City Council - workshop

It is six o'clock on September 8th, 2026, and I'm going to call this Lacey City Council work session to order. Council Member Cox is going to be attending remotely, but all other council is present. I also want to acknowledge that we, the City of Lacey, are on the ancestral lands of the tribal people of the Treaty of Medicine Creek, including the Nisqually tribe and the Squaxin Highland tribe. With that, can I get a motion to approve this evening's agenda?

Move to approve the agenda as published.

Second. It's been moved and seconded. Any discussion? Seeing none, all in favor of the motion, signify by saying aye. Aye. Is there anyone opposed? That motion unanimously carries. We have an approved agenda. First up on our approved agenda is a public comment. We do have one person who signed up for public comment. Stephanie, can you please approach the podium over here and introduce yourself, and you'll have three minutes for public comment.

All right, good evening. My name is Stephanie Scott, she, her, and I'm here tonight in advance of the Franz Anderson vote next week because I'll be at a school board meeting next week talking about AI cameras in our schools. I am a community member who's a Lacey resident. I am deeply involved in supporting housing insecure and homeless individuals in this community. And I'm here tonight to remind this council that we cannot solve a regional housing crisis by continuing to make decisions without listening to the people living through it. People with lived experience are your constituents just as much as any business or property owner is. Regional governing bodies, including this council, have continued making decisions that leave our community increasingly overdependent on the low-income housing institute, with few alternatives when that provider doesn't deliver. We need to be honest about how we got here if we want to move forward. Policy decisions and lack of accountability created this situation and have contributed to a narrative that Housing First is ineffective when in reality our region hasn't fully invested in the combination of quality housing and services at the level needed to truly implement Housing First. I am asking this council to remain committed to a regional Housing First approach. Homelessness doesn't stop at the city boundary and neither should our solutions. When you make decisions about shelter, supportive housing, eligibility, providers, and transition from homelessness, you need to hear directly from the people who are experiencing these systems. There are already mechanisms to do this if you don't know where to begin. You have the Regional Housing Council's Homeless Services Advisory Board and Lived Experience Housing Steering Committee. You could seek input from McKinney-Vento liaisons to understand what these decisions mean for the over 1,000 homeless NTPS students and their families. And quite frankly, stop being confrontational with people who share their lived experience. Our local jurisdictions have to start building this input into your decision-making processes before decisions are made and throughout implementation and evaluation. Franz Anderson is a perfect example of why this matters. Changes to AMI eligibility will change who gets access to extremely limited supportive housing. And because Franz Anderson and Maple Court are connected to any regional strategy for transitioning people out of the jungle, These decisions have consequences beyond one building that will deeply impact the closure of the jungle, a camp with a population of 300 plus that includes people from Lacey and people swept from Lacey and people who will return to Lacey when trespass notices go up. I believe this council has three choices that must be informed by lived experience and regional collaboration to be effective. Rather than invest in Franz Anderson as currently proposed, you could increase investment in the supportive housing we already have in this region and improve the things that matter most, including services to increase and expedite successful exits into permanent housing, freeing up critical spots to people awaiting placement. You could lead the way on working with a different provider and start developing real, people-centered alternatives to our over-dependence on LIHEAP. Or third, you could continue working with LIHEAP with real accountability, set measurable performance standards, require regular performance regular reporting, establish consequences when expectations aren't met, don't give away public property to LIHEAP without getting accountability for outcomes for the people they serve, and regardless of which route this council chooses, give people receiving services a regular, meaningful seat at the table to share their experiences as part of the evaluation and accountability process. Please stay regional, listen to lived experience, and hold providers accountable. Thank you.

Thank you. Thank you. Is there anyone else wishing to address the council this evening? Seeing none, then let's go. Go ahead. Yep. Can you please approach the podium? Give us your name.

Kathy Martin. She couldn't be here, but she sent you an email. So I'm just kind of reading. what the email that was already sent. He says in reviewing the article in the Olympian about the L I H I needing 1.5 million for the maple court homeless project. I have questions and concerns. I am all in favor of finding a real solution to the homeless situation in our County. What I am not in favor of is throwing money down a rabbit hole with no clear pathway out. First, is there a report in progress to date? How many residents have been housed in the Maple Court since opening? How many have transitioned to permanent housing? How many have successfully gone through rehab training and work placement programs? How many staff have been employed and what is the turnover rate to date? Who is the current manager of Maple Court? And is there any supervisory question or counseling staff residing on site? In other words, how is this program working? And how has the $4.5 million plus already allocated been spent? And how is the additional $1.5 Five going to be spent without that information. I strongly recommend no vote from the city council on this issue. As a resident of the Jubilee community, where we have many voting residents living in a fixed income, taxes and costs of living going up and housing prices dropping, we need to answer these important questions. We don't need another tax increase. I tried finding information in the website and was unsuccessful. I tried calling them and their mailbox is full. I have sent them an email in hopes of reply. Feel free to forward this to the person in charge of this project if you know who it is. It is not listed in the website. We would recommend someone from Lacey city council and the city to provide us with information on who we should give, uh, give more funding to this project that thus far has not been completed and seems to have been poorly managed respectfully. Kathy Martin.

Thank you. Is there anyone else wishing to address the council this evening? Now seeing none, then we'll go on to our next agenda item, which is our C-Link Networks, Inc. telecommunications license application.

Okay, good evening, Mayor, Deputy Mayor and Council Members. Tonight I have a new telecommunications license agreement application to go through with you. And it is a little bit different than the last one. This one is not a franchise agreement. It's a license agreement. And we'll go through kind of the details of that and what is different about it. Tonight, it's just for review. We will forward it to the September 15th regular city council meeting for a final action through a resolution via the consent agenda. And you should have all the information in your packet for tonight. So I was just thinking about this. The last time that I came, Shannon hadn't come since 2023, but before that it was 2017. So I went through quite a big review of it last time. So I'm just gonna briefly go through these things. If you have any questions, please feel free to stop me. Because since we just did it a couple of months ago, I didn't want to bore you to death. So just a little bit of background. There is a federal law, the Telecommunications Act of 1996, that is basically enacted to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies. So basically, that was requiring the cities that they must come up with an ordinance that complies with this law. And it basically is saying that the local government's regulations may not prohibit or have the effect of prohibiting the provision of telecommunications services. And we do have our Lacey Municipal Code Chapter 5.6, which is the telecommunications chapter. And it's basically, the purpose of the chapter is to permit and manage reasonable, fair, and equitable access to the public rights of way of the city for telecommunication purposes on a competitively neutral basis. And as part of the chapter that we do have the different ones, like I mentioned before, we have the telecommunications franchise, we have the license, We have cable franchises, and again, this one tonight will be a license agreement. Okay, get to this page. Oopsie. Oh gosh, I went too far. Sorry about that, guys. Oh man.

Holy.

Hold on, sorry. Oh, that's weird. Uh-oh, here. Sorry, I pushed the wrong way backwards. Sorry, guys. Can you help me? Okay, thank you. All right. So, yes, why don't you do that? I think I went all the way to the end or something. Okay, here we go. Okay, so when we receive a... telecommunications application. We must go through it and make a determination. And that is all this criteria here. I won't go through it all because we'll talk about it in a minute. But we do have 120 days after we receive the completed application to make a recommendation to the council. So these are some of the requirements of the license agreement. The license agreement is, the reason it's different than the franchise is this is exclusively providing services to people outside the city. So the other one was within the city limits. This one's outside the city limits. There are required, as with a franchise, to restore the rights of way or other properties, fix any damages to the property, do any emergency work, provide a notice of work, and they must get all the required permits. Similar to the franchise agreements, this is the hierarchy of where we prefer to have facilities installed. Okay, so that's kind of the overarching background. Does anybody have any questions on that?

If this is completely outside the city of Lacey limits, Why is the City of Lacey involved in this license?

Because they'll be using the rights-of-way to put the fiber pass-through.

Okay, so it's going to be passing through.

