This story has been updated to correct numbers associated with the city's General Fund and to clarify that the city used reserves to pay the difference. 

The impact of severe cuts in the flow of federal funds to state and local government are prompting some citizens to question the wisdom of the city's decision to operate in the red for the past three years.

In early December, the Port Townsend City Council approved a $68 million budget that included a $1 million general fund deficit and a total draw down of $1.83 million down, across all funds, to make up the difference between revenues and expenditures. City council unanimously approved the budget.

According to a review of city budget documents, the trend in drawing down general fund reserves began in 2023, when general fund expenses exceeded revenues by $351,369. The following year, 2024, the city budgeted for general fund expenses to exceed revenues by $1.6 million.          

Balanced budget requirements are widespread among state and local governments and some 40 states require their governors to sign a balanced budget, according to the Urban Institute.

City Manager John Mauro said the city’s budget is balanced and goes one step beyond, describing it as a “structurally balanced budget.”

“Overall, financial sustainability matters and is something reinforced by City Council decision-making on a number of fronts, not just in the budget but in our agreement with the paper mill, our approach to deferred maintenance and projects, utility rates, and more,” Mauro said.

And he cautioned against considering the city's budget to be unbalanced. 

“A balanced budget requires that expenditures do not outstrip revenues, and this includes unencumbered fund balances estimated to be available at the close of the fiscal year (see RCW 35.43.120),” Mauro wrote in response to an emailed inquiry.

“Such is the case with our balanced 2025 budget, and this is a state-mandated legal requirement. I’d go further than simply saying it’s a balanced budget – but that it’s a structurally balanced budget as well. As you can read in some of the go-to resources on the subject a structurally balanced budget ‘supports financial sustainability for multiple years into the future.’"

Indeed, and as national events unfold, Mauro said the city’s budget is built to weather future uncertainties and includes a new rainy day fund and seed funding to stay ahead of repairs and maintenance of city facilities and fleets.

Mauro also explained the thinking in an introductory message included with the 2025 budget.

“Seeding a fund helps us anticipate repair and replacement needs before, instead of after, things break, which ends up saving money,” Mauro wrote.

The 2025 budget also lists a number of priorities, including continued water and sewer infrastructure work and improvement and expansion of the city’s wastewater treatment plant.

In terms of human infrastructure, city personnel wages and benefits make up 31% of operating costs.

“The city continues to balance the need to retain qualified, capable staff by providing fair and competitive wages while also maintaining appropriate service levels,” according to the budget document. “A salary survey was conducted in 2023 which has resulted in an updated compensation policy for non-represented employees. Recruitment of key positions will continue to be a challenge in 2025 due to a competitive labor market and housing affordability and availability.

In regard to concerns about spending, Mauro said the city’s reserves are protected.

“It’s (the reserve policy) generally different for/specific to each fund, but for the General Fund, it’s 8 to 15% of estimated annual operating revenues,” Mauro said. “We’ve been well above 15% for several of the past years.”

The 2025 projected general fund ending fund balance, according to city budget documents is $5.40 million.

Mauro mentioned "financial sustainability work" that looks out over 10 years.

"It’s not a coincidence that we won a national [International City/County Management] award for the work done by community members, staff, and Council – and something that should provide some assurance to our community that the City, through City Council action on budgets and related policy, is making sound financial decisions over multiple years."

Mauro and Mayor David Faber will likely cover these topics and more at their annual state of the city address scheduled for 5 p.m. March 5 at the Port of Port Townsend Pavilion at 355 Hudson Street.