One controversial development project is off the table in Thurston County, but another one has emerged in downtown Olympia.

The Port of Tacoma has dropped a hotly debated proposal to build a rail transfer center in Thurston County at Maytown. Environmentalists called it a victory for their side - the Maytown site contains fragile prairie habitat that they wanted to preserve. But Tacoma port officials said the main reason they backed off was that railroad traffic is projected to fall in the near term, thus reducing the need for the proposed rail yard. Instead, the port is now focused on developing more rail capacity on its existing land in Tacoma.

But even as that controversy died down, another one flared up as the city of Olympia considers raising building height limits on a strip of downtown between Budd Inlet and Capitol Lake.

A developer wants to build a seven-story and a five-story building on a 2.3-acre site

It's not a universally popular idea, with some critics saying the city should do more to preserve public views of Mount Rainier and the Olympics. Advocates, however, say proposed taller buildings would allow for much-needed housing and more retail downtown. An overflow crowd of 300 people turned out for a planning commission hearing on the topic last week; the commission has yet to make its recommendation.

Of the two proposals, the Maytown rail yard would have created 1,900 jobs, jobs which might have been good to have over the next couple years. Projections for falling state revenues certainly raise the specter of cuts to state government employment in Olympia. As we've noted before, Olympia is Washington's ultimate company town - about 35 percent of the workforce draws a government paycheck from one agency or another.

Government employment cuts would weaken a local economy that's been holding its own amid the national turmoil. Sure, housing took a sharp hit in most-recent quarter - existing home sales down nearly 23 percent year-over-year; building permits down by more than half; home prices up slightly 1.1 percent to $257,000. And that's spilling over into the job market: Thurston County lost 200 construction jobs and 100 banking jobs over the past year, according to the May jobs report.

But generally, the job market is OK, with strong growth in the private services sector, which added 1,800 workers over the year (up 3.3 percent). Overall, the county workforce grew by 1.6 percent, which is slightly better than the overall state performance (1.3 percent). Slow growth, but growth nonetheless.

The retail sales figures may be sending out a warning, though. Lacey's 2007 sales totals shot up 20 percent - thanks to the opening of the new Cabella's store. But even with the Cabella's bump, countywide sales were up only 5.7 percent, which was behind the state average for 2007 (which was 7 percent). And Olympia sales were up a scant 1.6 percent.