2026 Budget Information

Honorable Mayor Elpidia Saavedra

Members of the Toppenish City Council

21 West 1st Avenue

Toppenish, Washington 98948

Dear Mayor Saavedra and City Councilmembers,

I am pleased to present the Fiscal Year 2026 (FY2026) Budget for your review. City staff have been proactive and diligent in reducing costs over the last year. We are appreciative of Council’s willingness to make decisions with a long-term sustainability focus. The current budget addresses the City’s main financial struggles head on, and we are hopeful that we will continue to build a better Toppenish.

Budget Issues Facing the Governing Body

Policy Issues

Since Early 2024 we have been working very hard to reduce the City’s General Operating Deficit. The deficit is primarily a result of stagnant revenue increases over time. The 2024 budget had a deficit of $2.25 million, but through cost saving measures and council action, we were able to reduce that to an actual amount of $1.35 million. We started the 2025 budget with a $1.4 million deficit, and we were able to reduce that to about a $350,000 deficit, we are currently trending around that number for our actual 2025 amount. The 2026 first estimate of the budget had the deficit back up to $1.3 million. After cutting costs and moving capital expenditures to capital funds, that deficit is reduced to about $750,000.

The City’s General Fund Balance is still at a healthy level, just over $2 million. The target balance of this fund is 20% of total year’s expenditures, or two months of expenditures. This means that the target is about $1.4 million. While we have a deficit, we still have some time to make the appropriate decisions to maintain the long-term sustainability of the City’s operating budget.

As a part of this long-term strategy, we anticipate that the voters in Toppenish will have the opportunity to vote for or against a measure to implement a $1.00 per $1,000 levy lid lift to maintain our current level of Fire Department services. We have spent time reviewing options and assessing interest with surrounding entities to see if there are opportunities for consolidation of Fire Services through a Regional Fire Authority. As we explored this option, we were met with resistance from other agencies to work on a formal plan. This has led to the current proposal to place this measure on the ballot for the Citizens to vote. If passed, this levy lid lift would generate an approximate $600,000 of property tax revenue. This increased revenue would lower our budget deficit significantly, into a spot that will be manageable each succeeding budget year. If the measure does not pass, City Staff will work to present alternative proposals for the Council to review regarding our current fire service and the costs that we are able to afford.

As a part of the deficit reductions last year the City Council opted to close the City’s swimming pool and reduce the amount of money available to maintain City parks. This was a result of the City’s $0.75 per $1,000 Metropolitan Park District property tax measure failing. We have worked with the limited funds available over the last year but have recognized the need to increase funding available to maintain City parks. Currently, City staff is prioritizing the ballot measure to

maintain Fire Department services. We are continuing to evaluate and consider other opportunities for recreation within the City.

In the 2025 budget, the Council approved a budget for the City to work with lobbyists at the State and Federal level. In just one year our lobbyists have successfully advocated for over $3 million of direct appropriations for the City’s Wastewater Treatment Project and Public Safety Building remodel. This lobbying relationship is continued in the 2026 budget, and staff continues to work with the lobbyists to advocate for the needs of the City of Toppenish.

Staff continues to be sensitive to the rates that the City charges for our Water, Wastewater, and Solid Waste Utilities. In its current preliminary state, the budget does not ask for rate increases in any of the rate funded funds. As mentioned last year, we are continuing to develop plans and actions plans to ensure that we are doing appropriate life-cycle maintenance on all our infrastructure. We know that there is work to be done, and so we have recently entered into a contract with RH2 consulting to complete a water plan for our utility that will provide us with detailed information on capital projects and when we need to complete them. Right now, we are in a good position to be able to use a combination of cash and debt financing that will limit the shock of any rate increase that would be needed in the future. We will have further discussions with the Council to determine short-term plans of action.

The Wastewater Treatment Plant project continues to proceed. As you are aware, we had a pipe burst in February of this year, which led to the need to declare an emergency and seek funds from the State to do the necessary work to keep our plant functioning. Again, we are working to do what we need in each of our utilities to prevent these types of emergencies from happening again in the future.

We recently entered into an agreement with Yakima Waste for Commercial Solid Waste services. This move will help the City continue to plan and provide the best possible service with the funds that we have.

The City’s largest total expense is personnel costs, which make up about 39% of the total costs to the City. Since the 2025 budget was approved the City has negotiated with each of its collective bargaining agreements. The Teamsters General and Supervisors unions both have agreements from 2025 through 2027 which included Cost of Living (COLA) increases of 3% in 2025, 2% in 2026, and 2% in 2027. The agreement with the Fraternal Order of Police (FOP) is through 2028 and includes a 3% COLA for each of 2026, 2027, and 2028. The City is still working through the contract with the International Association of Fire Fighters (IAFF) as it considers the levy lid lift mentioned above.

Economic Factors

According to the Bureau of Labor Statistics, inflation has increased by 36% from 2015 to now. During this same period of time the City’s General Expenses have increased by 48% and the City’s General Revenues have only increased by 20%. As mentioned above, this is the primary reason why the City continues to struggle with budget deficits.

