City Council - Regular Meeting

Okay, well, it is Monday, August 3rd, 6 p.m., and I will call this City Council regular meeting to order. For the record, we have Councilmember Dunning online. Mayor Ryder is absent, excused, and the rest of Council here in chambers. And so for all those who are able, please stand for the Pledge of Allegiance. I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all. And I'll read our land acknowledgement. We, the city of Lacey, are on the ancestral land of the tribal people of the Treaty of Medicine Creek, including the Nisqually Indian Tribe and the Squaxin Island Tribe. We acknowledge and remember those tribal people not recognized today who were absorbed or relocated into other tribes for survival. And with that, can I get a motion to approve tonight's agenda?

Move to approve the agenda as published and the consent agenda.

Second. It's been moved and seconded to approve tonight's agenda and consent agenda. Is there any discussion before we vote? Seeing none, all in favor, please say aye.

Aye.

Are there any opposed? Seeing none, that motion passes unanimously and we have an agenda. The first item on our agenda is under public recognitions, proclamations and presentations.

Tonight we have our national Purple Heart Day proclamation councilmember City of Lacey official proclamation Whereas the city of Lacey has a long-standing tradition of honoring and supporting its military community including our active duty service members veterans and their families and

Whereas the Purple Heart is the oldest military decoration still in use today, established initially as the badge of military merit by General George Washington in 1782, and

Whereas the Purple Heart is awarded to members of the United States Armed Forces who have been wounded or who have made the ultimate sacrifice in combat against the declared enemy of the United States. And?

Whereas the military order of the Purple Heart is committed to fostering goodwill among combat wounded veterans and their families, promoting patriotism and ensuring that their sacrifices are never forgotten. And?

Whereas the city of Lacey is home to many active duty military personnel and veterans, including numerous Purple Heart recipients and those who have been killed in action, whose bravery and sacrifice have left an indelible mark on our community, end.

Whereas the city of Lacey became an official Purple Heart city in 2017, reaffirming its deep commitment to honoring the courage, service, and sacrifice of our combat wounded veterans. Now, therefore, I, Malcolm Miller, Deputy Mayor of the City of Lacey, on behalf of the Lacey City Council, do hereby recognize August 7th, 2026 as National Purple Heart Day in the City of Lacey. and encourage all residents to honor the courage of our Purple Heart recipients to reflect on their sacrifices in defense of our freedoms and to demonstrate our heartfelt appreciation and respect for their service. And tonight, we have retired Sergeant First Class coming to receive this proclamation, Tony Barth.

I just want to say thank you for everybody for taking time to come out here and for the recognition. Thank you. Thank you.

Next on our agenda is public comment. It looks like we had zero people register on Zoom. We didn't have anybody sign up. and we have two written public comments that will be added to the record. Is there anybody in these chambers wishing to address this council tonight? Okay, seeing none, we will move on to our Lacey Youth Council 2026 and 2027 appointments. Our management analyst, Stacey Siglin, didn't forget your name.

Stacey Deseltac, Deputy Mayor, remember. Good evening, everyone. My name is Sadie Siglin. I'm the management analyst in the Lacey Youth Council staff liaison for the city. And I am here to ask for action to appoint this cohort for the Lacey Youth Council for 2026-2027. We, for the first time, actually have two applicants here in the audience tonight in chambers to see the whole process and recommendation for their appointment. So I want to recognize these two young gentlemen over here for committing all the way through interviews and applications and coming in tonight. This was our most competitive cycle yet. We had 39 applications this year for Youth Council. for only 15 seats. So I think that that is clear evidence of the appetite for youth involvement in government in this community. Of those applicants, we have seven recommended returning youth council members who participated last year and the year before in combination who have applied again to serve another term. So you have before you a recommendation for 15 appointments for this year as well as two alternatives. The alternatives are eligible to serve should a vacancy occur during the term. There is a unique application cycle for the Youth Council. So having identified alternatives allows us to fill any potential vacancy without having to open the applications again or potentially just have an empty seat. So are there any questions?

I would move to approve appointment of the 2026-2027 Lacey Youth Council as recommended. Second.

It's been moved and seconded. Is there any discussion before we proceed?

I think this is really exciting that we had so many young people interested in this, and I really commend you guys for stepping up. I hope it's a great experience for you.

And so, um, you know, we've had the Lacey youth council for, I think it's four years now.

I believe this will be the eighth cohort. There was kind of that COVID virtual period where the youth council started, but they definitely didn't get to operate in the full capacity that the city had hoped.

Okay, and I think it's probably going as well or better than we had anticipated. The mayor put this together and he had really high hopes for it and really is excited, as are we all, to see young people get involved in the community and get involved in civic government and really just kind of learn what the cogs are behind the curtain. A lot of times it seems like these things happen unilaterally. They don't. There is a lot of discussion, a lot of staff time, a lot of effort, energy, and resources that just goes into approving one ordinance. And so I'm excited for you guys to be able to see how it all works. And so with that, it's been moved and seconded. All in favor, please say aye.

Aye.

Aye. Aye. Are there any opposed? Seeing none, that passes unanimously and congratulations to you both.

Thank you.

