City considers deficit future

One of Lee Fellinge’s last official duties as Mayor for 2008 was to review the immediate past and preview the unknown future in his State of the City address to council.

“We face a crossover point in 2015 — that’s when our operational expenses will begin to exceed our operational revenues,” he said to those assembled at City Hall. “When that time comes we will no longer be able to use our extra operational revenue to subsidize our capital projects.”

Fellinge’s speech recognized that within the next six years or so the city will be fall into a deficit position, if the current scenario persists.

“Thanks to inflation and other pressures our operating expenses are projected to go up at a rate of almost 4 percent annually for the next two years,” Fellinge said. “State law, however, limits our annual property tax revenue increases to just 1 percent.

“As you can imagine, that kind of arithmetic is not sustainable.”

The cause of the upcoming fiscal crunch finds its origins in Washington state Initiative 747, installed by voters in 2001 and re-instated in 2007 after a troubled history that included its removal for being ‘unconstitutional’.

Initiative 747 limits the increase in revenue a council may earn from property tax to 1 percent a year.

With Sammamish characterized by a high proportion of residences as opposed to retail businesses, property tax is by far the largest source of the city’s revenue, comprising about 70 percent of general fund revenues ($19 million of total $28 million in 2007). This compares to the Washington cities average of 25 percent.

A 1 percent annual increase, in the face of expected inflation rates of 4 or 5 percent, spells diminishing to non-existent surpluses for the city.

The city has recognized that although Sammamish is currently in a strong, healthy financial position, within the next decade that will no longer be the case.

What it boils down to is that, in an equation featuring only two variables — revenue and expenditure — one of these will have to change in coming years if the city is to produce a result that doesn’t equal deficit.

Sammamish City Director of Financial Services Lyman Howard told The Reporter this week that the city has always felt it important to consider the long term future so as to better anticipate obstacles that may arise.

“There is no point waiting until the wolf is at the door,” Howard said. “We want to begin discussing our financial options to ensure that we aren’t forced into any knee jerk reactions — the longer we wait the more dramatic the measure will have to be.”

An additional option, which involves claiming an additional 0.5 percent in Real Estate Excise Tax (REET) that currently goes to the county, but requires forgoing sales tax revenue, could net the city $1.75 million.

Howard and new Mayor Don Gerend told The Reporter that community surveys indicated that citizens were opposed to a reduction in services.

The City of Sammamish operates on a comparatively lean operating budget, with significantly lower operating expenses per capita than any other city on the Eastside.

The introduction of a Utility Tax is a distinct possibility.

Although within the rights of the city, Sammamish has not imposed a utility tax on its residents.

“I don’t know of any other cities that don’t have a utility tax,” Gerend said. “When we first incorporated, one of the goals was to have a tax burden that was lower than that of the King County administration, and we have been able to do that.”

Howard said that as the city grows, however, residents were increasingly demanding greater levels of service.

“In 1998 it was easy to beat the level of what King County was providing,” he said. “But as time goes on, our citizens want more service, and I don’t blame them.”

Howard identified Parks and Recreation programs as one of the areas where residents were hoping to see greater investment.

A Utility Tax of 6 percent would generate about $6 million per annum.

Howard said that one of the ‘pros’ of a Utility Tax is that it would reward conservation of water and energy, and that it would also diversify the city’s revenue stream away from real estate, upon which it heavily relies.

To increase the current Property Tax level from 1 percent would require a referendum of the citizens.

When asked about the possibility of other revenue options, Howard said that one of the problems facing the city was that it was limited to what has been authorized by the state.

“If it’s not mentioned in their legislation, then we can’t think about it,” he said. “There are cities around the state and the country who are watching what we are going to do, and looking at our city model for clues and hints.”

Contact Sammamish Reporter Editor Jake Lynch at editor@sammamish-reporter.com.

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