Olympia faces $12 million general fund deficit

By Lorilyn Lirio

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.