Finance Committee - Regular Meeting

Looks like you've started us out. Thank you, Owen. Good evening and welcome to the Monday, June 15th meeting of the Olympia City Council Finance Committee. It's 4.30 p.m. We have all three of us council members present and staff. So an approval of the agenda for tonight? Second.

Second.

All right, it's been moved and seconded to approve the agenda. All in favor, say aye.

Aye.

Okay, we have an agenda. Oh, and do we have anybody signed up for public comment this evening? And sometimes we have a few spectators, but tonight we don't have spectators, but you can watch us later on channel three. Next up is an approval of meetings from the May 18th meeting. Have either of you had a chance to review those minutes?

I would move approval of the May 18th minutes.

Second. All right. All in favor say aye. Aye. Good. We've approved the minutes. That brings us to committee business. And we're going to start with a briefing on the capital facilities project process.

All right. Good evening. For the record, Joan Lutz, senior budget and finance manager here to present capital facilities plan process information. So today's goal is to give the Finance Committee a clear high level overview of how the city of Olympia plans, evaluates and funds capital projects. This includes what qualifies as a capital project, how the CFP is developed, and where the committee fits into the review process. So let's start with what is the capital project? So it's a set of planned activities that maintain or improve a city asset. And that could be buildings, parks, trails, roads. And these activities include new construction, expansion, renovation, or replacement. So then from there, we have this capital facilities plan known as the CFP. And this is a strategic document that outlines the plan, planning, development, and management of the public infrastructure and facilities to meet community needs. It is developed in coordination with our comprehensive plan as well as all of our master plans. And we update the CFP annually. Therefore, the first year of the CFP is the capital budget. And this is a requirement, the CFP is a requirement of the Growth Management Act. How it all begins. I thought that was gonna be small print. So stage one is the comprehensive plan, which is long range community vision. And then we have step two, which are the master plans, which are service area infrastructure guides. Stage three is the department-driven proposals. These are needs identified by the department. Stage four, scope, schedule, and cost estimations. And these are detailed project definition. And then step five is the capital facilities plan, which is the adopted six-year plan, with the first year being the budget.

Yeah, just real quick on this. on department driven proposals, even though they're kind of a stage three, they should come from comp plan master plan. It should be driven from that. So I just want to make sure that that's listed there. They're not separate things that come up that are outside of that, right? They should all be coordinated through and they should have some link back in some way, shape or form to some master plan or utility plan or something that drives the need for those projects. So for the community, for those watching at home, I just want to make sure that's really clear that that's where those are driven from.

just to check my understanding. This is also sort of hierarchical, that the highest level planning document is the comprehensive plan. And then we have each of our master plans. Beneath that, departments are creating implementations. And then you've got project-specific planning. And finally, that project-specific planning ends up with a budget request in the capital facilities plan. Is it sort of a hierarchy like that?

Yeah, it kind of tapers down into what we can actually produce. So this is a coordinated review. It's across multiple departments. We do that to ensure public funding is used properly and in the most effective way. So if we can pair two projects together, we want to do that, especially if there's a cost savings. Collaborate to ensure that the projects are feasible, aligned, and well-scoped. And this includes setting up policies and criteria, reviewing service levels, validating the cost estimates and operational impacts, so how it will reflect on general fund or other funds that are in this operation, and then checking alignment across departments and agencies so that we're not doing duplicate work. And then uncoordinated efforts to fund public facilities and, you know, not doing this review can result in costly inefficiencies and gaps in the public service to the community.

Is this review happen?

It kind of, it happens through the CFP process of developing the document.

I didn't really thought about that. I thought just the public works planners blocked it out. Within the finance team, you hear from each of the departments and develop the capital facilities plan?

They pretty much work on that together on their own. Each of the departments that has capital projects. And then they talk to each other to make sure that as much as possible, if there's a safety need or something that comes up that moves something sooner, then that has to be done. But we try our best to coordinate it.

In the years past, Joyce has coordinated the CFP, so she pulls... all the various departments together and goes through the projects that are on the list. Kind of, as you know, the CFP is a six-year out. Year one, as Joan said, is kind of your implementing that you're adopting the out years. But making sure that there's this check back to the master plans, what's driving the work, all these kind of questions that are here is what the staff go through as a coordinated effort as a larger team to figure out which projects make which year, which ones have funding. Because the other big component, you're probably going to get to this in a minute, Joan, but the other big piece of this too is what has funding and what is ready? Because we have to have funding in order in order to put it in year one. And we have to have a funding plan, even if all the way out to year six. So it's because something can't be in a CFP if it doesn't have a funding plan.

Ironically, there's a lot of funding we can't apply for if it's not in the CFP. That's right.

And so you'll see, you know, like a transportation project that they've got a Transportation Improvement Board grant that they expect to get in year three. And Well, by the time we get to that year, if they get it, then it moves, it stays in the CFP. But if for some reason we lose a grant or what can happen is year over year, we could change the priority of projects through council input. And that'll reflect, that'll be reflected in the follow on your CFP in terms of how that happens.

I have a question about input and the process. I'm curious about the way in which the, where, you know, the point in which we get council feedback and commissioner feedback, and you could play commission or BPAC or any of the arcs, right? I'm just curious about where in the process, you showed the steps, right? At stage three, it's moving from the master plan just to, If that goes, it checks in with advisory boards or with the council because, you know, priorities do change over time, right? Like, I think if the transportation master plan is updated next year, I mean, it's been years since it's been updated, right? Priorities do change.

Yeah. Yeah, so they all go through their respective advisory committees. So, yeah. BPAC, Planning Commission, Sea Transportation, Parks, Arts and Recreation, Praxies, Parks Projects, And as you recall, every year when the CFP public hearing comes before you, you get a letter from the respective committees. UAC is another one for the utility projects that speaks to their support or their concerns with any particular item in the CFP. And so year over year, you might have committees weighing across the board. They're fully supportive. And year over year, you might have a committee that says, although we support this particular CFP, In the out years, we're worried about not enough emphasis on this, this or that. So it kind of sets the stage for the fall one years conversation. So yeah, they all have advisory committee input. And that happens as we kick off the process for budget and CFP, that kicks off that process. Advisory committees becomes part of their work plan really from this part of the year forward in the fall.

Yeah.

But I think my biggest concern is because I've been on the other side of this.

