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HomeMy WebLinkAboutFIN 2023-04-24 Item 1C - PSRFA - Financial Considerations Regarding Annexation into Puget Sound Regional Fire Authority City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Committee of the Whole FROM: David Cline, City Administrator Vicky Carlsen, Finance Director CC: Mayor Ekberg DATE: March 28, 2023 Updated April 18, 2023 SUBJECT: Financial Considerations Regarding Annexation to the Puget Sound Fire Authority ISSUE The Council has asked staff to provide additional information on financial considerations regarding annexation to the Puget Sound Fire Authority. BACKGROUND In 2022 the City made the decision to contract with the Puget Sound Fire Authority (PSRFA) for the delivery of fire and EMS services in Tukwila. This decision was made based on a community-driven process that included formal recommendations from the City’s Future of Fire and EMS Services Community Advisory Committee. That group recommended annexation to the PSRFA because of the high level of service the PSRFA is able to provide – above and beyond what Tukwila was able to provide with an in-house Fire Department – and because of the long-term financial sustainability of the provision of fire, EMS and other municipal services in Tukwila. The City Council adopted the Advisory Committee’s recommendations, which the Mayor also supported, and the City began contracting with the PSRFA on January 1, 2023 with the goal of a formal annexation within two years. To access the report, visit http://records.tukwilawa.gov/WebLink/ElectronicFile.aspx?docid=355066&dbid=1 . OVERVIEW  Annexation into the RFA was the consensus of the 2021/2022 Future of Fire and EMS Services Advisory Committee in order to ensure the long-term sustainability of funding Fire and EMS services and to enhance Fire and EMS services in the City of Tukwila  The Committee also understood that annexation would also provide the City a tool to address structural funding gaps; annexation would allow the City to return to pre- pandemic service levels  Annexation allows for a more equitable allocation of responsibility for funding fire services as larger, more complex buildings pay a higher proportion of fire services  As a part of the adopted 2023/2024 biennial budget, the City anticipated lowering the City’s property tax levy rate upon annexation in 2025  The 2024 Council will ultimately make the decision on what rate to levy as a part of the 2025/2026 budget, but the current adopted six-year plan includes the following assumptions: o Reduce property taxes levied by the City o Return service levels to pre-pandemic levels o In Q3 of 2023, initiate the long-term fiscal sustainability planning effort, which includes the formation of an advisory committee of residents and other 7 INFORMATIONAL MEMO Page 2 stakeholders to be completed in Q2 of 2024 to provide long-term fiscal solutions to the City Council in time to inform the 2025/2026 budget  The 2023/2024 adopted budget includes the following property tax rates in the six-year plan:  The decision regarding the City’s 2025 property tax levy rate rests with the next Council. Similarly, the PSRFA cannot predict its 2025 rate as it is dependent on a number of factors, including the overall assessed value of every property in the RFA.  Because of these realities the City can only rely on 2023 numbers and the assumptions referenced above to provide examples on the impacts to property owners.  While staff have provided an example below on impacts to one single-family property below, it is important to remember that this is in 2023 dollars and that the Fire Benefit Charge (FBC) is calculated on square footage and therefore is specific to the example property below; a single-family home with less square footage than the example below will pay less FBC.  