Yeah, and I'll get into that when we get into the actual application. But, yes, it's actually just using our rights-of-way for the fiber to pass through to Westport. So if you go on the Internet, you can find information about C-Link. And it's kind of interesting. They said, I thought it was interesting little tidbit here. It says, we are a team of subsea and terrestrial fiber experts building out subsea fiber optic cable landing site infrastructure to support customers around the world. I was like, wow, that sounds very important. So we did receive a complete application on June 22nd of 2026. telecommunications license agreement from C-Link, and as I mentioned, they will install fiber infrastructure as a pass-through only. They will not provide local broadband or internet services in Lacey. They have six submarine fiber cable landings in Westport, and from that location, network services will pass through between Westport and terminate in a Lumen facility in Thurston County, where network traffic will be routed to a telecom co-carrier hotel in Seattle. And that's the reason they must obtain the licenses, because they are using our city rights of way. And we have received their $1,000 application fee. So as I mentioned earlier, in your meeting packet, you should have all the information in the application. It has been reviewed by the communications team, Public Works, and CED. And again, we have 120 days to make a determination, which is October 20th. So, um, as mentioned earlier in the LMC, there was some criteria criteria to determine whether to grant or deny the application. And one is the, if they have a legal ability to provide services and they have provided their business registration with the state of Washington, they have the Washington and utilities transportation commission registration, and they also have a city of Lacey license. They have to have the capacity to accommodate alternatives, which we talked about the hierarchy of physical locations. They must mitigate and or repair any damages, and they must follow all applicable federal, state, and local laws. So when we receive one of these applications, we must review the application with the reasonable, fair, and equitable access to the public rights of way of the city for telecommunications purposes on a competitive neutral basis. We have to use that lens. And the language that will come in the forthcoming telecommunications license agreement will be consistent with past city telecommunication franchise agreements. We do not have any current license agreements as active. A few other requirements, some of these are already mentioned, but they must apply for and receive all applicable rights of way and development permits. They must carry a minimum of $2 million in liability insurance during the term of the franchise and require a performance bond prior to any construction in the rights of way. And like I mentioned, they have paid the $1,000 application fee, but they must pay all other fees generally applicable to persons doing businesses within the city. And the term of the license would be five years from the date of execution. So with that, as I mentioned earlier, this is just a review and it will be forwarded to the September 15th regular council meeting for final action through a resolution via the consent agenda and just wanted to know if you have any questions.

Questions? Annual renewal?

It's a five-year term.

Five-year term and I saw in there there was... Was it $1,500 a year? Is that what I saw? Or did I just see the $1,000 plus the, I saw the $2 million, I saw the insurance, the $3,000?

$3,000 is for if you do a franchise agreement. So this one is $1,000 for the application fee. I don't know about the permit fees. I could get back to you on the permit fees. I don't know what that is to you.

I didn't even know the permit fees. I'm wondering do they pay us annually for this at all? Is it just a one time?

So one time cost for each application that they make and it is for administrative costs. So there was an ordinance that determines kind of what we can charge and it's $1,000 one time for the license. Now in five years they will need to come back and renew that license and that would be an additional charge.

So they're not providing a direct service to people in Lacey, but they could. What does that look like?

I think they'd have to get a franchise.

I'm not sure I understand that.

That is correct. They would need to get a franchise if they were providing services directly to Lacey community members. And right now, though, their intent is just to pass fiber through the city of Lacey. They don't have a plan to provide any direct services to the city of Lacey.

But they could.

If they applied for a franchise. Okay. With this license, they're just getting a license to use our infrastructure, the conduit or whatever.

There's something unique about Lacey. Are they doing this in Tumwater or Olympia or anywhere else?

I think they have to do it with all the cities between Westport and here. This is just one link of the whole. So all the other cities are doing the same thing? They're asking them all to do the same thing. And this isn't going to start until the first quarter of 2028, just by the way. So they're getting all these things in place.

Go ahead. Do they need to reapply for this license every five years as long as they have fiber in our right-of-ways?

The reason why I brought it up is I know. It's coming from Westport, and it's going to a Thurston County Lumen facility. Where exactly would this be passing through the city of Lacey?

I don't have all those details quite yet, yeah.

It seems Westport to Thurston County.

So based on some preliminary information that C-Link has shared with us, and again, I would just reiterate that they are going to have to go through the permitting process, so at some point in time they will actually produce their path through the city. It was in southeast Lacey that it was passing through and terminating near the rack.

Okay. Terminating near the rack. Okay. Anyone else? It's pretty straightforward. I think we've got to let them do it. I know. Anyone else? Okay. Thank you.

Appreciate it.

So our next agenda item is our revenue and expenditures estimate.

Can I ask a quick question before we start that? So if we have to let them do it, then there's no discussion about approving it or we can't say no?

Well, I think we would have to come up with a reason why we wouldn't allow them to pass it through our city limits, but it's very restrictive. I mean, I think we'd have to say yes as long as they're meeting the application.

Yeah, with FCC requirements and federal requirements, Intellectual Communications Act, they have the right to pass through, and now they set up a structure with the franchise agreements and right-of-way permits to set up a structure so that if we do have to use our facilities, that they are getting permits and notifying us. And of course it's a matter of course with the franchise agreement because that's in the realm of the council to approve. I believe with the, talking about going from Westport to a Lumen facility in Thurston County, but eventually it's going to need to go up to Seattle. And so having an open-ended contract, they'll identify those routes and then they'll document that through our right of way permit process with our public works department so that we can make sure that they're not impacting city streets, infrastructure, and private infrastructure that's in the ground. They have to pay for that permits and reviews, correct?

Yeah.

Okay. Good? Okay. Then our next agenda is our revenue and expenditure estimates.

Great. Thank you, Mr. Mayor. Good evening, Council. Tonight we're going to talk about, excuse me, preliminary revenues and expenditures for the 2027 budget. This is a required action, at least in terms of sharing revenue numbers with the council and this is really to provide you enough information so you can make informed decisions about property tax or potential property tax increases for next year this is going to be more robust than you've seen in the past just given conditions of budgets regionally and across the state we figured more information more timely the better it is for the council to be informed to make decisions But I do want to emphasize these are preliminary. They will absolutely change. Decisions are still being made. So please bear that in mind. I always tease Rick. He has a great memory, memorizes all the numbers I give him. But sometimes they are preliminary. I'm sure the council is the same as well. So please bear that in mind going forward. I do want to share a couple things. excerpts out of our budget message. This is a message that Rick and I develop and we send that out to the organization. It really sets the tone for the budget development with our departments, with our directors and all employees. I'm not going to go through and read this whole thing, but the basic approach and the message as we started the budget was this is a budget that's going to be focused on maintaining service levels. This is going to be a budget that is going to be focused on meeting our most critical operations and maintenance requirements. We were going to leverage reserves to invest in economic development initiatives to ensure our future. And really, you know, the importance here is that we remain disciplined. That's really what has gotten us to our financial stability that we experience now, and it's going to be critical to sustain our city going forward. So that's kind of, in general, the message that we sent out to the organization. So I do want to jump right into revenue estimates. Here you have your general fund revenue sources by category. I'm not gonna go through all these categories at this time. We do have more details to follow in the slide deck, but I do wanna focus in on the all other category. That is one area that we don't have details to follow. This is a, at this point, a $13.4 million decrease compared to the current year's budget. This is almost all has to do with the use of beginning cash. Of that 13.4, 10.6 million is the use of beginning cash. which includes $3 million for a budget strategy that we use to balance the budget. It also includes $6.1 million in carryover budget from 25 to 26. This number also includes about $1.6 million in one-time transfers. So that's the primary difference as it stands right now. I do want to talk about sales tax. Sales tax is our single largest source of revenue for the general fund. Your preliminary estimate for 27 is just over $20 million citywide. Of that, the general sales tax, so this is the bulk of our sales tax. This is what we use to pay for general fund operations, an increase of just over $400,000. We have a projected increase in public safety sales tax of about $213,000. Altogether, in the general sales tax, that's about a 2.6% increase over the 26 budget. I do want to share some information as to what we're seeing as far as trends go. You did receive the August sales tax email. You actually got that from Chelsea. I hope you appreciate her more positive approach than my own. So this is old information for the council, but it's worth repeating. If we look at the August sales tax going back 12 months, retail trade is up 4.4%. Construction is down 7.8%. If we look at year-to-date through August, so when we talk about year-to-dates, that's actually through June. We do collect sales tax two months in arrears, so it's only about a half a year's worth of information. FAIRLY SIMILAR NUMBERS TO THE PAST 12 MONTHS. RETAIL TRADE UP 4.8% AND CONSTRUCTION DOWN 9.2%. DO WANT TO SHOW THE YEAR SO FAR IN TERMS OF THIS IS CASH BASIS SALES TAX AND THE MONTH OVER MONTH CHANGE COMPARED TO THE PREVIOUS YEAR. SO YOU CAN SEE WE GOT QUITE A BIT OF FLUCTUATION AND AS WE LOOK THROUGHOUT THE YEAR. The overall average is about 4%. We're actually 4% up year-to-date. So you could see what a trend curve like this, how that makes it challenging to predict sales taxes going forward. Also, I'll point out that within some of this, well, absolutely within this number, we do have positive impacts from the recent sales tax changes at the state level. So we have more types of activities that are now taxable. That's definitely in these numbers as well. It's really hard to pinpoint exactly where those are at. For the most part, sales tax categories are self-selected by the taxpayer, so it's not always evident what the business is, even though they select a category. Sometimes those don't always match up, but Kind of anecdotally, I would say about half of our increase so far this year is coming from those changes, so we're at about a 4% increase, maybe 2% is coming from those, the change to the sales tax basis. Here is your top 10 sales tax so far this year. You could see that general merchandise, our largest category is up 2.7%. Inflation for Seattle, June or through June is 4.5%, so our largest category still isn't quite keeping up with inflation if our inflation here locally is similar to Seattle. I do want to point out construction, as I mentioned earlier in the 12-month look back, down overall year to date, 13.3%. Administrative and support services up 52.7% for the year. This is the primary category where we're seeing those sales tax changes at the state level. You did see 11% increase for sales tax last month. To give you a little more background, I don't have a slide for that, but sporting goods was up 11% in August. Construction was up 23.4%, so very different than what you're seeing so far year to date. And then administrative and support services in August were up almost 86%. So you can really see the impacts of that August sales tax numbers. OK, with that, I'm going to hand things over to Chelsea to talk about property tax.