Yeah. It was a yes or no. essentially, as you were saying, like, do we agree, do we disagree with something that was already decided? And at that point, if we said no, we didn't care, there was no, there was not either no consequences, or there was, it was already written, right? So it wouldn't have mattered what, what BPAC had said. So that I think I'm bringing this up, because that is a fundamental concern I've heard from the public in the past is, we be involved in the process? How much choices do I have? We're talking about people that are used to or wouldn't expect a level of A, B, C, D choices rather than yes or no, do you agree, do you disagree? Because there are letters that have been written in the past to staff year after year saying the same thing for almost a decade or more, and it doesn't affect the process. So I bring that up as a kind of a concern that I've heard. I've even experienced myself.

Well, I'll say one thing that's really important as we go out with new parks plan updates and as we head out for a TMP update here in the coming years. One of the things that's really important and that we have to make sure we're doing a good job of is engaging the community during those master plan processes that help set the priorities for the coming years, right? Because if the priorities are right in the master plans, it should drive what's in the CFP. And where I think is what sometimes we get a conflict is when the community's expectations are different than what the plan calls for. And things change, which is why I think TMP is a good example of what we've got to go refresh. And we've actually had a lot of conversation about a lot of different things since that TMP has been implemented and the priority changes within the community and with some of the advisory committee. So I agree with you. I think we've got to figure out how we continue to make sure the community has a voice and the council can see how that's played into the recommendations that are coming out of us in dual CFP.

Glad to hear that. I think my biggest thing is when is always a thing. And a lot of people are like, well, I missed the train. Master plan is over, right? I don't know where I can be involved, right?

So the CFP has a financial for six years. The first year would be the adopted budget, and you have five years of your plan. But it also has years seven through 20 listed that don't have a funding strategy to it. But those are the ones that come from a master plan. So that also is an area I think where input can be given to move things sooner. You know, like, if something works out, I mean, there are a lot of pieces in determining which projects we can do based on some other stuff I have here in the other slides, but I do think, I do think like, you know, if you miss the master plan, then you want to look at the future years in the CFP where there's more time to be adjusting things. Whereas when you're in that first year, you're really kind of locked into the dollars, the scope, the money, you know, unless something critical comes up and we push. That's just, Again, though, I'm in finance, not public works or parks.

That's generally true.

It seems like that's how that would work. I did run this slide half an hour ago so I could make sure I was on point.

Robert, I think you bring up one of the fundamental challenges in places where we have a role in the community. There's sort of a speed of government, a very deliberate planning process. And then there's people reacting at the moment of a specific need or the desire for a particular project. And the Transportation Master Plan, this is actually, it will be its first update. And that was an attempt to take some of the political variability out of the choosing transportation plans and have more empirical, data-driven, whatever you want to call it, decision-making, but it requires people being watchers of the city government or us shouting out what's happening earlier on because it's just like giving up some of the quasi-judicial hearings and having the hearing examiner function, another place where it makes things, I think, calmer project so i just for me that's been one of my learnings along the way trying to imagine better ways to communicate and and more leverage to engage um my classic example is the traffic study for west bay drive and for neighbors are saying i never heard of this this is terrible let's do it and transportation staff were like 15 years ago we did an extensive study and we consulted the neighborhood And it's like somewhere between those two things, right? Times change. Times change, but we also can't do a work of that magnitude over and over and over again before you get to the project. So anyhow, I really am intrigued with the dilemma that you described there.

I think it has to do with scale too, a little bit. When you're looking at a larger project, it's probably better to be deliberate. is used, but if it's a smaller project or a medium-sized project, does it need as long of a runway? It's kind of an interesting thought process for projects.

You good right now?

Yeah.

All right. OK, Jill.

So now we have an evaluation of prioritization criteria. And so this is important due to limited resources. constraints on the number of projects that we can pursue and funding limitations. And so we want to make sure, of course, that it's aligned with the comprehensive and master plan. We're looking at risk management or mitigation, whichever you like, to ensure that we're not leaving us at risk for something that we know about. We're looking at equity considerations, financial feasibility, and resource availability, which is staff as well. And then again, our funding strategy, the first year is the one that we adopt, but we do have to, for the UGA, have to outline how we think we're going to fund the next, you know, the six years total. And so potential funding sources are utility rates, REITs, grants, voter approved revenues. I don't know why I didn't put general fund on there. I forget about that. But we do have to ensure that there's compliance with stage four. state budget requirements. And then also part of the spending strategy, we work on identifying the order of spend down so that we're not leaving any money on the table to capture all of the grants and that we leave, we do the most restrictive spend down as soon as we can and leaving the open dollars available longer. And then committee and council touch points. kind of multiple, maybe not to the degree that you would like now that we said this, but there's a briefing on project selection and timing and funding assumptions, major cost drivers and timing considerations. And then the CFP is adopted along with the annual budget adoption. And then we also do budget amendment, quarterly budget amendment processes. All right. And the public engagement is required under the UGA, no, GMA, Growth Management Act as part of the comprehensive plan process. The first half of the CFP is more internal work done by the departments. They draft a preliminary and then that is posted and published and then shared with other agencies and stakeholders such as the committees and reviewed comments and relatives. relevant community advisory committees. And then there's briefings, Council Finance Committee, Planning Commission, OMPD, and also public hearings at the OMPD and Council.

So I guess, Mike, is the language in our city code specific to share or participate with the various organizations? Because that's the thing I'm curious about is like getting back to the thing I'm talking about participation. Does the language in the city code say shared? Like it has to be shared with the planning commission and parks and BPAC and so on and so forth? Or could the language say that it is participation? Because there's a fundamental difference between giving a presentation and sharing the knowledge and so and allowing a participation in the process?

