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Proponents
By Paula Henderson
Let’s clear up one misperception right from the beginning: Independent experts agree that the proposed City of Fairwood is financially viable at current taxation levels. Also, let’s clarify that a city does NOT require lots of commercial business to be financially feasible. These are two of the most pervasive misunderstandings about incorporation, which the opposition has used to confuse voters.
Independent consultants in municipal finance wrote the City of Fairwood Incorporation Study, which establishes that a new City of Fairwood can function with better services at current tax levels. How? It’s simple: Fairwood is a tax exporter, which means we produce more taxes than we currently receive in services from King County. If Fairwood incorporates, that tax surplus will stay right here and be available to the community for its own priorities – not King County’s or Renton’s.
Property Taxes
- Property values are assessed by the King County Assessor, not by any city. Whether property is located in unincorporated King County, Renton, or in a City of Fairwood, it is important to realize that property tax values will not be assessed any differently.
- Property taxes will not change very much with a new City of Fairwood. A city property tax of $1.60 per $1,000 assessed valuation (AV) will replace a County road tax levy of $1.59 (2009 rate). Rates for all other taxing authorities will not be impacted by incorporation. The State School Fund levy is the largest single component of a typical tax bill.
- The city can levy no more than allowed by state law (currently $1.60 per $1,000 AV), unless approved by the voters. A higher rate would apply if the city had its own Fire Department and had its own library system, which Renton does, but this is not planned for Fairwood. Fairwood would annex into the Fire Districts and the King County Library System, both of which have their own taxing authority.
- Assessed value in the proposed incorporation area has gone down in 2009, and is expected to be near the 2007 level used in the feasibility study.
- Property taxes are a major source of funding for most cities, and property taxes would also be a major source of funding the City of Fairwood.
Sales Taxes
- Sales tax rates would remain unchanged with a new City of Fairwood. The part of the current sales tax rate, 1%, that is for local government would stop going to King County and would come to the new city instead. Locally generated taxes would stay in Fairwood rather than going to another jurisdiction.
- Nearly 800 firms do business in Fairwood – most are not storefronts. Sales taxes would come to the city from some storefronts, but also from other businesses, such as leasing companies, cell phone companies, construction companies, individuals selling vehicles, and firms that deliver merchandise to clients in the city.
- Fairwood residents provide most of the retail activity in the proposed city; therefore the sales tax base is stable in any kind of economy. This is in contrast to cities like Renton that sell large ticket items which a person seldom buys, like cars and furniture. A city with those kinds of retail has sales tax revenue which fluctuates with economic highs and lows.
- New laws went into effect in July 2008 which requires firms delivering items to purchasers to remit the sales taxes to the jurisdiction in which the merchandise is delivered. This means that more sales tax revenue is available to residential cities, such as Fairwood. This new revenue source is part of the reason proponents asked voters to take another look at the viability of the proposed city after the 2006 vote failed.
Utility Taxes
- King County is not authorized by the state to levy a utility tax, although they have recently asked the state for this ability. Cities are authorized to levy up to a 6% utility tax, and most do (including Renton). The feasibility study for incorporation assumed the same level of utility tax in Fairwood as Maple Valley, which is 2.25%. The city is not required to institute a utility tax; its implementation depends on the desired government service levels by the citizens.
BRB hearing finding on city funding: "The Board finds that a new City of Fairwood would have the funding necessary to support basic required and/or expected land use planning, housing, public services, public facilities, and public amenities. Similarly, funding resources would be sufficient to provide for protection of the natural environment."
Writer's Bio:
Paula Henderson currently is the Finance Director for the City of Des Moines. Paula has 20 years of experience in government finance. Prior to joining the City of Des Moines, Paula was Treasurer and former Acting Controller for Sound Transit, a $1.8 billion regional transit authority and was instrumental in the start-up of the accounting structure and investment program for the agency. Prior to Sound Transit, she spent eight years with the City of Renton, the last four years in the position of Financial Planning Manager. Paula is a licensed CPA and earned a Bachelor of Arts in Business Administration at Western Washington University.
REBUTTAL
Mr. Nelson continues to berate the issue that the financial feasibility study’s growth assumptions for residential construction are flawed. The study’s conclusions were based on historical trends; construction activity will occur as the economy improves. Do we need this growth in 2010 to provide revenues for Fairwood’s core services? No!
Growth-related revenues such as traffic impact fees and real estate excise taxes are not used to fund daily operations. Traffic fees are restricted to growth impacts to the city’s transportation system. Without growth, there are no impacts. Real estate excise taxes are restricted for capital investments, which are not currently planned for the City of Fairwood. Sales tax declines have been occurring throughout the region during this economic downturn and though not immune, the City of Fairwood’s sales tax base fares better than Renton’s. Renton’s retail core includes auto dealerships that are experiencing a significant sales falloff. Fairwood would still realize sales taxes from deliveries of goods/services purchased outside the city limits. Mr. Nelson continues to only focus on property taxes and how they are lower in other jurisdictions, but fails to discuss the total tax burden. Stating that both Renton and Kent have lower property taxes, he fails to mention that both cities impose utility taxes.
Renton imposes a 6% utility tax on all of these utilities: electric, natural gas, cable TV, landline and cell phones, water, sewer, garbage, and stormwater. Kent imposes a 6% utility tax on all but Cable TV, and garbage is assessed a 7.8% utility tax. A Renton homeowner assessed both property and utility taxes pays the same as a Fairwood homeowner pays in property taxes - but receives lower police, fire and life safety and library services. Higher levels of governmental services attract future residents and enhance the value of our homes and community.
Fairwood Incorporation Position Statements
Week Three: Taxes
NOTE: Rebuttals for each week's position statement will be posted the week following the original post. Find rebuttals following each corresponding position statement.