Okay, so property tax. The 2027 projected levy is $147,866 more than 2026. The general levy is projected at just under $9.7 million, and the parks improvement bond levy will be zero, which is super exciting. So this is the last year for that. Please keep in mind that the general levy amount will change as we receive new information from the county throughout this process. So in order to get to the $9.7 million, we start with the general property tax amount of $9.5 million, and then we also add in new construction. And for 27 right now, we're projecting $52,623 in new construction. This is based on our own internal estimate of about $75 million of assessed valuation of new construction because we haven't received those figures yet from the county. We also add in the 1% increase, which is that revenue limit. And this is based on the previous year's levy, and so that amount is $95,243. And so all of that added together is $9,672,120. One other factor that impacts property tax projections is potential refund levies. We also don't have information about any refund levy at this point in the process, so that's completely left out. Okay, utility tax. As noted during our 2026 mid-year report and then also as part of our September budget amendment briefing, the city has experienced an increase in utility tax revenues. One component of that is the new cable utility tax and then another is the surge in existing utility tax categories. The 2027 budget projections been adjusted accordingly to keep pace with what we're seeing in 2026 and also to account for expected rate increases into 2027. The total utility tax projection is just over 12 million, which is an increase of 9.2% from the adjusted 2026 budget.

The cable tax, utility tax on cable, how much of that was from that? I mean, how much did we... We only started collecting that... We haven't collected it the entire year, right? It started...

It was almost the entire year. Was it? It was like the second week of January. Okay. We're collecting at the rate of about 500 and... 650. 650,000. It's a little bit less than we projected when you had your discussions. I think we were projecting around 720,000. So we're collecting about $55,000 a month versus the $60,000 we thought. Okay.

Thank you.

Moving into B&O, we adjust B&O tax in accordance with our sales tax adjustments. And so 2027 projections are just over $4.2 million, which is an increase of about $435,000. Gambling tax is projected to increase this year about just under 50,000. This is based on our actual trends that we've seen over the last few years, as well as our year-to-date collections in 2026. This is kind of a conservative increase, but understanding that this revenue source can be somewhat volatile just based on economic conditions and potential disposable income levels, those kinds of things. Yes. Parks and Recreation fees, so based on some insight from our frontline staff, revenues are projected at just under $850,000. There's some kind of movement within the different areas of Parks and Rec revenues. In 2026, we've actually seen an uptick in the facility rentals, which we anticipate to continue into 2027. In contrast, though, activity fees are projected slightly lower than 2026, and this is just kind of based on our actual results that we're seeing in 2026. Also included in that is a new pool use agreement with Tumwater and Olympia that's in those 2027 numbers.

I have a question on park fees. Have we ever talked about how park fees are set and what they're currently at? If we've ever adjusted them and these types of things, I'm not looking to stir up anything.

It is, and it's a program through the Parks Board. I'm going to let Jen speak to the process.

Yeah, so the fees, the rental fees and regional athletic complex fees do get approved by, they increase on a steady schedule and those go to the parks board. Class fees are based on a cost recovery where we recover 100% of our direct costs. And then we set the fees based on those change quite a bit based on like market rate. And so like part time staff, professional services and supplies, operating supplies are all covered in that 100 percent cost recovery. Some of the programs, if they're more a highly individual program, let's say an example would be like a private swim lesson where it's just. singular benefit to a person. We call that a high individual benefit activity. Those ones tend to be more money. Our sports leagues tend to be more as well because it's just benefiting like a smaller group of people versus like a special event is completely subsidized because it's benefiting a ton of people and there's no fee to do it. So There's a range in there. And our philosophy has been 100% direct cost recovery. So we don't recover the overhead, but we recover those direct costs. And then some of the higher individual benefit activities bring in more and offset the cost. FACT THAT WE DON'T BRING IN AS MUCH FOR SOME OF THE, LIKE, SAY, YOUTH SPORTS, WE DON'T BRING IN AS MUCH. AND SO AS LONG AS WE'RE STICKING WITH THAT 100% COST RECOVERY, THAT'S BEEN THE MODEL THAT WE'VE USED. AND SO SOMETIMES WE, IF A PARTICULAR PROGRAM DOESN'T RUN, WE WOULDN'T BE BRINGING IN THE REVENUES BUT WE ALSO WOULDN'T BE SPENDING THE MONEY TO RUN THAT PROGRAM EITHER.

THE FACILITY RENTAL FEES AND THOSE ARE SET BY THE PARKS BOARD. and then all other fees are based on a cost recovery model so they can adjust depending on the programs and services that we're providing. Okay. I just wondered.

Thank you. Thanks, Jim.

Okay, next up is interest and investment income. This is projected to increase about 58% in 2027. These projections are built off of the trends that we're seeing in our LGIP net earnings rate as well as our investment core book yield. We use those trends along with economic outlooks from the Congressional Budget Office as well as narrative that we are able to access from the Federal Reserve around rate changes. The recent narrative is showing likelihood of up to two rate increases by the end of the year. This is actually opposite of the last few years when we've been in the same stage of our budget development. So for both 25 and 26's budgets, the outlook was indicative of rate decreases. So that's why we're seeing such a strong increase this year.

Are we looking at a quarter per session?

What was that?

Are we looking at a quarter?

A quarter?

Per meeting?

I think so. Is that right?

That's generally the move is, yeah, 25 basis points. Yeah.

One other thing to point out too as far as the positive trend that we're seeing is as our older, lower yield investments are maturing, we're able to access higher yields with new opportunities. Okay, so this is a graph that shows interest income that we've collected since 2016 and it highlights the cyclical nature of this revenue source. As noted on the previous slide, interest rates are a really big driver, but also the amount invested matters too. So with lower principal means lower earnings, which is important to keep in mind as we start to spend down cash. So as an example, if you look at the bottom of the graph in the two right-hand columns, that's general fund. If you compare 2025 to 2024, there was actually a decrease of $372,000, and this is largely due to a use of one-time reserves. Our analysis is suggesting that interest earnings are at or near their peak. And so, in other words, we expect 2027 to be kind of a short-term increase but followed by longer-term decline down the road.

