Lynnwood city leaders told the City Council on Oct. 20 that a series of staff reductions and program cuts are in effect across internal departments as the city responds to a projected general-fund shortfall in the 2025-26 biennium, and staff recommended temporarily lowering the general fund minimum fund balance policy from 2.5 months to two months to remain in policy compliance for 2025.

Assistant City Administrator Julie Moore and Finance Director Michelle Meyer walked the council through internal department reductions made to meet a 10% biennial reduction target. In the executive department, Moore said the city eliminated a senior records specialist (an AFSCME position) and cut the equity and social justice advisor role; the latter will shift liaison duties to Human Services Coordinator Kyle Ward while the city retains some programmatic funds for events and community sponsorships.

Meyer presented a draft, unreconciled third-quarter financial report. She said the city is about nine months into the 24-month biennium and that, by the department-level forecasts reviewed in September, revenues such as sales tax and development-related permits are running below the adopted 2025 budget. "Not all of our funds receive and expend funds equally across the year," Meyer said, but added the general fund is 32% through revenues and 34% through expenditures at the third quarter, and the city's updated forecast shows a fund-balance compliance gap for 2025 that would grow in 2026.

Meyer outlined discretionary cuts already made in finance and IT, including cancelling certain software licenses and training blocks, delaying server and network replacements and reducing temporary staffing. She said finance's staffing reductions removed the equivalent of 80 to 100 staff hours per week and will make the department more reactive and less able to pursue process improvements. IT Director said delaying hardware and contract commitments lowers short-term costs but increases long-term risk and reduces capacity to start new projects; IT also ended a six-month temporary end-user support position early.

Human Resources Director Vanden Koy said HR absorbed its required cut without layoffs by holding vacancies and reducing training and consulting budgets, though she warned that further unforeseen expenses may require future actions. Director of Information Technology (Sena) said the department will continue to protect essential systems and cybersecurity posture but that some cybersecurity activities were scaled to meet budget targets.

City staff described options for addressing the shortfall. Finance provided a menu of revenue options that could affect 2026: increasing property tax levy to available bank capacity (the city has not reached its statutory maximum), raising select utility taxes (statutory caps apply to externally provided utilities), increasing business-license and permit fees, and increasing vehicle-license fees within the Transportation Benefit District (a $10 tab increase could generate an estimated $150,000 to $300,000 depending on timing). Staff cautioned that most measures require ordinance changes or notification periods and some would not produce full-year revenue for 2026 unless implemented quickly.

To keep the city within its own financial-policy requirement for fiscal year 2025, Meyer presented a resolution option to reduce the general fund minimum fund balance requirement from 2.5 months to two months of operating expenses. She said that change would reduce the city's 2025 reserve requirement by roughly $2.5 million and bring Lynnwood into compliance for the year based on current forecasts; it would reduce the city's 2026 projected compliance gap from about $10.5 million to about $8.0 million.

Councilmembers asked for more detailed numbers, expressed concern about sustaining new internal positions that relied on one-time funds (for example, the police scout social worker), and urged staff to provide the Excel worksheets and schedules used to estimate impacts. Several councilmembers supported adopting the temporary fund-balance change as a means to avoid violating the city's policy in 2025 while pursuing longer-term revenue and operating adjustments.