The adopted six-year plan anticipates the following changes in property taxes with annexation for a single-family homeowner with a current assessed value of $604,000 and square footage of 2,980 sq ft1 (in 2023 dollars):  A single-family homeowner with a home with an assessed value of $604,000 and square footage of 2,890 sq ft would pay an additional $385 annually, approximately $32 more a month to ensure Tukwila has: 1 Fire Benefit Charge (FBC) is based on square footage to ensure larger buildings that require more resources to combat fires pay a larger share than smaller ones requiring less resources. Larger buildings pay more FBC than smaller ones; actual FBC cost are calculated directly a property’s square footage. 2 Includes voter-approved Public Safety bond, approximately $309 for this specific single-family house. City's Property Tax Rate for General Fund Purposes Year AV PropTax LevyRate Difference Actual 2020 7,883,057,562 16,251,567$ 2.06 Actual 2021 8,010,892,032 17,124,167$ 2.14 872,600$ Actual 2022 8,970,452,548 17,100,000$ 1.91 (24,167)$ Budget 2023 9,374,122,913 17,682,000$ 1.89 582,000$ 2024 9,795,958,444 18,124,000$ 1.85 442,000$ 2025 10,236,776,574 11,457,720$ 1.12 (6,666,280)$ 2026 10,697,431,520 11,801,452$ 1.10 343,732$ 2027 11,178,815,938 12,155,495$ 1.09 354,043$ 2028 11,681,862,655 12,520,160$ 1.07 364,665$ City Property Tax2 RFA Property Tax RFA Fire Benefit Charge RFA Total Taxpayer Experience Total Pre- Annexation $1,481 $1,481 Post Annexation $1,010 $519 $337 $856 $1,866 Annual Difference in 2023 dollars $ 385 8 INFORMATIONAL MEMO Page 3 o Sustainably funded Fire and EMS services, increasing such services in our community including the CARES program that dispatches social workers and nurses to non-emergency calls to stabilize the most vulnerable residents and higher levels of public education and community engagement o Returned City services to pre-pandemic levels, allowing more resources for Public Works, Technology, Permitting and Parks and Recreation Sources: 2023/2024 Adopted Budget, Six-year plan on pages 53-54 Future of Fire and EMS Services Advisory Committee Report UPDATE, APRIL 24, 2023 FINANCE & GOVERNANCE The Council has asked for more information regarding the potential financial impacts of annexation into the RFA. Impacts to property owners: Attached is a spreadsheet of various properties in Tukwila that shows, in 2023 dollars, what the Fire Benefit Charge and RFA tax levy would be for the specific parcels. It also shows the City’s current full levy rate, which includes the voter-approved bonds, the reduction should the 2024 City Council choose to levy the rate currently in the six-year financial plan and the difference between today’s levy rate and the combined RFA levy, FBC and reduced City levy. This information is for illustrative purposes only and is based on 2023 data, which is what is available. Property Tax Exemptions for Seniors, Persons with Disabilities and Disabled Veterans From the brochure “State law provides a tax benefit program for senior citizens, disabled persons, and veterans: property tax exemptions and property tax deferrals. Under the exemption program, the value of your Washington State residence is frozen for property tax purposes, and you become exempt from all excess and special levies and possibly regular levies – resulting in a reduction in your property taxes. The exemption is available for your primary residence and up to one acre of land. A mobile home may qualify, even if the land where the mobile home is located is leased or rented. Basic Qualifications 1. Annual household income under $58,423 (excluding VA disability compensation). 2. Own and occupy property as your principal residence for at least nine months per year, including nine months during 2019. 