Next on our agenda, we have contract awards 2026 sidewalk repair, PW2026-15 and tonight we have Jamie Connor, our project manager for public works transportation.

I'm Jamie Connor, a project manager in Public Works Transportation. Tonight, the staff recommends the award of Lacey Public Works Contract 2026-15, the Sidewalk, 2026 Sidewalk Repair Project. So the city opened 10 bids for this project on July 9th and the bids range from $1,083,296 to $1,550,000 and the engineer's estimate was $1,349,980. The low bidder was P&A Civil from Tacoma and they are qualified and capable of performing this work. The contract provides the removal of existing trees, including their stem-to-root systems, and the installation of approximately 171 replacement trees, 5,200 feet of root barrier, and as well as the removal and reconstruction of approximately 21,000 square feet of sidewalk, and there's also a couple of ADA ramps as part of this project. So here are a couple project maps. There's an aerial view and the vicinity map. This project is located in the northeast part of the city limits, taking place in the Jubilee community and as well as Marywood Drive. With that, I would respectfully request the motion to award Lacey Public Works Contract 2026-15 to the low bidder of P&A Civil. And I can also answer any questions you guys may have.

Can I get a motion? I can move it. I would move to approve awarding contract number PW2026-15 to the qualified low bidder P&A Civil in the amount of $1,083,296.00. Second. Second. It's been moved and seconded. Do we have any comments, questions, discussion? Councilmember.

I'm going to be abstaining from this vote tonight. I just can't be objective about the situation in Jubilee. I mean, I'm all for safety and I understand the need to address a problem on a scale of economy. But I just can't support the wholesale destruction of that many trees. It seems to me there should be a middle path forward that would take care of the worst of the safety hazards while preserving at least some of the trees.

And we've had robust discussion over this specific tree project that we're looking at tonight. And the city staff has done a really good job of of kind of outlining the need and kind of just showing, we brought in arborists, we did all the things, and showing the need and really just kind of making sure that people fully understood the reason why we're doing this. Now, going forward, we will be operating on a worst first, Basis and this will be our final project where we will be doing an entire section of a city We did, you know reach out to Jubilee multiple times throughout the course of this of this and we Got a 90% agreement with them that this really needs to be done and so With that, we've had a couple work sessions on it. We've had it in a council meeting before. We work sessioned it last weekend, or last Tuesday, and really kind of got into the weeds on it and really got some good understanding of how and why this really needs to happen. So I'm excited that we're doing it, and I'm also excited that moving forward, we will be going worse first throughout the city as opposed to doing an entire neighborhood at a time. Councilmember.

I will also abstain but for different reasons. Throughout the course of the year I've asked a number of questions about the whole bidding process starting with why do we always have to take the lowest bid and I understand that by state law we're required to do that and I'm not suggesting that we should do something that is contrary to state law. But I've also asked questions about why is there such a spread or why is the engineer's estimate so much different than the actual bid that we take. And I'm at the point where I'm unclear that the lowest responsible bid is also the best value. So for that reason, I'm not saying no because I'm not abstaining because of this particular contract. I am abstaining to make the point that I need to be more clear that when we are awarding a contract that it is the best value for the city.

All right. And we can possibly bring that to our work session. It has been moved and seconded. So did you have a comment?

Yeah. I was just going to say I really struggled with this particular bid because of all the robust discussion, um, and my love of trees and the tree density and the canopy that we'd be losing, but also like having to put safety first, I was, I had to put that at the forefront, even though it kills me to say goodbye to all of those trees. We will be planting new trees and we have a plan to maintain them. And we can also have more robust conversations later about our urban forestry. So I will be voting in favor of this, but it was a really hard choice on my part. And I just wanted to say that I'm glad that we have a better plan moving forward on how we're going to choose to do these projects in the future. And hopefully we can avoid just the wholesale removal of trees in large neighborhoods.

completely understand totally respect your position and Maybe we can you know have the city manager bring some of these items to a work session in the near future So we can talk about low bidder. We can talk about tree canopy We are Tree City And we can kind of bring this back for a little bit further discussion before we get into the new year or possibly in the new year So it has been moved and seconded all those in favor. Please say aye aye Aye. That motion passes. So we will go ahead and get this project underway. Any nays? Sorry. We have two abstentions. We have four yeses. And do we have any nays? Seeing none, now the motion passes. Thank you. Thank you for your comments. And we'll move on to our next agenda item. Next on tonight's agenda, we have our 2026 mid-year financial report. We have Chelsea Knight and Troy Wu from our finance department.

Thank you, Deputy Mayor. Good evening, Council. Just give me a moment here to share the screen. We could really tell Shannon's absence tonight, can you? So we are here to present the mid-year financial report for the city. We of course focus on a general fund in terms of our presentation, but we will touch into some utility reports as well. We'll also finish up with kind of an outlook of what we see for the remainder of 2026 and going into the budget process. So Chelsea Knight and I will be going back and forth sharing the responsibility tonight, so I will turn things over to Chelsea.

