(The Center Square) – Faced with a $2.5 million deficit, the Spokane Valley City Council might increase property taxes for the first time since 2009, along with other fees, to plug the shortfall ahead of 2026.
Finance Director Chelsie Walls briefed the dais on Tuesday on her revenue and expenditure projections for the upcoming year, announcing the deficit before further discussions this fall. According to current estimates, recurring spending in the general fund exceeds recurring revenues by roughly $1.1 million.
Last fall, the council passed the 2025 budget with recurring revenues outpacing recurring expenditures in the general fund by $411,000. However, with that trend now heading the other direction, the deficit amounts to approximately $2.5 million when also considering nonrecurring expenses in that account.
“Please keep in mind that at this point, this is a living document. It is continuing to evolve,” Walls said.
While she thinks the general fund could end 2026 with $41.4 million in reserves, the council needs to balance the $1.1 million delta to meet both its budget objectives. The other includes wrapping up the year with a general fund balance of 50% of recurring spending; Walls’ numbers put it at roughly 60%.
The general fund is the city’s main operating account with revenues that aren’t tied to special funds by state and federal law. It’s typically an indicator of the Valley’s financial health, but the fund is still only one of the city’s 31 accounts. Wall’s estimates put citywide spending in 2026 at about $133.7 million.
Walls said the streets fund is also anticipating a $500,000 deficit. City staff are looking into how this may impact services, but right-of-way maintenance and snow removal could be affected. She expects general fund expenses to reach $68.4 million next year, accounting for just over 51% of the city’s total spending.
General fund revenues are projected to total $67.3 million, around 5% more than the $64 million in the Valley’s amended 2025 budget. The $68.4 million in anticipated spending is roughly 7.7% more than the $63.5 million in the amended budget, primarily driven by increases in public safety costs.
“We’ve seen over the past few years, specifically, some large jumps in that. From 2021 to 2025,” Walls said, “police costs have increased by about $13.4 million, while [across] the same time period, sales tax revenues have increased by $1.5 million … remember, too, that this is 60% of our recurring general fund revenue, so a very large portion of what we rely on to provide our services to this community.”
While she anticipates revenues increasing slightly over 2025, that is mainly attributable to a new sales tax hike that voters passed this month, which the city will spend largely on hiring new police officers.
That increase was the first time that the city raised its sales tax rate since incorporating more than 20 years ago. The council has also rejected the 1% property tax hike allowed by the state without voter approval since 2009; however, the council may have to resort to that and other options to get by next year.
Property taxes are the second-largest chunk of general fund revenues. If the council approves the 1% hike allowed by state law for 2026, it could raise an extra $141,000; however, the city also has $1.3 million in banked capacity, which accounts for the years of property tax hikes the council has rejected.
Walls’ current projections do not include the $141,000 tax hike or the $1.3 million in banked capacity.
Other options to balance the $1.1 million gap between recurring revenues and expenditures include adjusting fees and utility taxes, which could raise $107,000 to $8.4 million, depending on the council’s actions. If the council wants to cut the delta, it would have to explore several programs to achieve this goal.
“The only option I think that we should be considering is cost-cutting,” Councilmember Al Merkel said.
