Lynnwood weighs development, utility fee hikes to address $8M deficit 

Key takeaways: 

• Staff propose raising sewer connection charge by over $7,000 and introducing a new $1,932 water connection charge to bridge revenue shortfalls. 

• The Council also reviewed permit and business fee increases of up to 40% for large projects. 
• Councilmembers discussed ways to spend the City’s $1 million affordable housing fund. 

The Lynnwood City Council spent its Nov. 19 work session wading through proposals to increase development costs across the city, including hikes to utility connection charges and development permit fees to generate revenue amid an estimated $8 million 2026 general fund deficit. The Council also discussed how to spend the $1 million in the City’s affordable housing reserve fund.

Utility connection charges: Lynnwood Public Works Director Jared Bond and consultant Brooke Tacia of FCS Group presented potential options for General Facility Charges (GFCs), also known as a connection charge. GFCs are one-time utility connection fees paid by new developments to cover their share of existing and future public infrastructure costs. The goal is to achieve “generational equity,” Bond said, ensuring “each generation pays a fair share of costs for the infrastructure that they use instead of one generation sticking the next with the bill.” 

If the council approves, the ordinance will create a connection charge for water utilities and increase the existing sewage connection charge. 

Proposed fee updates: 

• Sewage: Raise the current charge from $4,000 per equivalent residential unit to $11,720 per equivalent residential unit. 
• Water: Institute a new$1,932 per meter capacity equivalent charge based on the size of the water meter connecting to the system.

Bond said these charges are essential to fund utility projects and upgrades as Lynnwood’s population grows. The charges could fund future projects such as expanding undersized water pipes and building a third water reservoir within 20 years and upgrading sewer pump stations to keep pace with growth, especially in the City Center.

Bond said setting the fees lower than the maximum calculated rate would shift the financial burden to existing customers through higher monthly utility rates. If approved, the proposed maximum sewer charge would put Lynnwood about mid-range compared to neighboring communities, while the new water charge would remain at the bottom of the comparative survey.

The council was scheduled to vote on the ordinance at its Nov. 24 meeting. 

Permit cost increases: City Development and Business Services (DBS) staff presented a gap analysis showing that permit fees are failing to cover the cost of services. Despite a previous plan to achieve 100% cost recovery by 2028, DBS is currently recovering an estimated 86% of its costs for building and electrical permits, creating a revenue shortfall of $374,381 in the first three quarters of 2025.

DBS Director Ben Wolters said the original recovery plan relied on the city’s general fund to cover shortfalls, a reliance that is no longer sustainable amid an $8 million deficit projected for 2026. 

The City’s current cost recovery plan previously adopted by the Council proposes a 6.7% increase for 2026. Staff proposed the Council approve fee increases to accelerate a five-year recovery plan to three years. 

Staff presented options to close the gap, including:

• Option 1: An accelerated, across-the-board increase of 14.7%.
• Option 2: 14.7% increase and a base fee of $212 for one hour of staff time. 
• Option 3: A varied incremental rate increase ranging from 0% for small projects under $50,000 to 40% for projects over $5 million, coupled with a $212 base fee equivalent to one hour of staff time. 

Wolters said charging a base hourly fee (like in option two or three) for minor permits could potentially discourage residents from obtaining permits for smaller, safety-related home projects.

Head tax and business licenses: The council also reviewed the City’s general business license fees and employee fees, known as the “head tax”– both of which serve as general city revenue streams. Since 2019, these fees generated stable revenue, averaging about $518,000 from base fees and $1.5 million from the head tax annually. 

Staff presented scenarios based on adjusting the fees for inflation (CPI) since they were last set in 2019, which would generate an additional $172,967 in base fees and $538,000 in head tax revenue.

$1 million affordable housing fund: The Council turned to a brainstorming session on how to spend the over $1 million in the City’s affordable housing fund. The fund is supplemented by Washington’s  Substitute House Bill 1406, allowing local governments to impose a shared sales and use tax to fund affordable housing initiatives, generating about $200,000 annually in Lynnwood. 

Per state law, the City can only spend the money on projects or initiatives under three categories: acquisition, construction or rehabilitation of affordable housing; operations and maintenance of housing or providing rental assistance to low-income tenants.

Councilmembers discussed ways to spend the money: 

• Councilmembers George Hurst and Derica Escamilla supported dedicating a portion to immediate rental assistance to relieve pressure on local families facing high costs.
• Council President Nick Coelho argued that the money is insufficient to fill the true need for rental assistance and advocated for using the bulk of the funds for permanent construction or shelters to address critical gaps in the region.
• Staff, including Human Services Coordinator Kyle Ward, suggested the City put out a call for proposals to solicit proposals from local service providers. 

The Council directed staff to explore policy options that could split the funds between long-term projects and rental assistance and return with specific recommendations.

The meeting agenda and recording can be found on the City’s website. 

— Contact Ashley at ashley@myedmondsnews.com.