3. Are over the age of 61, disabled, or a veteran with at least an 80% total disability rating. The Washington State Legislature recently passed a bill that will increase the household income threshold in King County to $72,000, so more homeowners will be eligible for the exemption. This will go into effect for the 2024 tax cycle based on 2023 income. Currently 211 homeowners in Tukwila are enrolled in the program. Considerations for the 2024 Council: As has been discussed, the 2023/2024 biennial City budget is balanced. The 2025/2026 budget process, which will take place in 2024, will determine the service levels for the next biennium, which are directly tied to City revenues. Considerations the next Council will need to work through include: 9 INFORMATIONAL MEMO Page 4  Recommendations from the long-term fiscal sustainability effort, which will be informed by a professional firm selected through an RFQ process and a stakeholder advisory group made up of residents, businesses and other interested parties  Community input and engagement on what service levels the Tukwila community desires  Outcome of the August 1, 2023 election  Weighing service levels with revenues; should the 2024 Council choose to reduce revenues it will result in reduced service levels, which would likely include reduction of staffing in many departments, including contracted services, and elimination of current services to the community. RECOMMENDATION Information Only ATTACHMENTS Representative property information Guide to Property Tax Exemptions Brochure (King County Assessor) 10 Parcel Type / Name 2023 Assessed Value FBC Square Footage FBC Discounts RFA2023 Levy (.86447/1000)RFA2023 FBC Retail Tax 2023 2023 Tukwila FUllLevy Rate (2.45234/1000) Tukwila 1.12 + voter approved RFA + $1.12+voter approved Difference between current full rate, RFA and $1.12 0.86447 Rate Multiplier =0.00086447 2.45234 1.62506 2.48953 Commercial Parcels Hotel 1 30,196,600.00$ 294,432 Sq Ft Sprinkler & Alarm Discount 26,104.05$ 22,339.57$ 48,443.62$ 74,052.33$ 49,071.29$ 97,514.91$ 23,462.58$ Fast Food Restaurant 10,563,000.00$ 2084 Sq Ft Sprinkler & Alarm Discount 9,131.40$ 311.09$ 9,442.49$ 25,904.07$ 17,165.51$ 26,608.00$ 703.93$ Large Box Retail 1 173,923,000.00$ 189,743 Sq Ft Sprinkler & Alarm Discount 150,351.22$ 21,942.13$ 172,293.35$ 426,518.33$ 282,635.31$ 454,928.66$ 28,410.33$ Large Box Retail 2 159,848,000.00$ 113,273 Sq Ft Sprinkler & Alarm Discount 138,183.80$ 16,953.49$ 155,137.29$ 392,001.64$ 259,762.59$ 414,899.88$ 22,898.24$ Large Retail 74,435,000.00$ 57,084 Sq Ft Sprinkler & Alarm Discount 64,346.82$ 8,752.87$ 73,099.69$ 182,539.93$ 120,961.34$ 194,061.04$ 11,521.11$ Hotel 2 13,156,000.00$ 62,337 Sq Ft Sprinkler & Alarm Discount 11,372.97$ 9,146.74$ 20,519.71$ 32,262.99$ 21,379.29$ 41,899.00$ 9,636.01$ Large Box Retail 3 25,959,700.00$ 222,444 Sq Ft Sprinkler & Alarm Discount 22,441.38$ 34,826.78$ 57,268.16$ 63,662.01$ 42,186.07$ 99,454.23$ 35,792.22$ Large Box Retail 4 25,600,080.00$ 178,162 Sq Ft Sprinkler & Alarm Discount 22,130.50$ 21,261.96$ 43,392.46$ 62,780.10$ 41,601.67$ 84,994.13$ 22,214.03$ Auto Oriented Business 21 2,555,400.00$ 13,439 Sq Ft Sprinkler & Alarm Discount 2,209.07$ 1,658.96$ 3,868.03$ 6,266.71$ 4,152.68$ 8,020.70$ 1,754.00$ Office Building 1 29,943,000.00$ 255,317 Sq Ft Sprinkler & Alarm Discount 25,884.83$ 37,311.50$ 63,196.33$ 73,430.42$ 48,659.17$ 111,855.50$ 38,425.08$ Self Storage 9,508,100.00$ 75,000 Sq Ft Sprinkler & Alarm Discount 8,219.47$ 10,032.84$ 18,252.31$ 23,317.09$ 15,451.23$ 33,703.54$ 10,386.45$ Office Building 2 7,861,200.00$ 34,662 Sq Ft Sprinkler & Alarm Discount 6,795.77$ 6,820.57$ 13,616.34$ 19,278.34$ 12,774.92$ 26,391.26$ 7,112.93$ Restaurant 5,021,700.00$ 9930 Sq Ft Sprinkler & Alarm Discount 4,341.11$ 1,330.95$ 5,672.06$ 12,314.92$ 8,160.56$ 13,832.62$ 1,517.71$ Auto Oriented Business 2 11,987,400.00$ 81,756 Sq Ft Sprinkler & Alarm Discount 10,362.75$ 10,474.98$ 20,837.73$ 29,397.18$ 19,480.24$ 40,317.97$ 10,920.79$ Industrial Retail 13,043,100.00$ 106,607 Sq Ft Sprinkler & Alarm Discount 11,275.37$ 16,447.08$ 27,722.45$ 31,986.12$ 21,195.82$ 48,918.27$ 16,932.15$ Auto Oriented Business 3 5,427,800.00$ 39,000 Sq Ft Sprinkler & Alarm Discount 4,692.17$ 7,234.78$ 11,926.95$ 13,310.81$ 8,820.50$ 20,747.45$ 7,436.64$ Vacant Parcel 16,562,200.00$ 0 Sq Ft No Discounts (No FBC)14,317.53$ -$ 14,317.53$ 40,616.15$ 26,914.57$ 41,232.09$ 615.95$ Apartment Parcels Apartment Building 1 3,398,000.00$ 18,920 Sq Ft No Discounts 2,937.47$ 7,157.83$ 10,095.30$ 8,333.05$ 5,521.95$ 15,617.25$ 7,284.20$ Apartment