FIN 2018-09-05 Item 2A - Ordinance - Gambling Tax Amendment

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City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance Committee FROM: Rachel Bianchi CC: Mayor Ekberg DATE: August 22, 2018 SUBJECT: Proposed increase to city's gambling activities tax ISSUE The City Council is being asked to modify the Tukwila Municipal Code (TMC) to increase the gambling activities tax on cardrooms by 1%. BACKGROUND In 2011 the City Council adopted ordinance 2349, which set the most recent tax rates for gambling activities, which include bingo games, raffles, amusement games, punchboards, pull tabs and cardrooms. The ordinance set a rate for each of these, with a three -tiered rate structure for tax rates associated with card rooms: • An initial rate of 10% • When more than five are open the rate moves to 15% • If more than six, the rate moves to 20% Currently, there are five cardrooms in Tukwila, resulting in a 10% tax on the gross receipts of each establishment. The City collected $3.8 million in gambling taxes in 2017. DISCUSSION The Administration proposes to raise the rate associated with cardrooms by 1 %. Per the TMC, gambling taxes are used primarily for public safety, which accounts for more than 56% of the City's general fund. State law caps the tax on cardrooms at 20%. Jurisdictions in the county vary as to how they regulate and tax card rooms, and many ban such establishments all together. The City of Auburn has one of the lowest rates at 4%, and according to staff research, the City of Redmond has the highest at 12%. Both the City of Kent and King County levy the 11 % rate. Staff estimates that a 1 % increase in the tax levied on cardrooms would generate approximately $350,000 in additional revenue in 2019. The City heads into the 2019/2020 budget process with the reality that projected revenues will not meet expenditures. The Administration has directed departments to reduce expenditures in the next biennium by 3%, but additional resources are needed in order to provide the current level of City services. A small increase in the gambling tax is an opportunity to help align revenues with expenditures in the coming biennium. RECOMMENDATION Council is being asked to approve the rate increase effective January 1, 2019 and forward this item to the September 10, 2018 C.O.W. and subsequent September 17, 2018 Regular meeting for adoption. This will allow sufficient time for notification to affected businesses. ATTACHMENT Draft ordinance Ordinance No. 2349 1