Kent residents and businesses could see increases next year in property and business and occupation (B&O) taxes as part of the 2018 city budget adjustment.
The City Council didn’t make any decisions at a budget workshop on Tuesday night, but potential tax increases dominated the conversation.
“As council members, this is one of our tough assignments is the budget,” Council President Bill Boyce said in summarizing the workshop. “I personally don’t like tax increases but sometimes you have to run the city, so we will always try to do the right thing.”
The workshop marked the council’s first budget discussion since Mayor Suzette Cooke presented her 2018 budget adjustment last month to the council.
Cooke proposed a jump in property taxes in 2018 to bring in about $2.3 million per year to help cover an anticipated general fund budget gap as expenses grow higher than revenues in the $98.5 million budget.
Council members talked about Cooke’s proposal to use the city’s $6.4 million in banked property tax capacity with a $37 hike next year for property assessed at $300,000.
Kent has banked capacity because the city reduced its property tax levy by $1.00 per $1,000 assessed valuation in 2011 after voters in 2010 approved the formation of the Kent Fire Department Regional Fire Authority (now Puget Sound Fire), which levies a property tax of $1.00 per $1,000 assessed valuation. The use of banked capacity allows the city to raise property taxes above the 1 percent annual state cap imposed by Initiative 747 approved by voters in 2001.
The council talked about potentially using all of the banked capacity in 2018 rather than spreading out the property tax hikes over three years. That would cost the owner of a $300,000 home a jump of $105 next year.
Aaron BeMiller, city finance director, explained to the council that if it used all of the banked capacity in 2018, the city would be able to bring in more money in each of the following years with the allowed 1 percent annual jump in property taxes.
“From a math standpoint, the more you do now – the difference between assessing an additional $2 million or $6 million – every year you get 1 percent more on that,” BeMiller said. “So the first year, the 1 percent increase on $2 million would be $200,000 and the 1 percent on $6 million would be $600,000, so you generate $400,000 more the next year and then there is 1 percent on top of that and it goes on and on.”
City leaders also are facing a fiscal cliff, the loss in 2020 of the $4.7 million Kent receives each year from the state for the Panther Lake annexation in 2010. The city also could lose as soon as 2019 the estimated $5 million per year it gets from the state (streamlined sales tax mitigation) to help compensate 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, gutting the tax revenue the city received from its large warehouse district.
To help compensate for that lost revenue, the council also is considering Cooke’s proposal to double the warehouse square footage tax, a component of the B&O tax, to bring in about $3 million annually for capital and major maintenance projects in the park system or other capital improvement projects.
Businesses with gross receipts more than $250,000 pay the city B&O tax. Businesses with large square footage pay a square footage tax instead, if that rate is higher than the tax on gross receipts.
A jump in the square footage tax would impact 680 businesses, according to city financial documents.
Although not part of the 2018 budget, council members also discussed the mayor’s proposal to place a police and criminal justice measure before voters in April to increase the city’s utility tax to 8 percent from 6 percent on cable, electricity, natural gas and telephone bills. The proposal would generate about $4 million per year to help pay for about 30 more police officers.
City financial staff estimated a typical family of four household would pay about $136 more per year in utility taxes based on a current monthly average of $570 in utility bills.
The council will have another budget workshop on Nov. 14. The council is expected to vote on the 2018 budget adjustment on Dec. 12.
“We are elected officials and we have to be make tough decisions and sometimes it includes doing things that aren’t part of our DNA,” Boyce said to his fellow council members. “We have to look at the city as a whole. I will reach out to each one of you to see where we are at so we can get some consensus. We need something by the 14th or 21st … and what we are going to do to move the city forward.”