Building 2 7,775,000.00$ 36,534 Sq Ft No Discounts 6,721.25$ 9,946.47$ 16,667.72$ 19,066.94$ 12,634.84$ 29,302.57$ 10,235.62$ Apartment Building 3 39,044,000.00$ 160,700 Sq Ft No Discounts 33,752.37$ 40,794.22$ 74,546.59$ 95,749.16$ 63,448.84$ 137,995.43$ 42,246.27$ Apartment Building 4 24,183,000.00$ 82,630 Sq Ft Sprinkler & Alarm Discount 20,905.48$ 18,922.57$ 39,828.05$ 59,304.94$ 39,298.83$ 79,126.87$ 19,821.94$ Apartment Building 5 11,597,400.00$ 72,697 Sq Ft No Discounts 10,025.60$ 21,513.71$ 31,539.31$ 28,440.77$ 18,846.47$ 50,385.79$ 21,945.02$ Residential Parcels Maple Tree Park - House 751,000.00$ 3020 Sq Ft No Discounts 649.22$ 341.22$ 990.44$ 1,841.71$ 1,220.42$ 2,210.86$ 369.15$ Allentown - House 393,000.00$ 1100 Sq Ft No Discounts 339.74$ 179.91$ 519.65$ 963.77$ 638.65$ 1,158.30$ 194.53$ Riverton - House 1 668,000.00$ 2790 Sq Ft No Discounts 577.47$ 315.26$ 892.73$ 1,638.16$ 1,085.54$ 1,978.27$ 340.10$ Foster - House 1 647,000.00$ 3000 Sq Ft No Discounts 559.31$ 338.98$ 898.29$ 1,586.66$ 1,051.41$ 1,949.71$ 363.04$ West Hill - House 604,000.00$ 2980 Sq Ft No Discounts 522.14$ 336.73$ 858.87$ 1,481.21$ 981.54$ 1,840.41$ 359.19$ Riverton - House 2 396,000.00$ 1580 Sq Ft No Discounts 342.33$ 215.60$ 557.93$ 971.13$ 643.52$ 1,201.45$ 230.33$ Tukwila Hill - House 1 452,000.00$ 2100 Sq Ft No Discounts 390.74$ 248.57$ 639.31$ 1,108.46$ 734.53$ 1,373.84$ 265.38$ Foster - House 2 477,000.00$ 2060 Sq Ft No Discounts 412.35$ 246.19$ 658.54$ 1,169.77$ 775.15$ 1,433.70$ 263.93$ Tukwila Hill - House 2 497,000.00$ 3310 Sq Ft No Discounts 429.64$ 374.00$ 803.64$ 1,218.81$ 807.65$ 1,611.30$ 392.48$ Riverton - House 3 508,000.00$ 2020 Sq Ft No Discounts 439.15$ 243.75$ 682.90$ 1,245.79$ 825.53$ 1,508.43$ 262.64$ Thorndyke - House 1 556,000.00$ 2120 Sq Ft No Discounts 480.65$ 249.71$ 730.36$ 1,363.50$ 903.53$ 1,633.89$ 270.39$ McMicken - House 1 587,000.00$ 2700 Sq Ft No Discounts 507.44$ 305.08$ 812.52$ 1,439.52$ 953.91$ 1,766.43$ 326.91$ Tukwila Hill - Condo 1 244,000.00$ 795 Sq Ft No Discounts (Need to Check for Sprinklers)210.93$ 212.43$ 423.36$ 598.37$ 396.51$ 819.88$ 221.50$ Cascade View - Condo 1 234,000.00$ 945 Sq Ft No Discounts 202.29$ 231.57$ 433.86$ 573.85$ 380.26$ 814.12$ 240.27$ McMicken - House 2 575,000.00$ 2600 Sq Ft No Discounts 497.07$ 293.79$ 790.86$ 1,410.10$ 934.41$ 1,725.27$ 315.17$ Thorndyke - House 2 508,000.00$ 3110 Sq Ft No Discounts 439.15$ 351.44$ 790.59$ 1,245.79$ 825.53$ 1,616.12$ 370.33$ 1 1 1 2 1 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov Guide to Property Tax Exemptions for SENIORS, PERSONS WITH DISABILITIES, AND DISABLED VETERANS TAX EXEMPTIONS Did you know? State law provides a tax benefit program for senior citizens, disabled persons, and veterans: property tax exemptions and property tax deferrals. Under the exemption program, the value of your Washington State residence is frozen for property tax purposes, and you become exempt from all excess and special levies and possibly regular levies – resulting in a reduction in your property taxes. The exemption is available for your primary residence and up to one acre of land. A mobile home may qualify, even if the land where the mobile home is located is leased or rented. Department of Assessments Assessor John Wilson 13 2 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov BASIC QUALIFICATIONS • Annual household income under $58,423 (excluding VA disability compensation). • O wn and occupy property as your principal residence for at least nine months per year, including nine months during 2019. • Are over the age of 61, disabled, or a veteran with at least an 80% total disability rating. For more information, contact the Assessor’s Office by phone or email. 