Olympia is facing a starting deficit of $12 million in the general fund as it begins the 2025 budget update process.
At its meeting on Monday, August 26, City Manager Jay Burney presented an early look at the budget projections to the Finance Committee. He said the $12-million deficit is driven by a combination of factors, including declining revenue from sales tax, rising personnel costs due to inflation, and new expenses such as implementing a compensation and pay equity study.
The city’s Budget and Finance Manager, Joan Lutz, outlined key budget assumptions. She noted that the general fund revenue is estimated at $106,582,838, while the expenses are estimated at $118,445,988. She said the salaries and benefits make up the largest portion of the general fund expenses at around $84 million.
The budget manager added that the transition to the state workers' compensation plan would significantly increase workers' benefit costs. Lutz explained that the workers' compensation claim history is being reviewed to see if any reductions can be made.
Burney stated that the city's expenses are higher due to inflation across the board. He explained that this will be the third year in a row where the city is approaching close to a 4% cost-of-living adjustment (COLA). "It is awesome that we can continue to give our employees 4% COLA, but over time, that impacts our budget. With the inflation up, that impacts their cost of living and their costs, and so we need to match that."
The city is facing increased costs associated with the transition to a self-insured workers' compensation program and the implementation of new public defender standards, which are expected to add $656,000 to the budget.
Burney mentioned that the city is planning to implement the results of the compensation and pay equity study, which will cost about $2 million.
Another concern Burney raised is the city's reliance on state funding for critical programs like housing and homelessness initiatives. He noted that about $2.5 to $3 million of the funding for these programs currently comes from the state's general fund, which is not guaranteed beyond the fiscal year.
"If you take away the state funding for housing and homeless programs, [budget deficit] grows to $14 million. So we are going to need to continue to rely on some state funding," Burney said.
Burney outlined several considerations for balancing the 2025 budget. He emphasized that all budget decisions must be rooted in the priorities set by the city council and the community, as outlined in the city's comprehensive plan. This includes focusing on areas like housing/homelessness, climate change, economic development/livability, public safety, and transportation.
To address the growing deficit, Burney said the city will need to make significant cuts to expenses, while also exploring potential revenue options such as a levy lid lift in the future. He cautioned, however, that the budget gap will be challenging to close even with these measures.
The city manager stated that the city will continue to freeze some hiring. However, Burney emphasized that he will make no decisions that affect the delivery of the city's core services, which he said is the top priority in their decisions.
Beyond the Youth Council and community oversight programs, Burney announced there is no capacity for new or expanded programs. He explained that he had signaled this to the city staff and had conversations with the city council.
"I may be bringing you some recommendations to delay some activities or projects for implementation, or pushing some schedules out based on cuts we may need to make this year to make the budget balance," Burney said.
The city manager explained that it is early in the process and a lot of work still needs to be done, but he cautioned that the city is facing significant challenges that will require tough decisions in the months ahead.
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jimlazar
Olympia faces a deficit because this City Council has exploded the budget with new programs.
Prior to a few years ago, the City left housing issues to the Thurston County Housing Authority. Now Olympia is spending upwards of $5 million/year on housing related issues.
The City has also added more than $1 million/year in communications staff. When the City population was 40,000, ONE communications person was thought adequate. Now there are seven in the City Manager's office (plus more in Public Works, Police, and Fire).
The City is sitting on a mountain of cash -- more than $100 million in various reserve funds. Not all of those reserves are needed -- and the projects for which they are set aside are not all needed.
Finally, for 18 of the last 20 years, the City Finance Director has underestimated revenues by more than $2 million, comparing the estimate when the Council set the budget to the actual amount received. Yes, there were two years when it was lower (2009 and 2020). But if the revenue estimate were set at the mid-point of likely outcomes, instead of lowballing every year, this deficit would magically go away.
Unfortunately, no one on the City Council has actual budget experience for a large agency. And the City Council has ZERO staff to assist it. It is totally dependent on the City Manager for staff support. By contrast, every City Councilmember in Seattle has a staff of about seven people; they EACH have a budget expert. You'd think the Olympia City Council would have at least ONE staff person working for it. Nope. Not a one. Every budget expert works for the City Manager.
The solution is to change the form of government, to eliminate the City Manager, and provide a policy staff that reports directly to the elected City Council. And perhaps to pay the City Council more than minimum wage (they make $24,000/year each; the City Manager is paid $225,000/year).
Tuesday, August 27, 2024 Report this
AugieH
Isn't the Olympia City Council considering a study to explore reparations for the descendents of slaves? Talk about a budget exploder!