Alright, good evening. We're going to start off looking at the financial review of the general fund expenditures. This table has a lot going on, so I apologize in advance. But it focuses on specifically the current expense fund of the full general fund. And it's looking at June of both 2025 and 2026, so year to date through June. Doing a year over year comparison like this lets us evaluate performance against the same point in our business cycle from one year to the next, which makes the analysis of trends and changes kind of a meaningful point of reference. So as of June 30th, 2026, total expenditures in this fund were $29.9 million, which is 43.6% of our amended 2026 budget. These expenditures are 6.2 million lower than they were at this point in 2025. And the majority of that decrease is attributed to lower transfers, $6.5 million worth of lower transfers. And those are related to the transfers that we had for Greg Cutio Park last year, as well as the College Street and Seventh Avenue roundabout design. When we exclude the differences in transfers, though, the expenditures remained very consistent with 2025, differing less than $20,000 between the two years. That comparison, though, can be a little bit misleading because there were clearly, as you can see on this slide, different swings between each of the different departments in expenditures. The largest was within the Human and Social Services Department, and the reason for the swing there was a decrease in $413,000, and that was due to a one-time land purchase that occurred back in 2025 for affordable housing purposes. We've also seen some timing differences from year to year that resulted in decreases. An example would be jail services. That resides within the contracted services department, that second line on the table. And we've also seen where those decreases are being offset by increases in costs and most notably an increase in overall salary and benefits, which are spread across all the different operating departments within the current expense fund. in the amount of about $630,000. So when we kind of zoom out and look at the full general fund, there's two additional areas with significant changes. One is the criminal justice fund and the other is the street fund. Expenditures in the criminal justice fund decreased by 254,000. This is primarily due to lower salaries and benefits. And the main reason for that is this fund has specific positions that are charged to it. And some of those specific positions had vacancies in the beginning of 2026. And so that's causing that reduction. And then for the street fund, there was a decrease of 942,000. And this decrease is due to a one-time transfer that occurred in 2025, also related to the College Street and Seventh Avenue Roundabout. Okay, so now we're gonna look at revenues. So of the general fund, this slide is specific to the current expense fund. As of June 30th, 2026, those revenues were 30.9 million or 45% of the 2026 amended budget. That means that revenue came in 1.75 million higher than they were at this point last year. Taxes, as you can see on that first line of the table, make up the majority of that increase, but we're gonna talk about taxes in detail on the next slide. So for right now, we're gonna talk about a few of the other areas that had variances, and that would be increases in licensing and permits, and then inter-fund charges, as well as decreases in our other revenue category. License and permits increased by 373,000. And this is primarily due to increased building permit fund activity. During April and June, we had five multifamily building permits totaling 254 units that were issued and that contributed to that increase in the 2026 building permit revenue. Inter-fund charges increased by 496,000. The largest portion of that is related to our water resources engineering services. This increase was expected, we added a position to that department, as well as it shows the fluctuation in staff time, allocable to chargeable projects for the utilities. Other revenue, when we look at that last line item before the total, that one basically means interest earnings in this case, and it decreased by $639,000. The decrease is largely due to market value adjustments, though. So those are those adjustments that are essentially accounting entries that don't reflect real losses unless we were to sell our investments before they became to their maturity date. The city does not anticipate realizing any of those losses because we manage our investments to meet our cash flow needs, and we've historically never had to sell one before its maturity date. So when we exclude the impacts of the market value adjustments, the interest earnings actually increased by $13,683. Interest earnings have been impacted by our use of cash reserves. So we've used significant reserves for projects like the police station and training facility, as well as Greg Hewyo Park. And so all of that has reduced our principal available to earn interest on. Okay, looking into that larger increase related to taxes, there's several different types of taxes and they're all listed out individually on this table. Property taxes up almost 88,000 through June, although we do expect a total of $251,000 increase by the end of the year. And that's due to the 1% property tax increase, new construction and the refund levy. Sales tax as shown is up at 304,000. However, it's important to note that this is based on what accountants call the cash basis of accounting. But we actually do our financial reporting on accrual basis. So as a result, the first two receipts of sales tax in 2026 are actually accounted for in our 2025 annual report. And so when we remove that timing difference out of the equation, mid-year sales tax collections are $210,000 higher than the same point in 2025. And then lastly of note are all the utility taxes. So they're broken out six different ways on here for each utility, but I'm going to talk about them in total. So utility tax increased by $835,000 compared to 2025. And that's primarily due to the new cable utility tax and also based on our approved utility rate adjustments. But please note the largest amount of utility tax increase is in the form of the electric utility and that was at $458,000. Okay, so zooming out from the current expense fund and looking at the overall general fund, another increase worth mentioning is within the newer public safety fund. The largest driver of this increase is a transfer from the current expense fund to the public safety fund. That fund has expenditures including salaries and benefits, equipment rental costs, and the mobile outreach team that have already exceeded the revenue generated by that public safety sales tax, so it's having to be supplemented by the current expense fund.

