Donovan sought clarification on whether the health department reductions would impact the general fund. "Yes," Panucci confirmed, explaining that the Executive's Office had requested a million-dollar general fund reduction from the health department during the biennial budget process that "didn't come to fruition in the adopted budget." ## The Public Safety Sales Tax Option A significant component of the Executive's long-term strategy involves implementing a new public safety sales tax authorized by the state legislature. Deputy Executive Kayla Schott-Bresler explained that the tax—one-tenth of one percent—could generate approximately $7 million in its first year. "The legislature's thinking in this was in part as a tool to help county meet new unfunded mandates such as the new public defence caseload standards," Schott-Bresler explained. "Certainly our position is that we would have preferred that the state funds those new unfunded mandates directly." Council Member Ben Elenbaas asked whether the tax required voter approval or could be implemented by council action. "It's councilmanic authority initially," Schott-Bresler confirmed, noting that cities also have independent authority to implement the tax, meaning residents in incorporated areas could see up to two-tenths of a percent in additional sales tax. ## Difficult Choices Ahead Even with all the proposed measures, departments submitted roughly $10 million in funding requests, of which $6.6 million are currently recommended and $830,000 remain under review. The gap between needs and available resources remains substantial. Perhaps most telling was Panucci's assessment of new position requests. Only three new positions are being considered, and she acknowledged the difficulty of the decision: "All three of those positions represent sort of critical needs for those departments for the county and right now we can't say confidently that we can afford to pay those people in two years." Council Member John Scanlon pressed for more information about the impacts of proposed cuts and freezes, asking for projections that extend beyond the current biennium. "It would be interesting to see if you all could make assumptions going forward. Let us know what those assumptions are," he said, particularly regarding the road fund where "some of the decisions that were made in the last decade had longer term impacts." Panucci agreed with the need for longer-term projections, acknowledging that "even in this rosier scenario, that delta would continue to grow over time, right? So you get to 2030, 32, and it's bigger and bigger and bigger." ## The Road Ahead The presentation was just the beginning of what promises to be an intensive deliberation process over the coming weeks. Panucci outlined plans for focused discussions on the road fund, EMS levy, public safety tax, and health department impacts in subsequent meetings. Council Member Donovan highlighted one particular area of concern: the EMS fund, which he described as "a black box to me." He stressed the importance of understanding long-term consequences of decisions, particularly if the county is considering using banked capacity in the EMS levy. Chair Galloway closed the meeting with a call for responsible discourse as the budget process moves forward. "I really hope that we can kind of keep the politics out of this because I think for me, this really is how we serve our community is in these budget decisions," she said. She emphasized the importance of sharing accurate information with the public as council members engage with their constituents. "How can we try to do this in the most factual, honest, transparent way? So that we can stimulate those conversations among the community." ## What's Next The county faces a series of difficult decisions in the coming weeks that will shape service delivery for years to come. The structural nature of the budget challenge means that even with the proposed adjustments, ongoing action will be required to maintain fiscal stability. As Panucci noted in her closing remarks, "We won't solve everything in one biennium cycle. This is going to require ongoing action for the next several years unless external factors change significantly." The meeting adjourned at 9:54 a.m., leaving council members to digest the sobering financial reality and begin the challenging work of balancing community needs with fiscal constraints. With the Executive's formal mid-biennium budget recommendations expected in the coming weeks, the real work of difficult decisions lies ahead.

