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City's cash getting tight

By ERICA HALL

Staff writer

Federal Way City Council members are planning to concentrate this year on encouraging development in the downtown core — providing incentives and guidelines for potential developers and perhaps even authorizing the city to pay for some things — in the hope of fending off further declines in tax revenue.

In addition to providing more business in-city, which would provide residents with more to do, a boost in development could create a stronger tax base to generate property, sales and utility tax revenue.

“In times of dwindling tax revenue, we don’t want to create new taxes. We want to grow our tax base,” said Patrick Doherty, the city’s deputy director of community development for economic development.

The city could use the money.

According to city finance director Iwen Wang, Federal Way has lost about $2 million a year following the 2000 Legislature’s revocation of the motor vehicle excise tax after anti-tax advocate Tim Eyman’s Initiative 695 was found to be unconstitutional by the state Supreme Court.

Lawmakers repealed the motor vehicle excise tax, but they left intact the $15 voter-approved license fee and any portions of the tax dedicated to paying off bonds already issued for current projects.

In addition, Wang said the city won’t collect an anticipated $1.5 million for 2003-04 since the state Supreme Court upheld Initiative 776, another Eyman initiative that repealed the $15 license fee left by the 2000 Legislature. The initiative is retroactive Jan. 1, 2003.

Wang said city officials budgeted for, but never received, the 2003 license fee funds last year.

That revenue shortfall, combined with a shortage in sales tax revenue, left an almost $900,000 hole in the 2003 general fund, she said.

Still, it’s not as bad as it could have been.

City officials knew a decision on I-776 was pending, so they increased the City Manager’s Contingency Fund from just under $700,000 for two years to about $1.9 million, just in case they needed it. 

“For ‘03 and ‘04, we’ll be fine using the City Manager’s Contingency Fund to backfill,” Wang said. “But in 2005-06, we have to find a long-term solution for the shortfall.”

In addition, city officials expect a $340,000 shortfall in the 2004 general fund from Eyman’s Initiative 747, which limits the amount governments can raise property taxes to 1 percent a year.

And city officials are concerned about the next Eyman initiative to roll back property taxes 25 percent, which could take another $2 million a year out of the general fund if voters approve it in November, Wang said. Eyman is still in the process of gathering signatures to qualify the initiative for the ballot.

The city’s general fund covers operating expenses like police, parks and rec, the street operations portion of public works, the legal department, municipal court, community development — which includes city planning and land use, the building division, human services and economic development — management services, the city council and the city manager’s office.

Wang said her staff will be preparing two operating budgets for city officials to review this year — one for if the 25 percent rollback initiative passes and one for if it doesn’t.

Meanwhile, the city’s tax revenue sources performed poorly last year, with sales tax, which goes into the general fund to pay for city operations, coming in almost $500,000 under budget and utility tax, used for capital projects, almost $800,000 under budget as of Dec. 31, 2003.

It’s an old analogy used frequently, but Wang said the city’s financial shortfall solution will be similar to any household’s: cut expenditures or find a way to increase revenue.

“The tough thing for Federal Way at this time is sales tax has not increased, and we don’t know if sales tax will grow (in 2004) at a historical rate. In 2003, it actually declined,” she said. “Looking at the next two years, we have to look at expenditures very carefully.”

If voters approve Eyman’s 25 percent property tax rollback, the city could be looking at almost a 10 percent loss out of the $32 million operating budget. Wang said the cuts if the initiative passes could be deep.

During the 2005-06 biennial budget-drafting process this year, Wang said city officials will try to consolidate, re-prioritize and eliminate services to save money. City officials also will have to evaluate employee benefits and options, some of which are subject to bargaining, and examine revenue options.

In the final analysis, the city might be faced with cutting whole programs, and that could mean layoffs. “Every year, we’ve been trimming very tightly,” she said. “The size of the cut is so large, I don’t believe we could find line-items to cut. If we cut programs, that means jobs.”

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