News

City deep in the heart of taxes

By ERICA HALL

The Mirror

Now that the Federal Way City Council has heard budget presentations from city department heads, the hard work of making decisions begins.

While the directors presented an all-cuts version of their budgets –– jobs and programs they’d have to cut to meet the city’s $3 million annual budget deficit –– the council also will consider shifting revenue from other parts of the budget and increasing fees to limit cutting jobs and programs residents use.

Despite all the crunching, the only proposed change in taxes would be the implementation of an admissions tax passed by the council in 2003 for collection in 2005. Generally, taxes across the board would remain the same or decrease.

Still, Councilwoman Linda Kochmar said this is a time for cooperation.

“All of the council members are all over the board,” she said. “I’m hoping we’ll take the city manager’s advice. There may be some give and take and some compromises.”

Councilman Eric Faison said he didn’t know how to discuss the merits or drawbacks of each tax because many of them are dependent on which programs the council decides to keep and which they decide to cut.

“Primarily due to initiatives, we are faced with very few revenue options to meet increasing demands of the public for service. I think we’ll probably be faced with a situation to go back to the voters to see if they’d be willing to fund some services,” Faison said, naming public safety and transportation improvement as two examples. “I think the debate will come down to whether voters would be willing to pay.”

Admissions tax

In 2003, the council passed the admissions tax to provide revenue for two police officers and the city’s share of two more school resource officers (the officers’ pay is shared with Federal Way Public Schools).

It was estimated the city would need about $215,000 for those positions, and a 2.5 percent admissions tax on entertainment venues was passed to fund them.

But in drafting the 2005-06 biennial budget, city officials incorporated those street and school resource officers into the baseline budget, meaning they found a way to pay for them without the admissions tax by cutting programs and positions in other parts of the city’s operating budget.

If the council now agrees to collect the admissions tax, the revenue could be used to bring back other things, like the council’s annual retreat and the city’s contribution to the annual Martin Luther King Jr. community celebration.

But some council members are calling foul, saying the admissions tax was passed only for the police positions and, at most, the city should only collect the $215,000 needed to pay for the four officers.

If 2.5 percent brings in more revenue than $215,000 –– which it’s expected to; newer estimates indicate the 2.5 percent will bring in about $380,000 ––  admissions tax opponents on the council say the city should lower the rate. “We would only need to use what it would cost to fund those four positions,” Mayor Dean McColgan said. “We don’t need the full $380,000 from the full 2.5 percent.”

There is now some discussion on the council to delay collection of the tax to 2007.

“I want to wait until 2007 because (Enchanted Parks) is still to trying to become a full Six Flags” amusement park, Kochmar said. “I don’t want the parent company to decide not to invest in Enchanted Parks. I want to help them.”

McColgan cited Six Flags’ recent financial troubles. “I don’t want at this point to give them an additional financial burden,” he said. “I don’t think they could pass that on to the (customers).”

He added he didn’t want to tax the 16-screen movie theater slated to go into The Commons at Federal Way, either, because it could help draw people into the city center.

Utility tax:

By cutting the amount of utility tax allocation to cover the street overlay program from 1 percent to .5 percent, and the street capital projects allocation from 1 percent to .5 percent, the city could free up a full 1 percent, or $1.25 million, to shift to the operating budget.

Early in the city’s history, officials set a policy that utility tax collection would provide a revenue source for capital projects. But state law doesn’t specify how cities must use their utility taxes, and many other cities use their utility tax revenue for operations.

If approved by the council, the utility tax could become one of the city’s major sources of operations revenue into the future.

Kochmar said she’s supportive of the shift. “Most cities use part of the utility tax for operations,” she noted.

If other revenue sources pick up later, the council could vote to shift the utility tax back to the capital budget. But Councilwoman Jeanne Burbidge noted it might be easier said than done once the revenue is diverted.

“Once you’ve moved the money into the operating budget and you’re spending it, it’s hard to cut it,” she said.

That’s why McColgan doesn’t want to shift the utility tax if the city can help it.

“The policy for using utility tax for capital projects has helped us tremendously,” he said. “A lot of utility tax has funded projects to make our city better. It’s a major shift in policy. Once you shift, you usually don’t ever end up shifting back.”

Still, he conceded he might have to reconsider, particularly if the proposed cuts to city services end up being too deep.

“It may be a compromise, maybe a quarter or half a percent rather than 1 percent,” McColgan said. “And I’d insist it be moved back to the capital budget in two years and find another source of revenue.”

Property tax:

The council discussed sending a levy lid-lift to Federal Way voters earlier this year, when tax-cutter Tim Eyman’s Initiative 864 threatened to trim taxes another 25 percent and add another $2 million to the city’s operating deficit. When Eyman’s group failed to get the requisite number of signatures to qualify for the November ballot, the council was divided over whether to send the lid lift to the voters, anyway, to stabilize the budget and shore up for future Eyman initiatives.

City officials have noted property taxes aren’t keeping up with the rate of inflation, which has increased faster than the initiative-limited 1 percent a year. But the council decided not to seek a lid lift this year.

The property tax rate in 2005 will be $1.27 per $1,000 of assessed property value, which amounts to a 3-cent decrease compared to last year.

“We may at some time in the future go back to the voters for a levy lid lift” for projects such as street work, Kochmar said.

Gambling tax:

Eyman’s latest statewide initiative, which proposed legalizing non-tribal slot machines to increase gambling tax revenue, was meeting with mixed responses around the Puget Sound area going into yesterday’s election.

Though gambling tax revenue in Federal Way has been consistently declining the last couple years –– it’s down almost 30 percent over last year, and 2003 was about 4 percent lower than 2002 –– city officials aren’t willing to trade more revenue for the problems they feel additional gambling would create.

“My concern would be what could happen to our community. There’s a quality-of-life issue,” Kochmar said.

McColgan agreed, saying, “Gambling tax is a major revenue source for us, but I’m not sure that’s enough to warrant expanding gambling in the city.”

Sales tax:

Sales taxes are expected to jump in 2006, thanks in part to the renovations and aesthetic improvements at The Commons at Federal Way (formerly SeaTac Mall), Target’s relocation there and plans for a theater.

That the city issued a record number of land-use permits this year might also be contributing to the positive outlook. The permits are an indicator of future construction, which provides a significant source of sales tax revenue.

“There are some signals of what’s coming down the pipeline,” city finance director Iwen Wang said. “Based on those signals, we anticipate a jump in sales tax.”

Council members, too, are optimistic about the future of Federal Way’s sales tax performance. Though August’s sales tax was almost 3 percent under budget, the year-to-date collection is a tenth of a percent higher than it was this time last year.

“The economy’s getting better. I’m hoping for a general up-turn,” Kochmar said.

McColgan predicted the mall will be a strong performer once the renovations are finished.

“Overall, we’re just lagging behind. I’m optimistic. I think we’ll end the year better than expected,” he said.

Staff writer Erica Hall: 925-5565, ehall@fedwaymirror.com

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