Okay. Let's move away from the general fund for a moment and talk about utility rates. You know, again, Purpose of tonight's to give you information so you can make an informed decision about property tax But again taking the opportunity to get more information in front of the council in the public We do have out of our four utilities that we collect Monthly fees from three of them already have adopted rates on the City Council adopted multi-year rates for Water and wastewater a few years ago. We have a five point two five percent rate increase for 27 for water and And that's an across the board increase. For sewer, it's a 9.5% across the board increase. And then lot has, as you heard through committee report outs, that they have a 3% rate increase for 27. I do have here on the screen a 9.5% rate increase for stormwater. Of course, the council saw a couple different scenarios just a couple weeks ago. I just put the 9.5% because it was at the lower end of that presentation. But we do have information on the population adjustment as discussed by council. So we had asked our consultant to put together two different scenarios based on increased or some increases to the population assumptions. So the first scenario we asked them to look at was a 1.5% population growth through basically the period. The rationale behind 1.5% is we looked at the city's adopted comp plan and we looked at what the population growths were that were assumed in that study or that plan. So the 1.5% scenario comes from looking at the growth rate from 25 through 2030. And that average rate increase through that period, according to the comp plan, is about 1.4%. So that's how we got to 1.5%. So if you look at the 1.5% population growth within the new scenario that the consultant prepared, it reduces. You might remember the 11% scenario was 1%. all land capital program assuming no grants for about four different projects. So that was 11%. So assuming an increase of population assumption to 1.5, I think we used 1.25, that reduces the rate down to 10.65%. The other scenario we asked the consultant to consider was 1.75% growth rate to population. The rationale behind 1.75% was looking at the 2024 through 2030 population growth. And within the comp plan, there's an assumption of population growth due to annexation in 2025, which has not been recognized by OFM. So there's a difference in what's assumed in the comp plan versus what we'll call reality on paper. But if you look at that 24 through 2030 growth rate in the comp plan, it's about 1.78%, so that's how we got to 1.75. Using the 1.75% population adjustment brings that 11% proposal down to 10.35%. I do want to show you the population numbers just so you can see where we got those within the comp plan. The growth, you could see the TRPC growth rate to population or the assumption for those years within the red box, the bottom part of the red box, and then the BERC or the comp plan population assumptions in that first line within the red box. And that's where those calculations come from in terms of the 1.5 and 1.75%. So maybe I'll pause here while we have the opportunity to maybe get a little bit of feedback from council in terms of what we just presented. It would help inform staff on terms of what the recommendation might be going forward. I would anticipate that next council conversation would happen two weeks or actually That is two weeks from today on the 22nd at our budget workshop. So at that point, we'll be looking for a little more definitive direction from the council, but maybe some initial thoughts on what you've just heard. Council?

Not a lot. I mean, I was hoping it would bring it under 10, but obviously that's not the case. But I do think that that's probably more realistic to what our population growth will be. Carolyn?

Thank you. I'm curious, Troy, I know you're projecting out, but can you tell me consequences if we went a little more conservative this year? Would we be getting into a deeper hole next year? Or...

Sure, that's a great question that we've had at the staff level. We talked about the cumulative impacts of rate increases and inflation. We had a very high level conversation about getting under 10% and what that would actually mean. What it ultimately means, we'll have a smaller capital improvement program. We would focus on the permit requirements of operation requirements of that permit that would be our first priority Which means there would be less available for construction projects going forward You know I think we would definitely focus on some capital there are Rehab requirements within the permit so we would focus there first so you know if you think about some of those Those water flooding problems and where water gathers also be kind of the lesser priority going forward. So again, I think we would definitely focus on meeting those permit requirements, which I think we could do for, you know, a 9.5% as an example. And we would look to reducing or spreading out that capital improvement program. I'm looking at Vince. I don't want to put Vince on the spot, but maybe Vince has a little more insight to that as well.

No, I appreciate that. I think one of the things I would add is we also looked at the potential for grants. And some understandable hesitancy with that. I have that myself, but we are applying for those grants. So we're working with Ecology to apply for grants. So if we start at the 9.5, which we presented before we did the adjustments, You know, there might be an opportunity to assume we would get less grant and still be able to cover our operational needs. I mean, Troy covered it well on what would the effect be. It's really going to be on the capital side. The top priority for permit compliance is largely on the operating side. It's an activity-based permit, so we need to be out there doing inspections, working with HOAs and businesses. And either of those scenarios will cover that. It's really on the capital side that we would see the effect for rates.

I got a $340 water bill the other day. It was on Sunday, or no, it couldn't have been Sunday. It must have been Saturday. I know I didn't open it until yesterday. But man, I was surprised. And if I'm surprised being somebody whose household is a household of two people, I would imagine a lot of our residents are also surprised when they open their water bill and see, you know, what if, you know, if you got two, three kids showering now full disclosure, I have a sprinkler system, but I shut that off like weeks ago. So I, I guess what I'm saying is I would really like to find a way to save our residents some money. I know that, I think I know that we really need to make sure that this department and the budgets, this line item is balanced and that we are able to fund all the things that we need to fund. However, I think people are struggling in this economy, and we really need to find a way to save our residents some dollars in this critical time. So when I hear us talking about methodology for increase, I'm at odds with it. Yeah, go ahead.

So I think that I, I mean, the way I'm leaning is, I feel the same way you do, Malcolm. I think the financial situation out there is tough. People are struggling. There's no doubt. So I mean, I'm leaning toward going with like the 9-5. and only doing two, maybe three years at the very most on a rate, because I think we should just, actually, I would be comfortable, and I know staff would hate this, but I'd be more comfortable if we did a one-year rate and looked at it again next year. I know that doesn't give staff the stability they'd like to have. But, you know, the economy is in such a weird flux right now that it could change quite a bit over the next year or two years. So, I mean, I kind of hate to lock us into anything for any length of time right now.

And it's not like we're planning on bonding on any of this at any time in the near future, so we don't... I understand and appreciate the stability factor, but if we're not bonding on it, we're not planning to go and do something with it that we can turn into some more money, I don't see why we would need such a long commitment.

I know it's more work for staff, because we've got to look at it again next year.

I was actually just about to say the same thing. Like if we choose the more conservative rate increase, could we come back in three years? Because it looked like the other utility increases were 2024 to 2027. So we'll be probably looking at that again next year anyways. So if we could do something more conservative for a shorter term, that would be wonderful. Council Member Turner, any thoughts?

I don't think I have anything to add.

Yeah. So, I agree with the 9.5%. And I hate to punt it because that's not great long-term planning. However, in this case, I would be comfortable with a 9.5% increase and reevaluate this on the same schedule as you talked about. We have to look, you know, we have other rate increases are through 27%. that means we're gonna have to come look at in 28. And all the population number is important. I mean, all this kind of comes down. So sort of aligning, because all these show up on your water bill. And so they're all different things, right? But when you open up the water bill, you know, that's what you're seeing. That's what you have to pay at the end of the day. And so, which is why it's so important to get the population numbers. I KNOW IT IS EASY TO GO CONSERVATIVE ON THAT WHICH MEANS THE RATE GOES HIGHER AND THEN YOU HAVE WAY MORE THINGS TO PLAY WITH. I JUST DON'T THINK NOW IS THE TIME TO BE PLAYING WITH THAT. I THINK WE NEED TO, IN THIS CASE, SORT OF HANG IN THERE FOR ONE YEAR AND THEN REALIGN FOR 428. THAT IS SORT OF WHERE I AM AT, AT THE 9.5 AS YOU ASSUME.

And if I can just add in, because I think it's a good conversation, and we get it, and the staff has been talking about that and working with the consultant on rate studies because of the impacts to households and the challenging times everybody's facing right now. And that's the thing, we're taking that perspective in with our conversations around the water and wastewater rates as well. It's going to have to be revisited. And it is a challenge when we look at increased rates, but you also have to look at that balance, which I think you are, of you have to operate that utility so that it's whole. Stormwater's a little bit more unique in your water and wastewater, as Vince just mentioned, it's more of a action-oriented utility permit rate requirement because ecology has these standards. and these requirements that you actually have to do more than just build and maintain a system. You also have to do outreach and engagement and other actions. And so the operation and maintenance side of that is important because you need people to do that. And that is just to meet basic minimum state requirements for the next six years. That 9.5%, as both Vince and Troy talked about, is that will meet our minimum state requirements, but we also are pursuing grants for the capital side. But we can look at it, we look at the whole, what a multi-year rate study would look like, drop the first rate, and then we have a roadmap to revisit and check in over time, and I'm going to look at Detroit, that's something that we can take a look at versus a three-year or a five-year, but just a one-year, but we look at the entire system so that then we can reevaluate and move forward to eventually get everything synced up with the other rates.

