Lacey reviews annexation financial study; council directs staff to open talks with Thurston County

Burke Consulting presented a high‑level fiscal analysis of annexing portions of Lacey’s urban growth area (UGA) at the council’s May 27 work session, and council members agreed to direct staff to begin interlocal discussions with Thurston County.

The study examined 15 subareas of the UGA and estimated operating costs, staffing needs and revenues under three scenarios: no growth, development based on current buildable‑lands capacity, and historic growth rates. Consultants said ongoing general‑fund impacts were negative in all three scenarios, but the magnitude varied; sales tax on new construction and the state shared sales‑tax credit for annexation materially affect short‑term results.

"This study aims to analyze the costs and the benefits of annexation from a fiscal perspective," said Andrew Bjorn, who participated in the presentation. Catherine Getz, lead consultant, said the analysis focused on operating costs and staffing, the primary long‑term cost drivers for the city.

Key findings and context: - Since 2015 the city has annexed about 1,791 acres, adding roughly 2,900 people, staff said. - Consultants modeled three scenarios: (1) no growth, which produced the largest negative net impact; (2) buildable‑lands capacity, which assumed development consistent with current zoning; and (3) historic growth, slightly less than scenario 2 on the 20‑year horizon. - Sales tax from new construction and a state sales‑tax credit for annexation (described in the presentation as 0.1% or 0.2% options) can offset initial operating shortfalls; the consultants said a city may not begin to impose this credit after July 1, 2028, making timing important. - Operating costs were estimated on a per‑service‑person basis (residents plus a share of employees); consultants warned that certain service thresholds (for example, adding police patrol districts) can create step increases in staffing and cost.

Council members raised multiple procedural and policy concerns. One councilmember asked whether the consultants’ year‑to‑year dollar figures included an inflation adjustment; staff answered that figures are presented in the year in which costs are expected to occur, not adjusted to 2024 dollars. Another councilmember asked how annexation would benefit the city’s current residents; speakers said benefits include enhanced capacity for housing and long‑term economic growth but noted that some annexations can be net fiscal drains in the short term.

Consultants described annexation methods under Washington law (petition, election, interlocal agreement, administrative actions) and outlined the Boundary Review Board and interlocal agreement processes. Staff recommended beginning interlocal discussions with Thurston County to explore a more planned approach; doing so is the next step recommended by the consultant team.

Timing, budget and next steps summarized by staff: - Staff estimated initial work and public engagement would take roughly 18 to 24 months and recommended a project budget of about $300,000 for further financial and operational analysis and public outreach. - If the council wants to pursue state shared sales‑tax credits, paperwork and procedural steps must be completed before July 1, 2028. - Staff will meet county leadership, report back to council and, if mutually agreed, begin formal interlocal agreement discussions followed by more detailed subarea analyses (staffing, revenue, capital needs) and a public engagement process that may include joint hearings with Thurston County.

Council action and direction: Council members agreed by consensus to have staff open discussions with Thurston County about an interlocal approach and to return with recommendations and more detailed financial and operational information. Staff noted that any interlocal agreement or annexation proposal would require public hearings and the formal processes described by consultants.