Title
Approval of a 2026 Operating Budget Balancing Scenario
Recommended Action
Committee Recommendation:
Not referred to a committee.
City Manager Recommendation:
Move to approve a funding/reduction scenario for balancing the 2026 Budget.
Report
Issue:
Whether to approve a funding/reduction scenario for balancing the 2026 Budget.
Staff Contact:
Joan Lutz, Senior Budget and Finance Manager, 360.753.8760.
Presenter(s):
Jay Burney, City Manager
Michael Githens, Finance Director
Brandie Andrews, Tax & License Audit Team Lead
Jennica Machado, Economic Development Director
Background and Analysis:
The City of Olympia budgets on an annual basis with the fiscal year beginning January 1 and ending December 31. The operating budget process is roughly an eight-month long process culminating with the City Council approving the following year’s budget in late November or early December.
The 2026 preliminary operating budget process has been in development for approximately five months and is nearing the beginning of the City Council stage of the process. On September 15, 2025, the Finance Committee received an update and status of the preliminary budget; received a high-level review of assumptions included in the budget; were briefed on potential new revenues to assist with budget balancing; as well as a review of the next steps in the budget process.
The Finance Committee did not make a formal recommendation about new revenues and asked that staff provide the revenue information to the full Council, along with a list of reductions to close the current $6.5 million projected deficit for 2026.
The City Council was previously briefed in August on two revenue increases:
• Public Safety Sales Tax - established in the 2025 Legislative session, (HB2015) allows for a new Councilmanic 0.1% sales and use tax pending review by the Criminal Justice Training Center. This would increase Olympia’s sales tax rate to 9.9% yielding approximately $3 million for a full budget year.
• Business & Occupation (B&O) Tax - increasing the retail rate from 0.001 to 0.002 as well as raising the no tax due threshold from $20,000 to $500,000. The anticipated revenue from both changes is $1.9 million for a full budget year.
At the time of the August briefing, the City Council requested some more information, specifically about the proposed B&O tax change. Staff will provide the additional information requested, as well as provide a summary of engagement with the business community around that proposal.
Additionally, the City Manager will review and provide details around a $6.5 million reduction in expenditures, should the Council decide not to move forward with any new revenues. A list of possible reductions and impacts is attached.
The purpose of the discussion on September 30 is for the City Council to select a scenario for balancing the 2026 budget. These scenarios include:
Scenario 1: Approve the Public Safety Sales Tax and B&O Tax Changes,
closing the remaining $1.5 million gap with expenditure reductions.
Scenario 2: Approve the Public Safety Sales Tax, but do not approve the B&O Tax Changes, closing the remaining $3.5 million gap with expenditure reductions.
Scenario 3: Approve the B&O Tax Changes, but do not approve the Public Safety Sales Tax, closing the remaining $4.5 million gape with expenditure reductions.
Scenario 4: Do not approve any new revenues, close the remaining $6.5 million gap with expenditure reductions.
Once the scenario is selected by the City Council, the City Manager will work with the Council around specific reductions at the Council Study Session on October 14. At the October 14 Study Session, the City Manager will also provide an overview of all assumptions; decisions to date around the 2026 budget; and provide for the City Council discussion on any of those items or anything missing that will need attention as we continue through the 2026 budget balancing process.
Climate Analysis:
There are no anticipated climate impacts from the 2026 operating budget balancing discussion.
Equity Analysis:
One of the goals of the City’s budget process is to ensure that city services are provided equitably to our residents and business communities, as well as the greater Olympia community. This agenda item is not expected to further impact known disparities in our community.
Neighborhood/Community Interests (if known):
Members of the community may have an interest in this agenda item as it deals with City finances and fiscal governance.
Financial Impact:
Depending upon the approved scenario, there may be financial impacts in 2026 to consumers making purchases within the city limits and businesses operating within the city limits. In addition, depending on the scenario selected, the need for expenditure reductions is in the range of $1.5 million to $6.5 million.
Options:
1. Move to approve a funding/reduction scenario for balancing the 2026 Budget.
2. Move to approve a different scenario or approach to balancing the 2026 budget.
3. Do not approve any scenario and provide direction to the City Manager on next steps.
Attachments:
Potential Reductions and Potential Impacts