I'm going to answer that two ways. One is I don't have any ordinance, so I don't know what the ordinance actually says. But my hope would be that as we go to advisory committees, it's not, this is a CFP, accept it, that there's a back and forth, right? So for example, I would fully expect either the OMPD or PRAC or the Planning Commission or Utility Advisory Committee, if they see projects that they don't see in alignment with Master Plan or they think are out of sequence or they don't feel are the right priority for whatever reason, that that conversation is happening at those committees. Now, whether or not we're flexible enough to move things depends on where it is year one versus year six. right? And whether to Joan's point, whether or not we have grant requirements in terms of priority order that we've got to spend in a certain way. But, you know, having worked in public works for a long time before I came here and been a project manager, you know, it is our goal to have back and forth with the committees and not just expect them to rubber stamp things. Now, that's not to say that committees at times haven't felt like their feedback hasn't been implemented to the degree that they'd like it to, but... I'm always going to go back to if we get the master plans right and we have good community engagement around the master plans and we have good agreement with the community around priorities, the rest of it should be easier to do. I find a lot of times when we're in conflict with the committees or the advisory committees, it's when we're not really engaged and we're not on the same page in terms of what the priorities are called out in master plans. I don't think that happens a lot, but it does happen from time to time. And I think to your point, and you and I've talked about this a lot in your time on council, it doesn't mean that there's not room to figure out how we do more engagement around some of this work. And it doesn't mean that we shouldn't talk to commissions and committees about how this could continue to look different moving forward.

I may have chose the wrong word. Share it to me as a discussion. I'm sharing this with you and you're going to give me feedback. So I might have worded that in. I should have worded it better.

Yeah, yeah.

But I do know that the Planning Commission submits questions to all, and Finance hops on the meeting, all the departments hop on the meeting and answer those questions to the best of their ability, and then if they have more questions, we continue forward. So I do feel like it's more of a dialogue, but the Planning Commission is the only one I've had interaction with.

So my experience has been that the draft is what's shared. And, and staff have done a lot of work, pretty wedded to it. And it's also, it's iterative. So it's only one additional year from the one. That's right. And that means the response we've had from the advisory boards and commissions, if they have a strong feeling, it's a letter in opposition to the staff recommendation. It's not, it's not that the draft CFP was modified in response to planning commission or BPAC. That's been my experience. And I think that's part of the tension. Robert's saying, is there a way that their voice could actually have enough weight to edit the document? We've had a couple, I mean, over this decade, I think of a couple of ninth going to Evergreen Vista, the same routes to schools, and Elliott Street near Grubb, where they bumped up the list. And then we were also waiting for lightning to strike for an opportunity. And one of them, a Safe Routes to Schools grant came up. Another one was the Transportation Policy Board had money somebody else couldn't commit. And we had a project that was planned enough that we could take those funds. But that's the other balance I see in this is we keep some projects on this list that we're not promising the community will build even in that 20 years. But if we don't have them on the list and there's an opportunity of funding, then we don't have another way to act on that. Anyhow, I'm really intrigued with the conversation.

I think it's funny. I mean, I've been on the opposite end of it. I've been in meetings with the entire advisory board. It's like, I don't agree with this. And then six months later, it comes back and nothing's changed. And then you have members of the community reaching out to council and they're like, what's going on? Is there no function? And I've had people leave and not renew their time and go off. But this is also not just an explicitly Olympia issue. I've seen people have this on the CAC for where there's this kind of, I don't know if it's power imbalance or decision-making imbalance, but it exists, right? Yeah.

Well, I'll continue to say that I think we have to do as best a job as we can when the master plans come forward for renewal to make sure that those advisory committees, our community members are weighing in And that plan, because the TMP, as we did the last time, was in response to what the community told us they wanted to see built first, second, and third. They helped us prioritize the projects, right? And so I think where we can all get stuck is what do you do when a committee wants to advance a project in the CFP on a faster pace and they want to prioritize it over something else, but yet we've got this planning document that all this community engagement says this one's first, right? I think that's, I think that's tough. I think it's hard for you. I think it's hard for the community. It's hard for the advisory committees. So we learned a lot with the last team version of the TMP. And I suspect that as we go back out, we can figure out how we get more community engagement and make sure we ensure the advisory communities are weighing in where they can, because that's to me where we get it, where we can get it right or get it wrong. Right. And where we can get more conflict, but sometimes it can be just the details of a specific project, right.

Where there's a, we have an incredibly educated population who are like, there'll be like, I've seen a different version of this design, engineering design, somewhere else in the sound. And I think that, you know, and that's where sometimes there are the small conflicts that kind of drive a wedge conversation sometimes. And that's kind of a hard thing to kind of figure out as a city is, in the community who understand that there's an alternative that's not being explored.

Stacy, just say no. You have a new job now. It's tempting. Fix all the public process.

I'm listening. I agree with Jay. I think it's something we can explore. I'd also say, if I don't mind. I think the communication piece is really important. I mean, Joan touched on this. I think it's really helpful when community members understand all the competing criteria that go into project selection. And if something has partial funding or has a grant or two projects can be leveraged at the same time. And I think that that has a lot to do with how we communicate these choices. Yeah.

And I'll say one more thing, because Robert, you and I have talked about this. A project can be the project, and we can all agree across the board it's the project, but where along the way in the design of the project does additional input happen to that design so we get the project that we all wanted out of the CFP? So I think there's... the process that goes into the CFP and then now it's in the CFP and it's headed for design. And what are the touch points with community and the advisory committees around design to ensure that the project that gets built is consistent with what everyone's expectations were.

Because that's the detail of it, right? Your master plan is broad, very broad. Like we're going to build a park in this place. It's on a 20 year list. And then all of a sudden, you're having fun. That's where you start to get in.

I think this is things we can continue to work out with you, with all of you.

Right. And then from approval to construction. So once it's been adopted in the CFP, it goes to design permitting and construction phases. at which point we start monitoring for expenditures, forecast adjustments, bid results, inflationary impact, schedule changes, and we do everything we can to ensure the project remains within budget authority. If not, we come and communicate with you, and then you have say there, too.

How many people do we have who work on contract tax when we do that sort of oversight?

Those are in public works. I actually don't know how many people do that. I know we have one project account who does all the grant buildings.

So from the finance department's side, just a staff to do oversight, but it's within parks or within public works that you have somebody managing the contracts?

Yeah, so each of those departments have project management staff between parks and public works. Each project manager is responsible for their project's design, construction, budget oversight. Grant administration, the accounting team are there to help with that. But at the end of the day, the project managers have to ensure that we're meeting our grant requirements. It turns out the project was forward. And then within public works, there are, I believe, within Tom Jeffers' group, there's two contract management staff. that work directly with the project managers to help them with contract compliance work. And then parks has at least one F1 person that does the same thing within parks. So what I would say to your question is there's actually multiple touch points in multiple places within department and in multiple departments that are kind of tracking this. And then when the auditors come in, any project that has federal funding typically gets looked at on a project by project basis. They don't look at them all, but they tend to look at the big hitters. The auditor will come in and they'll look at grant compliance to the federal dollars that were spent as well. So I think there's a lot of layers here. It's a great question.