October 5, 2009
Opponents
By Bryce Nelson
Taxes
Given the state of the national and regional economy, it’s not a good time to see tax increases. So it’s timely that the third week in this series will discuss taxes, especially when you realize that we’re going to see tax increases if we vote to incorporate.
In the end, Fairwood would cause us to pay more and get less than anybody else in the area. And that just doesn’t make sense.
Revenue from the Construction and Sale of New Homes
Impact Fees
Incorporation proponents assume that Fairwood will receive roughly $850,000 in transportation impact fees in 2010 – fees that come entirely from the sale of 174-190 new homes per year in Fairwood. There are no new homes under construction in Fairwood. It’s likely that none of this $850,000 will flow to Fairwood in 2010, leaving the city unable to fund capital needs like road construction.
REET
Real Estate Excise Taxes (commonly referred to as REET) are collected from the sale and resale of homes and dedicated to capital expenditures. Incorporation proponents assume that Fairwood will be collecting around $1.5 million in REET revenue in 2010. The REET assumptions used by incorporation proponents are once again based on 2007 numbers – and King County has seen a 2/3rd decline in REET revenues in 2009 from 2007.
In other words, incorporation proponents drastically overestimate revenues. So we know that proponents’ REET assumptions aren’t realistic, and that $1.5 million won’t be there.
Sales Taxes
As you might expect, sales tax revenues have declined with the recession. Maple Valley has seen between 15-20% reductions in their sales tax revenues from 2007 to 2009. Pretty much every other city in the region is seeing similar declines. Yet incorporation backers assume that Fairwood’s 2010 sales tax revenues will be no lower than they were in 2007 – in other words, they assume something that isn’t true.
When a new home is sold, a city receives sales taxes resulting from that sale. Incorporation proponents assume new construction will provide the city with about $336,000 in 2010. Do you see any new homes being built in Fairwood right now? There aren’t any – so this $336,000 isn’t going to be there.
Should we incorporate, sales taxes won’t be at 2007 levels. Money is going to have to be found somewhere to pay for needed services. And that will likely mean increased property taxes.
Property Taxes
Fairwood’s property taxes would be among the highest in King County. Click here for a detailed comparison of property taxes for every city in King County. Including Fire District 40, Fairwood’s effective property tax rate would be $3.00 per $1000 assessed valuation for city services. By comparison, Renton and Kent both have an effective property tax rate of $2.13 per $1000 AV.
What’s that mean? For a house worth $400,000, you’d pay $1200 in property taxes per year for city services in Fairwood. For that same house in Renton or Kent, you’d pay $852 per year in property taxes. That’s 29% less than Fairwood. And since Fairwood won’t provide things like parks, recreation, and human services, it’ll provide a lower level of service than either nearby city. We’d be paying more to get less.
But we can’t be certain that Fairwood’s effective property tax rate won’t go even higher. If tax revenues aren’t what proponents assume they’ll be in 2010, Fairwood could increase property taxes to a total effective rate of $3.24 per $1000 AV. Should Fairwood levy to the maximum, Kent and Renton’s property taxes would be a whopping 42% less than Fairwood, and property taxes in Fairwood would be the highest of any city in King County.
Look at Fire District 40. They’re facing a significant decline in property tax revenues, and will soon have a public hearing to determine whether to increase taxes or reduce services. They can’t afford to maintain existing service levels without tax increases. If there’s not enough property tax revenue to maintain existing fire service levels, how will there be enough to maintain other services if we incorporate?
Fairwood’s property taxes will be among the highest of any city in King County, while simultaneously providing lower service levels than other cities. Fairwood’s revenue assumptions are made based on 2007 numbers – a time when the economy was very different than today. Revenue projections are clearly off by several million dollars, meaning property taxes will have to be increased to make up the shortfall. Vote against higher taxes and lower service levels. Vote against incorporation. www.govoteno.org
Writer's Bio:
Bryce Nelson has lived in the Seattle area since '89. He grew up in Redmond and attended Pacific Lutheran University for undergrad and Seattle University for law school. He's been a prosecutor with Pierce County for the last 6 1/2 years and is currently assigned to the Special Assault Unit prosecuting sex and domestic violence crimes. His wife is a teacher at Nelsen Middle School in Renton, and they live in Woodside with their 16 month-old daughter, who he says "keeps us busy and always makes sure the inside of our house looks like a toy store exploded!"
REBUTTAL
Building a tax model for a city based largely on the construction and sale of new homes is a recipe for disaster. Don’t believe me? Just look north to see how tough things will get.
Newcastle incorporated in the 1990’s, and largely relied on the construction and sale of new homes to provide sufficient revenues to survive as a city. They don’t have much commercial development – pretty much a couple of strip malls with supermarkets and other small stores. Sound familiar?
Check out this link to see how Newcastle has been impacted by the housing market crash. They’re looking at significant reductions in revenues because they went from building several hundred homes a year to less than 50. They’re also facing a 19% reduction in sales tax revenues from 2007 to 2009. Remember, this is a city that doesn’t rely on large ticket items for its sales tax revenues – just a couple of grocery stores and strip malls – which is just like Fairwood. And they’re facing a budget crisis that will require them to lay people off.
It’s not just Newcastle that’s facing significant budget problems. Maple Valley, the city deemed most comparable to Fairwood by incorporation proponents, has seen a huge downturn in the level of new home construction. That’s going to cause them to have to make the same tough choices as Newcastle.
Fairwood simply doesn’t have sufficient tax revenues to provide the services that its citizens will demand. Sure, the feasibility study says that Fairwood will have sufficient revenues – but that’s because they assume that the city will have no parks, no human services, and no inflation to increase its costs.
We’ve seen what’s happened to our national economy when the books are cooked. Don’t make the same mistake in Fairwood.