Okay, so kind of want to talk about what's happening with the city's expenses related to utility services. I think we've seen throughout our community of shocking increases to electricity especially and the city's not immune from that either in fact i do want to share some information to talk about some adjustments we're going to ask the council to consider for electricity later this year as well as what we see going on into the future for utility expense so like i mentioned electricity is something that i think we kind of got surprised a little bit so What you have here is a comparison between the adopted budget for electricity use throughout some select funds for the city. And next to that in the green columns there is actually what we spent year to date through July. So as an example, if you look at the general fund, we have spent about 85% of the budget already. The RAC fund, you could see from the chart, we've already exceeded the budget and then you could see the street fund and water fund as well. Significant increases. Really what happened in 2000, or for our projection, we did our projection about mid-year, about this time last year. There were a couple rate increases that happened after that that we didn't capture. And then the 2026 rate increase was actually larger than we anticipated as well. In terms of our projections, we were just missing some data, so we are definitely short in terms of the 2026 budget. I do want to talk about the city-owned utilities. We're seeing something similar, but to a much smaller degree. So city-owned utilities would include water, sewer, stormwater. Really kind of the main concern here is the general fund in terms of water use, certainly in terms of magnitude. We spent about 74% of the annual budget already on primarily water. So this is the fund that we pay for most of the irrigation for our city parks. So we're watching this very closely. Like I said, it's a much smaller magnitude than what we're seeing electricity. You can see the water fund has already exceeded its budget. This is primarily for irrigation at our well sites. So we have landscaping around those sites. So we've already exceeded that budget for of the year. So I do want to talk about electricity and we know that over the last three years, the city as well as communities experienced some pretty significant increases to electricity. And this is really the trend line. You see 2023, 24 and 25, those are actual expenditures. for the year, and in red you see the projection for 2026. So you could see a pretty large increase. You know, there's a bit of a combination of the weather. So a lot of utilities are weather-based, so hot, dry summers. We use more electricity for air conditioning. Same thing with water. If we have a long, dry summer like we're experiencing now, we use more water. This year we actually started using water sooner than I think we've all noticed that it's been a very dry, certainly late spring and summer so far. So that's contributing to it as well, but it's really the significant rate increases we're seeing within certainly the electricity rates. So this is our projection for year end, and that's why we're going to have to come back to council and have you consider a budget amendment for 2026. I do wanna talk about the rate increases themselves. These are the more significant utilities that we as consumers, both city and the community, have to incur. These are approximate increases for 26 you see in the first column. So 12% increase for electricity, 7% for natural gas, 9.2% for our street lighting bills, and then water, wastewater and stormwater, you could see there. The projected increases for 2027, PSC has rate increases that are being considered right now by the Utility Transportation Commission. As it looks now, general electricity, the projection is 15.2%, natural gas 14.2%, street lighting 32.1% increase for next year. And then water and sewer, we have a 5.25 and 9.5% increase that has been adopted by the council. And then the council later this year will be considering a stormwater increase of between 9.5 and 11% going forward. So the PSE rates are not final. I don't believe they've been approved by the UTC. So those are very much kind of a wait and see situation. But these are the, rate increases that PSE asked for, so that's what we're going to assume in the budget at this point.

Why is such a big difference in street lighting as opposed to general electricity? How is it different?

I actually don't know the reasoning behind that.

There's a lot of factors that go behind that.

I don't know if it's a demand in terms of how they're getting electricity out there, but Yeah, certainly that's something we're watching very closely. That's the majority of the general fund impact in terms of electricity comes from street lights.

So for public awareness, I will be asking the city manager to see if we can get PSE to come in and talk a little bit about on a work session about their rate structure and their approval for rate increases and see if we can bring them to the table. I'd like to have the public hear it from them directly.

Great, thank you. It is surprising about the street light, too, because of our investment in LED lights, you would think it would be less expensive.

Right, we are using less electricity, but it's costing us more. So far, it's looking like the cost increases or the rate increases are outpacing the savings that we have in terms of switching from the old lights fixtures to the new. Yeah.

And how's that conversion going?

We're in year eight or nine, I believe, of that program.

We are year nine, yeah. And we went from, we're going to the high, it was the high pressure sodium conversion. Right. To the LED.

Right. Right. A 10-year plan so now we'll start cycling over and and they all have about a 10-year replacement value life And so we'll continue that process going forward.

So we're almost fully LED So to translate those rate increases into and to dollar impact for the city basically this the same major funds that are being impacted by These rate increases. So these are in total the rate of or the utility budget amendments that we'll be asking for in 2026. So you could see some very significant numbers. Electricity alone is a $700,000 budget amendment citywide. You could see the various impacts from the general fund and street lighting as well as the water fund. Water fund is the most significantly impacted. All of the well sites and the storage all those pumps take electricity So a very significant portion of the water operating budget You can see in the far right column the projected increase For 2027 and this is the increase on top of the increase you're seeing there in that first column. So that's a cumulative impact in terms of 2026 and 2027 so As an example, the general fund will have an amendment that will ask council to consider of about 278,000 and then next year's projected increase for the budget will be an additional 111,000 on top of that. So again, significant increases in terms of utilities going into next year, primarily those PSE impacts. So more to come in terms of Council discussion like I said, well, we're going to ask the council to consider amendments in September and of course this will be a conversation point for the 2027 budget So to get a final number we'd need to add all of these up So you just said I'm sorry.

I said to get a final number. We need to add all of these up both columns Sure. Okay.

