‘We’re out of rabbits and hats:’ How will Olympia tackle its $7M budget deficit?
The City of Olympia is facing a $7 million deficit in its 2026 budget, following personnel cuts to close a $6.8 million deficit in 2025.
City Manager Jay Burney has presented the Finance Committee with two new revenue options that could help prevent further layoffs and program reductions, but would cost businesses and shoppers.
Burney said Sept. 15 that the city balanced its 2025 budget with the use of fund balance, which is one-time money. That means that although reductions were made, more work would need to be done this year to continue closing the gap and make up for the fund balance used.
He said the city started 2025 in a $5 million hole, after having eliminated about 25 positions in total.
The current general fund deficit is about $7 million, and Burney reviewed a number of options for how to balance the budget, including cutting expenses, adding new revenue sources, using cash reserves, or a combination of those options.
Burney said the city has to come up with either $5 million in new revenues or $5 million in reductions, and the other $2 million he will figure out without any significant reductions.
The full council will discuss options at a Tuesday, Sept. 30, meeting.
New revenue sources
Burney presented the committee with two new revenue source options: an increase in the Business & Occupation tax, and adding a public safety sales tax the council discussed in August.
Brandie Andrews, Olympia’s tax and license analyst, said the city’s B&O tax was first adopted in 1955 and hasn’t been changed in 70 years. The tax now brings in about $8 million from people doing business in the city. The rate for manufacturing, wholesale and retail is 0.001%, and other professional services have a rate of 0.002%.
All businesses must file an Olympia B&O tax return at least annually, according to the city’s website. Businesses with an annual income greater than $750,000 in Olympia must file quarterly B&O tax returns.
Andrews said a business in Olympia with an annual income less than $20,000 does not pay business tax.
She said the city is considering raising the retail rate from 0.001% to 0.002%, and raising the filer threshold from $20,000 to $500,000.
She said the city would bring in an extra $1.8 million if it were to both change the B&O retailing rate and the filer threshold. If it were to only change the retailing rate, that number would be $2.5 million.
The council could also raise the city’s sales and use tax rate from 9.8% to 9.9% in an effort to raise more funds for public safety. It also could choose to pursue grant funding to hire more police officers.
House Bill 2015, which was enacted by the legislature this year, gave cities and counties the authority to raise their sales tax to support public safety with a vote of the council or board. The new public safety sales tax is 0.1% or $1 per $1,000 taxable purchase.
The current sales and use tax rate in Olympia is 9.8%, or $98 for every $1,000.
The extra 0.1% sales and use tax would bring in an additional $2.6 million next year. Combined with grants, the city could increase its revenue by $3.5 million.
“If you passed a new $3 million public safety sales tax, it would close these gaps in the public safety system that we currently have,” Burney said.
Burney said with the reductions that were made last year and these new revenues, the city would come pretty close to closing the budget gap and entering a more “regular deficit area.”
“We still have the same structural problem that we have, that our expenses are always going to outpace revenues with the restrictions that we have, but closing this last $4 million to $5 million gap that you have puts us more into a more regular cycle of what our normal budget normally looks like,” Burney said.
He said long term, the city will still need something like a levy lid lift to make a real difference in its budget issues.
Burney said he will present the council with a list of possible expense cuts that could be made to close the initial $5 million gap, if the council chooses not to adopt new revenue sources.
He said he knows these are hard decisions to make, whether it’s new revenue streams or making reductions. He said it comes down to a structural problem that cities have with their budgets, and it’s not an issue they can avoid any longer.
“I think for five years, we collectively have pulled rabbits out of hats to make the budget balanced, to keep the programs alive that our community has told us time and time again they want to see,” Burney said. “We’re out of rabbits and we’re out of hats.”
He said he thinks the city needs to stop postposing tough choices to move forward.
This story was originally published September 25, 2025 at 1:58 PM.
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