Yeah, I mean, we could certainly do that. I am going to plant a couple seeds with the council to think about for a couple weeks, because I think there are, you know, as the Mayor mentioned, you know, from the long-term planning aspect of a multi-year rate, that's you know, the sensible thing to do. But my two main points are the comp plan and it calls for six additional staff, roughly. It's six point something with the first hiring to happen next year. So I think it's about two FTEs to be hired in 2027 and the remaining four, the other four coming out on 2028. So in terms of hiring staff, we would be much more comfortable knowing that we have revenues and increases in hand. The other thing to think about is, you know, Deputy Mayor mentioned debt. We don't have any debt planned within this comp plan. However, the city's debt that we have in water and stormwater currently are tied to revenues. And what we do, and you might not remember this, or some of you might not have even been on council last time we issued debt for In fact, most of you were not, so I'll rephrase the question. Most of you were not here when we issued debt in 2013, but to get a better credit rating, we combined water, sewer, and stormwater into one utility on paper to be more financially strong. So the rate increases for stormwater impact, what we do in water and wastewater, and vice versa. So I think it was at our five-year contract rate review with Standard & Poor's in 2018. They actually mentioned if we had had, at that point, we did not have multi-year rates adopted. So the last multi-year rates we had ended in 17. So in 2018, we didn't have any long-term rate schedules adopted. They actually noted in the rate review that had we had long-term rates adopted, that could have uh... looked different in terms of our rating and but they upheld our rating but we could see rating upgrades if we actually had longer term rating increases so just something for the council to consider over the next couple weeks uh... i'm not going to say that we're not going to come back and make another run at multi-year rates because of that long-term planning and you know just comfort in knowing when we hire employees that we have those those revenues in hand but

Enjoy those bond readings the bond investors are looking for that predictability, right?

There's a question then so if we were to adopt a nine point five and say we did do extended five years Whatever it was we can still revisit it next year and look at the numbers I mean It's always counsel prerogative to come back and look at those numbers right and you could undo the rates or adopt different rates with another ordinance You just simply resend these rates.

So You're locking in but you're you have all the authority to do that. I

Okay. Well, you gave us something to think about. Troy, I noticed you had 44 slides down from 60-something, I'm sure. If we can go back just a couple, because I'd rather go back now than wait until you're done with all 44. It's only two slides back. It's this one, interest rates and income. That's the one. Okay. When, in a previous slide, we talked about the interest investment income going up 58%. And in my mind, I'm thinking to myself, okay, you know, with those cash expenditures that we had for 24-25, I don't know if... if this is something that you guys would even consider thinking about projecting, but there is an opportunity cost or an economic opportunity cost for removing that cash because it no longer is going to generate an interest amount. Have you ever looked at that? Just out of curiosity.

If you'll wait to slide 42. 43. We'll answer that question. Okay.

No, it's slide 43. 43, okay.

I mean, because anytime we do that, we have to consider the other side of the pendulum. I do think that is by, you know, Troy always, you know, the finance always likes to shock me in one way or the other, but so far that has been the shocking number to see is a projection of a 58% increase on our interest and investment income, considering that's not where this has been headed for a very, very long time. We just went through a ton of cash. You know, interest rates had dropped a little bit. And so to see that number is pretty shocking.

And that's a budget-to-budget comparison, not an actual. Sure, sure. But yeah, to the point.

But considering where we thought the budget was going to, you know, where it was and where we're expecting next year, that's a pretty big number there.

And then in addition to that, my second one was, you know, when we decided that we were going to build a police station, when we decided where we were going to pull these dollars from, I think we pulled 18 from REIT. Is that right? Or was it wrong on that? I think it was 18. It was 18 from REIT. I'm wondering, has that balance rebounded at all?

Not in Arterial Street. We actually took real estate excise tax to create a new fund. All of those funds are going into a separate fund, so it's not going directly towards Arterial Streets. half of that roughly is going to the payment of the General obligation definitely station so about half of it is being banked for future capital improvement projects, okay?

So we're not back And it'll be a while before we even get close to being back?

Before REIT collections went automatically into our Taylor Street Fund at the spot, but as Troy said, we set up a separate account so that we can make sure we're tracking the bond payment. So we have a REIT account now that all REIT dollars go into. We do need to transfer out for bond payment, and then we're pulling those funds for future capital projects.

Okay.

But it's not back yet.

It's not? Okay. It will take several years to accumulate what we had, the $18 million we pulled out. Oh, yeah. Because I remember at the time we were somewhere in the neighborhood of $36, and then we said, okay, let's take $18 of that, you know, because they most likely won't be able to spend all that money on projects within that time frame, even in the 10-, 15-year horizon. So... In all that time, I'm thinking to myself, we got to get back to 36. We got to get back to 36, right? That's a high number.

That Arterial Street Fund held several different funding sources, motor vehicle fuel tax, excise tax, those type of things, in addition to REIT. But we still have a fairly healthy balance in our Arterial Street Funds for transportation-related capital projects. It's just we broke out the REIT fund so we can track it separately for our bond payment and then build that capital up so we have more flexibility how we use it. Gotcha. I think that's all I have for now.

Thank you. Okay, I appreciate the feedback on the stormwater rate. I think we're going to talk about expenditures.

Okay, so we're going to kick off expenditures with salaries. For 2027, the AFSCME contract results in a 4% COLA, so that's been built into our projections. Police contracts, though, are unsettled and remain unknown at this time. Okay, looking at benefits, DRS rates for PERS and LEF remain unchanged from 2026. AWC has given us some updated preliminary estimates, though, for the premium increases. So Regents is at 11 to 14, Kaisers at 10 to 13, Delta Dental 2 to 4, and Willamette Dental 3 to 5. And we are still pending rate projections for workers' compensation, so that's unknown at this time as well. Okay, so at this stage of the budget development and reflecting the critical department requests that were received, total salaries and benefits for 2027 are projected to increase 3.6 million across all the funds when compared to 2026 budget. If we focus in on the general fund, we are seeing an increase of 1.1 million in salaries and 560,000 for benefits. Did you want to add anything, Rick?

Yeah, I just want to also reflect on this, the salary and wages for the general fund. We're still in the mix of working towards final decisions on our budget requests. So this, we went through a couple of tiers of approach where we took an initial look at requests, then brought it down to what we consider critical or important needs. And this does reflect... additional FTEs in that salary and wages fund. It's not just a straight, not adding any FTE number. We do have dollars in there that reflect a potential of about three to four FTEs, but we still have a lot of work to do in order to make sure we get down to our target. We'll talk about later in the presentation about our target goal for balancing the budget. And so this number could change and potentially decrease as we get through that process.

Quick question on that. So benefits overall, 6%. You showed the health insurance, both of them going up double digit. How are we only at six? I know health insurance is the biggest piece of that benefit package, right?

Yeah. With retirement not changing at all, though, and then also workers' comp, we don't know what that benefit increase is going to be. Okay. When you combine all of that with the potential that some of those health increases are going to go up, it kind of equals out to that lower percentage.

For now. Yeah. What does that assume for the workers' comp? Just assuming flat until you have numbers?

Actually, I have my fingers crossed for a decrease, but we'll see. Our experience rating should be going down. You might remember the conversations from a couple years ago. We're in the group as well, right? That's right. Again, fingers crossed that actually goes down, but no promises from me, that's for sure.

What has been the trend so far for workers' comp?

For workers' comp? It's been going up based on our claim experience. but last year it came down a little bit. Again, I hope in this year it'll come down. So when we have claims, they stay on our experience rating for three years, kind of like a car accident. So when you have a big claim that affects rates for a three-year period, and we haven't, you know, knock on wood, we haven't seen those same level of claims that we saw back in 2023 or 24, I think those were. It's a long story, but...

it's a long story, but LNI rates, all those claims, those numbers went way, way up, right, during COVID because people couldn't get in to see a doctor. So a lot of things got put off, and so everyone got hit with just huge increases to cover that cost. Now we're three years out of that, so they're dropping off, which is why we're expecting to see the decrease. So we're in the same boat with... almost everyone across the state of Washington.

Okay, so this graph shows actual labor costs from 2016 to 2025. And then also the 2026 bar reflects budgeted increase over 2025. So again, not actual results because we're still tracking as we progress through the year. The 2027 bar shows the projected overall impact relative to 2026 budget, again, not actual, but budget. So actual 2026 salary and benefit costs are coming in lower than budgeted. And this can actually be expected because we budget conservatively to avoid overspending and having shortfalls. So for example, one way that we do that is with vacant positions. When we budget for those in the coming year, we assume full family benefits, we assume mid-range, and so that person may come in with employee only and step one or something like that. So there's gonna be some variables there. We've also seen a savings effect from the newer approach of requiring that incoming and outgoing employees don't overlap. And then the 2027 budget actually incorporates kind of appropriate adjustments for some of those things as people come on and we actually know where their step is and what kind of benefits package they have. And so all of that's impacted to get an accurate base to build off of our inflationary increases and things like that for 2027.

