After several budget workshops to balance the County’s 2026/2027 biennium budget, an approximate shortfall of $920,000 as of Nov. 17, remains in the 2027 fiscal year. Department heads are being asked to reduce their budgets by approximately 10%, which may involve the loss of a position. With more workshops coming, the budget is still much a moving target, San Juan County Auditor Natasha Warmenhoven clarified.

Department heads are being asked to reduce their budgets by approximately 10%, which may involve the loss of a position.

“Our budget shortfall is imminent, and more imminent solutions must be found … by increasing revenues [which is unlikely to be found in the short term] and/or reducing the level of services,” Council Chair Kari McVeigh said.

Fully utilized COVID funding, instability of federal and state grants, and plateauing revenue sources like sales tax and permits are just a few of the reasons behind the shortfall.

“This isn’t unique to San Juan County. This is not because of anything anyone has done. It’s the state of the world right now,” Warmenhoven said.

“It isn’t that we are broke or going bankrupt,” said Council member Justin Paulsen, adding that since 2020, the cost of doing business has increased significantly.

Similarly, Warmenhoven explained that the county was able to spread the federal and state funding it received during COVID longer than most other counties. That funding went toward health, affordable housing, emergency preparedness, PPE for county staff, land array of Law and Justice programs and general services to ensure the government would be able to continue operations.

“When the County Administration knew that ARPA [Federal COVID relief] funding would be sunsetting by the end of this year/2026, that wasn’t adequately factored into future budgets — this was not being planned for unfortunately back in 2023, and didn’t get picked up in the mid-biennium review,” Council member Jane Fuller noted. “Since I joined council in 2023 I have had three county managers and this has not helped in some areas with the overall administration of the county government. However, our local government is by far not the only entity facing this shock to the system … During the period since COVID, the staffing of the organization grew at a rate that was not going to be sustainable. That is coming into full view now.”

Likewise, San Juan County is not the only county to be struggling with no-growth revenue sources.

“At the beginning of the pandemic, it was expected that sales tax would decrease. That did not happen for our community. Now we’re starting to see it plateau,” Warmenhoven explained. “If it’s decreasing, it’s decreasing back to where it would have been had we not seen that spike because of the pandemic, where people decided to visit our islands.”

The question of whether the permitting backlog had impacted the number of current permit applications arose during the Oct. 7 hearing. A clear answer was unknown. While outsourcing some of the permit process was a cost-neutral, McVeigh told the Journal, it did relieve the backlog.

The Department of Community Development has pulled back on some contracts, according to Paulsen, meaning more work is being done in-house.

“This was not an end-all solution; it was a measure that needed to be taken to right the ship,” he said.

Counties across the nation are struggling with federal funding either being dropped altogether or caught up in new requirements or being reviewed.

“No one could have anticipated this happening,” Warmenhoven said. “The sort of uncertainty with so many of our grants and federal funding. Part of the way we prepare is having a clear understanding of what the grant is funding and what would happen to that position or program should the funding end. Going into it with very open eyes.”

“Our county relies heavily on State and Federal grant funds, and those are being reduced or eliminated, which causes downstream problems for our budget,” Fuller explained.

“County staff understand that many previously attained Federal and State grants are going away. We also know that only increasing our revenues through property taxes by 1% per year does not provide sustainable funding for the increasing number of mandates given to us by the state and the ever-increasing effects of inflation on our budgets and thus our ability to provide services,” McVeigh said.

County residents can help in the short term, McVeigh pointed out, saying every dollar spent on the islands produces sales tax revenue to the county. Every dollar spent online on items from off-island markets and shipped to our county homes produces sales tax that stays in the county.

“So whenever possible, do not buy from stores and services in Skagit or Whatcom Counties as your sales tax money goes to these counties, not ours,” McVeigh said.

Paulsen also had ideas about protecting residents, business owners and the economy, saying, “Whatever we can do locally, whatever services are important to us, we need to also ask ourselves, are we willing to fund them? If not, then we will continue to let the Federal and State governments control them. I like local government. You have the most control and most ability to make change.”

