By ANDREW SIMPSON
Ward Media Staff Reporter
CHELAN — A slow winter followed by a wildfire- and smoke-affected summer is exposing structural weaknesses in Chelan’s city finances, as officials work toward a 2027 budget that maintains current services and staffing without relying as heavily on tourism revenue to close funding gaps.
City officials discussed two approaches to balancing the preliminary 2027 budget during a Sept. 1 City Council workshop, including a proposal that would change how departments pay for shared city services and redirect investment interest to the General Fund.
No decision was made, and Finance Director Heidi Evans emphasized that staff was not yet asking council for direction.
The figures presented were preliminary, she said, and staff still needs to analyze the effects on operating and capital budgets before making a recommendation.
The underlying problem, City Administrator Laura McAloon said, cannot be solved simply by changing the way money moves between city funds.
Across Washington, cities face limits on how quickly property tax revenue can grow, including the state’s 1% annual limit on increases in the property tax levy. Chelan has historically been buffered from some of that pressure by its tourism economy and lodging-tax revenue.
A slow winter followed by a slow summer due to weather has demonstrated the vulnerability of that model, McAloon said.
“It doesn’t matter how we calculate or which method is used to calculate inter-fund transfers,” McAloon said. “Structural deficiency is that revenue is growing slower than expenses, and we’re seeing that everywhere.”
The problem is particularly pronounced in the Parks Department.
Chelan has historically used lodging-tax revenue to help support parks, which serve both residents and the tourism economy. McAloon said that differs from the more typical model of supporting community parks with property-tax revenue.
That dependence becomes more consequential when tourism declines.
Earlier in the same workshop, Lake Chelan Chamber of Commerce Executive Director Mike Steele told council that businesses had reported sales declines ranging from 30% to 70% during the recent wildfire- and smoke-affected period. Council members noted that the same downturn affecting private businesses will also affect city revenue.
Evans’ presentation examined whether Chelan should retain the interfund-transfer policy adopted during the 2026 budget process or modify it for 2027.
Interfund transfers require city departments and funds to reimburse other departments for services they use. Under the current system, Administration, Finance and Human Resources and Wellness recover their costs based largely on staffing levels, while Communications is allocated using a set percentage.
Those charges pay for services including payroll, accounts payable and receivable, employee recruitment and benefits administration, financial reporting, records work, communications and information technology support.
The current policy was adopted partly to address a structural General Fund deficit and more accurately identify the cost of operating individual departments. But departments have reported frustration with the size and speed of the resulting increases, while some contractual and operating expenses have continued rising faster than inflation or revenue.
Under the existing approach, identified as Method 1, preliminary 2027 figures show structural deficits in the General Fund, Golf Course, General Parks and Putting Course even before interfund charges are applied.
The method would move approximately $2 million into the General Fund through interfund transfers, but additional transfers would still be necessary to balance the overall budget.
Staff estimates that essentially all unencumbered 2% lodging-tax revenue for 2027 could be needed to balance the budget under that approach. If the city proceeds with the golf course irrigation project during the year and needs immediate capital, additional lodging-tax reserves could also be needed.
The alternative, Method 2, would eliminate Administration charges to individual departments while retaining the current cost-recovery system for Finance and Human Resources and Wellness. Communications would shift from a flat percentage to an allocation based on staffing.
Evans estimated that change would save departments slightly more than $1 million.
But the money doesn’t simply disappear from the city’s expenses.
To make the alternative work, the city would redirect investment earnings from operating and capital funds to the General Fund. State law allows the city to redirect that interest through a council resolution.
The combination of revised interfund transfers and redirected interest would bring the preliminary budget close to balance while preserving current staffing and services.
Evans described herself as “cautiously optimistic” that the city could balance the budget largely through those mechanisms, with little or potentially no 2027 lodging-tax revenue needed to close the remaining gap.
Without redirecting investment interest, however, the numbers look considerably different.
Staff estimated General and Commercial Parks divisions would collectively need approximately $1.4 million in outside support to remain solvent. The General Fund would remain approximately $250,000 short, potentially requiring a service reduction of roughly that amount.
The airport could also require lodging-tax support or another revenue source if deficits develop or additional funding is needed for growth.
Neither approach solves Chelan’s longer-term structural funding questions.
McAloon said the interfund methodology is one tool for determining how departments reimburse one another for services, but changing the methodology does not change the larger imbalance between revenues and expenses.
Parks funding, in particular, will eventually require a broader council discussion, she said.
Chelan has more flexibility than many communities in how it can use lodging-tax revenue because of its tourism-based economy, including the ability to support the municipal golf course. McAloon cautioned, however, that lodging taxes cannot solve every structural deficit facing the city.
Evans said staff’s budget priorities remain maintaining current public service levels, maintaining existing staffing with no new positions and ultimately producing a balanced 2027 budget.
Staff will continue reviewing operating and capital impacts before returning to council with a recommendation. Another budget workshop is expected in October.
Andrew Simpson: 509-433-7626 or [email protected]
