Olympia begins 2026 budget planning, flags long-term gap and launches priority-based review

Olympia — City Manager Jay Birney and finance staff told the Olympia City Council April 22 that staff will present a detailed budget briefing in May and continue work through the June retreat to address a persistent structural gap and identify options for 2026.

Birney said the council must adopt a balanced budget each year and that staff are bringing an expanded analytical toolkit, including priority-based budgeting, comparable-city analyses and a review of business-and-occupation (B&O) tax options. “We must adopt a balanced budget every year,” Birney told the council; he said staff expect the May study session to present program-level costs and recommended next steps.

Staff recapped actions taken to balance the 2025 budget: the council faced an $11.8 million gap and approved $7.7 million in reductions, including 27 full-time equivalent (FTE) positions, and used $4.1 million of one-time fund balance. Birney said the city ended last year with roughly $3 million in fund balance above reserves and that staff will provide updated projections for fund balance at the May study session.

Planned topics in May include: a revenue and expenditure update for 2025; comparable‑city metrics (FTE growth vs. population and program changes); a detailed B&O tax breakdown and policy options (including filing thresholds and exemptions); the status of a half‑percent nonvoted utility tax that sunsets at year‑end and would become available to the general fund in 2026 (Birney said that half‑percent figure is about $500,000); and an initial review of priority‑based budgeting results, which staff described as a program‑level inventory and analysis that will highlight “low cost/high impact” and “high cost/low impact” services.

Birney and budget staff said the priority‑based budgeting work is underway: program descriptions and cost allocations have been compiled and staff are scoring programs for mandate, demand, population served and cost recovery. Assistant City Manager Debbie Sullivan and staff said that analysis will provide a “road map” for council decisions on which services to protect and where reductions would have the least community impact.

The council’s finance chair, Council Member Gilman, asked staff to include more detail on the county’s current courthouse capacity and any plans the county has for a regional justice center; Gilman also flagged potential bond proposals later in 2025 or 2026 to fund park and Armory projects and asked staff to show how those capital plans would interact with general‑fund budgeting. Gilman told staff she expects more specificity on space, leasing and debt capacity before a final decision on large capital projects.

Birney also flagged outstanding budget uncertainties the council will monitor: a pending Washington Supreme Court decision on indigent defense standards (Birney reiterated the city had budgeted approximately $500,000 in 2025 to cover potential impacts pending the court’s decision), and the progress of the state legislative session on any new municipal revenue options; he noted the “1% cap” property-tax proposal appeared unlikely this session.

Timeline and next steps: staff said the May study session will provide the first detailed results of the priority‑based budgeting effort and additional revenue/expenditure analysis; the June retreat will continue the budget conversation, and formal budget development and adoption will follow the usual September–December calendar. Birney told council members the May materials will be detailed enough to inform early direction and that additional study sessions can be scheduled if council members request them.

Ending — Council members expressed both urgency and caution: several said they want options that include both near‑term reductions and longer‑term regional partnerships. Staff committed to sharing the finance committee materials in advance of the May study session and to working with council to identify priority services to protect as deeper program‑level analyses are completed.