How did Thurston County end up with such a big budget deficit?
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Thurston County works to close 2026 budget deficit
Thurston County commissioners are deciding how to close an estimated $36 million budget gap in the general fund, the county’s primary operating fund, for 2026.
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Thurston County officials are looking to slash the county’s spending in the face of a ballooning structural budget deficit.
Such cuts will lead to layoffs, backlogs and delays across a swath of public services, officials have warned. The scope of the problem begs the question: How did the county get to this point?
To answer that, The Olympian sat down with county officials at The Atrium this past week.
The officials attributed the county’s budget woes to factors out of their control, namely rising costs outpacing revenue from property and sales taxes as well as unfunded state mandates.
Thurston County is not alone in this challenge, Commissioner Carolina Mejia said. Counties big and small across the state are looking at cuts, she said.
“We’ve been telling the legislature for way before I even became a commissioner that counties were heading towards this cliff,” Mejia said.
Given current trends, Thurston County officials estimated earlier this summer that there would be a $23.8 million structural deficit in the county general fund for 2026.
As the county’s primary operating fund, the general fund is used to pay for many services related to public safety, public health, emergency response, permitting, property taxes, parks, roads and much more.
In the past week, the Board of County Commissioners made headway reducing the deficit with some early decisions. However, the county has until the end of the year to approve a new biennial budget.
Property and sales tax growth has slowed down
County Manager Leonard Hernandez said the county knew revenues were slowing in 2023 when it built the 2024-2025 budget. The county cut about $3.5 million in response. Still, there was hope the situation would improve.
“What took place in that environment is internally, the organization was saying, ‘But the economy is going to come back,’” Hernandez said.
That did not end up happening. County officials realized last year that sales tax projections were going to continue to soften.
“As we got into the fall of 2024, the budget team came forward and said, ‘Based on the continued trends, there isn’t enough growth to support the inflationary costs that are on our expenditures,’” Hernandez said.
County documents show actual property tax revenue growing in 2024 and the years ahead. However, property tax percent growth fell to -0.25% in 2023, peaked at 9.02% in 2024 and slowed to 4.18% in 2025.
The county projections show property tax growth slowing to just 3% in 2026 and 2027, the two years for which the county is now preparing a budget.
Meanwhile, the county’s year-over-year sales tax revenue has fallen from a high of 15.55% in 2021 to 1.04% in 2024. Percent growth reached 1.7% in 2025 but county projections show it flattening at 1.5% for 2026 and 2027.
“That’s a lot of volatility in that environment,” Hernandez said. “It was really tough for the organization to figure out where this is going to land.”
The 2021 peak coincided with the final round of COVID-19 stimulus payments, according to the document. The county attributes the decline to the tapering stimulus and rising inflation.
Why are costs outpacing revenue?
Projections from earlier this month show the county expected to spend about $149 million from its general fund in all of 2025 while bringing in only about $125.1 million.
That means there would be an estimated $23.8 million budget deficit in 2025.
Expenditures started outpacing revenue in 2023. That year, the structural deficit was just $2.6 million. In 2024, the deficit grew to about $6.4 million.
The general fund gets 42% of its revenue from property taxes, 23% from sales tax, and 35% from fees, fines and other sources, according to county documents.
For over two decades, state law has prevented a county from increasing its portion of property taxes by more than 1% annually without a vote of the public.
Commissioner Tye Menser said the general fund is reliant on property tax revenue and yet it’s limited in how much it can bring in.
“Just think of it as a coiled rope,” Menser said. “And you’re just pulling that rope tighter, because every year, expenses rise more than 1%.”
Menser said revenue cannot keep up even in a normal year. Recent economic trends have made the situation even more difficult.
“Then you have inflation, rising costs, and the state hitting us with different mandates, insurance going away,” Menser said. “All these different factors, it’s just like someone pulling that rope super-fast.”
Amid these economic trends, Mejia said counties have had to deal with more unfunded state mandates. One example is the new public defender caseload standards set by the Washington state Supreme Court this summer.
While other offices and departments are facing cuts, the county has to come up with a way to hire dozens more defense attorneys and staff over the next decade, The Olympian has reported.
Costs also have increased with population growth and the associated increased demand for services. That growth also has another negative effect for county revenue.
“Our tax base can actually shrink in a time of growth because the growth can fuel the motivation for the cities to annex and take away commercial areas and parts of our tax base,” Menser said.
In the face of rising costs, the county has on stronger than normal sales tax growth and the infusion of COVID-19 federal relief money, Menser said.
“Those two things kind of kept everything kind of in balance, so to speak,” Menser said. “For basically the whole time I’ve been on the board, ‘til this year.”
Why is the county considering a levy lid lift now?
Given the current situation, the county is considering asking voters to approve a higher property tax rate and annual limit of up to 6%, The Olympian has reported.
Hernandez said the county commission has historically avoided asking voters to approve a higher levy rate, largely due to political and timing concerns.
“Now’s not the right time because this organization, fire district or school district, is going out, we want to be supportive,” Hernandez offered as an example. “Now is not the right time because of the Great Recession.”
Though property values have risen over the years, the county’s total levy has been limited from increasing beyond 1% each year. It might seem reasonable to expect the county to bring in substantially more revenue as property values rise, but it’s not that simple.
The levy rate was at about $1.45 per $1,000 of assessed property value in 2013, according to a presentation by Assessor Steven Drew earlier this month. That rate has fallen over the years and most recently reached 82 cents per $1,000.
“As the values go up, we have to drop our rate so that we don’t collect more than 1% more than the year before, excluding new construction,” Menser said.
The board had an opportunity to move forward with a levy lid lift last year and potentially put it on the ballot this year. If approved early enough, the county may not have had to consider such deep cuts this year.
Mejia and Menser said the board talked about it last year. Mejia mentioned that timing was again a concern given that voters had just passed the Public Safety Sales Tax the year prior.
Menser said he didn’t think a ballot measure would have had a good chance of passing because the situation was not that dire. That may change after the county enacts cuts this year.
“It’s terrible that we have to maybe get to that point, but my thinking about the possibility of success for the levy lid lift, which is warranted for the public to consider, is different because of the difficult situation that has manifested this year.”
Mejia said she understands people may be fatigued by new taxes but she cautioned against conflating the county with the state and other taxing districts.
The county collects tax money on behalf of the state, cities, school districts, fire districts and more. Yet, the county only keeps about 8% of that total.
“I understand what you’re saying, taxes are more expensive,” Mejia said. “You are paying more, but it’s not coming directly to the county.”
This story was originally published September 28, 2025 at 5:00 AM.
