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Renton moves closer to B&O tax to help balance city budgets

The City Council this past week took one step closer to imposing a business and operations tax as a way to help close an impending budget gap.

On June 9, following a presentation at the Committee of the Whole, the council approved a committee report instructing the administration to continue to pursue legislation that creates a B&O tax, though the council was clear that Monday’s vote was not approval of a tax, which will have to come back for council approval.

The B&O tax is being considered as a way to deal with a projected budget gap that will affect the city in 2016. According to Administrative Service Administrator Iwen Wang, if the council does not make any changes to the city’s revenue streams, the city will face a $3.3 million budget deficit in 2016. Because of several years worth of cuts to the city budget and staff that have already been made, Wang told the council that any further cuts would lead to “visible impact to service levels.”

“We won’t be able to maintain services and absorb a $3.3 million budget adjustment,” said City Administrator Jay Covington.

Wang told the council there is a slight deficit projected for 2015, but the city can bridge that gap with one-time funding, such as a small surplus from 2013, additional  money from a utility settlement and a property tax re-capture allowed through a King County Assessor’s Office decision.

According to the presentation, the city has come to this point because service demands are increasing at a rate faster than inflation and while voter initiative limits property tax growth to 1 percent per year, expenditures rise at a higher rate, as well as slowed sales tax receipts due to the recession.

“All of these demands are growing much faster than our revenue growth,” Wang said.

“Spending is going up faster - because of inflation and costs we have no control over - than what is coming in,” Council President Don Persson agreed.

Wang also explained that the city only receives a small fraction of taxes to begin with. For example, for every dollar collected in property tax, only 23 cents goes to the city while 35 cents goes to the Renton School District, 18 cents goes to the state school fund and 12 cents goes to the King County.

The city also receives 10 percent of sales tax collected, meaning that for every $100 you spend in Renton, the city gets 85 cents.

“We can grow the pie, but we’re still only getting 85 cents for every dollar back,” said Councilman Ed Prince.

In order to balance the budget in recent years, the city has cut a total of $28.7 million out of its budget since 2008. In the 2013-2014 biennium, the cuts totaled $7.7 million.

Wang also said that due to annexations, the per capita amount paid in taxes to the city is actually down.

“Today’s tax per person is one-third lower than the tax collected in 2000,” she said.

Wang showed a graphic ranking Renton’s per capita tax revenue to be $642 per person, above Kent’s $578, but below Auburn’s $662, Issaquah’s $751, Mercer Island’s $879 and well below Tukwila’s $1,700.

In proposing a B&O tax, Wang said Renton is the only city of its size in King County that does not have one. In total, 12 King County cities utilize the B&O tax.

The idea from the city is to create a tiered system for businesses that charge a percentage based on the business’s gross receipts. In an example provided, that meant a business making less than $500,000 a year may pay nothing, while one making between $500,000 and $1,000,000 would pay 0.025 percent ($125 in taxes on $1 million in receipts) and a top-tier business might pay 0.1 percent, though Wang was quick to point out that the example was “just for illustrative purposes” and not necessarily what the administration was considering.

The goal, she said, was to create a tax structure that could bring in $6 million per year.

The council seemed leery of the proposal, though Persson said it was “obvious to the council we need to do something.”

State law mandates that cities have balanced budgets.

“What we are discussing now is how to balance our budget,” Wang reiterated.

A formal proposal on a B&O tax is expected the council this summer.

 

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