Rising costs, low revenue and a sluggish economy mean the city won't have enough to cover expenses.

"This is the fourth year in a row revenues are growing slower than expenditures," City Manager Steve Hall said Thursday. "Our expenditures are projected to grow at under 3 percent and that's pretty darn good. But look at the revenues; it's about half of that."

Expenses are projected to rise 2.9 percent next year while revenue is expected to go up 1.4 percent, Hall said. Health insurance, workers' compensation and other labor costs will go up $1 million.

Some cuts will be made to balance the budget, Hall said. The document still is being refined and where those cuts will fall is expected to be presented to the City Council on Nov. 3, he said.

Officials have known for several years that the economic outlook would not be rosy, Mayor Stan Biles said.

"The finances of the city are developing just exactly as we predicted," Biles said. "Revenues are not keeping pace with rising expenditures and there is no end in sight to the causes."

Over the last few years, the city lost some of its major sources of recurring revenue. In 2000, voters approved Initiative 695, which cut the motor vehicle excise tax. In 2001, they passed Initiative 747, which capped property tax increases at 1 percent a year.

Minimal construction in the city, the lack of major industrial development and relatively modest commercial gains also have affected the local economy, Biles said.

The city filled a $495,000 shortfall in the 2003 budget by cutting operational costs, pulling back on outside agency contracts and closing the wading pool at Priest Point Park.

In the spring, officials feared the 2004 shortfall would be as high as $1.5 million to $2 million, Hall said. Departments were asked to trim 5 percent from their budgets.

By August and September, the picture was less grim and the shortfall fell to about $750,000. Sales tax revenue, which appeared in better shape, and savings from fees that no longer had to be paid to CapCom, the emergency services center, were contributing factors.

Officials have cut costs where they could, Hall said. For example, solid waste collection became fully automated, which increased productivity from 450 households a day to 650.

But he warned that cuts in services, programs and staff are in store for 2005. Revenue isn't expected to soar while labor costs, particularly in health insurance and retirement, are expected to double, he said.

"As we look to the future, if revenues don't improve, there will be opportunities to make further reductions, but every reduction impacts quality of life for some neighbors, some category of employees or the community as a whole," Biles said.

"Unless the structure of government financing changes, Olympia and every other city and county will deliver fewer and fewer services," Hall said. "We can't keep up with the cost of inflation without revenue that's equal to that."

Katherine Tam covers the city of Olympia for The Olympian. She can be reached at 360-704-6869 or kathetam@olympia.gannett.com.

On the Web

City of Olympia: www.ci.olympia.wa.us