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HomeMy WebLinkAboutCOW 2008-10-27 Item 2 - Presentation - Alternative Revenue Sources / Phase II and III Fire Study Findings 2008 General Fund Revenue Options and Analysis TECHNICAL MEMORANDUM PREPARED FOR THE CITY OF TUKWILA October 23, 2008 As part of the City of Tukwila's 2009 budget process, the City wanted to review its General Fund revenues to identify other revenue sources that might be available to the City. The City previously engaged FCS Group for the 2007 budget process to identify these potential revenue sources and to forecast, if possible, the potential revenues that might be received if the City chooses to use these other revenue sources in the future. This memorandum is an update of the previous work. There are several major revenue sources that the City currently does not use and that could supplement existing General Fund revenue sources. In addition, the City may want to consider changing how it charges fees and recovers its costs. These potential revenue sources include the following: Additional property taxes, A business and occupation tax, A public utility business and occupation tax, An increase and change in business license fees, An increase in planning permit and application fees, and A review of the City's administrative cost allocation model. Property Taxes Based on the King County Assessor's 2008 assessment report, the City's current property tax rate is $2.56911 per $1,000 of assessed value. The City's maximum levy is $3.20814 if it has a firefighter's pension fund. Besides the City's regular property tax, there are other property taxes, that could be used to provide additional funding for purposes that may affect the General Fund. These property tax alternatives include the following: A Property Tax Lid Lift An Emergency Medical Service (EMS) Levy Property Tax Lid Lifts There are two types of property tax lid lifts, temporary and permanent. A lid lift allows the City to exceed the one percent property tax limitation if a majority of the voters approve a ballot measure. The levy lid lift can last for a maximum of six years and must be for a specific purpose. The difference between a temporary and peinianent lid lift is that when a temporary lid left ends, the regular property tax levy is calculated as if the lid lift had not been approved. With a permanent lid lift, the levy is calculated using the new base amount. Based on the City's current 2008 valuation every $.10 per $1,000 of assessed value results in an additional $386,102. (425) 867-1802 2008 CITY REVENUE REVIEW AND ANALYSIS UPDATE CITY OF TUKWILA, WASHINGTON DRAFT Emer2encv Medical Services Levy EMS services and responses are a major part of the Fire Department's workload. RCW 84.52.069 allows taxing districts such as cities, counties, and fire protection districts to impose an additional regular property tax levy of up to fifty cents per $1,000 of assessed valuation. King County currently has a countywide EMS property tax levy that is about 5.30 per $1,000 of assessed value. Although there is a countywide levy, RCW 84.52.069 allows individual jurisdictions to also have a separate EMS levy if the countywide tax rate is less than $.50 per $1,000 of assessed value. The funds from an EMS levy can only be used for providing emergency medical care or emergency medical services. Related personnel costs, training for EMS personnel, and related equipment, supplies, vehicles, and structures needed to provide emergency medical care or services can be included. The RCW allows jurisdictions to have a tax rate that is equal to the difference between a countywide levy rate and the 5.50 maximum levy. In other cities outside of King County, EMS levies are used to help support the EMS services provided by city fire departments. To implement this tax, an EMS levy proposal must be approved by 60% of the voters. The law provides for the following: The levy may be imposed each year for either six consecutive years, ten consecutive r or i�ianentl years, o Y Y ei p The levy must be authorized by at least 60 percent of the registered voters when there is a voter turnout greater than 40 percent of the number of voters in the last general election. If voter turnout is less than the 40 percent, a levy will be authorized if the number of yes votes is equal to at least 60 percent times 40 percent of those who voted in the last general election. If a peimanent levy is imposed, a taxing district must provide for a separate accounting of the expenditures concerning the revenues generated by the levy. The taxing district must maintain a statement of accounting that must be updated every two years and be available to the public at no charge. If a peimanent levy is imposed, it is subject to a referendum at any time. The levy is not subject to the levy rate limit of 55.90 for junior and senior taxing districts. The levy is still subject to the 