Olympia budget forecast improves, but major shortfall still looms

More robust participation in city programs and smaller than anticipated drops in tax revenues through the first few months of the COVID-19 pandemic have prompted the city of Olympia to update its projected 2020 budget shortfall from more than $10 million to a less dire, but still dramatic $6.75 million.

City staff used data collected through June 30 to sharpen the projections first put forth at the end of March, when little was known about the short- and long-term financial impacts of the economic shutdown caused by the novel coronavirus. Conservative estimates at the time included a 19 percent drop in expected sales tax revenues for the calendar year, a 25 percent reduction in collected business and occupancy taxes, and half as much in revenue from city-run programs and other sources.

As Olympia Finance Director Nanci Lien explained to the Olympia City Council last week, it is the wide variety of city programs that account for much of the cautious optimism within her department. The updated forecast includes a 9 percent drop in program revenues — a loss of more than $2.2 million, but far better than initially feared.

The new estimates also include less loss in sales tax and business-and-occupation tax revenues.

“The visual I give you is pulling the rabbit out of the hat. That’s kind of what it felt like for us,” Lien said of the efforts back in March to figure out the impact of COVID-19 on the city budget.

“We didn’t really know what we were dealing with, how long it was going to last, so we just sat down and took our major revenue sources at that point and started projecting them by month the best that we could with the data we had available to us.”

Lien and City Manager Jay Burney outlined how the city would address the $6.75 million budget hole still left. A bit more than half of the losses will be covered by $3.4 million in cuts already made through hiring freezes, furloughs and slashing discretionary expenditures like work-related travel and training.

The remaining $3.35 million will be covered by $1.5 million from the budget stabilization reserve the city recently created for fiscal emergencies, and $974,000 from a pair of utility tax funds, some of which goes to the Olympia Metropolitan Park District to fund the purchase and development of new city parks. Burney recommended to the council that the city try to find ways to limit or eliminate the reappropriation of those parks funds a few months from now if financial conditions allow.

One casualty of the cuts already made to the general fund is the cancellation of Oly on Ice, the temporary ice skating rink set up during the holiday season at Isthmus Park. Burney said the savings on that alone were about $175,000.

“If we had been at that initial $10.5 million level, we would have needed to cut an additional $600,000 directly out of the budget, and those likely would have been positions within the city,” Burney said. “We had some additional positions come open with retirements and other transitions that we were able to leave open.”

The next update to the 2020 budget projections will be given during the Oct. 20 meeting of the city council. A first draft of the 2021 budget will be presented at that same meeting, with a public hearing for citizen input scheduled to be held on Nov. 10. The city council must adopt a budget for the upcoming year by Dec. 31.