Olympia City Council studies annexing urban growth area; weighs impacts on providing city services and finances


The Olympia City Council had a briefing on the potential annexing of a 2.5 square mile southeast urban growth area (UGA), focusing its discussion on city services and financial impacts.

At the City Council study session held Tuesday, September 19, Community Plans and Development (CP&D) Deputy Director Tim Smith said the city has been studying the southeast UGA annexation for about five years. Two studies conducted, one in 2019, provided an initial analysis.

In 2023, consulting firm ECONorthwest completed a study commissioned by the city to provide an in-depth analysis of the impact on the general fund over 20 years from annexation.

The area being considered is currently home to around 8,000 residents. The population is projected to grow significantly to 8,900, with 3,810 housing units by 2045.

According to Smith, the city started investing and maintaining infrastructure in that area, including water and sewer systems, over the last 30 years.

Smith added that annexation would grant southeast UGA residents access to city programs. For example, the city's Energized Olympia climate program, which many people from outside city limits are inquiring about.

Smith explained that if the southeast UGA was annexed into city limits, community members living there would be eligible to participate in the city's programs.

Impact on the general fund

According to Smith, the ECONorthwest study found that while annexation would expand the city's tax base and increase revenues, it would also result in substantial additional service delivery costs, particularly for departments providing transportation, police, fire, stormwater, and solid waste services.

The study presented two scenarios with the Regional Fire Authority (RFA) and one without. In April, Olympia voted against the formation of the RFA.

Without the RFA, the study stated that beginning in 2025, the general fund would face a deficit that would continue to increase each year.

In 2025, the projected revenue for the general fund is $2.7 million, while expenses are estimated at $3.3 million, resulting in a deficit of approximately $590,000. By 2035, revenue is expected to reach $3.3 million, but expenses are estimated to exceed $7.8 million, resulting in a deficit of about $4.4 million. This deficit is projected to increase further in 2045, with revenue estimated at nearly $4.4 million and expenses projected to be $12.7 million, resulting in a deficit of $8.4 million for that year.

Smith explained that the report examined the cumulative general fund impact over 20 years from annexation. "This also assumes no additional revenue streams in [to consider]. But it shows a net cost for general revenue for the general fund of about $90 million."

Service delivery impacts

In 2029, Smith said the city would take over fire services as Fire District 6 would end its service to the area. That would require a new fire station, estimated at around $21 million in 2029.

Olympia Police Department determined that six new officers would be needed for the new patrol area, training, and equipment that would be phased over two years.

Smith said additional staff members would need to be hired for the city's traffic and street operations teams to maintain public roads and conduct maintenance activities in the annexation area. That would allow the city to keep road lane miles in the annexation area at baseline maintenance levels.

According to Smith, stormwater is a utility that doesn't directly impact the general fund. It affects the Stormwater utility itself. There will be initial costs for a new construction truck and trailer to maintain the existing stormwater facilities in the urban growth area. By 2024, the ongoing costs for two additional staff would amount to $642,000. The utility expects to generate $680,000 in ongoing user fee revenues. He said these fees can be adjusted in the future to address any shortcomings—the same thing with other utilities.

10-year general fund forecast

Citing the ECONorthwest study, CP&D Deputy Director Tim Smith states that annexation would increase Olympia's tax base, but they also see an increasing gap in the general fund.
Citing the ECONorthwest study, CP&D Deputy Director Tim Smith states that annexation would increase Olympia's tax base, but they also see an …

BeMiller presented additional analysis, including the city's 10-year financial forecast assumptions for revenues and expenditures. He said the expenses are increasing at a faster rate than revenues.

BeMiller explained that their financial projections included a hypothetical $1 property tax levy lid lift beginning in 2025.

The levy lid lift represents an additional $10 million in new property tax revenues. The projections assume no other new revenues beyond that, no new staff/programs, and others.

However, BeMiller emphasized that additional operating costs or staff added to serve the annexation area would shrink the positive variance over time.

Smith outlined two methods for annexation. The first is the petition method, which involves property owners representing at least 60% of the area's assessed value signing a petition requesting annexation. The second method is through an interlocal agreement jointly approved by the city and county and potentially other districts. Smith noted that an interlocal agreement annexation may be exempt from review by the Boundary Review Board.