We've always appreciated that because... There's been a time where we budgeted for 340 employees, I think it was, and we were actually at 327 or 319, but you budgeted for all of it, which kind of gave us a plus at the end of the year. But at this point, we're closer to what is our percentage of employees to positions?

I believe it's 90%. Is that what we were?

Historically, we spend about 95% of the budget. We've had years that are lower and some that have been a little bit higher. I think currently we're running just over 90%, so we're lower than historic levels for 2026 so far.

So those other positions that are R-budgeted, which accounts for 10% at this point, are built into these figures?

Correct, and it's probably not all due to vacancies, just As Chelsea said, we take it a conservative approach, but yeah, basically, yes. That's the vacancy rate plus that estimate.

Governor Troy's memory is right. It's 95% right now. Right now we're at 95? 95% occupancy.

Okay, let's talk about some of the more significant considerations in the budget as it stands right now. Can be pretty high level and not real detailed as Rick said, there's still decisions to be made. So we don't wanna overshare at this point, but we do know some things that are absolutely going to be in the proposed budget that the council sees. First, we'll start with a category of what we'll call operational requirements. These are things we believe are basically going to happen to us versus us making a choice. The first is district court. Of course, you remember that this is the last year of the current contract for district court services with Thurston County. This year's contract maxes out at $534,000, I believe. Based on the contract that Olympia recently signed, we think there are going to be significant increases to district court costs. The budget as it Stands right now is assuming a $1.6 million per year district court costs. So that's a difference of about 1 million, 66,000, or in terms of increase, um, you're well aware of the incident defense Supreme court, uh, standards. Um, there's actually good news here that we think the increase for next year is only going to be $56,000 versus about a hundred thousand, 110,000. I think we use for long-term modeling. This is over a 10-year period. I think next year is year two of that, so there are another eight years beyond 2027 in terms of increases at full implementation of those standards. Election costs, we have an increase of $338,000 in the budget. We recently learned that the county has been subsidizing elections to the tune of 60%. They are no longer in a position to do that, so they're going to be passing on full overhead costs, as they call it, to the entities. So for us, we are assuming three elections next year, special election in February for transportation benefit district, and then a primary in general. We do have three council positions that are up for re-election next year. So three elections under the new cost model, that's about $338,000. And then we've also incorporated about $419,000 for utility expenses. We've got lots of discussions about rates both in terms of PSC as well as city utility rates. Some other things that are going to go into the proposed budget are we talked about leaning into those economic development investments using reserves. 27 basically is the first full year of implementation of the priorities that the council adopted just a few months ago. So investments in the night market, Lace of Midtown in terms of branding, placemaking, community art, workforce training, and then you just recently heard an update from the makerspace, so continued support for the makerspace going forward. Couple other major initiatives next year. We have the rack improvements. Design is moving along as expected. We do expect to issue debt for the public facility district sales tax. We have to have outstanding debt to continue that sales tax. So that project will be getting underway next summer. We also have just under a million dollars of vehicle replacements. We do have those monies collected for the most part in our equipment rental division. We collect replacement dollars every year for every vehicle. And we do have a little bit of a shortfall just because of the inflation rate for vehicles is outpacing the 5% that we assume. So there'll be a little bit of subsidy there, but we have a list of equipment replacements. I do want to just highlight some continuing initiatives, primarily related to human and social services support for our community. neighborhood grant we're going to continue with the led replacement conversion within our street fund and we're going to continue our climate implementation and initiatives in 2027. can you tell us where we're at on the led street light conversion i mean we set that up as a program

almost 10 years ago.

Right at 10 years. I think 27 actually might be 10 years. Right.

And we said it was going to take 10 years. It is.

I don't think we're through the full replacement. So we're kind of in the mode of replacing lights kind of as they go out.

Yeah.

Um, so we've definitely slowed down a little bit, uh, but we're, we're nearing the end of that, but they'll, we'll be right into replacing those first set of lights pretty soon. So, I don't think that's going to happen on year 11 or year 12.

I'm just curious of what the actual, what was the, we budgeted $200,000 last year. What did we actually spend on it?

I think it was about $100,000 or $125,000.

In these budget conversations, we talked about this being the end of that initial program phasing in, and we want to get an assessment of, okay, how many we replace, what's left, or now that we have the life cycle of new lights, what's that look like going forward? Is it going to be a reduction or not?

But they're all high-pressure sodium now?

I'm sorry, all the high-pressure sodium is gone? Well, we want to see where we are in that program because we're just about the year 10. As Troy mentioned, this was a 10-year program to phase in to replace them incrementally. And now we want to see where we are. And then once we get all those lights transferred, changed, what's the ongoing life cycle cost and how we replace them going forward?

We have to be pretty close. We're almost fully LED.

One of the things I want to go back to past council decisions about this program and approving this program is a lot of jurisdictions went in and went to a program to replace them all at once with some LED rebates. the public works team at the time and council looked at this as like let's do this on an incremental basis so that we don't have them all fail at the same time in the future. So we're trying to spread this lifecycle cost over time, which is the reason why we had that 10-year program.

Okay, a quick look at our utilities capital. You can see significant capital improvement programs for utilities, almost $23 million for water. just over 11 for wastewater and 3.4 for stormwater. You know, not to go back to rates, but again, kind of in support of that, we've averaged less than a million dollars in capital improvement for stormwater over the last few years, so this is a significant step up in terms of that projects.

Looking at transportation,

Looking at our trail streets and the transportation benefit district, it's a total of just over $13 million in capital improvements next year. It's actually primarily designed and right away for next year. We'll point out that this does include transportation benefit district. But what's not in this number is the $300,000 for sidewalk maintenance. We are going to move sidewalk maintenance into Transportation Benefit District to build up that fund for sidewalk gap and filling. So that will be a part of the budget proposal as well. So this is something new for us. We're going to actually show you where we're at with revenues compared to expenditures and the net of that. I do want to again emphasize these are preliminary numbers. Please don't memorize them. But I want to make a statement about what our departments put together in terms of proposals for Rick to consider as city manager. All those requests were very much needed. These numbers, what they include is Rick's Ranking and prioritizing those projects to the most critical so we have input at some of those end of the budget as Rick said there's still you know priorities are still consideration for that so It's probably going to change and probably go down Rick has set a target in terms of deficit and what would keep us in that Contingency mode versus actual reduction mode, so bear that in mind. These are probably going to change, but they do represent, at this point, what Rick has identified as the most critical requests. It would be great to be able to fulfill those, but at this point, we're not meeting our targets in terms of that deficit. So this is very much a point in time look at where our budget is. There is still work in front of us, for sure.

Turn things over to Chelsea for that Okay, so when we look at total revenues and expenses for the entire general fund again at this stage in the process There's currently a four point six million dollar deficit Rick and Troy are gonna talk more about kind of that target figure that Troy just mentioned towards the end of the presentation So right now we're just showing you the bottom dollar the key thing to highlight here is the continued structural challenge of revenues not keeping pace with expenditures and Moving into the capital project funds, these will be balanced with use of cash in some scenarios like arterial streets and transportation improvement fund, but also with debt. As Troy mentioned, there will be debt for the RAC capital fund for those RAC improvements as they're associated with the capital area regional public facility district. Special revenue funds, CDBG will be balanced with beginning cash as we have two years worth of federal allotment set aside. And with lodging tax, although it is balanced in this table, that's gonna be based on the lodging tax committee's decisions. Right now we just have the expenditures matching the projected revenues for 2027. debt fund. Not a lot to say here. It's fully balanced. So next up is the water utilities, all the funds associated with the water utility. So these are going to be balanced once we're all the way through the budget process. But this is a really good visual to show that the capital program is really driving the need to use cash. So we talked about USE OF CASH DURING OUR INVESTMENT CONVERSATION, SO THIS IS KIND OF TO ILLUSTRATE THAT AS WELL. ALMOST $11 MILLION WORTH OF CASH IS ANTICIPATED TO BE USED IN 2027. THE CITY'S PRACTICE IS TO TRANSFER ANY NET INCOME FROM THE OPERATING FUND INTO THE CAPITAL FUND BECAUSE ALL THE REVENUES ARE RECEIVED IN THE OPERATING FUND. NEXT UP IS WASTEWATER, SO VERY SIMILAR SCENARIO, BUT IN THIS CASE THE PROJECTED USE OF FUNDS IS $4 MILLION. And then with the stormwater fund, it is about 1.65 million, but the same concept for all three. And lastly, we have our internal service funds. So we're still working on all of our calculations for internal service fund rates, which are what we charge all the different departments for their use of those funds. In fact, that's our very next focus in the budget process, which Troy will talk about in just a moment. But these numbers are definitely going to change based on that, but they will be balanced by the end of everything.