1% annual limitation. If the City's voters approved the maximum 2008 levy rate of about 5.20 per $1,000 of assessed value, an EMS levy based on the City's 2008 assessed valuation would generate 5772,204. Business Occupation Tax RCW 35.21.710 allows cities to impose a tax measured by gross receipts or gross income of retail sales of tangible personal property. The tax must be at a single uniform rate for all such business activities and with some exceptions cannot exceed .002. This a common tax imposed by cities. In the Association of Washington Cities' (AWC) 2008 Tax and User Fee Survey, AWC found that 38 cities impose this type of tax with different tax rates for different business categories, such as manufacturing, retail, services, and wholesale. Average tax rates by category for these cities include the following shown in Exhibit 1: 2 (425) 867-1802 2008 CITY REVENUE REVIEW AND ANALYSIS UPDATE CITY OFTUKWILA, WASHINGTON DRAFT Exhibit 1 Statewide Average B &O Tax Rates Average Business Category Tax rate Manufacturing .00146 Retail .00157 Service .00199 Wholesale .00190 For King County, the AWC survey showed that there were eleven cities that had a business and occupation tax on businesses. The eleven cities were Algona, Bellevue, Burien, Des Moines, Issaquah, Lake Forest Park, Mercer Island, North Bend, Pacific, Seattle, and Snoqualmie. To estimate the potential revenue from this type of tax, we only used the reported retail sales for the City. The Department of Revenue's Quarterly Business Review shows that the City's 2007 taxable retail sales totaled about $2.2 billion. Based on a .002 maximum tax rate for all retail businesses, the tax would have generated about $4.4 million in 2007 based on just retail sales. Because there are many businesses (e.g. grocery stores, gas stations, service businesses, etc.) that have gross income that is more than just taxable retail sales, the actual business income base is probably be higher. For every .0001% tax rate, about $219,000 is generated from retail sales businesses. Data on gross income for all businesses located in Tukwila was not available. As noted previously, the City can have different tax rates for different business classifications as long as all business within a class are treated the same. Public Utility Business Occupation Tax Although the City will be taxing private utilities at the maximum 6% rate in 2008, the City could also tax its own utilities for water, sewer, and stoiniwater. There is no limit on the tax rate for public utilities, and many cities in the state tax their utilities. Exhibit 2 shows the average statewide 2008 tax rates based on the 2008 AWC survey. Exhibit 2 Statewide Average Utility B &O Tax Rates Average Utility Tax Rate Water .0784 Sewer .0771 Stouii Drainage .0713 According to the survey, 14 King County cities tax their water and sewer utility, while eight tax their stonnwater utility. Exhibit 3 shows the average 2008 tax rates in these King County cities. 3 (425) 867-1802 2008 CITY REVENUE REVIEW AND ANALYSIS UPDATE CITY OF TUKWILA, WASHINGTON DRAFT Exhibit 3 King County Average Utility B &O Tax Rates Average King Utility County Tax Rate Water .0681 Sewer .0655 Stalin Drainage .0678 Based on the 2007 revenues for the City's three utilities, Exhibit 4 shows the estimated revenue based on the statewide average tax rates, while Exhibit 5 shows the revenue based on the average tax rates for King County cities. Exhibit 4 Revenue Based on Average Statewide Utility B &O Tax Rates 2007 2008 Average Utility B &O Tax Utility Operating Statewide Tax Revenues Rate Revenue Water 1 $4,400,0001 7.84 %I $344,960.00 Sewer 1 $4,200,000 1 7.71% $323,820.00 Surfacewater 1 $2,500,000 1 7.13% $178,250.00 Exhibit 5 Revenue Based on the Average King County Utility B &O Tax Rates 2007 2008 Average Revenue Utility Operating King County Utility B&0 Tax Per 1% Revenues Tax Rate Revenue Increase in Tax Rate Water 1 $4,400,0001 6.81 %I $299,640.00 $44,000.00 Sewer 1 $4,200,0001 6.55 %1 $275,100.00 $42,000.00 Surfacewater 1 $2,500,000 1 6.78 %1 $169,500.00 1 $25,000.00 Business License Fees Although the City already has a business license fee, the City could change the fees and/or the fee schedule to generate more revenue. The City's current license fee is 100 for businesses with twenty or fewer employees, $150 for businesses with 21 to 50 employees, and $200 for businesses with 51 to 100 employees, and $300 for businesses with 101 or more employees. The fee for home occupations that are operated from a Tukwila residence is $50. Many cities in King County charge these types of flat fees for their business licenses. There are, however, some other approaches for generating more revenue from business license fees. As examples, both Renton and Redmond have charged a fee per employee hour. The 2008 budget revenue for business licenses was estimated at $6,000. 