« Previous Page

March 21, 2009

Fairwood Feasibility Consultants Answer
Hard Questions at Second Public Meeting

Closer Look at Sales Tax Revenue
So, with very different business structures than Renton or King County, we checked in with Maple Valley to better understand why their financial situation is rosier than others. 

Finance Director Tony McCarthy explained that Maple Valley's financial position is in a fairly good position, given the current economic conditions. 

"We do a six-year forecasting model that is conservative.  Because of this, our balances have been built up," said McCarthy. "If Maple Valley had car dealerships and we relied on that tax revenue, we'd have issues," said McCarthy.  "If we had heavy retail, we also would be losing, but we don't."

Because its revenue stream mixture is so different from cities such as Renton, the Maple Valley budget is currently not experiencing a shortfall, and no adjustments to the established budget have been made to date. 

"We still haven't been experiencing this and we're assessing the numbers all the time," said McCarthy.

So what are the sources of sales tax revenue that makes their city more stable than those that are struggling?  Why is it that sales taxes are less of an issue for Maple Valley?  According to McCarthy, the sales tax revenue sources Maple Valley relies on are less in the area of local storefront sales.

Maple Valley's sales tax revenue sources come from three areas:

• Businesses with storefronts in Maple Valley,
• Construction within Maple Valley, and
• Non-Maple Valley Businesses.

McCarthy explained that sales taxes are collected on business transactions that occur within their city.  For example, a construction company can renovate a kitchen in Maple Valley, or a non-Maple Valley Business such as QVC, Amazon.com or Costco may deliver goods to an address in Maple Valley. 

Because of this fairly new tax structure, Maple Valley collects one-third of their sales tax revenue from a non-Maple Valley Business stream.  Taxes collected by the State are directed to Maple Valley because the destination point is Maple Valley. 

"If you buy cabinets from Costco and have them delivered to an address in Maple Valley, the City collects that tax," said McCarthy. 

Other Taxes
While sales taxes comprise just under 20 percent of the forecasted revenue for Fairwood, Mefford highlighted other revenue sources and noted the numbers utilized in their calculations were deliberately conservative. 

For example, property tax revenues were based on King County's 2007 assessed rate, lower than the tax rates homeowners are currently being charged. 

For utility taxes, Mefford utilized Maple Valley's conservative tax rate (2.25 percent), which is 3.75 percent lower than the maximum cities are allowed to charge. At the other end of the spectrum, the City of Renton currently charges the maximum six percent tax rate. 

Bottom line, if funds needed to be raised, Maple Valley (and Fairwood) could increase this tax - or at least consider it as an option.  Renton, however, cannot because they are already taxing residents at the maximum allowable tax rate.

With this conservative approach, a citizen asked what the study showed Fairwood could accumulate as surplus funds for a "cushion" or reserve fund for more challenging economic times. 

Although Mefford didn't have those numbers on hand, he scanned the numbers in the Errata and noted that a surplus of $7 million in the General Fund and $9-10 million in Street Funds could be accumulated in reserves over a five-year period, based on the baseline, normal economic times numbers. 

Cumulative numbers can also be calculated for the "Pessimistic" and "Optimistic" economic scenarios detailed in the Appendix of the Draft 2 Study.  Whether Pessimistic, Baseline or Optimistic, all three scenarios show an impressive surplus of funds that can be built into a reserve fund or used at the City's discretion.

Maple Valley Experiences Even Rosier Numbers than Expected
With Maple Valley's conservative approach to budgets, McCarthy recently delivered surprising, positive economic news to its city about their final 2008 budget numbers.  During his report to Maple Valley, the 2008 budget results were better than what had been forecasted. 

Maple Valley's expenditures were budgeted for $14.6 million and revenues were expected to be $16.4 million, resulting in a surplus of $1.8 million. 

However, McCarthy said that when the final figures were tallied, the City had captured an additional revenue of $400,000 more than they had expected above the $1.8 million number. 

This track record and approach shows how its financial picture can differ quite dramatically from cities such as Renton.

Boundary Review Questions
BRB's Blauman addressed a few questions focused on the boundaries drawn for the proposed City of Fairwood.  A citizen questioned why some unincorporated areas were not included in the proposed city limits, and Blauman explained that the boundaries were created by those who submitted the petition to incorporate.  No other areas or options were added within the State's allowed timeframe. 

Annexation into Renton also was not an option as State Law requires that additional petitions for parallel studies must be received within 90 days of when the first petition is received.  This did not happen, so the study is focused solely on incorporation.

Another citizen wanted to understand if there is any flexibility in altering the current proposed boundaries.  Blauman said the boundaries were established when the process began, and unless there is a compelling reason, they will probably remain as is. 

Some flexibility exists, but the BRB must strictly follow State criteria before the boundaries can be adjusted.

1 | 2 | 3 | Next Page »