All right, so in summary, the CFPB provides a structured, transparent, financially responsible approach to projects, supports long-term infrastructure planning, and ensures alignment with council priorities, community priorities, as well as comprehensive plans. You always launch the liveliest conversations.

Robert, anything else before we move on? You're OK? Thank you very much, Jill. Michael, are you ready to go to the second business item and brief us on property tax levies? Are you ready? Let's do it.

For the record, Mike Gibson, Finance Director. Thank you. We have a presentation on the property tax levy. I think it's safe to say this is a daunting task to many. I think it's a good time to break it apart with you all. You see it when it comes to you in the fall typically and after really everything's done with it, but we don't spend a lot of time with it. So we're going to take you through really what is a property tax levy. The history of it in Washington state, we refer to that 1% limit often. So we've broken that apart a little bit so you can see kind of where we started, which was interestingly an unlimited rate authority. How the annual levy is calculated, the statutory limits and constraints. So that's the 1% cap. the constitutional limits and something that's called pro-rationing, should that have to happen. Long-term planning and implications. So some of the structural gaps, something called banking capacity, voted measures and then just the diversification of our revenue. And then when we met with Chair Gilman, yes, and suggested that we show some levy, lid lift, and what that might look like using the information we have, which is the 2026 assessed value. So I'll take you through it. Here we go. Talk about a complicated presentation. So the next slide talks about what is the property tax levy. It's one of the primary revenue sources for the general fund. So at last week's study session, I mentioned it's our second biggest revenue source for the general fund. As you know, we set a property tax levy for the city and then also for OMPD. So both of those are set annually. I think it's, we say here, it's one of the most stable. So meaning that It's really kind of weathers the economy more than say B&O tax or sales tax would because we're held to that highest lawful levy. It's also, it takes a while for property values to fall. So in the event of a recession, it might hit, you know, we've seen historically kind of over recessions of the past. You know, if you take maybe a 2001 dip, it was more sales-based as far, Then we know what the Great Recession did in the late kind of 08, 09. But again, it's a stable, consistent year-over-year revenue source. It only increases what it can increase, 1%, but stable. It's a budget-driven system. And so the city adopts a budget and then calculates the levy rate required to meet it. It's not the other way around. And I think sometimes maybe that's a loss on our citizens because it is confusing, but that's how it's designed to be that the services come first and then the rate follows. Voter trust is paramount. Property owners count on predictable limited increases. The system is deliberately designed to balance city service needs with taxpayer certainty. I think when the limiting factors were put in, it was designed that, okay, the levy rate is going to fall, but taxing authorities can go out to your voters and then ask for more authority. It was never designed that you wouldn't. It's just that rate is going to fall over time. This is not uncommon to the county, the library district, fire district, everybody is having that same, that has the property tax levy effect happen. Layered authority, so multiple overlapping taxing districts as I just mentioned some of them share a limited pool of property tax capacity. The city of Olympia operates within that and competes for space within that shared system, and we'll talk about that a little bit more. So that's what the property tax levy is. I think this is interesting, the levy history in Washington state. So pre-1972, it was unlimited rate authority. And of course, back in that time, property values were quite different, so I'm told. It was a different time. We all know that. I mean, if you just look at the last six years, what property values have done pre-1972, jurisdictions set their own rates. In 1972, the state legislature then imposed the rate limit, protecting taxpayers from those assessment spikes, which is where this all started. And then in 1986, the constitutional 1% limit concept emerged. So that was, I think, fostering many policy debates about capping the levy amount. So in showing this timeline and preparing for this, what it showed me is this discussion has been around for many, many years in our state. I think those of us that look at other states, they have these same types of discussions. Thanks, California. It's difficult because of that increase in assessed value, which on one hand, as a property owner, of course, want for your investment in that property. But when it comes to paying taxes, it's that double-edged sword. So in 2001, Initiative I7-747, was really that pivotal passage by voters of the 1% annual cap on levy increases. It dramatically changed how cities and other taxing authorities grow their levy rate each year. And that's really, when you think about it now, 2001 is a long time ago that we've been living with this. Then the state Supreme Court came in strikes down I-747, the court ruled that it was unconstitutional, but the legislature came in and reenacted the 1% limit by statute, underscoring that broad political support. In today's landscape, we have the 1% limit. We know that, I think it's been talked about in Many of the last few sessions about changing that, but that's what we operate in today's budgeting landscape. Bank capacity and new construction are two kind of additional elements outside that 1% that allow taxing authorities such as the city of Olympia to go over the 1% will. So new construction is that amount that the county assessor gives the city a calculation on HAB-Jacques Juilland, For they take a reading about another month where your construction is in the city limits of Olympia get that over and above those properties are able to be levied on this point. HAB-Jacques Juilland, Some years that's more some years that's less that I think is fair to say it's HAB-Jacques Juilland, Rather economy driven because of just the nature of new construction. And then banked capacity, which is, again, another part of this whole law that is a bit daunting. But that exists when a jurisdiction doesn't take its full 1%. So for instance, if a city or county or other jurisdiction did not take that 1%, the governing body voted not to, then they could bank that capacity. And in a future year, take more than 1%, because they held on to that capacity for some time in the future. That's the primary way that bank capacity comes into play. The only way, I mean, another example would be is if there was some miscalculation in the highest loss levy and that created some, but it's very limited in how bank capacity would really come into play. So that's the most common way, I think. Most often in our area, jurisdictions take that. But nearby in some counties and in other parts of the state, they'll often forego that 1%, thinking that that's gone forever. And it's really not. Now, some things come into play how much capacity over time. But it's definitely there. And future governing bodies could then take greater than 1%. So that's a little history of where 1% came from and where we're at today. So moving on to how the levy is calculated. And I think I say, I keep wanting to say, and now we're getting to the more daunting part, but all parts of this are confusing. And, you know, I think it's confusing to property owners because when you get a property tax bill, you've got all these jurisdictions levying taxes. You've got excess levying. It's confusing to read this. Let's break it apart. The preliminary budget is established by city council. In other words, this is what we need to operate. We're going to determine the levy amount based on that. Year to year, we're held to that highest lawful levy, which is typically the prior year's levy. Then we calculate the allowable 1 percent on top of that. 1% increase on your highest level. Then added into that is new construction. And that equals the certified levy amount that is brought to council for approval before the statutory November 30th deadline, where we have to certify that levy amount to the county assessor so that then they can prepare all the tax bills that happen that following year. The assessed taxable value is determined by the county assessor. They certify that for the whole county and then first give us for the city limits of Olympia what that certified assessed value is. And as you know, they have different areas that they assess annually. Others that aren't in a formal assessment, they're giving a market value then look at how much that is. Those are mailed out to property owners. in late summer. So property owners are told, here's your assessed value on your property. There's rights to appeal that through the board of equalization and so forth. But then we're calculating the rate based on that assessed value that were provided by the county assessor. So that's a big, huge number in the billions that we're dividing by a thousand. A homeowner takes their home. So if we say maybe A home valued at $600,000, you're dividing that by 1,000 times the levy rate of each jurisdiction to calculate what is owed. So the rate changes. It flows. It's not fixed every year. So our levy rate has, over the last few years, because of assessed values rising, it's gone down. And that's that protection that we talked about that's in The state law that as property taxes rise, the jurisdiction's levy rate falls. And that's the same with the library district, with fire districts, et cetera. That rate goes down. So even when voters might approve a levy lit lift to, let's say, go up to the statutory maximums, over time then it's going to erode as property values increase and change. So the levy process is handled on the finance side, largely coordinating with the county assessor, calculating that rate, bringing it to you, again, for both jurisdictions, the city, and then, of course, the parks board, which is a conan of city council, certifies that levy, and then we certify it to the assessor as such, and it all moves forward from there.