206-296-3920, exemptions.assessments@kingcounty.gov Are you a disabled veteran with a less than 80% VA disability rating? You still might qualify under the disability qualification with the Proof of Disability Statement from the Department of Assessments signed by your doctor or your initial award letter from the Social Security Administration. MOVING? What if I move? If you purchase a new home, condo or mobile home, you may be able to transfer your exemption to the new property. You would have to reapply and qualify for the exemption at the new property. A new frozen value will be established for the new property based on the new information. What if my children help me with my monthly expenses? We would not consider gifts from your children as income but you would need to report the amount to us. 14 3 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov FREQUENTLY ASKED QUESTIONS Why does my IRS return AGI indicate that I am below $58,423 yet I am still denied the exemption? One reason may be that Federal tax law is not the same as the laws governing the Washington State property tax relief program. While we use the IRS return as a starting point, we do consider other sources of income that Federal law may not consider taxable. Two examples of differences between Federal IRS laws and Washington State laws are: • Under Federal IRS laws, Social Security Benefits may be completely excluded from your taxable income, or may be considered partially taxable or fully taxable depending on your individual circumstances. For the Washington State property tax exemption program, we consider all of your social security as income, so we must add back any amount that was excluded in the AGI calculation on your federal return. • Under Federal IRS laws, capital losses are an allowable deduction from any capital gains you may have from your investments. For the property tax exemption program, we do not allow any deductions of any capital losses. Capital gains are added to the AGI calculation without any loss deduction. Both of these items could result in your income exceeding the $58,423 income limit for the property tax exemption program even though the AGI on your tax return is below $58,423. RENEWALS Will I need to reapply if I have already been approved for the exemption? You will be required to reapply for the exemption at least once every 4 years. We will send a renewal application when it is time for you to reapply. You will need to provide proof of identification, ownership, and income data when you return the renewal form. What happens if I fail to respond to a renewal request? If you fail to return your renewal form and the necessary documents, you will be removed from the program and you will begin paying the full tax amount based on your property’s current market value. 15 4 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov What if I fail to send in my documents with my renewal request? We will send you an email or letter requesting the missing information. You will have 30 days to respond. If we still do not hear back you will receive a second notice, your exemption will be removed and you will begin paying the full tax amount based on your property’s current market value. FROZEN VALUES What is a frozen value? The market value of your home is “frozen” as of January 1st of the initial year you qualify for the property tax exemption. For each year after your initial approval, you will be taxed on either the frozen value or current market value if lower. Can my original frozen value go higher? Yes. If your home undergoes new construction or a remodel, say a new bedroom, the value for the new addition or remodel is added to your frozen value. This new total will become your new frozen taxable value. INCOME What if I am over the income limit for more than one year? If your income has increased for more than one year, you will be removed from the exemption program and will begin paying the higher tax rate on your property’s current market value. If, at some point in the future, your income is again below the $58,423 limit, you can reapply to the program. If you are off the program for more than one year, a new frozen value will be determined for the year you reapply. What if I have a change in income and it is not time for me to renew my application? It is your obligation to let the Exemption Unit know when you have any life-altering situation affecting your