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Olympia officials say current plan to annex southeast area costs more than it’s worth

Courtesy of City of Olympia

The city of Olympia has been considering annexing the southeast portion of its Urban Growth Area around Yelm Highway. But officials are stuck weighing whether expanding the city’s boundaries is really worth the money.

And one of the main sticking points is the need for another fire station.

Tim Smith, deputy director of Community Planning and Development, said last week that the southeast region is growing rapidly and will only continue to grow. In 2022, there were 7,950 residents and 3,150 housing units. It’s expected to grow to 8,900 residents and 3,810 housing units by 2045.

Officials set their Urban Growth Area boundaries in the 1990s through Thurston County’s Comprehensive Plan. Smith said they’re drawn up to accommodate for 20 years’ worth of population growth. Smith said it’s a requirement that UGAs develop at urban densities and be served by urban services, which can best be provided by cities and not the county.

The large southeast portion is highly residential and has been identified as more prosperous than other parts of the city. According to Thurston Regional Planning Council data, the area has higher employment rates, median household income and percentage of people who have healthcare coverage compared to the rest of Olympia. Annexing would come at a cost to both the city and its new residents, but the idea is to create more long-term benefits.

The cost to residents and Olympia

Property taxes are the main component that would change for residents. For example, a $500,000 home in the annexed area could see their bill increase $143. And utility rates would likely increase, but it’s unclear how much at this time.

Annexing the region would bring in more tax dollars and construction impact fees to Olympia’s budget. The city’s Metropolitan Park District could invoke special taxes for any funds needed for parks, programs, facilities and more. It currently charges a property tax levy rate of $0.54 per $1,000 of assessed value.

The Transportation Benefit District charges $40 for every registered vehicle in Olympia, which would be expanded to those in the annexation area. It funds the preservation and construction of the city’s road system.

Olympia collects a real estate excise tax and impact fee dollars from new developments in the area. They’re intended to be used for transportation and park needs that result from population growth.

But as it stands, Olympia doesn’t have the money or the manpower to make the annexation happen. The city is in need of another fire station to serve the area, and since the proposed plan for a Regional Fire Authority was voted down in April, it’s up to Olympia to find the money or ask the public again for help.

Assistant fire chief Mike Buchanan said OFD has never had the capacity to serve both sides of Yelm Highway. He said they used to contract with Fire District 6 to cover south of the highway while OFD handled the north side, but even that has been too much for employees. Another station in the region has been needed for some time, he said.

In the plan, OFD would continue contracting with Fire District 6 to handle service south of the highway through 2028. Then the city will need to find $21 million for a new fire station and engine company. That includes four lieutenants and 13 firefighters, who will all share a total of $3.4 million a year in salaries and benefits. Over the 20-year plan, fire services and a new station will cost the city about $115 million.

The annexation also would mean a new patrol area for police. The plan recommends hiring six new officers and paying for more training and equipment. Three officers would be hired in 2024, and three would be hired in 2025. This totals about $2.8 million in upfront costs. Over the 20-year plan, it’s $51 million.

More roads in Olympia proper means more street maintenance. The plan includes hiring two additional staff members in traffic and street operations, as well as paying for street lights and signs, for a total yearly budget increase of $547,000 for Public Works.

The stormwater department would need $642,000 for two additional staff members and $214,000 for utility vehicles. And Water Resources would need $1.8 million for a new collection truck, deployment of carts and containers for residents and more.

Because the area is already built up and would need higher level of services immediately, the city would face a budget deficit from the very beginning. Starting in 2025, the deficit would be $590,000, and it would work its way up to $8.4 million by 2045. The city wouldn’t break even or come out on top once.

Solutions

Smith said the city has options to tackle the deficit if the annexation plan is approved. He said House Bill 1425 was recently passed, which creates a tax credit program and gives cities the authority to draft an Interlocal Agreement with their county and shift 0.1% of sales tax revenue collections to the city.

Aaron BeMiller, Olympia’s finance director, estimated it would bring in $3.1 million for the first year, giving staff roughly 10 years to find other revenue sources to pay for fire and police services. But Finance Committee member Dani Madrone questioned whether it’s worth the stress.

“When I look at this chart right here, it doesn’t really look like a good deal for the city,” Madrone said. “It looks like, over time, we have different scenarios we could negotiate with an ILA that could help correct some of these impacts or delay them, but my overall sense is that it would cost more to annex than what we would bring in, and leave us in the position of looking for funding solutions in the future to continue to pay for annexing this additional land.”

Leonard Bauer, deputy director of Community Planning and Development, said there’s no requirement that the city annex the land within its UGA. He said it’s more than possible that the area could become fully developed as unincorporated land and continue receiving adequate services.

An annexation recommendation was supposed to be sent from the Finance Committee on to the City Council for one of its June meetings, but it will instead likely show up as a discussion item.