Lacey officials report modest first-quarter variances, warn of 2026 budget gap driven by rising labor costs

Lacey — City finance staff told the Lacey City Council on June 10 that the city’s first-quarter financial results for 2025 showed few surprises, but rising labor costs and softer tax and investment returns increase pressure on the 2026 budget.

Troy Wu, Lacey’s finance director, said the city spent about $838,000 more in the current expense fund through the first quarter and that labor costs accounted for the bulk of the increase: "a 770 $767,000 increase to the cost of labor," Wu said. He also reported that general-fund revenues were about $587,000 lower through the first quarter compared with the same period in 2024, driven largely by weaker plan‑check fees and lower investment valuations.

The report matters because taxes and wages together account for most of the general fund. "Taxes make up about 68% of all general fund operating revenues," Wu said, while the cost of labor historically represents roughly two-thirds of operating expenditures. The finance team’s model projects a nearly $4.7 million structural deficit for 2026 under current assumptions.

City staff framed the numbers and modeling assumptions for council. Highlights included: sales tax collections of about $6.4 million for the…