As a result of inflation, Sales Tax increased for a period of time, to a high of $1.2m in 2023. For comparison the average sales tax from 2015 – 2019 was about $777K. Unfortunately, we saw a 15% o $181,000 drop in 2024 to a total Sales Tax of $1.03 million in 2024. Through September of 2025, the tax has been about 2.7% higher than 2024. As a result of these trends, we are predicting a continued leveling off in 2026 of approximately $1 million.

The State Legislature passed HB 2015 which allowed the Council to adopt a one-tenth of one-percent criminal justice sales tax. The Council approved this tax, and it will go into effect on April 1, 2026, increasing the amount of sales tax that the City will be able to collect each year.

Regulatory and Legislative Changes

Since 2001, the City has only been able to increase its property tax collected by 1% due to state law. As previously discussed, this cap severely limits the City’s ability to maintain its level of services. During this legislative session, the City joined a coalition led by the Association of Washington Counties to lobby and advocate for raising this 1% cap to 3%. This measure ultimately failed to be passed, and we are still subject to the 1% property tax increase each year.

Under new Washington State Law ESSB 5814, sales tax now applies to specific IT services such as software support, training, and customization. This is a new expense for the City that was not anticipated, which means each of our software subscriptions is increasing by 8% automatically, plus any other increases the software may assess. We have asked our lobbyists to share the difficulties that this law is causing for us.

City staff continue to be active in working with our consultants to apply for grants for major capital projects along with grants that help to pay for programming.

Funds

General Fund

The General Fund is the City’s largest fund, with a budget of about $7.9 million. 52% of the budget is for the Police department; 16% is for administration which includes Finance, HR, City Council, City Clerk, IT, Risk Management, subsidy to the Cemetery Fund, and the City Manager’s office; 17% is for the Fire Department; 4% is for Parks; 6% is for our contracted out Municipal Court services with Sunnyside; and 5% is for planning, community development, and code enforcement.

The largest reductions in expenditures for the General Fund include removal of a capital purchase for a police car, a reduction in the amount anticipated for corrections services, and a slight decrease in court services. The overall General Fund budget has increased from the 2025 budget, this includes about $200,000 additional funds for park maintenance, an 8.7% increase in health premiums, the IT contract increases, and general increases in cost of consumables.

As mentioned earlier, the largest revenue source for the General Fund is from Utility Taxes. The City charges its own utilities a rate of 29%; and the telephone, natural gas, and electricity utilities 8.5%. This revenue makes up 45% of the General Fund’s revenue. The next largest source of revenue is sales tax which makes up 20% of the General Fund's revenue. Next is Property Tax at 14%. Then Licenses and Permits, fees, intergovernmental revenue, miscellaneous, and interest

earnings make up about 20% of the revenue, with interest earnings being the largest increase in revenue for the general fund because of council’s action to collect all interest earnings in the general fund. Note, each of these percentages make up total revenue produced in the General Fund, total revenue used includes about $750,000 of fund balance in addition to each of these revenue sources.

Utility Funds

The City’s Utility Funds; Water, Wastewater, and Solid Waste, are the next biggest funds with a combined total of about $7.7 million (Wastewater $3.6 million, Water $2.7 million, Solid Waste $1.4 million). The funds are entirely user rate supported. Rates are determined by the City Council each year with supporting information from staff and consultants which make up rate study recommendations. In 2024 the City did a rate study and was informed that rate increases were needed in each fund. Staff is aware of the burden that rates place on the citizens, and we want to do everything that we can to provide essential services without being too much of a burden.

Street Fund

The Street Fund is a maintenance fund, with a budget just over $600,000. The Street fund includes funding for street sweeping, snow and ice control, line striping and marking, pothole repair, crack sealing and electricity for streetlights.

48% of Street Fund expenditures are budgeted for services, 33% on salaries and wages, 17% on supplies, and 2% on equipment replacement.

Funding for the Street Fund is primarily from Vehicle License fees (74%) and motor fuel tax (26%). The City increased Vehicle License Fees last year to make it possible for this fund to support itself without a General Fund subsidy.

Previous Year Lookback

As we consider the future of Toppenish through the 2026 budget, I believe it important to look back at what we have achieved over the last year. First and foremost, I have complete confidence in City staff’s ability to respond to any of the challenges that the City of Toppenish faces. Our staff is innovative, resourceful, and professional. They understand the community and continue to impress me with their ability to solve problems and make life better for the residents of Toppenish.

I would like to highlight four projects that staff members have taken on with significant progress.

1. Wastewater Treatment Plant – while much work is still needed, staff has worked with engineering consultants to begin process on the Wastewater Treatment Plant

2. Police Building – In 2022 the Police Department was moved to its current temporary facility with the condition of a two-year lease. Rather than continuing this lease indefinitely, staff turned over every possible stone and is now close to completing a state of the art public safety building.

3. Lobbying Efforts – Staff and Council have diligently worked to secure over $3 million in direct appropriation investments from both the State and Federal governments. We continue to advocate for our needs, and we are excited about the continued partnership and investment in the City of Toppenish.

Again, I am confident that the current team that the City has on staff is up for the challenges that the City faces, and that this budget will help us to provide for the needs of the citizens of Toppenish now and into the future.

Dan Ford, PE

City Manager