Yeah so Okay. Any other questions before we go back to our?

All right, so the next section of the presentation focuses on the utility fund operations. First up, we're going to talk about operating revenues. Water sales increased by $495,000 due to the approved water rate increase. This increase is lower than the adopted 5.25% rate adjustment. However, it remains within our projections just because in June, not necessarily today in August, but in June, we're still considered that the irrigation season was still ahead of us. So we think that that is gonna come out fine by the end of the year. Wastewater revenues increased by approximately 1 million. The increase was primarily driven by higher lot revenues of 503,000 and wastewater sales of 632,000, which are consistent with the approved rate adjustments for both. Stormwater revenues increased by 36,000. This is driven by $133,000 increase in the actual stormwater sales, but it's offset by an unrealized market adjustment in the investment, similar to what I talked about with the general fund. So on paper, it offset it to 36,000, but the stormwater rates increased by the four and a half percent projected for 2026.

I had a question. So when I was reading your packet and I saw the stormwater sales increase, I didn't know what that meant. Is that because of annexation? Is it because of new units going online? I didn't know how to attribute the storm.

The rate increase.

Just the rate increase period? Yeah. Okay. Primarily, yeah.

All right, looking at the expenditure side, water MNO and expenditures were essentially flat, decreasing by $8,373. But again, there's various increases and decreases that make up that very slim change from year over year. So the primary factor related to decreases were that in 2025, we had a significant purchase of meters and MTU units that we received in 2025. And this was offset by increases in salaries and benefits. And as Troy mentioned, our electricity costs, also water resource, internal service charges, and then also our annual capital improvement program transfer that we transfer over to our capital fund. Wastewater M and O expenditures increased by 991,000. The primary drivers were higher distributions to lot, increased salary and benefits. And then also for this, fund as well, higher annual capital improvements to the capital fund. Stormwater M&O expenditures decreased by 593,000. The decrease was primarily due to a $938,000 reduction to our transfer into the annual capital improvement program. So that was our discussion on where we're at for mid-year. If you have any questions, let us know. Otherwise, we're gonna move into talking about our financial outlook for the remainder of 26 and also discussing what we're monitoring as we move into 2027 planning. All right, so salaries and benefits. At the center of our financial planning is our workforce. Staffing represents a significant portion of our expenses and of course, Staffing is what allows us to deliver all the great community services that we do. So this chart highlights the significant year over year increases in salary and benefit costs, both realized for 2016 through 2025 and also budgeted for 2026. In 2025, the general fund experienced an increase of more than $2 million in salary and benefits from 2024. And we're anticipating an increase of approximately 5 million when compared in 26 compared to the 2025 actual figure. So focusing on the salary side of salary benefits, we're going to talk about cost of living adjustments. Cost of living adjustments are an important component of maintaining a competitive workforce and also ensuring that our employee wages keep pace with the changing cost of everyday goods and services. So as we begin planning 2027, the budget, The level of cost of living adjustment is very much a key consideration. For 2027, the AFSCME contract results in a 4% COLA, and the ELPOG contract is unsettled, so it remains unknown at this time. Moving into the benefits side, Association of Washington Cities has given us some premium projections for their increases for our health benefits. pretty considerable, so Kaiser, for example, is intended to increase 11 to 13%, Regents 12 to 14, Delta Dental two to four, and Willamette Dental three to five. Department of Retirement Systems, however, is gonna remain the same with the PERS and LEF rates unchanged from 2026.