### Meeting Overview The Whatcom County Council held a Special Committee of the Whole meeting on September 16, 2025, to discuss the county's 2025-26 Mid-Biennium Budget Review. Deputy Executive Aly Pennucci led a comprehensive presentation on the county's structural budget challenges and proposed solutions for addressing increasing costs and revenue shortfalls. ### Key Terms and Concepts **Mid-Biennium Budget Review:** A required mid-cycle review of the county's two-year budget to address unexpected costs and make necessary adjustments for the second year of the biennium. **Structural Deficit:** When a government's ongoing expenses consistently exceed ongoing revenues, creating an unsustainable budget situation that worsens over time. **Fund Balance:** The county's financial reserves, essentially savings accounts for different county services that provide cushions during emergencies or revenue shortfalls. **Banked Capacity:** A provision that allows local governments to "bank" unused portions of their 1% annual property tax increase and use it in later years when needed. **Public Safety Sales Tax:** A new one-tenth of one percent sales tax authorized by the state legislature to help counties fund criminal justice and public safety services. **Unfunded Mandates:** Requirements imposed by state government that counties must implement but for which the state provides no funding. **Full-Time Equivalent (FTE):** A measurement of staffing that represents one full-time position, used in budgeting to track total workforce capacity. **Cost of Living Adjustments (COLAs):** Annual salary increases for employees to keep pace with inflation, currently under negotiation for 2026. ### Key People at This Meeting | Name | Role / Affiliation | |---|---| | Kaylee Galloway | Council Chair | | Aly Pennucci | Deputy Executive | | Kayla Schott-Bresler | Deputy Executive | | Barry Buchanan | Council Member | | Todd Donovan | Council Member | | Ben Elenbaas | Council Member | | Jon Scanlon | Council Member | | Mark Stremler | Council Member | | Tyler Byrd | Council Member (absent) | ### Background Context Whatcom County, like many local governments across Washington State, is facing a significant budget crisis driven by inflation and state-imposed spending limits. Washington's 1% annual cap on property tax increases was enacted during a low-inflation era and now severely constrains counties' ability to keep up with rising costs. Between 2021 and 2024 alone, the county lost approximately $3.6 million in purchasing power in its general fund due to inflation. The situation is compounded by new unfunded mandates from the state, including higher public defense standards and increased jail health services requirements. Without intervention, the county's general fund would drop below its required 15% reserve threshold by 2028, and the road fund faces even more immediate crisis. This budget review represents a critical decision point where county leaders must balance essential services with fiscal sustainability, potentially affecting everything from road maintenance to public safety staffing. ### What Happened — The Short Version Deputy Executive Aly Pennucci presented a sobering analysis of the county's budget situation, showing that expenses are outpacing revenues across all major funds. The executive's office proposes cutting 13 vacant positions and freezing 9 others to save $2.8 million, while also considering implementing a new public safety sales tax that could generate $7 million annually. Key proposals include reducing health department general fund allocation by $1 million, potentially using community priority funds for one-time expenses, and increasing fees to achieve full cost recovery. The sheriff's office would face $1.25 million in budget constraints, primarily through position freezes rather than layoffs. Council members expressed interest in better long-term projections and emphasized the need for transparent public communication about these difficult decisions. The presentation revealed that even with these measures, the structural budget problem would continue requiring ongoing action for several years. ### What to Watch Next - September 23: Detailed road fund discussion and Public Works presentation - Upcoming meetings on EMS fund analysis and public safety tax implementation - Individual council member meetings with executive staff to discuss priorities - Public feedback period on 44-page budget decision document - Executive's final mid-biennium recommendations expected in coming weeks ---

**Q:** What is the main cause of Whatcom County's budget crisis? **A:** The 1% annual cap on property tax increases cannot keep pace with inflation, causing the county to lose purchasing power while service costs continue rising. **Q:** How much purchasing power did the general fund lose between 2021-2024? **A:** Approximately $3.6 million in the general fund and $4.4 million in road fund revenues when adjusted for inflation. **Q:** What happens if the county takes no action on the general fund? **A:** The fund balance would drop below the required 15% policy target by 2028 and could reach zero within another biennium cycle. **Q:** How many positions is the executive considering cutting or freezing? **A:** 13 vacant positions would be cut and 9 positions would be frozen, saving approximately $2.8 million. **Q:** What is the new public safety sales tax rate? **A:** One-tenth of one percent, which would generate approximately $7 million in the first year for Whatcom County. **Q:** Who has authority to implement the public safety sales tax? **A:** The County Council has councilmanic authority for the first two years; after that it requires voter approval. **Q:** What is the largest single department budget reduction being considered? **A:** $1.25 million from the Sheriff's Office, primarily through freezing vacant positions rather than layoffs. **Q:** How much did departments request in new funding? **A:** Approximately $10 million in total requests, with $6.6 million recommended and $839,000 still under review. **Q:** What is the required general fund reserve percentage? **A:** County policy requires 15% of the prior year's revenues be maintained in fund balance reserves. **Q:** Which council member was absent from this meeting? **A:** Tyler Byrd was the only council member absent from the September 16 meeting. **Q:** What is the road fund's situation compared to the general fund? **A:** The road fund faces a more acute crisis and would go negative without intervention, requiring immediate action in 2026. **Q:** How does the public safety tax work across jurisdictions? **A:** Cities and counties have independent authority to impose it, so areas within city limits could see two-tenths total (one-tenth each). **Q:** What is banked capacity? **A:** It allows local governments to save unused portions of their annual 1% property tax increase for use in later years. **Q:** When was the county's first annual open house held? **A:** Early September 2025, providing the public and staff opportunities to learn about county services and budget priorities. **Q:** What are the executive's three guiding budget principles? **A:** Building stability, focusing on core and community priority services, and maintaining transparency in the budget process. ---