The potential loss of state-shared revenue that has worried Kent Mayor Suzette Cooke and other city leaders for several years could be coming closer to reality.
Cooke visited legislators last month in Olympia in her role as an Association of Washington Cities board member and found out Kent and other jurisdictions could lose streamlined sales tax (SST) mitigation funds within the next couple of years under state budget proposals by the Senate and Gov. Jay Inslee.
“The most alarming news came to my attention from Sen. (Joe) Fain (R-Auburn) warning us of the jeopardy our SST mitigation funds are in,” Cooke said during a report on Feb. 21 to the City Council.
Kent gets about $5 million per year from the state 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.
“I don’t know that the public fully understands how much this city lost when the state changed the way sales tax is distributed to local jurisdictions,” Cooke said. “It went from the origin of the product – that location received the sales tax – to the destination of the product. Since we are the fourth largest distribution center in the United States that means products leave here, they don’t come in here.”
The city loses more than $12 million per year because of the change, the mayor said.
“Under Gov. (Chris) Gregoire it was agreed that cities such as Kent, we are the most impacted city in the state, would receive some mitigation for that loss,” Cooke said.
Kent has many businesses that ship or deliver goods to other areas of the state. The sales tax is collected where the buyer purchases merchandise rather than where the product shipped from.
Kent received a payment of $1.2 million from the state in December for the third quarter of 2016. Nearly 360 cities, counties and transit agencies receive payments.
As the governor and Legislature try to figure out how to adequately fund K-12 education, they are looking for other places to cut funding in order to pay more toward schools.
“The governor zeros out that mitigation not in the next two years but the following biennium,” Cooke said about the potential loss of SST funds. “The Senate is looking at a budget that zeros it out sooner.”
Cooke plans to work with leaders of other cities to lobby legislators.
“We need to do a full-court press to try to maintain that mitigation,” she said.
Cooke said Gregoire and city leaders agreed the state could start to take away the mitigation funds as revenue from internet sales tax began to make up the difference.
“Well that’s not ever happened and it’s not happening,” Cooke said about the lack of internet sales tax revenue. “A study a couple of years ago showed that we would only get less than $450,000, a huge, huge gap.”
In addition to the potential loss of SST mitigation funds, the state is expected to take away in 2020 the annual sales tax credits Kent receives for annexing 24,000 people in the Panther Lake area in 2010.
Kent receives about $3.7 million per year as part of a 10-year agreement with the state. The city certifies an amount each year of the difference between expenses in the annexation area and anticipated revenues from property taxes, sales taxes and other sources.
Kent city officials and lobbyist Doug Levy have focused on legislators for several years to keep the state-shared revenue.
The mayor and council adopt legislative priorities annually and always put the SST and annexation credit at the top of the list because of the potential financial hit to the city.