Olympia sees funding cuts and policy wins amid state budget deficit 

The City of Olympia's contract lobbyist, Nick Federici, briefed the city council on state legislative outcomes, including deep budget cuts in multiple service areas, successes in policy for cities, and ongoing struggles for local government funding.  

Federici delivered the update during the council's meeting on Tuesday, July 15. He described the session as one of the most difficult he has witnessed.

"It was a rough legislative session. Many of my colleagues called it their worst session yet," Federici said.

The Washington Legislature faced a $15 billion deficit. It passed a $77.8 billion four-year operating budget through a mix of $6 billion in cuts and $9 billion in new revenue.  

Federici warned that worsening economic forecasts and federal policy changes could prompt a special session later this year.  

Despite the challenges, Olympia saw progress on some legislative priorities.  

With the passage of House Bill 1217, Washington now has one of the nation's most protective rent stabilization measures, capping rent increases at 7% plus inflation (up to 10%) for residential apartments and single-family homes, while limiting mobile home park rent increases to 5% annually.  

The Legislature also supports reducing waste and developing a circular economy, including the establishment of an extended producer responsibility program, which Olympia has supported for years. This bill has made it to the finish line.  

While it was counted as a victory, Federici noted some aspects remain unaddressed. He said a separate beverage container bill similar to Oregon's was not included, indicating the need for future legislative action.  

On housing and homelessness, Federici reported Right-of-Way funding remains partially unresolved. The Legislature reduced the statewide funding by more than one-third, despite assurances that no city with existing funding would face cuts.  

Federici noted Olympia is still about $100,000 short of its funding needs, and conversations with the local legislative delegation and the Department of Commerce are ongoing to address the shortfall.  

He also confirmed that funding for permanent supportive housing — another city priority — was preserved at existing levels through various funding streams.  

He described housing and homelessness funding as a "qualified win" this session, with some increases in policy gains, such as tenant protections.  

Council member Dani Madrone expressed disappointment with the funding reduction. She said the local governments are now facing challenges in continuing the services the state initially funded to move unhoused people off state lands, and is now potentially reducing support.  

Madrone pointed out that local governments were encouraged to bring unhoused individuals into their jurisdictions with the promise of continued state funding. However, the recent funding cuts mean cities like Olympia are now struggling to maintain critical services.   

Mayor Dontae Payne criticized the state for its delayed and insufficient response to homelessness.

"The state was too late in addressing the issue that was left to local jurisdictions for a long time," Payne said.

He warned that Olympia is slipping back to 2018 conditions without continued support.  

Ongoing challenges 

The Deschutes Estuary Restoration project encountered funding challenges during the legislative session, according to Frederici.  

The Department of Enterprise Services requested $26 million in state funding for the project to achieve 100% project design and begin transition into construction in 2027. It aims to restore 260 acres of historic estuarine and salt marsh habitat across 2 miles in South Puget Sound.  

However, the project saw its funding dramatically reduced to just $8 million due to complex political negotiations, including difficulty securing the 60% vote required for capital or transportation bonds, the transition between Gov. Jay Inslee's administration and recently elected Gov. Bob Ferguson's administration, and leadership changes at the Department of Enterprise Services.  

The project faced additional complications when Ferguson vetoed specific provisions related to the restoration, creating uncertainty about the remaining funding.  

Madrone acknowledged the complexity of the Deschutes Estuary project and the state's potential nervousness about its large price tag. She suggested scaling down the project to make it less intimidating.  

However, Madrone emphasized the bridge is one nonnegotiable element. She said the state originally paid for the existing dam and created a transportation system around it, making the bridge a critical component that must remain in any revised project design.  

Revenue challenges 

Federici said two bills attempted to adjust the property tax cap, from 1% to 3% for local governments. But both attempts failed.

House Bill 2049 by Steve Berquist proposed modifying the state and local property tax authority, and adjusting the school funding formula. The bill maintains the 1% cap on property tax growth, but allows for increases based on inflation and population changes.  

Senate Majority Leader Sen. Jamie Pederson proposed increasing property tax rates for both state and local levels.  

However, Gov. Ferguson rejected the proposals.

"In the end, (the governor) indicated that wasn't something that he was willing to look at either on the state or local level," Frederici said.  

"Revenue is always difficult, more so when you are looking at a $15 billion deficit and need to be thoughtful about the ways that you are going to do that without hurting an already cranky economy," he added.  

The Association of Washington Cities (AWC) is now exploring alternative revenue options to help local governments manage ongoing service and budget pressures.  

The lobbyist also mentioned two housing-related revenue proposals that failed but may return next year: 

Local Real Estate Excise Tax Reform: A proposal to let local governments apply a tiered tax rate on real estate sales over $5 million, with options to dedicate revenue for affordable housing and homelessness. This was in House Bill 2027. 

Short-term rental tax: A proposed bill that establishes a 6% state tax on sales of lodging in short-term rentals facilitated through a short-term rental platform.  

Public safety 

House Bill 2015, which passed, allocates $100 million in grants to local jurisdictions for three years to hire new law enforcement, and allows a new revenue option for cities to fund not just law enforcement but also diversion programs, street outreach and related services.  

Payne also called for more behavioral health funding, noting cities need state support to expand crisis response and designated crisis responder services.

Editor's note: This story has been updated to reflect the correct spelling of Nick Federici's name.