What happens if when you get through the assess value and all those other steps and then you calculate the rate and that rates over 1%? Can that happen?

Well, we're only going to increase by 1% the highest loss 11. And so that increases by 1%. And then everything falls in place after that. So we can't increase it more than 1%.

That's why the rate floats.

Yeah, and I understand that concept. What I'm trying to wrap my head around is the rate itself is calculated so late in this process. Is there not a risk that somebody is going to end up with an approved budget and assessed values and the dollars they need are above that 1% rate? They have to go back to the beginning.

No, and we'll talk a little bit more about how through the pro-rationing, how some things happen, but we wouldn't be able to because you're fitted. It's that budget-based system.

When I get that we wouldn't be able to, that's my question. Is there ever a risk that you get there and you end up with a rate that's above what you can do and then have to go back?

There's just mathematically, It can't happen. So if, I mean, there's a lot of different scenarios. I think in the finance world, you kind of work out in your head, you know, what if assessed values go down? Well, you're held to that highest level. So then that may, that rate that floats may change. It could go even up slightly as in the long run, but it could. if that scenario happened, but that'll float to really protect that amount.

Keep it there.

So I think it's also why to the taxpayer, it's very confusing because that amount on your property tax bill can change and not just be 1%. It can be very different. So that also kind of factors in.

HAB-Jacques Juilland, Explore a little more.

No, I think.

HAB-Jacques Juilland, So what the 1% annual limit means in practice. So the maximum annual levy will probably repeat concepts here multiple times because it it kind of comes together and HAB-Jacques Juilland, Because it's a lot of information probably bears repeating sometimes, but the city may increase the regular levy by no more than 1% per year without a voter-approved lid lift. And so we hear about that concept quite often. But that has to happen in order for us to take more than 1%.

Unless we have bank capacity, which we don't. That's the only way you would go above the 1%.

Average annual inflation, and I think this is where as jurisdictions, we talk a lot about the rub here because annual consumer price index, we talked about last week at the study session, we're forecasting much greater increases than 1%. So even though it's 1% of our highest lawful levy, and it's only a component of our revenue, it still doesn't keep up with the kind of inflation we face, particularly if you just take the last six years. It's just not keeping pace with that. So that's really, I think, where as public agencies, we have difficulty with this, is that when you can only increase one of your primary revenue sources, 1%, and your costs are increasing greater than that, it's really difficult to balance a budget. So that's really what we mean by the 1% in practice. So new construction, a critical revenue supplement. So assessed value of new construction is added to the levy base each year. Revenue from new construction is outside that 1% cap. It's fully added on. So if we, I think I might have mentioned this last week if I There was a lot of information, though. But when you look at how much our property tax budget increases, we might forecast around 2% which might make you go, but wait a minute, you just said you can only take 1%, but we get that added to it where new construction added on. So if you look at it over time, it averages about 2.01%, really exact coming from the revenue team. So incentives, it incentivizes the city really to support development growth and its boundaries because that new construction is good. It's calculated annually, as I mentioned, by the county assessors. So they're going out and assessing where the new construction projects are. In high growth years, it's a meaningful boost. It can add a decent amount to our budget. In slower growth years, of course, it's just a smaller supplement to the 1%. It's market conditions. Again, you can't substitute for systematic growth or any kind of systemic change to that amount that really to get that kind of change to the levy would take a levy would lift a vote by the people. So that's new construction because we talk about that term a lot. And so to break it apart, that's how it happens.

Mike, I'm wondering if you could give, if you and Joan and Ola could give them a little bit of a scale of, it can be a couple hundred thousand dollars, it can be right in a good year versus a bad year. I know it's tough, but can you give them some sense, because I think it's important about how much this really adds and impacts our budget, because it doesn't impact it a ton. It doesn't add very much.

What the revenue impact is of the new construction.

The actual add is usually maybe couple hundred thousand in good years.

Yeah, that's kind of what I'm thinking.

We're not talking millions on good years.

Because we're talking about a $17 million budget in total, so $200,000 is really not much.

The going from the 1% to a 2% increase sounds like twice as much. So what's different? Because I know we get more than $200,000 for the first 1%.

Well, I mean, we may be, I don't know why the revenue team has talked about as far as new construction, but that's all, you know, you're just, you're estimating the 1% increase. There's also things such as fire pension that we pay out the property tax. There's other things that we pull out. So when we say 17 million, it's really 21 million.

Right.

It's just that when you look at the general fund, 17 million is what hits the general fund.

I was wondering about the allowed increase being 2.01 a year with a 1% cap. But if it's primarily driven by new construction, new construction is a minimal impact to us. It seems like it would be, if it was 1% to 2%, it'd be a... the overall amount though increases and so as we've looked at it over the average that's about what it is so it means that our our increase we're able to ask for on that one percent is also we know it doesn't address the cost of inflation but In real numbers it's it's in hundreds of thousands against 160 billion or whatever sort of budget would run.