Smith mentioned that the staff is recommending the interlocal agreement method of annexation because it would make the city eligible for a new sales and use tax credit provision.

According to Smith, HB 1425 allows the city to receive a credit of 0.1% of the current 6.5% state sales tax rate collected in the annexation area. The shift of 0.1% of sales tax revenue collected is estimated at around $3.1 million annually from the state to the city for ten years.

"What this credit does is it fills the gap between revenues and expenses for several years and provides timelines for the city to look at other revenue streams. So basically, it helps us cover this gap… caveats to using this revenue, it has to be used within the annexation area," Smith explained.

If the city opted for an interlocal annexation agreement, BeMiller said Olympia would receive the estimated $3.1 million annual sales tax credit from the state. That will also help fill deficits for ten years.  

But BeMiller cautioned that the sales tax credit will end after ten years. It will create a significant gap in the general fund because the operation costs for fire, police, maintenance, and other services remain.

"That's the main reason we wanted to show this out to at least 2036 because you can see the future years of that upfront. That also gives us time to look at different potential options. But upfront, it doesn't exasperate our general fund forecast," BeMiller said.


5 comments on this item Please log in to comment by clicking here

  • BobJacobs

    It is hard to understand that the city of Olympia, which is already short of funding for fire services, police services, sidewalks, and etc. is considering this annexation that would create further deficits. And by the way, the consultant's analysis understates the deficits that would be caused by the annexation.

    What's the old saying? If you're in a hole, stop digging?

    Only city staff would benefit from this annexation. Olympia's population would increase by about 15%, and cities with larger populations pay higher salaries.

    Bob Jacobs

    Tuesday, September 26, 2023 Report this

  • Larry Dzieza

    I studied this issue in depth during the run up to the RFA vote. The bottom line, using the city's own economic analysis is that it cost more to provide services to the annexed area than it will generate in revenue.

    The people of Olympia need to ask one question: What benefits do they get from this annexation?

    I have asked this question several times and received no meaningful response.

    The fact is, there is no requirement for the city to annex this area and it will, without a doubt, cost current Olympians millions of dollars more with no tangible benefit.

    For more information go to: https://www.saveourfd.org/annexation-fbc

    Once you are there, you can download the report that is cited in the JOLT article, see the map of the area and watch videos of Council people revealing how the higher costs for providing fire services to the annexation were "the quiet part" of the overall RFA strategy.

    Again, what benefits do current residents receive from this annexation?

    Tuesday, September 26, 2023 Report this

  • SpenceWeigand

    Mr. Dzieza, your are correct. Absolutely nothing.....other than a more moderate base of voters in local elections.

    Wednesday, September 27, 2023 Report this

  • jimlazar

    The briefing was, in many ways, deceptive, and ignored extensive public comment that the City received on this subject over the years. Here's just a few highlights:

    1) The area to be annexed has serious road and sidewalk deficiencies, including along transit routes and school walking routes. These will cost $5 - $10 million to bring anywhere close to the City standards. That cost was not considered.

    2) Olympia has a "level of service standard" to have a neighborhood park within 1/2 mile of each residence. That would require 2 new neighborhood parks to be built and maintained. A $5 - $10 million capital item, plus maybe $300,000/year in additional maintenance. That was not included.

    3) The City counted the Metraddiopolitan Parks District tax as a revenue in calculating the $3 million/year net loss this annexation would generate. But those funds MUST be spent for parks (where we have huge needs), but they did not include ANY costs for parks on the "expense" side of the calculation.

    4) The City assumed ZERO increase in central administrative costs: City Council, City Manager, City Attorney, Human Resources, or Information Services. All of those tend to grow in a pretty linear fashion as cities get larger.

    This is an almost entirely residential annexation. Almost no sales tax, B&O tax, or economic benefit to the City.

    The City ALSO failed to calculate how much the average resident in the annexation area will pay per year. Higher taxes for utility bills, additional property tax, and some other categories.

    Finally, the City has not even asked the residents of the area to engage: no neighborhood meetings, no public hearings, no outreach, no property-by-property increased cost estimates.

    I hope to write a longer piece based on the newest information provided by the City. Keep your eyes on The Jolt News for more.

    Wednesday, September 27, 2023 Report this

  • JW

    Access to city programs. What a thrilling incentive to become a part of the city.

    Thursday, September 28, 2023 Report this