Let's talk about the balancing effort thus far. We showed a very similar timeline last year during our budget discussions. This is really Where we started our budget, if you look to the far left, when we took out all the one-time capital that was approved in the 25 budget or 26 budget, we took out one-time transfers, use of cash. We basically narrowed the budget down to ground zero, so to speak. Our first adjustment is we took our Liability insurance projection that we got from our carrier as well as internal service fees. We added the utility expense increases. We had some preliminary city manager approvals. Those were actually those obligations that I mentioned in terms of like court and engine defense. So that brought the deficit up to 3.7. Our last kind of real big action was, like I said, those very critical items that Rick identified late last week that brought the deficit to $4.6 million. We still have internal service fees, so IT support, computers, vehicles, indirect costs. We're in final review of those. That's likely to result in an increase to expenses. But here's your target there on the far right, that $3 million again. That's about the same level in the 26 budget. I think that keeps us in that realm of contingency planning versus actual planning. taking action. You know, you talk about spending 95% of our labor budget, as an example. So that's within that $3 million. So that's our target. That's what we're trying to get to. I think we're going to get there. It doesn't mean there won't be hard decisions to be made, but that's our target. We have our work to do in front of us, but we'll get there. I'm sure of it. So that's the current condition. I'm going to turn things over to Rick for some some kind of closing comments about where we're at and some of the pressures that we have.

Question first. So I appreciate that. I know that's how you have to do the budgeting, but so in 25, going back, you know, last year at the end, we had, and I think we used, I forget what it was, 1.5, maybe 2 million from reserves to balance in 25.

We did it, but none of that came from operating. None of that came from operating. That was mostly one-time transfers out.

But we wound up not using any of it, correct? Correct, yes. And in 26, we used $3 million again. I know it's too early to tell, but how much of that $3 million do you think we'll get back? Because we're not going to wind up really being $3 million short.

Sure. Based on where we're at with labor and increases to some of the tax revenues, I think we'll be in a very similar situation where we don't have to use that. As you know, we have to have a balanced budget on paper.

No, totally understand.

So we're hoping to get back to that same position.

Yep.

Yeah. It's like another 20, 30 slides.

No. Well, first I just want to reiterate what Troy mentioned earlier in this year's budget request. I want to commend and thank all the director team and their respective departments because they did really look hard at their requests, filtered them, make sure what the requests came in were either things that are ongoing commitments or commitments that are pending or critical needs, and they really did minimize and take that to heart and made some austere requests. I do want to thank the director team and their support in doing that. Still, again, we are in a positive side of this is we're in a better position than most of our other local governments, whether it be cities, counties, or school districts, you know, as such, because, again, we're not looking at layoffs or cutoffs or anything like that. We're just looking at how do we able to expand and enhance and add on services or, you know, needed employees. So going into this process, I just want to keep that lens in mind. As we approach the budget, as always, we always follow the Council-adopted fiscal policies. That's Resolution 992, which, in summary, really is that we want to maintain a minimum of two months of operating revenue, so that's a hard line that we want to maintain. And then also, use of reserves should be limited one-time expenditures. Of course, we've not been able to uphold that policy language for the last couple of years as we develop our projected budgets, but with our, you know, controlling our expenditures as well as our revenue projections, we've been able to finish the year in the right spot. But again, as Troy said, we gotta balance this budget on paper and expect that we're gonna expend every expense we identify. So again, revenue and forecast are always based on the best information available at the time. We are conservatively estimated to hedge against possible future economic events. I was just at the Lacey Historical Society's event today where they had a panel of former mayors and city managers and one existing mayor. And I was listening to them, and a lot of that history of how we approach things has been right. And one of the city managers said, hey, you've got to have three projections in your budget, and you have to have your optimistic, you're pessimistic and you're realistic, but you've got to look at your pessimistic for what could happen in a year that you can't expect. And there are times when we have disruptions that we need to be careful of. So that's why we want to make sure that we are not being too optimistic, that we're being in that realistic, pessimistic framework, because we want to make sure we are able to cover at the end of the year. Then, of course, proposed expenditures will be limited to what we can support for ongoing revenue. So we're really taking a look at it. We add on costs that are going to be recurring costs. How do we adjust for that? We have some uniqueness this year in that we have some significant ongoing costs coming at us with some of the state mandates and district court costs. So those are things that are outside of our control. But there are also other ongoing costs that are in our control that we have to be judicious about. And then how do we utilize those one-time costs, building maintenance, parking, those type of things and utilize reserves for those as well. Go to the next slide. Again, we're also incorporating that the Council has adopted as our three-pronged approach and continue to plan to address the budget gap that we've identified over the next three years. Again, looking at revenue enhancements, I'll talk a little bit more about that in a couple more slides, but those three-pronged approaches, looking at the various existing revenues and how can we expand or enhance them. Aligning the service charge with, for instance, aligning service charge with actual costs and making recommendations for revenue opportunities and enhancements. And the council's already been involved in some of that work. Economic development is the second prong. We need to start making investments in some of our economic development activities so that we can start planting those seeds now that hopefully they will produce in a couple of years out. And then, of course, continue to develop our contingency plan framework and review our expenditures and maintain our budget control so that we're accounting for the public dollars as we provide the service to the public. Again, there are those budget pressures. We all know that there's just that general revenue expenditure structural challenge. If we don't add any increases to our budget expenditures, we're also fighting just inflationary cost of of salaried wages and benefits. So we're always fighting that challenge with leveling that with new revenues. Economic development efforts, like I mentioned. Those aren't measured in immediate months, it's in years. It takes a long time to get something to invest in redevelopment in our community to take hold and start producing. So you may be talking to somebody who has interest in bringing in some type of commercial center today, they get permitted next year, but by the time they build and start operating, it could be several years out. And there's a lot of challenges that get there too. So it takes time. So we need to be patient and focus on that work now in order to realize it in years three and four, if possible. And then balance, focus on revenue and expenditure challenges. It's, again, we're always faced with needs to add on as our community grows to expand service. We're playing catch up to our already deficiencies in what we have for service provision. But part of that process that we just need to continue to reevaluate how we prioritize our core services. Then also look at our level of services and those things need to change which is a very difficult element for the Lacey community and Lacey staff and I know the council too because we're always used to having that high quality service and amenities but we need to start looking at what we can actually afford until we find those additional revenues. And then shift focus to repair and maintenance away from new projects. I mean, we've got to really look at how we add on new projects for maintenance and operation costs. We've got to make sure we have a plan to how we provide operating maintenance for that new facility or a new park and many of those type of things. So those are things we need to think long term. Next slide. So going back to some of that potential revenue enhancement work, that first prong of the strategy that the council adopted, the council's already reviewed and approved a few items like the body-worn camera redaction fees. That's not going to make a huge difference in revenues because it's bringing in about $1,500, but it may create more staff efficiency and reduce frivolous requests for that footage. That's one of the things that it's not a lot in money, but it may help us in staff efficiency. Looking at the lodging tax reallocation and removing other city event requests for lodging tax dollars and focusing those dollars towards the RAC helps shift the reliance of the RAC operation maintenance on our general fund, which made a positive $40,000 impact to our general fund by doing that work last year. And that's something, too, that I would urge council to consider even going forward is how do we, you know, They'll help the RAC as much as possible through those lodging tax dollars because that is a facility that brings in the most people into the community with income spending in our community and want to make sure that that is a viable and good experience so they keep coming back. You mentioned the cable utility tax or the question around cable utility tax. That was another action that the Council took that brought in $650,000 this year. I appreciate Council for taking that action. Through some of those funds, we were able to do a budget amendment to add on a street maintenance folks to take pressure off our park and streets maintenance teams with the new facilities coming on between the police station and Coolio Park. So that helped out and that saw a direct benefit to that. Some of the work left to finish is listed up there. I won't go through them all, but there are some topics. And even though we know that when we look at increased taxes or or new taxes or opportunities. It is with the sentiment that There are a lot of challenges out in our community for people with the cost of living, the inflationary factors. Everybody's facing that, but I still believe we need to go through our due diligence and have the conversations to make those decisions because it may not be time now, but it may set a stage for future actions when the conditions are right for those actions. Some of the things in there are, we're going to be talking about the B&O tax here in a weeks or a month. Part of that's time with our new onboarding of the OpenGov system for online collecting of B&O tax. So that's a good opportunity to implement two things at once so there's less disruption to our business community. We've already addressed gambling tax, but the council decided they want to hold off on that. and continue to monitor it. And then, of course, we want to at some point take another look at the House Bill 2015, the potential for the one-tenth of one percent tax for public safety, because we do have public safety costs that are coming at us that we need to be able to address. However, that's also a challenge because it's another one-tenth of one percent on the existing sales tax, which In the area, that sales tax is continuing to climb, but we still need to figure out how we approach those things in order to shore up some of this budget issues so we have time to realize some of that economic development effort. This goes back to your comment, Deputy Mayor, about the interest. One of the things that we have identified is with our investment accounts that projecting I think in 2027 about there's going to be about $450,000 in interest earnings in the current expense accounts. And we might be we could if Council was supportive of this look at that as a in essence like a revenue piece that we can use that to also as a revenue source to offset some of the expenditures in 2027 as a way to reduce some of that budget pressure as well. So I wanted to introduce that tonight. Because, again, you've got the interest earnings, but here's the direct effect of current expense that we can offset some of that current expenditure growth pressure. I don't know if Troy or Chelsea have anything to add to that concept.