Keeping in mind that the state mandates the county to do certain things, and other programs like the Land Bank and roads and affordable housing have their own revenue streams, the Council and the Auditor’s Office have been working closely with department heads to identify areas to reduce spending. A hiring freeze is also being implemented. A reduction in staffing is also being considered. Multiple jobs could be lost, and no one is looking forward to those discussions and decisions.

“No one wants to be cutting jobs,” Paulsen said.

“Doing this will be extremely painful as these positions belong to real people with families and standing in our community. These positions, the people who occupy them, and the work they do are important to our community and the elimination of these positions will absolutely result in a diminished level of service for the community we serve,” McVeigh told the Journal.

“These are difficult financial times we are entering, for everyone. This county council is committed to working with staff, both elected and non-elected, to reduce our spending and find efficiencies so we can balance the budget and avert bigger financial problems down the line.” Fuller said. “This will likely mean a reduction in county government services for our local population, but staff will do their best to deliver services they can with what they have, as always.”

During the economic downturn of 2008, former Auditor Milene Henely helped implement the General Fund Reserve Policy. Within this policy, operating cash is separate from the Budget Stabilization Fund. Operating cash must be budgeted as not less than 10% of projected general fund expenditures and may be used during a fiscal year “only if the County council makes a written finding that an emergency or other extraordinary circumstance exists that requires use of operating cash.” The Budget Stabilization Fund builds and can be used only when it “exceed[s] 15 percent of prior year revenues to the general fund,” along with other criteria as outlined in SJC Code section 3.48.030, according to Warmenhoven.

During the Oct. 7 public hearing on county revenue, McVeigh asked if there was an additional reserve beyond 10% in a healthy budget. Budget analyst Dr. Molly Foote and Warmenhoven are researching that question, as well as examining the current reserve funds and whether the County’s rainy day fund needs to be redefined, given that it was established nearly 17 years ago.

The council continued discussing the budget during the Nov. 10 workshop. Linnea Anderson, Superior Court Services Administrator, County Manager Jessica Hudson, Director of the Environmental Stewardship Kendra Smith and Facilities Manager Greg Sawyer presented their budget proposals. Another will be held later in November.

During the Nov. 10 work session, Council members discussed their own salaries. The Citizen Salary Commission sets Council salaries, and they have yet to announce any increases. If the Salary Commission does raise the salary, the current Council doesn’t necessarily have to take it, and Council members are discussing doing just that. Not taking it, however, could cause issues for a new Council member who did not agree to take a salary cut.

The 32-hour workweek was also discussed, particularly compensation in some form for employees who have not been able to utilize it. Council ultimately decided to save that conversation for a later date. A two-year report on the policy is coming up.

By law, the Auditor’s Office must present a balanced budget to the Council on Dec. 1, when a public hearing will be held, and department heads or a representative will be available to answer questions. That hearing and presentation may be continued for four additional days, Dec. 2, 9, 15 and 16.

“In my opinion, the 16th would be the last day we could adopt a budget because we need 10 working days in order for it to become effective. Obviously, we want to have it in place by the first working day in 2026,” Warmenhoven said.

Council members noted that, while they will adopt a balanced budget for the biennium, they will also be mindful of budgeting well into the future.

“Our vow is to budget the 26/27 budget; we can not miss that 2028 is unfathomable given that we are burning cash in 26/27,” Paulsen said. Each session is open to the public, livestreamed, recorded and posted on the County website at https://sanjuancowa.portal.civicclerk.com/ for citizens to listen to.

“If members of the public have questions about any of this, they can always reach out to their council members directly, and our county manager, Jessica Hudson,” Fuller encouraged. Emails can be found on the county website at https://www.sanjuancountywa.gov/341/County-Council.

“The net impact is a lower level of service to our community. There is no outcome that looks better in terms of service to our county,” Paulsen said. “People are not going to notice the dollars missing; they are going to notice that the level of service is missing. I want to prepare them for that.”