Business leaders want Kent City Council to curtail B&O tax hikes

Companies say they may leave city

Kent business leaders told the City Council it needs to find other ways besides continual hikes in the business and occupation tax to balance the 2019-2020 city budget.

A few of the people who testified at the Oct. 16 public hearing at City Hall told the council their companies might even move elsewhere because of the planned tax increases.

“It puts us in a position of looking at moving our distribution centers out of Kent,” said Bryce White of Columbia Distributing, which delivers beer, soda and other beverages to retailers.

Columbia Distribution employs about 1,000 at its two Kent sites. The company’s B&O taxes will triple by 2020 and be five times greater by 2028 under the planned city hikes, White said.

The council has agreed so far with Mayor Dana Ralph’s proposal to increase the B&O square footage tax in 2020 to bring in an additional $3.4 million to the general fund. The council already approved in 2017 an increase in the square footage tax that will bring in $2.6 million in 2019 to help fund parks projects. The council first approved a B&O tax in 2013 to help pay for street repairs. The tax is expected to produce about $11.5 million in 2019 and $14.9 million in 2020.

The hike in 2020 is the first of four planned increases over the next 10 years. Ralph said the B&O rate structure is based on the city’s long-term economic development plan and includes different rates depending on the business type. The proposal maintains a threshold of $250,000 for businesses before the tax kicks in and institutes a cap of $20 million on gross receipts from retail sales.

City leaders say they need the additional revenue because Kent will lose about about $5 million a year (starting in late 2019) from the state in streamlined sales tax mitigation, although city leaders hope the Legislature still will give the city at least some mitigation funds. The funds were set up by the state to help compensate Kent for revenue lost when legislators changed the state in 2008 from an origin-based system for local retail sales tax to a destination-based system, taking away city tax revenue from its many warehouses.

Kent will lose about $4.7 million per year from its annexation sales tax credit that ends in June 2020 for the 2010 Panther Lake annexation. The state set up a 10-year funding program to help the city take on more residents.

April Sta. Rosa, owner of Valley Floor Company and Kent Chamber of Commerce president-elect, submitted a list of about 17 ideas for the council to cut expenses or raise revenue.

“The city has had 10 years to adjust to known funding declines. …now it is sticking it to businesses,” Sta. Rosa said. “We were paying for streets, then parks and now the general fund. … Our lease is up in four years and our business will likely find a new city. …And it’s a fallacy that there are no other avenues to raise money. There is not council support for many options available.”

Sta. Rosa’s list of suggestions included a $20 vehicle tab fee to bring in about $1.5 million per year.

Council President Bill Boyce responded to that idea during a phone interview Tuesday.

“Our citizens are burned out with Sound Transit car tabs,” Boyce said. “As a council, we don’t want to add to the car tabs.”

As far as expense reductions, Sta. Rosa questioned $2 million proposed for Information Technology projects that have not yet been identified; $500,000 to buy new park land; and $800,000 for a new car-per-officer take-home program that could be used for officer salaries. She also suggested the city could cut $457,000 in youth programs once the new YMCA opens next fall.

Boyce said council and staff will look at the suggestions. The council’s Operations Committee will consider the 2019-2020 budget at its Nov. 6 meeting. An approval by the committee would move the budget to the full council for approval on Nov. 20.

“Until we adopt it, everything is on the table,” Boyce said. “We’re still listening. …The list from April, we will look at those. If something is doable and makes sense, we’ll do it.”

The current budget proposal includes a general fund of $102.5 million for 2019, with a fund balance of $22 million.

The city will add three police officers in each of the next two years and will not make any cuts to Public Safety.

Reductions in all departments total $2 million. Jobs to be cut in the next two years include the mayor’s executive assistant, a Finance Department administrative assistant, a Parks Department maintenance worker, a Municipal Court security officer and a Human Resources analyst.

Boyce said people have mentioned marijuana businesses as a potential revenue source. The council in February discussed whether to reverse the city’s ban against marijuana businesses, but most of that tax revenue goes to the state. City Finance Department staff estimated Kent would get about $390,000 per year from three retail stores each selling $11.8 million annually based on sales, B&O and excise taxes.

“There are other things that come with that, such as it may take more police,” Boyce said about marijuana businesses.

Back to the B&O tax hikes, Craig Hanela, president of Buyken Metal Products, said he’s against so many increases.

“The B&O hits us hard,” said Hanela, who added 32 of his 34 employees live south of Kent. “They want us to move south to make it easier for them. We have three years left on our lease. …We will move the company before we cut benefits to our employees. We are hearing about a lot of small businesses that are looking at moving south.”

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