Port Townsend's General Fund expenses have outpaced revenues for three years in a row, and over five years General Fund expenses have grown more than four times the rate of inflation.   

Mayor David Faber and City Manager John Mauro say it's part of a strategy to stop deferring needed services and investments to achieve a more sustainable, long-term approach to city finances. 

There is no state minimum reserve for the General Fund. Like many cities, Port Townsend has its own requirement: Reserves must be at least 8 to 15% of General Fund revenues, or about four to six weeks of operations.

From 2021 to 2023, reserves averaged 46% and in 2024, they were 39%. This year they are budgeted to be down to 25%. The city used $351,369, $1,600,144 and $1,005,322 from reserves in 2023, 2024 and 2025, respectively. The General Fund reserve at the end of 2025 is budgeted at $3,948,753, the lowest of these five years. It peaked at $6,905,588 in 2022, the year before the city started drawing it down. 

The General Fund comprises $17 million of the city's $68 million 2025 budget. The lion's share of its revenue comes from sales taxes and property taxes. So if the economy stalls, the city can expect a drop in sales tax revenue, budgeted at $3,668,405 this year. Property tax revenues, budgeted at $4,084,500, are normally raised 1% annually, plus the value of new construction, regardless of whether property values rise or fall.

The General Fund weathered its most recent dip last year, when revenues declined $1.8 million to $12,674,529 from $14,563,178 in 2023, a decrease of 13%. Notably, expenses declined only 4% in 2024, from $14,914,548 to $14,274,672. 

General Fund revenues are budgeted to rebound to $16,085,911 in 2025. But with expenses climbing nearly $3 million this year to $17,091,223, $1,005,322 is being drawn from reserves. 

Managing city debt

Mauro said he and the city council believe having a higher reserve than necessary means people are receiving a lower level of service than what’s possible with a smaller, but still adequate reserve. Also, it spreads out the costs and benefits of capital projects financed over decades and generations. Contrasting his approach to previous manager David Timmons, who championed capital projects like City Hall, F Street, Sims Way and the fire station (now owned by East Jefferson Fire Rescue), Mauro says he’s focused on services. 

Hired in November 2019, Mauro considers himself a fiscal conservative. He said city assets like parks have declined because of underfunding maintenance, and the city’s employee-to-resident ratio is lower than similar communities. The 2025 budget adds five positions, including one each in streets, water and parks. The city’s total workforce has increased from 95.5 positions in 2021 to 113.5 today. The General Fund’s labor cost has risen more dramatically, from $4,147,154 in 2021 to $6,841,374, a 65% increase.

Mauro sees debt, which increased significantly and was repeatedly refinanced in the Timmons era, as an obstacle to city services and financial stability. “For a small town, it seems high,” he said. “I’ve never asked Council for more debt.”

The city’s outstanding “general obligation” bond debt is about $14 million. Debt service on that is $1,114,712 in 2025, funded by the General Fund and Real Estate Excise Taxes (REET). Another $13 million in “revenue debt” for water and sewer infrastructure is repaid through utility rates.

Two years ago, the city made an advance payment on its general obligation debt to build some head room, Mauro said. This year, the city is setting aside half of that annual payment since it was prepaid, and will make a full payment next year. Also, one reason the city used General Fund reserves this year was to start a reserve fund for fleet vehicle replacement with $490,000. That fund will cushion the impact of future vehicle purchases, he said.

Mauro noted that while some cities are looking at double-digit layoffs, Port Townsend received an award from the International City Managers Association for its Financial Sustainability Initiative. Port Townsend’s budget is both “balanced” and “structurally balanced,” he said, meaning it’s financially stable “for multiple years into the future.”

The sustainability initiative has a list of options, including annexing Glen Cove, a parking management plan (i.e. charging fees for parking), raising the city utility tax from 6% to 8%, development impact fees, and a metropolitan park district generating $4.35 million annually for a new pool.

Two ideas from the initiative have been implemented: using the banked property tax capacity and the transportation district sales tax. It’s unclear what other revenue increases may be considered going forward.

Comparing budgets to inflation

The US Department of Labor Consumer Price Index (CPI) shows inflation from 2021 to 2025 was 21.4%.

During that period, General Fund revenues grew much faster than inflation, and expenses grew more than twice as fast as revenues.

General Fund revenues increased 32.7%, about one and a half times the rate of inflation. The tax portion of that revenue increased 51%, more than twice as fast as inflation.

Meanwhile, General Fund expenses increased 88%. That’s two and a half times the growth of General Fund revenues, and more than four times the rate of inflation. 

“A natural fallback if expenses overpower revenues,” Mauro said, “is to do less and defer more, which is precisely what happened in our past.”

In recent years, the city had two key revenue infusions. One was a $2,755,388 grant from the American Rescue Plan Act which will be used up by the end of this year.

The second is the result of voters approving annexation of the city fire department to East Jefferson Fire Rescue in 2019, freeing up $908,724 in property tax “banked capacity.” Initially, city council held off on collecting that revenue. But it authorized 66% of it in 2021 and the remaining 34% in 2022, for specific projects. That revenue became unrestricted in 2024. Much of it has been allocated to the General Fund for street maintenance.

“The city needs, across all funds, to ensure we’re ready to meet unpredictable future revenue challenges,” Mauro said, likening the financial plight of many local governments as “sinking on the quickly descending escalator of deferred maintenance, poor choices about debt and financing, new responsibilities” and other factors. 

“With our Financial Sustainability Initiative — sustainable funding for streets, sewer, water, a real effort on making housing attainable and local economic development possible, a smart approach to budgeting, we have located the escalator off switch.”

Barney Burke is a former Leader reporter who often covered local governments and budgets. He worked in city government for 20 years in California and helped launch the power utility when he was on the Jefferson PUD board.