exemption, such as new income source or change in ownership. Please call us at 206-296-3920 or write to us so we can discuss the situation. For example: • If you reach 70.5 years of age, you may need to start drawing on your IRA or Annuity funds. This could result in a change to your exemption level. • If you lose a spouse or partner, this could result in a change in your exemption level. FREQUENTLY ASKED QUESTIONS continued 16 5 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov • If you give all or a portion of your property to someone else, this could result in a change in your exemption level. • If in doubt about whether your changing circumstances could affect your exemption level, please contact our office for assistance at 206-296-3920. What happens if I have been on the program for several years and now do not qualify? If your income goes over the $58,423 limit, you must be removed from the program for the one year you do not qualify. You will pay the higher taxes on your current market value for that one year. However, you may reapply the next year and may be reinstated at your original frozen value if your income returns to a level below the $58,423 in that next year. You would only pay the higher taxes for the one year that you do not qualify. For example: Your annual income goes over the $58,423 limit due to a one-time IRA disbursement. We will remove you from the program for that year and you will pay your regular tax bill based on your current market value. If your income returns to levels below the $58,423 limit, you can reapply for the next tax year, return to the original frozen value and start receiving the reduction in taxes again. What do I do if I have no income or am extremely low income? Even if you have no income, you are paying your expenses with some funding source. In many cases seniors use reverse mortgages, receive funds from their children or use savings accounts to pay their household expenses. While these sources are not considered “income” in the calculation of your disposable income, they are a source of funds and you must report the source and the amount to us. It is acknowledged that there are inherent costs to living and maintaining a home. Items such as food, gas for the car and utilities are paid at the very least. FREQUENTLY ASKED QUESTIONS continued 17 6 Guide to Property Tax Exemptions for Seniors, Persons with Disabilities, and Disabled Veterans If you meet all of the basic qualifications apply online here: taxrelief.kingcounty.gov THE APPLICATION PROCESS AND IRS QUESTIONS What if I need assistance filing the online application or have questions about the documentation you require? Please call our office at 206-296-3920. We have experienced exemptions staff ready and willing to assist you in completing your forms. They can also answer questions about which documents you should provide. Once I have applied for an exemption, when will I hear from your office? We will send an email or letter notifying you that we have your application. Depending on the current workload, you should receive another email or letter within 4-6 weeks. This second message will state that you have: (1) been approved for an exemption; (2) been denied the exemption (we will provide you with your appeal rights); or (3) provided insufficient documentation and we still need more information. Why do you want my IRS return? Federal tax laws and the property tax relief laws are different. However, we use the IRS return as a starting point to calculate and verify your income and to determine your exemption level. What if I do not file an IRS return? We will still need verification of your income sources. We will request information such as bank deposits, 1099s, reverse mortgage information, social security statements or other year-end statements that provide information on how you pay your daily, monthly and yearly expenses. Department of Assessments Assessor John Wilson kingcounty.gov/assessor Alternative formats available. Please call 206-296-3920 or TTY:711 KCIT Design and Civic Engagement: 999618