Okay, so we have updated the financial model and do want to review the assumptions that we made within that model. And I should point out that for 2027, the factors that we used are really straight line projections. We haven't done performed the in-depth analysis yet. So as an example, for sales tax, the model shows a two percent increase for sales tax over a six year period from or a five year period rather from twenty seven through twenty thirty one. We're going to look at sales tax very closely and really dial in the projection for 2027. But for now, the model uses just these kind of straight line 2% inflation rate for sales tax. For property tax, the model assumes new construction additions to the tax rolls of 75 million and kind of the same comments that we use that same factor through that five year period. The model also assumes that the council is going to exercise the 1% revenue limit increase. Utility tax assumes a 3% increase per year for utility tax. As you just heard, we have very significant increases in utility tax, you know, that are offset by expenses. So again, for 27, we're going to be looking at that in detail for a more refined projection. And then our other tax revenues, business and occupation tax, admission tax, gambling tax, we also use a 3% inflation number for the model. On the expenditure side, same comment. We have not completed the detailed look at projections for salary and benefits. So we are, again, using a straight line inflationary factor for 2027 through 2031. And for salaries, we're using 4% per year through that period. For benefits, we're using 6% increases per year. You could see some stats there in terms of how we arrive at those rates. Our 10-year average increase for salaries is 7.3%. Of course, we have new positions that have occurred to that 10-year period. We also have a 2020 that we actually had salaries decrease through the year just because we had We didn't fill positions that were approved by council just because we didn't know what the economy was going to do during the pandemic. So, again, that's a pretty different look in terms of that 10-year period as to what happened. So far this year through July, we're about 3.9% higher in salaries. So benefits to 10-year averages right at that 6%. You could see that, and I think we've experienced through that period where medical costs, medical premiums for sure have increased higher than inflation through that period. Our year-to-date increase again through July for benefits is 2.2%. So we're actually doing better than expected in terms of those costs in 2026. The model does assume that we're going to spend 95% of the adopted budget, so we We're presuming that there will be savings, especially in terms of turnover and vacancies in salaries and benefits. On some other inflationary factors on the expenditure side, we have a general inflation rate of 3%. We include a 4% inflation increase for internal service charges. Those are mostly connected to labor costs, and as you see above, labor's been growing faster than the rate of inflation as well. So this is the updated model. This is really kind of a forward looking assessment of what the budget might look like for 2027. I will point out that the 27 model, the only adjustment that I made other than those inflationary increases is that amendment for those increased utility costs. So this does include about a $700,000 increase to the 26 budget. And the 26 budget is what the 27 projection uses in terms of trying to determine where revenues and expenditures might be. So at this point, we could be looking at a $3.3 million gap between revenues and expenditures. I do want to point out this is just for modeling purposes. This is a planning tool. We take kind of a We have kind of an unlimited way to look at this model in terms of expenditures, in terms of revenues, in terms of what we're seeing in the economy. So we could really plug anything into this model. It's really a tool to use for policy and decision-making purposes. So again, this isn't a projection or even an expected outcome. We'll adjust accordingly. But again, this is a tool that I hope we could use in terms of decision-making for our budget potential impacts in terms of what might happen with various modeling. I will point out that this model does not include any kind of known or one-time obligations going forward. This is really kind of reduced down to operating revenues and expenditures for decision-making purposes. You know, the Council's considering various actions to take on revenues, and we really wanted kind of an apples-to-apples comparison so you can make good decisions in terms of those revenues. I do want to point out a few obligations that we do need to consider in terms of the budget, but again, not included in that model. A couple of these, the first two, I think the council's been well aware of these two issues that are coming towards us. The Supreme Court decision on public defense and caseload standards, that's a 10-year implementation period. The Supreme Court wants to see at least 10% progress towards the new standards, so we're going to take advantage of that 10-year period. That 10-year period actually started this year in 2026 and goes through 2035. But we're assuming at this point that's going to be a $100,000 increase per year. So by the time we get to the end of that 10 years, that's going to be a million dollar impact to our general fund. So we certainly need to keep that in mind. Another major issue that we're keeping an eye on is our district court services. This is an interlocal agreement with Thurston County. This agreement expires at the end of 2026. So we will be starting negotiations with the county probably in that September timeframe. The county is undergoing a rate study as we speak. They expect to have the results of that in September. But we were assuming a million dollar increase for this contract. And that's really based on the recent interlocal agreement that Olympia and Thurston County entered into. So looking at those costs per those filings, as well as, you know, measuring that against the city's number of files that we take to court each year. So, you know, those two are two significant impacts that are not considered in that model. Another thing that we're looking at in terms of future budget obligation is a pilot program that we started actually this year for police take-home vehicles. And to give the council a little bit of background on this program, this is something we're looking at in terms of trying to accomplish two things. One, we want to expand the fleet. And what that will do is it'll spread the wear and tear over a larger fleet than rather a smaller fleet. We think this is going to allow us to extend the time period in which we have to replace police vehicles. Currently we replace police vehicles every three years. That's an expensive capital outlay that happens every three years. We're hoping to expand that to a combination of a five-year replacement schedule and an eight-year replacement schedule. So again, that will kind of just spread that wear and tear over a longer period of time. We think we'll be a cost-neutral O&M and capital replacement once we get this program funded. The other piece, it gives us a take-home vehicle program. That's not something that we've had in our police department. The advantages there are, better response times in where we need to call in officers, call back time. So officers will be able to leave their homes in uniform, in a vehicle. They could show up right to the scene or the emergency call versus coming into the station, getting uniform on and picking up a vehicle. So that should be a positive in terms of our response. The financial impact of this is we need to buy more vehicles. We have a kind of on paper plan to replace, or not replace, but to expand that fleet over about a four and a half, three and a half year period. That's about 400,000 per year. That's about four cars per year as we start to implement this program. So starting in 2027, we'll be looking at trying to figure out how to fund this program and kind of make this a permanent program going forward. That will be something you will see and hear about as we start our budget discussions.

I have a question. What happens to the cars after three years? Do we sell them or do we generate any revenue from that or what happens?

Currently we rotate those vehicles out of our our traffic and our patrol fleet. So we repurpose those currently. They go into, you know, our school resource officer program is now, but they go into command staff vehicles. So, you know, for those three years, those cars are, they're not driven lightly, we'll say. And then we rotate them into less emergency critical resources, like I said, like admin purposes. I think we keep police vehicles near 10 years currently as we rotate those out. So yeah, we're making good use of those cars, but eventually they go to auction and we sell those typically.

C street Auburn bought several myself. I have a question, Troy. So, so with this pilot program as part of the vision that you know, cars aren't going to be used for multiple shifts. It's just one dedicated driver. And then it has less wear and tear on it because that person is taking home, they're using it for a shift and then it rests as opposed to it's getting used for two and three shifts here as it sits here.

