Lack of proper budget reporting, position turnover led to Tenino spending estimated $1.3M in restricted funds, mayor says
Nov. 11—About 40 Tenino residents attended a town hall event at Tenino High School on Saturday, Nov. 9, hosted by city staff, the Tenino City Council and Tenino Mayor Dave Watterson to address the estimated $1.3 million in restricted budget funds the city spent this year and the three years of budget misreporting prior to that.
The budget misreporting resulted in the city's budget expenditures outpacing budget revenues by an estimated total of $1.4 million going back to 2021.
As soon as Watterson and city staff discovered the discrepancies and budget misreporting, they immediately notified the Washington state Auditor's Office and have already made cuts to city staff positions in order to try to balance the city's proposed 2025 budget.
Municipalities such as Tenino are required to submit balanced budgets by state law.
The restricted funds tapped into were Tenino's sewer and water funds — money that is only supposed to be used to maintain sewer and water services.
"We had just been transferring money without authorization. That's how we paid all our bills," Watterson said.
Watterson said the city needs to reorganize its budget funds to separate them.
"All of this money is in one pot, so when you look at our account, we have a bunch of money in one account," Watterson said. "So it's easy to just keep writing checks if you're not keeping track."
Because it's a violation of state law to use the restricted funds on non-fund related items, the city council had to retroactively approve use of the funds as an "interfund loan."
The city must now pay back the loan to the sewer and water funds within the next three years at a 4% interest rate for a total of approximately $1.8 million.
While the city's 2025 budget has yet to be approved, cuts have already been proposed to the tune of $1.6 million, including a nearly $400,000 reduction to the city's street fund, an approximately $17,000 reduction to the Quarry Pool fund and almost $1.5 million from the municipal capital fund.
As for the layoffs that have been made, one was a general laborer for the public works department and the other was the city's full-time building inspector and code enforcer. More city staff positions may be on the chopping block next year as well.
"I know this is a hard situation, but we will get through it," Watterson said. "... But it's going to be a struggle for three years."
Watterson still opposes other options, including raising taxes.
"To tell people we screwed up and didn't do the right thing and got us in a bad spot, so now we're gonna have to jack up your property and sales tax, it's hard for me," Watterson said.
Watterson, along with city staff, are finishing up the draft 2025 budget, which will undergo a preliminary public hearing at the Tenino City Council meeting on Tuesday, Oct. 12.
This will be followed by another budget work session on Tuesday, Dec. 10, and the final draft of the Tenino 2025 budget will be submitted for council approval on Tuesday, Dec. 17.
While tensions were high during last month's Tenino City Council meeting — when residents voiced opposition to proposed police department budget cuts and the council approved a measure to automatically reject any proposed budget with police budget cuts — things appear to have calmed down as the city officials continue grappling with the budget issue.
A letter from Tenino City Councilor Jason Lawton was recently published in The Chronicle expressing his displeasure with Watterson's handling of the budget issue.
Lawton reached out to The Chronicle to explain that he and Watterson had since made amends.
"I'd rather not have me saying he's ineffective. The mayor and I have talked recently and a lot of this was my frustration," Lawton said.
How the budget reporting problems began
Keeping track of budget expenses was a major problem the city had for multiple years.
The problem began with former Tenino Clerk-Treasurer John Millard in 2020 when he fell for a phishing email scam and sent an automated clearing house payment of $2,890 to what he believed to be a local nonprofit. Instead, it went to someone in Ohio.
That triggered a combined investigation between the Washington state Auditor's Office and the Washington State Patrol.
Ultimately, investigators discovered a total of $336,968 in fraudulent automated clearing house payments made between March and May of 2020 by Millard, according to the state auditor's investigation report.
Millard resigned and moved out of state in December 2020. While the city did have insurance that helped recoup lost funds, according to Tenino City Councilor Linda Gotovac, budget reporting problems continued for the city.
"There was no clerk-treasurer then until May of 2021," Watterson said.
That clerk-treasurer quit in August of the same year, as the commute from where she lived in Hoquiam ended up being too much to handle.
While a new clerk-treasurer was again hired in September 2021 who handled the city's 2022 budget, that clerk-treasurer failed to file any annual budget reports with the state and was fired in March 2022.
"I'll also add besides the no annual reports during this whole time, part of the process of the budget is each month updating and balancing our checkbook. So month-to-month, you've got all your receipts and deposits and expenditures," Watterson said. "... There was no monthly accounting on our accounts, in addition to not filing any end-of-year reports."
In September 2022, after no new clerk-treasurer was found, an outside agency was hired to handle the city's finances.
"They were here for some time, and from what I understand, what they did made it even worse for our people to try to figure out what happened," Watterson added.
In January 2023, the city hired its current Clerk-Treasurer Jen Scharber.
Watterson was elected mayor in November 2023 and sworn in at the beginning of 2024. He followed the tenure of former mayor and current Thurston County Commissioner Wayne Fournier. Since then, another outside consultant has been hired and has been assisting Scharber in essentially recreating the city's accounting books going back all the way to 2020.
It was during this time they noticed that budget expenditures had been far outpacing budget revenues for the past four years.
"We got the heads up in March from the person doing the books. He said, 'Hey, I just want to tell you, don't hire anybody, don't spend any money you don't have to. You need to just be doing the basics,'" Watterson said.
Since then, the two layoffs have been made as Watterson, Scharber and the outside consultant have worked on redoing the city's books over the past four years.
Normally, the state auditor's office conducts accountability audits every two years. But the last time one had been conducted was 2019 as COVID pushed back many regularly scheduled audits.
A new audit was immediately initiated upon the discovery of the budget misreporting, and Watterson said he has seen the draft of the final audit report and expects it to be released soon.
When asked for comment, Fournier provided the following statement:
"Just about every jurisdiction is facing similar issues right now. In the fog of the pandemic a lot of outside funds came through federal programs and increased sales tax revenue and every jurisdiction stepped up to meet the demands of those times," Fournier said. "We are now having to set new baselines and normalize spending everywhere. I took office at the county to face a $12 million deficit that was created by the factors I just mentioned and exacerbated by a lack of budget reporting over the past year. These are issues that come up in the course of governing. What matters is how you respond, not how you got there. It's important to understand the history and context that surround a budget. It's a living, breathing thing, and it's a moving target. I've offered to give context to the mayor, but he has to take me up on that. He has a great team that he inherited that can work through any issues and Tenino is a community that will make it clear what they want and what their values are."
To view the state auditor's office investigation into Millard's time as clerk-treasurer for Tenino, visit .