No, we're looking at the legalities behind that. We want to make sure that taking interest earnings from other funds beats the law. I mean, our initial look is it does. I also want to point out that The funds we're looking at are primarily funded by the general fund already. So think about building capital. There's no revenues dedicated to that. It all comes from transfers from other funds. So in a roundabout way, they're already being funded by the general fund, so why shouldn't the general fund receive those revenues. So we'll continue to evaluate which funds that we may propose the council take a look at and taking those interest revenues and bringing them back into the general, or the current expense more accurately for day-to-day operations.

So in summary, we got quite a gap. We went through a first-year review of all the budget requests and identified, okay, quick brush, these are definitely critical or recurring needs. We wanted to take a sense of where we were in that gap between our current projected deficit and the goal for hitting that $3 million mark. So now we're going to go back the rest of this week to work down and see how we get that number closer to that target goal. And it is, there's some tough decisions and choices. We have facility maintenance that we don't maintain. At some point it continues to go on disrepair. But those are all these type of decisions that we're going to have to make in order to try to make sure we're continuing to be financially stable for multiple years to come. Questions?

I have two comments. So on the potential revenue enhancements and the to be determined stuff, I don't know when that's going to come back before us. I'm hoping that it's going to come back before us in the next, before the end of the year so we can just kind of reevaluate those things. I know that they weren't fully baked and we were just kind of looking at to see, you know, the B&O tax, the gambling tax for sure. So are we going to be looking at seeing those come before us before the end of the year?

Yeah, right now we have a B&O tax I believe is, let me look at my schedule, tentatively for the October 27th work session. And it's timed again. We're going to have an update on the B&O tax software as well. Gambling tax, we're not looking at revisiting this year, but we are looking at capacity to bring back conversation on what we need to do in order to comply with the 2015 bill in order to have the option to exercise that public safety tax. I'm trying to think what else we have that's coming forward.

We're probably going to have a discussion about being able to add more gambling facilities

Oh, that is part of the ‑‑ that's something that we just need to bring the ordinance amendment back to provide that opportunity. So, yes, that is in process, too.

Thank you for that reminder. The HB 2015, I still don't see how we get, you know, what we do in year four. I don't see how that works.

Well, that's two aspects of it. Yes, there's the grant program that it would give $125,000 ‑‑ FTE grants for new police officers. That would be a three-year period. There's also the, if you meet the criteria for 2015, the council would have the opportunity to take that councilmatic review of imposing an additional one-tenth of one percent public safety tax. That doesn't expire until it's correct. And so is that supposed to fill the gap potentially? Well, that's something we might probably look at in about six or eight months from now because it's one of those sources that could help us offset some of the public defense costs, court costs, as well as... directly help, you know, needs in the police department. Um, the grant program itself, uh, is closed now currently, so that wouldn't be an option, but it's just looking at how do we get in position to be able to exercise if we need to exercise some of that revenue opportunities.

Okay. Uh, and then my second one was, um, you, you had mentioned, you know, taking those interest dollars, right. And applying them to where? into our current expense accounts to offset that 4.6 million.

Okay. As a way to, as an additional revenue source.

And so with the two potential 25 basis points bumps that the Fed may do this year, and I can tell you right now that the bond market has already baked one of them in. And so... I would definitely be interested in having that conversation to see if we can use some of those dollars to offset. I'd obviously rather leave them alone and leave them where they are, but in light of the expenses that we're looking at, maybe we should have that conversation sooner than later.

And one of the things I didn't mention, but I just want to caveat, though, is with, as you use your interest rate, you don't roll it over your principal. As we know, principal goes down. So it's not a consistent source. It's going to be from year to year between interest rates, how they fluctuate, as well as our principal balance, too. But it is something that we can look at as a tool.

Anyone else? Are we going to get an update on the district courts, I guess, negotiations for the new contract?

Right now, and Shannon can weigh in, but we are still waiting on a rate study that Thurston County is supposed to provide us. We're now into September. I believe it's supposed to be in August. But we're waiting for that rate study so we have at least a starting point of where we can be in those conversations. So the quick answer is, It's coming, and we haven't started yet.

Yeah, I don't think it's totally fair to look at what county's charging Olympia and say, okay, that's what we're going to be. They had to stand up a bunch of new everything for Olympia to come on board, and those are new expenses that they didn't have prior. We have our ongoing, we know where our expenses are at, our time's at, So we're in a considerably different place than where the city of Olympia is, where they took over their entire court system, and the county had to sort of gear up for all that. So I'm hoping that it's not going to come anywhere close to that, but we'll have to see. Anyone else? Okay. Thank you. Thank you. So... Next agenda item, I'll turn this over to Rick.

Thank you. I added this last agenda item because I just want to get some follow-up direction from council. As former council member Dunning stepped down from council, the remaining council quickly took action to reassign his primary inter-jurisdictional committee assignments and then also some of the more prominent alternate assignments. I do want to bring up that there are five additional inter-jurisdictional committees that he was the alternate on that aren't covered by an alternate yet. And those are, I have listed here the Economic Development Council, EMS, TCOM 9-11, Nisqually River Council, and the Thurston County Opioid Abatement Council. My question is to the council, do you want to look at identifying an alternate for each one of those, or do you want to wait until the vacant position is filled?

Yeah, what I recommend is if the primary can't make that appointment and you need a backup, give us time to know and we'll go around and see who can ever, you know, which one of us is available. That should hopefully hold us over. Sure.

Are the organizations, the inter-jurisdictional organizations okay with that? Because I know I've already had requests from them asking, who's your new backup?

Yeah.

Because, I don't know, can any, so I mean, any of us obviously can be the primary or the backup. But say EMS is an example, right? If I can't make it and I just reach out and someone fills in, do they have to have been listed as an alternate to be able to vote?

So what has to happen in that circumstance is the city of Lacey needs to contact them and say the backup for that meeting is going to be council member X. That will give them. the authority. Please give us a little bit of time. It can't make it tomorrow.

I just want to make sure we don't lose our ability to vote.

If we give enough time we can let the organization know who the backup will be for that meeting. Hopefully this is not going to Hopefully it won't happen very much. It doesn't happen very often at all. Yeah, we're here near the end of the year.

I just want to make sure we're covered. And then, yeah, if you think you're going to miss a meeting, contact me and Nicole, and then we'll start the phone tree to coordinate and then notify the inter-jurisdictional board. And that does seem a lot easier. And wait for the new appointment to occur, then you can fully reassign.

Does that sound okay for everyone?

Yep.

It works for me. And we'll have to do some reassignment once we have a new replacement anyway because we took all his primary assignments and now the new person wouldn't have any.

Yeah. We'll figure that out. And then, especially then the next January, we're going to re-go through everything.

It's true. We're almost there anyway.

We're getting remarkably close. So we're almost there. Is that good? Okay. Got your... Council reports? Does anyone have a council report for this evening?

Not really a report. Jazzcom, I mean, not Jazzcom, but LTAC did meet last Thursday. It was just kind of a preliminary review. There are 23 applications. Applications are closed. So we'll be meeting, like I said, last week, every Thursday in this month. So this coming Thursday, we'll drill down on applications. We haven't really done a whole lot yet.

Okay.

Well, with that, we have reached the end of our agenda. So without objection, I'll call this work session adjourned. And as always, you keep it classy, Lissy.