Wednesday, August 28, 2024 Report this
RedskinPatriot
Agree with Augie and Jim- one caveat:
Cutting taxes and reducing spending is the only way to grow “revenue”. Again, Government has no revenue other than the confiscation of wealth which is a persons labor. I wish the Jolt would call it for what it is TAXES!
I vehemently oppose the idea of “borrowing” from the states’ general fund because that is money confiscated from other Washingtonians. Their cities have their own problems - we shouldn’t rely on People from let’s say… Wenatchee to pay for our cities lack of governance.
One more point - property taxes will only pass more burden on the home owners and renters. Landlords will not eat the high costs - they will simply pay it forward to renters.
Why not consider a “fair tax” for the city and reduce property taxes. That way everyone has skin in the game. We all get to vote but not all of us pay taxes… Even if it 1% everyone will pay (that number will need to be examined). Which means we all have skin in the game. Lower property taxes will allow rents to go down (the market will adapt) and you’ll attract more homeowners to our city. Which grows businesses by spending and that increases business growth. Ultimately building revenue for the city … ugh, er… I mean tax collection not/Not revenue.
Give it a shot city council - I will bet my pay check it will work!
Ryan
Wednesday, August 28, 2024 Report this
HappyOlympian
Small city with over-reaching officials in charge. No surprise here.
Wednesday, August 28, 2024 Report this
BobJacobs
Every year about this time the city manager issues a "sky is falling" budget projection for the next year.
One reason is the structure of our taxation system. Revenues grow more slowly -- by 10% as I recall -- than inflation/expenses. This means that regular tax rate increases are needed just to keep up.
Another reason is new state mandates. The legislature often prefers to force public expenditures downward on local governments as a way to control state expenditures and claim to be fiscally prudent.
But I agree with Jim Lazar's comment above on other matters.
I wonder about "the transition to a self-insured workers' compensation program". We need more information on this. Why would we change to a self-insured system if it costs more?
Bob Jacobs
Wednesday, August 28, 2024 Report this
KarenM
The discussions at Council committee meetings starts with the assumption that everything will remain the same with a few additions and state mandate expenses. Then, of course, there is not enough money to fund all of it. Now the City Manager will say that they will tighten things up by having a hiring freeze and other measures to save some money. He tells the Council 'no new initiatives' even though they should be the policy makers.
A hiring freeze is a bad way to manage. It means that you can only choose within the existing staff (to move them around internal to the organization) or leave work undone. Some higher priority programs could be left lagging.
The Council should make choices about priorities. It is my impression that some programs are started with grant funds, but then continue when the grant funds have ended. These need to be evaluated to decide if they should continue at all, or perhaps at a lower level. The ever-expanding volume of activity at the City is unsustainable.
Wednesday, August 28, 2024 Report this
Southsoundguy
Reduce wasteful spending, add bitcoin to the balance sheet, grow the asset side.
Wednesday, August 28, 2024 Report this
Redfield
Augie H, the mayor's reparations referral is about calling on state and federal governments to STUDY reparations for the intergenerational harm that has happened to Black Americans since enslavement. The mayor said he's interested in seeing how the concept of reparations can be part of the work the city is already doing with housing, establishing homeownership goals, etc. The City Council never said anything about the City PAYING reparations, the headlines just did.
Wednesday, August 28, 2024 Report this
JW
Let's have a community forum where the people decide who and what gets cut out of this bloated budget. I'm guessing police, fire, public works and other essential services that cities are supposed to provide will make it and wasteful bloat and make-work positions will go in the trash.
Wednesday, August 28, 2024 Report this
1601JWS
While I basically agree with Jim Lazar's analysis, especially the comments about council's budget experience for a large agency.
Also, while I don't know if this is erroneous reporting or an actual statement to the Finance Committee, A $5.9 million dollar increase in revenue, does not constitute a decrease in tax collections. In the chart accompanying the article, only licenses and permits shows a decrease. That decrease is only $24,000.
Wednesday, August 28, 2024 Report this
AugieH
Redfield, Evanston, Ill is paying reparations. Other cities seriously considering such are: Asheville (NC), Boston, Detroit, Kansas City (MO), Northampton (Mass), Providence (R.I.), St. Louis, St. Paul, St. Petersburg, and San Francisco. Olympia may not now be considering paying such, but a progressive city council might get the urge. Who knows?
Thursday, August 29, 2024 Report this
MartyKenney
10% pay cut to all those making over 80k and 20% to those making over 130k How much money does that save?
I think it should be an honor to work for a city government, not a fat salary.
Also, the fire department is WAY over bloated,
so is inter city transit.
There are many options.
Thursday, August 29, 2024 Report this