Kent City Council adopts B&O tax to help pay for street repairs

The Kent City Council voted 6-1 on Tuesday night to adopt a business and occupation (B&O) tax to help raise an estimated $5 million annually to pay for street repairs.

The council adopted the tax on the gross revenue of businesses as part of its three-step approach they agreed on in July to fund park and street repairs. The other parts are the property tax levy lid lift on the Nov. 6 ballot and the hiring of a consultant to find ways to cut $2 million from the city’s budget.

“This is a good day for Kent,” said Council President Dennis Higgins at the meeting. “This is the community coming together saying no, we don’t want to live in a city that lets its streets and parks fall beyond repair and yes, we are a city that tackles problems in a realistic way while living within our means.

“We know times are tough. But if everyone pulls together, the residents, the businesses and the city, we will solve these problems.”

Higgins said at a council workshop earlier Tuesday that residents needed to know businesses are going to help pay for streets and park maintenance.

“When we passed putting the levy on the ballot we committed to residents voting on the levy we would do this in time for them to consider on their levy vote,” Higgins said.

The consultant report about cutting city costs is expected to be finished by the end of the month.

Higgins and council members Jamie Perry, Elizabeth Albertson, Bill Boyce, Debbie Ranniger and Dana Ralph voted for the B&O tax. Les Thomas voted against the tax that will be implemented starting Jan. 1, 2013.

“Let’s begin to live within our means,” Thomas said prior to the vote. “That’s certainly something we need to practice and we have not been doing a good job and it’s hurt us. We needed to take some actions well beyond this first step the mayor (Suzette Cooke) took two weeks ago with employees being laid off. That should have been done a long time ago. We know that now. Things are not really getting any better at this point.”

A total of $4.7 million of the tax will go to street repairs each year. The other $300,000 will pay for hiring two city auditors to oversee the B&O program. Any extra revenue that comes in beyond the estimated $5 million will go to the capital improvement plan, which includes transportation, parks, facilities and other projects.

The council took a slightly different approach to the B&O tax than what Cooke recommended two weeks ago as part of her 2013-14 budget. Cooke wanted a higher rate to raise $6.9 million per year with $4.2 million to street repairs, $1.2 million to the general fund, $1 million to the capital improvement plan and $500,000 to parks. She also proposed an exemption of the first $150,000 of gross revenue so some small businesses would not have to pay the tax.

The council instead agreed with the Kent Chamber of Commerce, which asked the city to raise $5 million to be spent only for street repairs and to exempt the first $250,000 in annual revenue of a business.

The council did not pass a sunset clause supported by the chamber that would remove the B&O tax after six years. The chamber partly wanted that clause because the property tax levy lid lift before voters is for six years. The chamber also wanted debate in 2019 about whether the tax would still be needed.

“The one thing I am struggling with is the sunset clause,” Ralph said. “I do not believe this need will go away. My struggle is without a sunset clause this tax will go on and a conversation (about removing the tax) are not happening. I believe it is only reasonable to expect whoever is sitting on this council six years from now will have that conversation.

“Having said that, I know this $5 million is an absolute necessity. As much as I am frustrated and upset that we did not come to a point where that sunset clause was included in this, I will be supporting this ordinance but also as long as I sit on this council this is a conversation we will have.”

The majority of council members were concerned a sunset clause on the tax could hurt the city’s bond rating even further. Moody’s Investor Services has lowered the city’s bond rating twice this year because of mounting debt.

Businesses will pay the B&O tax based on gross receipts or a square footage tax, whichever is higher. The city will assess businesses either $1.52 per $1,000 of gross receipts or 46 cents per $1,000 depending on the type of business (manufacturing, wholesale, retail, etc…).

The city also will assess square footage of businesses at 12 cents per square foot annually for warehouses and 4 cents per square foot for other businesses that are larger than 500 square feet. A business must pay the higher of the gross receipts or square footage tax.

Businesses already pay a state B&O tax so the city tax will be in addition to the state tax.

The council approved several business exemptions including nonprofit groups, health maintenance organizations, public utilities (already subject to utility tax) and farmers/agriculture (which includes dairies and nurseries). A couple of council members said the exemption for farmers helps encourage local growers to keep growing crops.

The council also granted a Boeing request to exempt research and development under federal contracts that it does at its Kent plant. The council had a brief discussion at its workshop about the $2.8 million Boeing exemption and agreed to it because of the federal government connection and the fact it would cost the city only about $1,400 in revenue.