Lacey staff present $224.6 million 2026 budget balanced with just over $3 million from reserves

City of Lacey staff on Monday presented a proposed 2026 budget of $224,608,566 to the City Council and said the plan is balanced by using just over $3,000,000 in reserves while preserving existing services and funding planned capital projects.

The proposal, which staff described as the second consecutive budget balanced using reserves, funds about 342.5 full‑time equivalents and would continue operations for a community the presentation said has an estimated 2025 population of about 60,380. Staff recommended continued public hearings and workshops before the council takes final action on the budget at its Dec. 16 regular meeting.

Staff said the budget was developed amid flattening sales tax receipts, slowing development activity and national inflationary pressures. To address those pressures, staff outlined a three‑pronged strategy: explore targeted revenue options authorized by state law, invest in long‑term economic development to expand the tax base, and pursue expenditure reductions and prioritization ahead of the 2027 budget.

Key numbers and context - Total proposed budget: $224,608,566. Staff said the proposal is balanced using just over $3,000,000 from reserves. - General fund: $74,344,285 (staff said this is about $14.5 million lower than 2025, largely because of timing of capital project transfers). - City workforce: about 342.5 FTEs overall; general fund supports about 276 FTEs. - Population and built environment: staff said Lacey serves roughly 60,380 people, about 26,000 housing units, 1,200 acres of parks and 185 street centerline miles; the city has roughly 1,500 businesses and about 15,700,000 square feet of commercial/industrial space.

Revenue pressures and development pipeline Staff showed month‑over‑month declines in retail sales tax for most of 2024 and into early 2025, then modest improvement in spring 2025. That flattening of sales tax, combined with moderating development activity, is the main driver of the city’s revenue challenges, staff said. The presentation noted the recent failure of a Metropolitan Parks District ballot measure that would have created dedicated parks funding and said that outcome reduces expected near‑term revenue for parks maintenance and capital.

Staff reviewed projects in varying stages of the pipeline that could affect revenue over the next two to three years, including three hotels with about 362 rooms (land‑use approvals granted but construction not started), a new Trader Joe’s at the former Rite Aid site on Pacific Avenue/Slater‑Kinney, multiple mixed‑use and multifamily projects (including a 96‑unit 5‑story project on East Martin Way and a 150‑unit phase in Midtown by MGR Development), and single‑family lot projects in the growth pipeline. Staff cautioned that even if permits were pulled promptly, construction for several large projects would likely be 18–36 months away.

Rates, utilities and capital Staff presented the enterprise funds (water, wastewater, stormwater) as a combined $116 million program and reviewed multi‑year capital improvement plans. Under the current rate structure and the 2022 multi‑year rate study, staff proposed: - Water: 5.25% rate increase for 2026; example monthly charge shown: about $42.80. - Wastewater (Lacey conveyance portion): 9.5% increase for 2026; example Lacey conveyance charge shown: $36.27. Staff gave a combined wastewater bill example (including treatment partner charges) of about $85.22 per month on a single equivalent unit. - Stormwater: 4.5% increase for 2026; example monthly charge shown: about $15.46. Staff said the combined utility changes amount to a roughly $8 monthly increase for a typical household when all three utilities are combined.

Major capital items highlighted in the presentation included the police station (staff said roughly $3.2 million remains to be spent in 2026 on a $61.5 million project; staff projected substantial completion by early 2026, pending delivery and commissioning of a generator), rack/athletic field enhancements (preliminary designs, 30% design scheduled by year end; Council work session planned Nov. 25), and a College Street/Seventh Avenue roundabout design anticipated to begin in 2026 as part of an MOU with Saint Martin’s Abbey and a private developer.

Program investments and reserves Staff recommended targeted, mostly one‑time investments funded from designated reserves and grants rather than ongoing general fund increases. Examples in the proposed budget included: - Makerspace operations: $200,000 (support for Lacey Makerspace and related apprenticeship/business support programs). - Annexation study/implementation: $403,000 to continue an annexation strategy, economic analysis and community engagement for unincorporated growth areas. - Food truck/night market continuation: about $55,000. - LED streetlight replacement: $200,000; additional $200,000 for regional climate action/resilience programs and rebates. - Building maintenance items funded from building reserves, such as a repair at the Lacey Community Center (~$25,000) and a new roof for the Virgil Clarkson Senior Center. Staff also noted two elevator modernizations estimated at roughly $250,000 each and proposed modernizing the elevator serving the City Manager’s office in 2026 while deferring the second elevator pending future facility decisions.

Positions included and not included Staff said the 2026 proposal adds positions supported by enterprise or dedicated funds rather than ongoing general fund additions. Specifically, the presentation identified three staff positions supported by dedicated funding (examples: a capital projects position paid in part by utilities, a utility‑billing position funded by user fees, and a stormwater journey‑level technician funded by the stormwater utility) and completion of the planned transition to a fourth police lieutenant funded by Proposition 1 resources. Staff also listed at least six requested positions that were not funded for 2026 because no dedicated funding was identified: a public records specialist, a public‑records/body camera analyst for police, a combined human services specialist/emergency management coordinator, additional journey‑level maintenance technicians for streets and parks, an equipment mechanic for the growing fleet, and additional technology support staff.

Other operational notes and fiscal posture Staff said the general fund remains primarily supported by sales tax (about 58% of general fund revenues) and that property tax collections are a smaller but steadier portion of revenues. The presentation included an assessment that the city’s fiscal policy (adopted in 2013) permits one‑time use of reserves to balance the budget in constrained circumstances; staff recommended using the policy reserve for the approximately $3 million drawdown to balance 2026 while pursuing the three‑pronged strategy to avoid continued reliance on reserves.

Next steps Staff laid out the schedule for council deliberations and hearings: an initial revenue discussion beginning Nov. 3, a first public budget hearing Nov. 18, a second hearing Dec. 2, and a proposed council action on the budget on Dec. 16. Staff encouraged public participation during the hearings.

Ending The presentation emphasized that the proposed budget focuses on preserving current service levels while identifying limited, strategic investments funded from dedicated sources and reserves and that the council will continue work on revenue options and an economic development strategy to address longer‑term structural gaps.