Correct. So typically on our patrol shifts, cause we've worked through this extensively with the police department, the finance department and, With our current model patrol vehicles, we have about 16 vehicles that are on the road. Eight of them are on the road about 10 hours a day, and another eight are on the road about 20 hours a day because there's constant rotation. And we have two teams, blue and gold team, that work their eight to 10-day shifts, and they swap out. And so with this pilot program, now you're going to have that shared vehicle between a team member on gold shift and a team member on blue shift so that they're taking better care of the cars, they're not on the road for all the mileage, and we should be able to get longer life expectancy out. So the long-term vision of this is that we'll be able to, as Troy mentioned, cast out our depreciation schedule to five years or more so that we can buy down that annual cost of replacement dollars that we have to put into our vehicle replacement program.

How has this program worked in other communities?

There's a mixture between other communities. I'll let Deputy Chief Hollis elaborate, but there is a mixture of other communities, but one of the things we wanted to make sure when we implemented this pilot program, we also have a policy behind how those vehicles are used, when they're taken home, and that they're within a 30-minute response time. So as Troy mentioned earlier, that we Part of this reason is also to be an amenity for employees, but more importantly, it's cost savings for the public as well as continued our response times to respond to incidents when we have to call people back to the office for a bigger situation.

Is that how it's worked in other communities?

Yeah, so what we've seen is in other places, Pierce County is a pretty good example of Most every agency in Pierce County has a take home car program. And what they found was response time coming to work or if there is an emergency call that occurs in the city, officers are able to get back to the city in a fairly quick manner. The other side of the coin is also when it comes to maintenance costs and everything like that. they found that maintenance costs are lower because much like the city manager was saying instead of the vehicles being run hot almost 24 7 now they actually have a chance to to rest because when we're out on a call a lot of times cars have to sit there and idle and and any mechanic will sit there and tell you cars idling actually causes a lot more damage than just them actually being driven out on the road so by moving to a program like this it will actually help save a lot of the maintenance costs on the back end

Thank you.

Our officers have been asking for this for a couple of years.

Okay, we're almost done. I'll finish off with some closing comments about our financial situation, the focus for the 27 budget, as well as some comments about our overall budget strategy. So our current situation is Pretty uncertain out there. We have a Middle East conflict that's causing impacts to inflation. There's conversations about tariffs. So this is really a very changing landscape. It kind of changes from day to day. So that's something we're navigating in terms of our revenue projections for next year. Like I mentioned during the financial model comments, at this point, under the current assumptions and kind of our forward looking assessment. We could be looking at another gap between our revenues and expenditures for our general fund. In terms of the primary focus of the 2027 budget, this is really a maintenance focused budget. We're going to focus on maintaining our existing service levels. We're going to focus on meeting our operations and maintenance requirements. We have a lot of money invested in infrastructure, so we certainly want to make sure we maintain that. We're really going to lean into the strategic plan that the Council adopted related to economic development initiatives, so we're going to invest those reserves and look to the future in terms of expanding our economic tax base. Any sort of expansion to the budget, whether it be service levels or staffing, we're going to be looking for sustainable funding sources for those. So again, the focus is going to be a maintenance level budget. In terms of our financial strategy, the council and staff have talked a great deal about this three pronged approach. So we're going to continue the discussions about revenue enhancements and you know, what we might look at, how it might be implemented. We're going to continue, like I said, to make those investments in economic development and the implementation of that strategic plan and the priorities within it. And then we're going to be really focused on developing contingency plans as it relates to service level and staffing levels. This is really a change or a nuance that you know, occurred during the council's retreat earlier this year, as well as the director retreat. Rather than a plan to look at reductions in these areas, we're developing a contingency plan if the economy takes a turn for the worst. We've really been holding steady the last nine months or so. So, so far, so good. But, you know, we really need to keep this in mind as the economy could change very quickly. So my advice for the council and our staff is really have this plan in place. We're in the development period of that. But we need to be ready to act when it happens because usually what happens is the economic indicators are about two months old by the time we receive them. So we've already had the downturn. So we will be prepared. We have been in the past. Lacey's been fiscally responsible and I don't expect anything less from us going forward. So we'll be ready when the time comes. So that's our strategy looking forward. That is your mid-year report for 2026 and the outlook for 2027 and we would be happy to answer any questions you might have.

Just real quick, I wanted to circle back to one of the items was the police department open positions. How many positions are open within the department?

Right now we have two.

Okay. Well, thank you for your report. Um, I honestly hope we get some turnaround. Um, but I appreciate that you guys are preparing us for the worst. Um, and previous years we've seen that, you know, we might've been heading for a cliff and, uh, you know, we, I think it was last year that we had the city manager, and in your department go line by line looking at our expenses and you guys were able to shave like about $900,000 off and fortunately we did that in time because at this point it looks like that $900,000 is gonna be well used and so thank you for all your work. The next item on our agenda is we're kicking it right back to you Troy with the 2025 quarter two investment report so hopefully we can balance this out unless there's a comment down here. Sorry, I thought you might have had a question on that.

