City Budget 101: Revenue
When you first think about any budget, you think of spreadsheets and numbers, calculating percentages of growth or decline, and figuring out anticipated revenue or expenditures to eventually arrive at a balanced budget. But a budget is also about a community's priorities like hosting recreation programs, providing police and fire services, and maintaining clean, safe water and sewer systems.
Creating our budget is a deliberate process involving City staff, the City Manager, the City Council, and community members. The budget calendar usually begins in early summer, with proposed budgets being presented to the Council in early fall and a final budget adopted before the end of the year. No two City budgets are the same, and these documents have wide-ranging impacts on City services.
Ideally, the final, adopted budget allows us to provide vital municipal services within our means while also supporting the City Council's strategic goals of clearly defining the future, promoting community safety, and engaging the community.
Over the next few weeks, we'll dive into the City's budget - where the money comes from, how it's used, and how you can begin to get involved in the budget-making process.
What's the General Fund?
Most of the City's undesignated revenues go into the General Fund. These revenues are undesignated, which means they don't have a specific project or purpose assigned to them when received by the City.
The General Fund finances most traditional services associated with local government. When City staff creates the budget, much of the deliberations focus on the General Fund.
How is the General Fund used?
The General Fund provides many services that Shelton residents rely on and care about including police, fire and emergency medical services, animal shelter services, streets, buildings and grounds, and code enforcement - just to name a few. These City services expand each year due to population growth, aging infrastructure, and changing community needs.
Sales tax is the largest revenue source in the General Fund - in 2024's budget, sales tax comprises an estimated 23% of General Fund revenues.
Sales tax is collected by Washington state, directly from businesses engaged in retail sales. Washington state then distributes parts of these tax collections to the appropriate public entities.
The sales tax percentage has changed over time. In 1982, the rate was increased to 1.0% with the caveat that 15% of the tax be allocated to counties. The Department of Revenue, which is responsible for collecting and distributing tax revenue, retains a 1% administrative fee.
So, this effectively leaves cities with a sales tax revenue of 0.8415% of retail sales.
In today's economy, there is also often the question of which city receives the sales tax revenue from a particular sale. If a customer buys and takes possession of an item at the business location, then the sales tax rate applied is that of the business location. But if the customer buys and takes possession of an item in a different location, the sales tax rate applied is the rate where the customer takes possession of the item.
Let's look at an example: if a Shelton resident buys and takes possession of a TV in a store in Olympia, the sales tax rate in Olympia is applied and Olympia receives their share of the tax. If a Shelton resident goes to a store in Olympia and buys a TV, but has it shipped to their home in Shelton, then the Shelton tax rate is applied, and Shelton receives their share of the tax.
Property tax is the second-largest source of revenue in the General Fund - in 2024's budget, property tax comprises approximately 19% of General Fund revenues. The Mason County Assessor's Office provides information to us on their determination of property values within City limits.
The City receives 19% of the total property tax paid by property owners. Additionally, the City receives an EMS levy which represents 5% of the total property tax paid and is used to partially fund fire and EMS services from Central Mason Fire & EMS.
State law limits the regular (non-voted) combined property tax rate increase that applies to an individual's property to 1% of market value. As calculated by the Mason County Assessor’s Office, the City’s property tax rate for 2022 was $2.34 for every $1,000 of assessed valuation.
The General Fund also receives revenue from business and occupation, or B&O, taxes (approximately 9% of 2024 estimated revenues). City utility taxes comprise 9% of estimated revenues, while non-City utility tax collections for natural gas, electricity, telephone service, and cable service are also 9%.