City of Kent to keep getting state’s streamlined sales tax mitigation funds

The city of Kent will continue to receive about $4.4 million per year in streamlined sales tax mitigation funds from the state for at least a couple of more years.

Kent leaders lobbied hard in Olympia to keep the funds, which they feared might go away. The Legislature approved to keep the mitigation funds flowing for the next biennium and included it in the state’s four-year budget outlook, said Dana Neuts, city communications manager, in a Monday email.

“We are very pleased that our legislators recognized the importance of this funding by continuing the SST mitigation program for the next biennium,” Neuts said. “This funding is critical to the city.”

The funds were initially set up by the state in 2008 to help compensate Kent and other cities for revenue lost when legislators changed Washington from an origin-based system for local retail sales tax to a destination-based system, which took away Kent’s tax revenue from its many warehouses.

The Legislature passed a bill two years ago to end streamlined sales tax mitigation payments in October 2019. But state leaders changed their minds this year after cities lobbied to keep the program.

“For 2018, the mitigation payments totaled $4.4 million,” Neuts said. “We anticipate mitigation to continue at that amount for the state’s next biennium.”

The Kent City Council approved higher business and occupation taxes last year as part of its 2019-2020 budget. Mayor Dana Ralph proposed the increases to help the city make up for expected loss revenue of the streamlined sales tax later this year and the Panther Lake annexation sales tax of about $4.7 million per year that will go away in June 2020.

“Because we anticipated the program would end in October 2019, we did not include the mitigation payments in our budget going forward,” Neuts said. “Instead, we moved money from our capital budget to our operating budget to balance the budget.”

Now with the city still receiving the $4.4 million per year, Kent will put the funds back in the capital budget.

“The SST mitigation dollars will be deposited in the Capital Resources Fund, which typically provides funding for general government projects, such as IT, facilities and other governmental purpose projects that don’t have dedicated funding sources,” Neuts said.

Where that capital money will be spent remains to be determined by the mayor and council.

“We anticipate that specific uses for these monies will be identified during the upcoming 2020 mid-biennium budget and 2020-2025 capital improvement program updates,” Neuts said.

Even with the additional money, city leaders plan no change to the already approved B&O tax hikes.

“This will not impact the planned increases to the B&O tax,” Neuts said.

The Legislature initially approved ending the streamlined sales tax payments in part because of a new Marketplace Fairness Act it passed in 2017 to collect online retail sales taxes. Cities that receive streamlined sales tax mitigation funds have that amount reduced by how much they get from the new online tax. But that online tax has only resulted in about $500,000 a year to Kent, much lower than the mitigation payments.

State Route 509 tolling

City officials also lobbied legislators for an earlier delivery of the nearly $2 billion Puget Sound Gateway Project, which in Kent includes extension of Veterans Drive underneath Interstate 5 and a new I-5 interchange at State Route 516 aka Kent Des Moines Road.

Legislators approved the earlier deadline, so rather than a 2025 completion, the state Department of Transportation expects to finish the project in 2022.

The Legislature approved Senate Bill 5825, authorizing tolling and bonding on SR 509, SR 167, and the I-405/SR 167 corridor in order to speed up the projects, Neuts said.

The funding package for the Puget Sound Gateway Project, which includes the extension of SR 509 between Kent and SeaTac and SR 167 between Puyallup and Tacoma, counts on about $180 million in tolling.