College Place uses interfund loan, emergency funds to keep city budget balanced

College Place City Council will use emergency funds and an interfund loan to make up for a projected 2025 ending general fund balance of negative $13,529.

The ending fund balance, as of December 2025, was presented along with the rest of the preliminary year-end 2025 budget to the City Council on Tuesday, May 12.

Finance Director Brian Carleton said the department had been substantially behind on financial reporting because of a staff shortage.

"We were up to eight months behind, but fortunately they're working on February this week so we're almost caught up, which will be nice," Carleton said.

The City Council voted on May 12 to allow the transfer of $514,426 from the emergency fund that was set up in 2020 to the current expense fund, or general fund, and a loan of $1 million from the wastewater fund to the current expense fund.

It also approved a loan of $700,000 from the water fund to the street improvement fund, which had a projected ending balance of about negative $585,000 for December 2025.

Carleton said about half of the $1 million loan is simply for cash flow, while the other half is for current expense support. Meanwhile, the entirety of the $700,000 loan is for cash flow purposes.

"That seems concerning, but what that really is is timing of cash flow," Carleton said. "We are a cash-based city, so we record expenditures when we pay the cost and we recognize revenue when we receive the revenue. Of that $585,000 (deficit) there's about $700,000 in grants receivable, but as a cash-based city, we can't record that receivable so therefore we have a cash flow issue there."

The city has seen a steady decline in the ending fund balance since 2022, Carleton said, so some reduction was expected.

"It was anticipated in the budget when we went through the budget last September that we were seeing a decline in fund balance for current expense, and we went through and there were cuts made that varied between $20,000 to $40,000 per department," Carleton said. "At that time, we anticipated the beginning fund balance to be very similar to where it began in the actuals for 2025, but it's the ending that has come in significantly lower than we thought."

The reason for the ending fund balance is a combination of factors, Carleton said. For the past two or three years, the city had anticipated bringing in permitting and other revenue from major projects such as the Stone Creek development across from College Place High School and the Mojonnier Road project.

"What happens is if you anticipate a revenue, you're going to anticipate a cost to offset or match that revenue," Carleton said. "And if you don't get the revenue but you incur the cost, you're in trouble, and I think we have some of that happening."

He said several sources also brought in less revenue than expected in 2025, such as retail sales taxes, property taxes, utility taxes and business permitting and licensing.

Several items also cost more than expected, including district court expenses, the search for a new city administrator, the severance pay for a former city attorney while also paying for an outside attorney and prosecuting attorney, and costs for utility services at public parks.

"I'm happy in the fact that overall, we seem to be OK. It's just that current expense is getting hit by a lot of expenditures," Carleton said. "We have the issue where we've seen cost inflation over the last two, three, four years (and it) is starting to strip our revenue increases. What our core revenues are for current expense is taxes, and most of those we don't have any control over. So if those flatline but you're dealing with 5% to 7% cost inflation it's going to be an issue, and I have a feeling it will be an issue going forward."

The interfund loans to support the current expense fund and street improvement fund are coming from the water and wastewater funds because there are plenty of reserves in those funds to make the loans and still meet their own reserve requirements, Carleton said.

Mayor Norma Hernandez also said that the budget would be in better shape had the city not lost a $500,000 grant for the Lions Park project that ended up having to come out of the current expense fund in 2025.

Carleton said his department's goal is to have the 2025 financial reporting to the state by the end of May and then immediately go into forecasting for 2026, which should be done by the middle of June. When forecasting, he said his department would be more pessimistic than optimistic.

"If we're not sure it's going to happen, maybe we don't recognize it," Carleton said. "And development is what we're going to (need) to grow out of this; we need that development to increase property taxes, to increase sales taxes and to increase B&O (business and occupation) taxes. Those are all positives to the city."

He also said that in the future, the department will be able to get financial information to city leaders faster.

"Having that information more readily available will allow you to react faster, and we're going to get to that point in the next few months," Carleton said. "And we have the staffing now to support getting those financials done on a more timely basis."

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