Financial Sustainability and the Structural Deficit:

1. Financial Sustainability is a top City Council priority. 
    

2. The City has a “structural deficit,” meaning our costs and expenses outpace our revenues. A structural deficit occurs when ongoing expenses grow faster than ongoing revenues. In Kenmore’s case, the costs of providing City services, programs, contracts, and infrastructure have increased faster than available revenue sources. 

3. We have been forecasting and planning for this structural deficit. Financial Sustainability Plans (FSPs) were created in 2020 and 2024. The FSPs suggested ways to fund forecasted deficits. The City has implemented most of the FSP suggestions for addressing the budget gaps.

4. Unfortunately, the rising costs of providing programs and services have continued to outpace revenue growth. 

    

Revenue Limitations:

1. State law limits the options cities have for revenue generation. Kenmore, like all cities in Washington, can only increase property taxes 1% annually due to a state mandate. This has lagged behind inflation’s 5% average annual growth over the last 5 years. This negatively impacts the City’s budget as property taxes are our largest revenue source.

2. Of the property tax revenue generated, 7.22% goes to Kenmore’s operating budget and 1.21% goes to Walkways and Waterways. The remainder goes to the State, County, and other taxing districts and revenue measures. Therefore, Kenmore only receives a small portion of each tax dollar collected. (see graphic below)

3. Additionally, as a bedroom community, Kenmore has limited retail, further limiting sales tax as a revenue stream to fund the operating budget.

Budget Measures Already Implemented:

• Reduced Expenses:
  • During the last budget cycle, the City cut over $385,000 in operating expenses.
  • Kenmore has the lowest staff count per capita compared to neighboring cities such as Bothell, Mercer Island, Mountlake Terrace, Shoreline, and Woodinville. (see chart below)
  • To minimize costs, Kenmore utilizes contractors and seasonal staff. We conduct cost-benefit analysis before filling a new position.
  • We have consistently assessed services for cost efficiency and quality. We often opt to contract out services, such as municipal court services and some landscape maintenance.
    
    
• Sought Grant Funding. In 2025, Kenmore received $3.8 million in state and federal grant funding to offset operating expenses and provide local programming and services. 

• Tapped into Other Revenue Sources:
  • The FSP identified additional revenue measures with most implemented, such as the recent 0.1% sales tax for public safety.

• Examined Programs and Services:
  • Police Services Study
  • Added in services and programs for climate and environmental stewardship, funding for affordable housing, and human services.

Staffing and Revenue Income Comparisons

• Kenmore maintains one of the lowest staff-to-population ratios compared to neighboring cities such as Bothell, Mercer Island, Mountlake Terrace, Shoreline, and Woodinville.  

• Kenmore is below average in revenue generation compared to neighboring and similarly sized cities.