4 (425) 867-1802 2008 CITY REVENUE REVIEW AND ANALYSIS UPDATE CITY OF TUKWILA, WASHINGTON DRAFT Redmond's business license fee applies to all businesses performing work in the City and is based on the number of employee hours worked in the City. In 2006 Redmond charged a base fee of $35.00 per full time employee (or $.018229 per employee hour worked) and a capital surcharge of $55 per full time employee (or $.02864 per employee hour worked). The fee per full time employee is based on 1,920 hours and the total minimum license fee is $90. Businesses have the responsibility for determining the hours worked in the City. For Redmond's 2007 -2008 budget, the business license revenue for the General Fund was estimated at $4.98 million. Renton's license fee program also applies to all businesses performing work in the City and is also based on the number of employee hours worked in the City. The fee is calculated based on the number of hours reported on the State of Washington Labor and Industries reports multiplied by $.029 per hour ($55 per employee based on 1,920 hours). The minimum license fee is $55. The City generally presumes that any business operating within the City has all of its employees working within the City even though portions of an employee's time are spent outside of the City. Renton's 2008 budget revenue estimate for business licenses was about $2.5 million, with $746,000 going to General Fund. The two cities use a large share of the revenues for specifically addressing transportation impacts resulting from business employment. In Renton 70% of the $55 fee per FTE goes for transportation projects and 30% goes to the General Fund. In Redmond $35 per FTE goes to the General Fund and the $55 per FTE surcharge also goes for transportation projects. Planning Fees Another area where fees can be changed to generate more revenue involves fees for planning permits and applications. Based on a very general review of the Department of Community Development's 2008 planning budget and related 2008 revenues, it appears that the City's cost recovery for processing these types of permits and applications may be low. The 2008 budget for the Planning Division is about $1.2 million. The 2008 estimated General Fund revenues for zoning and subdivisions fees, planning inspection fees, protective inspection fees, and SEPA checklist fees total $296,000. The 2007 actual costs totaled $973,965, while the actual fee revenues totaled $279,435. This represents about a 29% recovery rate if all the costs were devoted to current planning activities. However, there are probably labor costs for long range planning activities, and these costs would have to be accounted for to determine the actual cost recovery rate. At the same time city administrative costs and departmental overhead have also not been included as well as any permit coordination costs that also might be shared with the Building Division. If the City wanted to increase its cost recovery to at least 50% of the costs of the Planning Division, the increase in additional revenue would be about $300,000, assuming the same level of activity. A more specific analysis would need to be done to determine the actual cost recovery rate and to go through the process of determining how much should be recovered for these types of permits. Indirect Cost Allocation The City's administrative cost allocation model has been in existence since 1986 and has, for the most part, not been changed. To assure that allocations are still fair and equitable, the City may 5 (425) 867 -1802 2008 CITY REVENUE REVIEW AND ANALYSIS UPDATE CITY OF TUKWILA, WASHINGTON DRAFT want to review how it allocates its General Fund costs to other funds as well as to the General Fund Departments. Indirect cost allocation can be used not only to reimburse the General Fund for costs associated with supporting other non General Fund services, but can also be used to determine the full cost of service to calculate user fees and to obtain reimbursements from federal and state agencies. A review of the allocation factors and the cost allocation framework may or may not result in additional revenue to the General fund, but can help to improve financial management and the cost allocation process. Revenue Options Summary As discussed in the previous sections, the City has a variety of different revenue options that could be implemented to increase City revenues. Exhibit 6 summarizes the options and provides revenue estimates based on different benchmarks. Exhibit 6 Revenue Options Summary Revenue Option ITax Rate /Fee Changes 'Estimated Revenue Property Tax Lid Lift Per $.10 per $1,000 $386,102 EMS Levy Per $.20 per $1,000 $772,204 Business Occupation Tax Retail Sales 0.002% 54,400,000 Utility B &O Tax Water Per 1% Tax Rate $44,000 Utility B &O Tax Sewer Per 1% Tax Rate 542,000 Utility B &O Tax Surfacewater Per 1% Tax Rate $25,000 Planning Fees Increase to 50% recovery rate 5304,000 6 (425) 867-1802