Okay. Thank you again, Deputy Mayor. You do have in your packet the second quarter investment report. We typically get on the council semi-annually to provide this report. It also gives us a nice glimpse into the overall economy, so the timing is really nice in terms of media report and as we enter into the budget development and discussions for next year. So it follows the same format as you've seen in the past. The quarterly report includes a market commentary, a market outlook. It takes a look at the investment policy and our compliance within the various thresholds and limitations in terms of the types of investments and the amount of the portfolio in which we can invest in those investments. The report also includes asset allocation and historic balances so you could see how the portfolio is changing over the quarter. And then you have basically a summary of each and every investment the city has out there. But in terms of summarizing that 24-page report that you do have in your packet, our overall net return has increased just slightly. In the second quarter as compared to before so our net benchmark Return was targeted at point three seven percent. We finished the quarter at point three six percent You know this this news is a little bit dated in terms of the the market this was again second quarter we're already a month into the third quarter, but at the time this report was written and The Federal Reserve met twice during the second quarter. No movement on the overnight rate. So it remains at 3.5 to 3.75. Of course, the Federal Reserve met just last week. Same action or no action, actually. But, you know, what's really changed from the during the second quarter was the kind of forward looking and anticipation of what might happen to rates. We really went from an environment that we thought there were going to be no rate changes between or before the end of the year. The market's actually assuming a rate hike at this point before year end. I think it's somewhere around 1.2 hikes by the end of the year, which really says one rate hike in 2026. I think the long-term expectation is 2027 will either see no rate change or even a rate decrease. But right now, inflation is still running higher than the Federal Reserve would like to see, but doesn't feel the economy is overheated. Jobs still seem to be where it needs to be. Consumer spending is where it needs to be. Overall economic growth is where it needs to be. So at this point, again, no change is warranted. In terms of overall yield of our portfolio, we have a slight decrease. We finished the first quarter at 3.732%. We finished the second quarter at 3.683%, so just slightly lower than last quarter. In terms of duration, so how long we're holding investments, again, we see a slight decrease. We decreased from 2.117 years to 2.085 years. We're just under the benchmark, but, you know, we'll...

I see that our portfolio contains a little over 45% in Treasury, which is a smart move because, I mean, it's been on the rise. It's, I think, at cap 5%. I think that's spot right. Yeah, so that was that was nice to see and coupled with this Thank you for that wise investment Really appreciate that because I watched bonds tumble for about two weeks Which is kind of sad to see So once again, you're ahead of the curve and we appreciate all your your work and expertise in this matter All right. Thank you Anything else from the rest of Council, all right, we're gonna move on thank you both City Manager's report.

I have one item tonight just to make sure council is aware and the community is aware. As we have our council meeting on tonight versus our normal Tuesday night because of the primary and per council policy to shift off of the primary or election day. Tomorrow is also though national night out which usually conflicts with our past council meetings and this is an opportunity for neighborhoods to host Barbecues or picnics and coordinate with our Lacey Police Department for police officers and our command staff to go out into the neighborhoods and meet with the folks in their neighborhoods to bring information related to statistics and best methods for crime prevention and answer any questions they have. And it's really fostered to help create that community and that connection between people in our neighborhoods as well as the police officers and get understanding how we approach community policing. It's also an opportunity for council members to also participate if you so wish. Again, the event is tomorrow and it's throughout the entire Lacey community in several different neighborhoods. If you would like if you are interested in attending Any of those please let me know and I can kind of give you the time slots for various neighborhoods where if you want to Participate you are more welcome to do so And I'll I'll send the schedule out to the council later tonight So you have that if that give me a heads up what you want to do, then I can let Deputy Chief Hollis know and he can make sure that make some accommodation if need to That concludes my report

Next on our agenda is the mayor's report. I will say that our Parks Board and our Historical Commission and our Lacey Museum all had positions open and available. I interviewed a few candidates. We talked about it earlier, and those recommendations will be coming out on the 18th, and they'll be before us for a motion. So that's all I have under the mayor's report. Council reports, I am up first, and I have no report. Council Member Greenstein? I have no report. Council Member Cox?

Keeping it simple, no report.

Council Member Dunning? No report. Council Member Turner?

I don't have a report, but I do want to make sure that the public knows that the Thurston Regional Planning Council has published a survey. They're asking the public to help them rank 21 transportation projects you have until the 16th. And if you're looking for the link, you can look at my page. I posted it on my page, Councilmember Marin-Turner, or you can go directly to TRPC and cast your vote, so to speak.

Okay, thank you. Councilmember Hsu?

Uh, no official report. Uh, the solid waste will meet, uh, this week for the first time this summer. So that'll be exciting. But also I was able to attend the Thurston County fair this weekend and it was wonderful. And it was, uh, I just enjoy seeing the community out there and seeing all the different, uh, things that, that the kids are involved in, particularly with four age, like raising cats or having cattle, like those things were just, it was so awesome. And so, uh, hopefully. you all got a chance to go out there and see that as well.

Yeah, it's a great space, and I'm glad it's right next to a lake.

Can I also say that the park is just fabulous? My dog and I approve.

And with that, it appears as though we have reached the end of our agenda. It is currently 7.07 p.m., and without objection, I will call this council meeting adjourned. And as always, keep it classy, Lacey.