The Civilian Complaint Review Board of NYPD studied the use of pepper spray and produced a report in October 2000. You can read the whole report here.

Here is a short version regarding an appropriate policy for use of pepper spray from page 4, 5 and 6 of that report:

The NYPD’s Patrol Guide Procedure Number 212-95 governs the circumstances in
which pepper spray can be used and the proper procedure for using the spray.5 The purpose of Patrol Guide 212-95 is “to inform uniformed members of the service of circumstances under which pepper spray may be intentionally discharged and to record instances where pepper spray has been discharged, intentionally or accidentally.”6 Patrol Guide 212-95 lists five situations in which an officer may use pepper spray. Pepper spray may be used when a police officer “reasonably believes” that it is necessary to: 1) protect himself, or another from unlawful use of force (e.g., assault); 2) effect an arrest, or establish physical control of a subject resisting arrest; 3) establish physical control of a subject attempting to flee from arrest or custody; 4) establish physical control of an emotionally disturbed person (EDP); and 5) control a dangerous animal by deterring an attack, to prevent injury to persons or animals present. The Patrol Guide states that officers should aim and discharge pepper spray into a subject’s eyes, nose, and/or mouth in two short one-second bursts at a minimum of three feet for maximum effectiveness.

7 The Patrol Guide prohibits the use of pepper spray against subjects who passively resist e.g., going limp, offering no active physical resistance). It further cautions that if possible, pepper spray should not be used against persons who appear to be in frail health, young children, women believed to be pregnant, or persons with known respiratory conditions.

In situations where pepper spray is used, the Patrol Guide stipulates several guidelines to ensure the safety of the subject. Officers are required to request the response of the Emergency Medical Services (EMS) once the situation is under control. If tactically feasible, according to the Patrol Guide, the subject should be removed from the contaminated area and exposed to fresh air while awaiting the arrival of EMS or transportation to a hospital or station house. The Patrol Guide warns that the subject should be positioned on his/her side or in a sitting position to
promote free breathing and that he/she should “never be maintained or transported in a face down position.”

8 Additionally, officers should not sit, stand, or kneel on a subject’s chest or back. If water is readily available, officers should flush the contaminated skin area of a subject with profuse amounts of water. Lastly, officers are reminded that subjects should be transported to the emergency room of the nearest hospital if he or she is “demonstrating difficulty breathing, or exhibiting signs of severe stress, hyperventilation, etc.”

9 Upon the subject’s arrival at the station house, desk officers are responsible for ensuring that prisoners who have been pepper-sprayed are properly monitored. A Command Log entry is to be made stating whether the prisoner has had his/her skin flushed with water, been examined by EMS, or been transported to the hospital. Officers are then required to prepare an Online Booking System Arrest Worksheet (PD 244-159) and Medical Treatment of Prisoner (PD 244-150) in arrest situations. In non-arrest situations, an Aided Report Worksheet (PD 304-152b) must be prepared and the box “OC Spray Used” checked. If applicable, the time, doctor’s name, and diagnosis is also noted in the worksheet.

Look here 

(1) A person is guilty of failure to disperse if:

     (a) He congregates with a group of three or more other persons and there are acts of conduct within that group which create a substantial risk of causing injury to any person, or substantial harm to property; and

     (b) He refuses or fails to disperse when ordered to do so by a peace officer or other public servant engaged in enforcing or executing the law.

     (2) Failure to disperse is a misdemeanor.

If a protester escalates a situation away from being peacful then the police, I suppose, have the right to escalate with them.

You don't "escalate with them." You use the amount of force necessary to put an end to the situation.

It's clear that what Olympia needs is armed social workers, not cops.