Kent City Council adopts budget, higher B&O taxes

Kent city leaders say they want to bridge the relationship with the business community after the City Council adopted the 2019-2020 budget with higher business and occupation (B&O) taxes.

Business leaders – who protested the hikes since Mayor Dana Ralph proposed them in September – failed to persuade the council to make any changes with their written and public comments over the last couple of months. The council voted 6-0 on Nov. 20 to approve a $107.7 million general fund budget in 2019 ($106.3 million in 2020) and the tax rate increases.

Council President Bill Boyce addressed Kent Chamber of Commerce CEO Andrea Keikkala and President-elect April Sta. Rosa at the council meeting.

“I know we haven’t always agreed,” Boyce said. “I want to commend Andrea for pushing the issue. I look forward to working with president-elect April. There are a lot of things going on in this city. There is opportunity for us to work together on some really good stuff to help this city bring in business. …and to bridge the relationship to work on the same page and on the same team. I will do my part to make sure that happens.”

Ralph later echoed Boyce’s comments about the Chamber.

“It’s been rocky and hard but I too am committed to make sure this relationship is positive going forward,” Ralph said after the vote. “It doesn’t serve any purpose for it to be negative. We are all working for the same thing – a viable, vibrant Kent community – and that is going to take all of us.”

Keikkala said in an email the Chamber looks forward to working with city officials.

“While the Kent Chamber is disappointed in the recent B&O and square footage tax increase adopted in the budget, especially given the engagement and requests for collaboration with the city from our business community, we are committed to the economic vitality of Kent and are looking to the future,” Keikkala said. “We are encouraged by the mayor and council president’s comments with regards to working together in the future and sincerely hope to continue the decades of work we have done together on a myriad of subjects at the city, county, state and federal level.”

City increases in B&O rates are expected to produce about $14.9 million in 2020. The tax brings in about $9 million per year now. The revised ordinance maintains a threshold of $250,000 on gross receipts for businesses before the tax kicks in and institutes a cap of $20 million on gross receipts from retail sales. But the future jumps in square footage and/or retail, manufacturing and wholesale rates will bring in approximately $12 million more per year in 2028.

“The B&O is not anybody’s number one choice,” Ralph said. “We understand it’s an impact. But without taking care of the community – providing public safety and programs – we have no community for business to operate in.”

City leaders said they need the additional revenue because Kent will lose about $5 million a year (starting in late 2019) from the state in streamlined sales tax mitigation and 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 streamlined sales tax funds were set up by the state to help compensate Kent for revenue lost when legislators changed Washington 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.

Besides the tax rate increases, the council’s adopted budget cuts five jobs – 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. The city has 714 full-time positions.

The city will add three police officers in each of the next two years. A total of $2 million was cut from other departments. The budget includes a $1.2 million increase in permit and plans review revenue – not from higher rates but from an increase in construction projects in the city. The budget moved $470,000 of the annual sales tax revenue from capital projects to the general fund.

Boyce said city leaders worked hard to come up with a budget, which includes a general fund balance of $22.2 million, to sustain Kent.

“This council has spent a lot of time and hours trying to figure out the best approach to look at the long term survival for the city,” Boyce said. “I’m not a big proponent of B&O taxes. … most businesses have a real small profit margin and it impacts them and I get that. This was a tough decision.”

Councilman Dennis Higgins said the way the state Legislature allows cities to raise revenue needs to be change. He wants changes in the B&O tax and the annual 1 percent property tax hike limit.

“I agree with the council president and the many people who contacted us about the absurdity of the B&O tax – taxing on gross revenue is absurd yet that is the tool that the state gives us,” Higgins said. “The argument that many would make for us to not take this action should be directed at the state. …how municipal governments are financed, including a change to the B&O tax. But until that happens, we are painted in this corner.

“I look forward to a more constructive relationship with our business community. The mayor and council are doing the best they can. They are here taking responsibility for hard decisions. We need to debate in good faith on facts. I ask that from our entire community going forward.”