New construction, we get to actually roll back the rate to the prior year so we're collecting at the prior year's rate. Because that's when it was constructed, so we get the assess we get through that one time here we get that that amount.

or another.

So that's a different yeah so it could be it could be you know. mess with the percentages a little bit more.

And it is stable. It just doesn't grow like we need it to to meet our expenses.

One more thing I was going to have you add here is the IPD and how that comes into play here because for some newer council members they might see that and that's the implicit price deflator and how that impacts your one percent and when you have to go to council that when you don't.

Sure so annually um Just to add another complexity to this, there's something called the IPD, or Inclusive Price Deflator. And it's released in September. So it's connected to inflation. So if inflation were considerably low, let's say, which we haven't seen since, I believe, the last time the IPD came into effect was 2020, during that year where things were pretty crazy. That means that it's population-based, so populations over 10%, pardon me, 10,000 people have to go to their governing body and declare really substantial need to take the 1%. So there's really then two steps that you go through in that case, because we're saying, well, inflation doesn't mean we need this, but we still need it in order to operate. So there's a bit of a added step in there again to, I think, cause some planning on public agencies part. So we go for that second. It hasn't happened often.

I think 2020 is the only time I've seen it happen when I've been here, where inflation is under 1%. So you have to ask through the IPD to get the full 1%. But if it's over 1%, you don't need it.

Typically, yeah. I'm going to go out on a limb here and say we are going to need it this year. I'll project when I can. Voter approved measures. When the 1 percent limit isn't enough. Levy LIDLIF, voters can authorize the city to exceed that 1 percent, limit for a defined period or permanently. Again, there's complexities within this that when we wanted to introduce the topic, certainly down the road, we can explore these more with you. It requires a simple majority approval of the voters. It provides the most direct path to restoring the levy capacity beyond the statutory . So that's it. where I think we're hearing more talk of this because many jurisdictions have really turned all the revenue option valves on that they can. So a levy lid lift is likely one of the two domains. There's temporary versus permanent. So temporary lid lifts expire and the levy base then would reset to that pre-lift level or Permanent levy lid lift, which takes it up to the statutory maximum, and then over time, it's just starting to lower again. There's reasons a jurisdiction might want to do a temporary. It could be related to a number of kinds of things they're planning for. I think they're more often care about . Special levies, voter levies dedicated to a specific purpose, parks, public safety, infrastructure. So these are separate from the regular levy and subject to their own limitations and timelines. And I think this is another place that is confusing to the taxpayer because then if there's an excess levy, that's outside the 1%. So fire station bonds or things like that then are separate from that and are long lived then until that. bond amount is paid off. So it's again voter approved, but it's that separate levy that's on there. I think again, just to emphasize this, voter trust is essential. The city's track record of transparency and good fiscal stewardship affects voters to approve additional measures and that trust is built over years, having good audits, being transparent with everything we do financially builds on that and helps when it comes time to ask for money and really have that kind of relationship with the community. So that's where, when the 1% limit isn't enough and you need to consider going after your voters for more. So the statutory and constitutional limit at a glance, so the rate caps. The regular levy rate is capped at $3.60 per 1,000 of assessed value for cities. The aggregate of all overlapping taxing districts is capped at $5.90 per 1,000 of assessed value. So that's a hard statutory ceiling regardless of the budgetary need. So that's when we'll get into this idea of pro-rationing. And that's where if the levy rates are up there and you start to run into that $5.90, that's where pro-rationing then affects because you cannot go over that amount. So that's where oftentimes jurisdictions will get into conversations about this, particularly if a number have gone out for levy good lists and they're all at that statutory match or towards it, you're going to start to push up against that. I think in more recent years, that really hasn't been an issue because most jurisdictions levy rates are falling. In my time working in public finance in Washington State, I've only seen this happen one year, and that was during that time of the Great Recession, where a lot of different things were factoring in, and it did push up against that down in Clark County, and pro-rationing came in. And what that means is, just to kind of go into the pro-rationing part of this slide, as I mentioned, when that aggregate amount is over, and then taxing jurisdictions are in hierarchical order, if you will, where one's lower in that order as set by the constitution, then may get less of the pie. We might also as a city, but a city is higher up on the list than say a mosquito district or something such as that. speak ill of any other taxing authority, but they do have certs. The park district would be lower than the city, for instance. Library districts might be under a fire district and so on. The Washington State Constitution limits total regular property taxes to 1 percent of assessed value or the equivalent of $10 for 1,000 of assessed value. Then voter-approved levies, So when we go out to voters for bonds and so forth are then permitted to exceed that cost.

There's a distinction that I'm missing here of the constitutional limit being $10 per $1,000, but the cap being 590 per 1,000. Can you help me understand?

It's the state portion. So $10 is the total. The city's map.

Yeah, so. Is that five night, is that cap ever set to be reassessed at some point? Like that feels interesting to me to have a fixed dollar amount in a world where dollar amounts change rapidly or the value of dollars.

I would just say it's tied into the whole levy rate issue. And so that would be something that the legislature would have to take a look at it.

But it's not automatically built in that at like 20 years, they look at it again.

And it sounds like in the 20 years of this system being in place, you can only think of one year that 2009 or somewhere close to that in the recession that we actually had some counties bump up against this.

Yeah. And it may have happened in different jurisdictions. I've just not dealt with it. I think as more David Ensign, Go out for a little bit list it's going to push that. David Ensign, Because you can imagine just in our area. David Ensign, You know the library districts back less than half their capacity we're down so there's not as much chance of that, but as let me let's might happen that. David Ensign, And then just one more emphasis on. David Ensign, You know, new construction really isn't a reliable place to put your. that on this budget. I think some, you know, cities that may have a good amount of growth, that is probably a different case. For us, as we've mentioned, it's, you know, in a good year, it's still not going to make us so. Sales tax on new construction.

Is that a bigger impact? Yes. Or at least also has an impact.

That's for sure. That can't be understood. We're not opposed to construction. We certainly are. But I think some cities just have more capacity.

Their boundaries are such that they're having a good amount of building.

