Do We Really Need to Pass a Budget by Year’s End?

Is it really necessary for our city or county to adopt a budget by December 31? I mean, how bad could it be if we don’t?

It could be bad!

Statutory requirements regarding budgets

State law requires that cities and counties adopt a budget either for the following year or biennium before the end of the current budget period. See, e.g., RCW 35.33.075; RCW 35A.33.075.  

If the councilmembers or commissioners fail to do so, the city or county will not be able to legally make any expenditures at all for the new year, as there will be no budget appropriations to support the expenditures. Presumably (or arguably) this could lead to the city or county shutting down.

However, to our knowledge, no local government in the state has shut down for the want of a budget. That fact, though, should not provide much comfort. A shutdown could happen and, in any case, local officers could be put at risk.

For cities, RCW 35A.33.160 and RCW 35.33.170 both provide that city officials, which would include mayors, managers, and councilmembers, are subject to penalty for “knowingly making expenditures in excess of budget appropriations,” such that “he or she shall be guilty of a misdemeanor and shall be fined not more than five hundred dollars for each separate violation.” Presumably, or arguably, if there is no budget and, consequently, there are no appropriations, any expenditures would be deemed in excess of appropriations.

As to counties, see RCW 36.40.130 and RCW 36.40.240. In addition, RCW 36.40.130, which applies to counties, provides that an official who incurs or makes an expenditure in excess of budget appropriations “shall be liable therefor personally and upon his or her official bond.” See also RCW 35A.33.125 and RCW 35.33.125.

At the very least, without a budget, the city or county runs the risk of unfavorable audit findings or comments by the State Auditors’ Office.

What to do if a budget is not passed

Whether a city or county is shut down or penalties are imposed, the potential risk for not adopting a budget is great.If a timely agreement cannot be reached on a new budget before the end of the year, the best course to take, we suggest, would be for the council or board to pass something.

One possible action might be to adopt the current year’s budget for the following year as an interim solution. (However, if the current budget is adopted, the property tax levy reported to the county should reflect the dollar increase and percentage change in the levy from the current year.) This “interim” budget could then be later amended to address the issues not agreed to during regular budget deliberations.

Because there is no clear authority on the legal consequences of failing to adopt a budget or for making expenditures when there is no budget, adopting something before the current budget period’s end might encourage the legislative body to compromise and adopt some final budget, even if future amendments may be required to address areas in dispute.

The result of doing nothing could potentially be bad, quite bad.