So next, implications for long-term financial planning. That structural gap, as we mentioned, about the 1% in car inflation, that's significant. As we look at our financial projections, We talked about it at length as we were discussing the budget a week ago in the study session. It just doesn't keep up. Banked capacity strategically in years when the full 1% is not needed, you can bank that unused capacity rather than forfeiting it. I just don't see a time where we would ever be in a place that that could happen. Perhaps some jurisdictions are. Plan for voter measures, long-term financial plans can anticipate them, the timing and need for live lifts. You don't wanna wait for a crisis, but again, build your voter trust in and get that done. And then diversify where we can. I think, as we went through the revenue budget a bit last week, we talked about kind of our hierarchy, at least in the general fund. And I don't mean to just focus on the general fund, you know, being sales taxes are number one source, property tax, D&O tax, we have utility rates, all of those things factor into kind of bringing in the full picture of our financial house for the city. And then we looked at a couple of scenarios here for really what might a levy lid lift look like. do for the city of Olympia. So we have to use the 2026 assessed value amount because that's really all we know. We don't know what it's going to be in the future. So if say we wanted to increase our budget because as a reminder, it's budget based. So if we wanted to increase our budget, so the top line of this shows the 2026 levy amount based on that big $11 billion figure And our current levy rate is $1.82. So if you divide 11 million by that, multiplied by our levy, gives you that levy amount. So if you increased it by $3 million, we determined that that's what we needed in our budget balance. We went out to the voters. That would be asking for a rate change of $0.25. So on that same assessed value figure, then you would multiply it times $2. and then the same with $4 million. The levy rate would go up 33 cents. So then a couple of scenarios, what if the assessed value were up 5%, then what would that $3 million take? And obviously then you're spreading it out over more dollars. So it only takes 15 cents to make that rate change happen. And then you can see with the $4 million, it's $0.23. But then if the assessed value falls by 5%, it's going to take $0.36 for the rate change to bring us that same $3 million amount. So just to emphasize that budget basis that really set the budget and determine what our increase is, we don't just automatically say the levy rate is this. cause there, or the illuminator. My colleagues want to have me clarifying there.

The only thing is I don't want anybody to have to walk back something that they say. So like if we say we're going to go to ask for a 10 cent rate increase, we don't know the assessed value. And so the assessed value could change, and then your 10 cents could be taken up by that decrease in the assessed value, and then you get no additional money. So if by saying we need, I'm not the political one, but I just want to make sure you don't have to ever walk back that you're putting forth something.

What you're really saying, Joan, is the message should be around, we need $3 million, right? And when we get to the point in time in the year when we know certainty with assessed value, that'll determine the levy rate that we go ask voters. So back to Mike's earlier slide, when we talk about making the case early on, You start talking to your community earlier about a $3 million gap or $4 million gap that you're trying to close. And all of our conversations around what does that $3 or $4 million go towards? And that's the case you're making with the voters. And then the rate that's actually on the ballot will be based on what assessed value is at the time to get the money that you're looking for. I think that's a really important thing. I'm glad you said that, Joan, because I think cities have been stuck over time talking about I just want to do a 10 cent and that gives me $3 million. Well, at the time that you calculated that, that was true. But if AB, which Mike's right, it's been going up more than it's been going down.

But if it should go down, then you would eat up your 10 cents and you get the additional dollars. Because that's the promise that you made.

And I think oftentimes jurisdictions will go to their statutory maximum and You know, there's lots of different ways to look at this. I think in an intro kind of review and introduction to this, it's difficult for us to really show, you know, well, what does this mean? We can use the current assessed value, but it truly is going to depend then on what happens in the future years. So just kind of as a reminder, it's that assessed value divided by 1,000. So even if somebody's doing this on their own home, it's just whatever your home's assessed value is by the county. Not what you hope it is, but what the county says. Not my testament. Yeah. Divided by 1,000 times then the levy rate. And I think if you look at your own property tax bill, pull it up on the county website or when it's mailed, it'll break it down by jurisdiction. nicely so you can see what our levy rate is, what the other jurisdictions are, including the state, and what is paid there. So that's what a lid lift would have an impact on levy rates as examples. We'll certainly get into that more as conversations progress, but just wanted to give kind of a flavor for I think it was a good point. And so we talk about, you know,

I just want to give you another really good example of where this comes into play. So OMPD. So when we went to the voters, we asked for up to 72 cents. But we only implemented 54 cents of that 72 cents with the thought process at the time, and we could go back later and assess up to 72 cents. And we realized that 54 cents was subject to the 1% cap, and we could not go up to 72 cents. And so what's happened is that 54 cents has now eroded into the 48%. I was gonna say 47, but 48%. And so you'll hear parks advocates right now from time to time talk about whether we should go back to the voters and ask to go back to 72 cents and then levy to 72 cents. But knowing that it's going to work its way back down again. So that's just a good example in the short term of something that we did. And then not realizing it was going to be such a 1% cap and we should have assessed at the higher rate.

So I'll wrap it up with some takeaways. The levy is one of our foundational sources of revenue. It's stable. It's reliable. I think that's one of the hallmarks of property tax. The growth is legally constrained to that 1% annual limit, but it creates that structural gap between how much our expenses are increasing. New construction helps, but it's not guaranteed. Voter measures that... required trust built over time, as we talked about. And then proactive planning is essential in making sure that we're communicating with you and with the greater council about what the needs are and the processes. So that's some time on the property tax levy. Hopefully it's given you more insight and not more questions, but welcome. I'm happy to revisit it in the future again. Last question.

No questions. I mean, I consider myself a reasonably intelligent person and this stuff is bonkers. So, you know, whatever year it was that the legislature adopted this, just in terms of helping, yeah, residents understand some of these fundamentals. It's not simple. It is not.

It's very counterintuitive that we ask for an amount rather than a rate with with both our annual request for property tax and for any lift that it's, it doesn't, I think that for starters, that doesn't make sense. I have two questions. The first is, are there other communities in Western Washington who have passed permanent lifts? Yeah. And then why, Why is it suddenly more urgent if it's been going since 2007 or really since 2000? It was implemented first by the initiative and then legislature codified it. But so we've been running for 26 years and all of a sudden the last couple of years, fiscal flip is a popular term.

What do you think changed? I think one thing is the last six years of such accelerated growth in the assessed value has really lowered those levy rates at a much faster pace than we've ever historically seen.

Alongside inflation more than 5%. Correct. Those two things.

And it's held on for so many years that it's impacted all public agencies disproportionately, I think, more than we've ever seen. And that's one of the probably in my estimation, the biggest factors.

Well, I'll just say in my 10 years as an assistant city manager, helping balance budgets, even when assessed value was going up and we were losing ground, most years where inflation was one or 2%. I mean, there were many years where we were one or 2% wage adjustments. Over the last five years, we've been three, consistently three, four. We're looking at four or higher again this year. So when you look at that, it's a double whammy of people's success values going up or losing ground, and then the cost to do business is going up at the same time. And I agree with Mike. I think this last six years in particular, it's been so out of balance. And those compound one year over another on top of each other. And that's what's hit us really in the last six years is the compounding impact of all of those additions at the same time. And to your point, if I get my property tax bill, I do the math, it goes up more than 1%. But it's because everybody gets to go up 1%. So when you add them all up, it's collectively much more than that. everyone goes up there 1%, right? And so everyone has a little piece, and we're just one piece of that.

Yeah. And also, I mean, we're going up 1%, but the value of your home may have gone up more than somebody else's, and so then you're getting their, you know.

Right, I think all of those districts are only at 1%. That's right. But if your appraised value went up 15%. That's what I'm getting at. You're back, you're, twice a year payment is higher. Correct.

And you could have passed, you know, in your community an excess levy that then takes it more. It's very confusing.

Thank you. I appreciate the research and the work of pulling together this also. Thank you, team. So it's not our last conversation about it, but I wanted us to wrestle a little bit more because we talk about it in very 30-second sort of terms about what about a levy lid lift. Just want us to sit for a minute with what a mess it is.

I'm not sure you know. This is going to be better, yeah.

All right. This is really a point in the year where we're, I think just want to check in with you and make sure we're on track with covering the items in the work plan as the full committee intended. Since we're down really now to, The second half of the year coming up and a lot of its budget related, I will tell you that we worked with the chair and added in a budget spotlight for August that focuses on budget amendments and how they work since there were some questions on that. So that's happening in August. That's quite a new addition to this, we move some things around. So next month is more focused than on citywide debt. We'll have our investment advisors here for a briefing and heard from them when we did the investment policy update, but this will really focus on kind of where we're at for the year and an audit update. So that kind of focuses on that. And then in August, we really do, I'll just say, get into pretty heavy budget items. So with CFP, kind of an operating budget update. Take it away from there. Because of the nature of this meeting being the third week, Monday of the month, we have not scheduled one for December. So we're kind of packing things into those last five months. So I'll give it to you, Chair, if there's anything else that should be included that we missed.

So I'll just say for starters, I know we've spent quite a bit of time stepping through each of the kinds of funds and sort of practices, but I thought it was really useful for us, especially if we're facing a tough budget, a possibility of asking for more revenue, that we get to a shared understanding of the systems that we use. But you're both brilliant. If there are other finance budget related topics that either we should queue up for next year or we should try to insert in the next couple of months. I'm all ears.

I appreciate the addition of the budget amendment piece. I don't have anything that I've been carrying around with me thinking we can add it, but I appreciate the invitation as we continue to work through some of this.

I'll tap ahead right now.

We'll be pivoting to really a budget focus, but there'll be room for conversation about what goes on next year. If there's something, if there's any sort of more progressive revenue, for example, that's an option that we might consider, we can begin queuing that up for something to happen during next year.

I sent a email about land value tax. Yeah. I told Jay my one on one that it's either have the capacity to talk about it. That's fine. Don't have the capacity to talk about it. Then it's something that I think is more of a legislative conversation.

Continue to track what's going on in Spokane. Yeah, it's also the legislature trying to change. Give us a lifeline. Great. Are there any reports for this evening?

Mike Bruckner – Go ahead, Mike. Mike Bruckner – So just a couple of items. I'll give you a just a quick audit update. We had the pre-conference last week with the state auditor team. Mike Bruckner – So as a reminder, this portion of the audit is the financial statement audit. And then, as Jay mentioned, the federal funds audit.

So a single audit because we had expenditures there.

were over a million dollars. So they did choose about a $2.5 million federal transportation grant to really look at. So they're involved with that. But at the pre-conference, really had no concerns at this point. So that's what you want to hear at that. And in fact, I forwarded the exit invitation that's happening on June 26. They're working with us to get that wrapped up so we can submit our annual So there's some steps in there. After that, they'll begin the accountability audit. So I had a meeting with the Lacey finance director, and we both commented, it feels like we're always in audit. It's just kind of the way you live. So that's going well. Just to follow that up, I went to the Capital Area Regional Public Facilities District annual meeting today. So the city of Olympia has an appointed member on that board. They met today to accept the annual report, annual financial report that Lacey produces on all our behalf. They're the fiscal agent. They've covered some other business. They heard a report from the Hands-On Children's Museum and how that construction planning is going. rack, the Lacey facility. So that all went well. One of our, our, the city of Olympia's appointed members term expires next March. So they're going to reach out to the city to give out a reappointment there.

David Bryan. Thank you. He's been, he's been reappointed a few times.

They've talked about just, um, seeing what happened last year with Olympia going out for the bonds, that was, you know, something that hadn't happened. And so having some continuity, I think really helped that body in kind of their learning curve. So I think both members that, uh, indicated a desire to be, so let's see both jurisdictions for that. So, and then the monthly financial report, as you know, is available, uh, online on the city's website under the budget performance page it should be ready by the end of this week so that'll be the financial report for the month of may we just have to get past the 10th of the month that finance needs some time to get the data pulled kind of trued up and then put on that but i just encourage you encourage council encourage our community to use that tool and and allows people to really dig into where we're at financially in a very open and transparent way. And then I'll be in front of council in late July to go over the quarterly. That's a nice place to look at it because we'll be halfway through the year. So it's kind of a 50% mark of where the year goes. Hard to believe. So that's everything I have for my report.

And that's another transparency effort of having the whole council get a briefing on how to read the court of financials so that just keep trying to spread the information. I'm sorry that I missed last Tuesday's briefing. And I just want to really appreciate the work that went into the presentation, the transparency And a really strong conversation. I do appreciate both my colleagues asking good questions and keeping up with me. And I would say to anybody who's watching this meeting, hoping to hear more budget conversation, that watching last week, the ninth study session, gave us a good picture of where we're sitting right now financially and what our early crystal ball is going into next year's budget.

Good.

Thank you.

Anything for good of your order.

With no further business before us,