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Update: City Proposes New 3.4% Utility Tax, Rate Hikes to Balance Budget

The “typical” Mercer Island household could see an average annual increase of $96.24 in taxes and fees — not including a possible voter approved tax increase of $60.20 for the Fire Station/Truck levy.

Update, Tuesday, 8 p.m.:

To frame the increases another way, City Finance Director Chip Corder put together this handy chart to illustrate the impacts the proposed property and utility tax increases and a voter-approved levy for a new fire station and rescue truck.

The council-authorized tax increases are needed, say the city, to balance the budget. The tax increases are combined in the table below with the impacts of a voter-approved Prop. 1 Fire Station/Rescue Truck Levy on the "typical" Mercer Island homeowner.

A "typical" homeowner is defined as a family of four which owns a home with an assessed value of $700,000.

In 2012, voters saw a 1.5 percent increase in the property tax levy, which equated to a $13.07 annual impact on a $700,000 home.

Proposed Tax Increase

2013

2014

Levy lid lift ballot measure for fire station & fire rescue truck (if it passes)

$60.20

$60.20

1% property tax increase

$9.32

$9.41

Utility tax on water, sewer & storm water utilities (3.4% in 2013 and 5.0% in 2014)

$51.00

$75.00

Total annual tax impact

$120.52

$144.61

Then there are the utility rate increases. Increases in utility rates are sometimes driven by factors outside of the council's control, but in this biennium the city is asking for a rate increase to pay locally for capital reinvestment needs of the sewer, drainage and water systems, street sweeping (to prevent storm drain blockages) and other drainage operation costs, and a new "sustainablility coordinator" staff position (.6 FTE).

Here's a chart for the combined cost of the rate hikes, based on the "typical" homeowner's bi-monthly bill:

Proposed Utility Rate Increases

Description 2012 2013 2014 Mercer Island bi-monthly bill $241.19 $262.48 $277.01 Rate increase over prior year 5.9% 8.8% 5.5% Dollar increase over prior year $13.39 $21.29 $14.53

...

Original Story: Calling Mercer Island’s municipal finances “constrained” and “structurally imbalanced”, City Manager Rich Conrad recommended City Council approve a new utility tax on city-owned utilities and an array of minor service reductions, increased fees and utility rate hikes to help the city balance its budget for the 2013-2014 biennium at City Hall on Oct. 1.

A new utility tax of 3.4 percent in 2013 is proposed for three City-owned utilities: water, sanitary sewer and storm water. The new tax would rise to 5 percent in 2014. An estimated $425,000 in 2013 and $625,000 in 2014 could be raised. Conrad said the new tax was needed as part of a package to fend off a projected $1.19 million deficit in 2013 and a $1.48 million deficit in 2014.

That would cost the typical Mercer Island household owning a $700,000 home occupied by a family of four $126 more than the current rates over the next two years.

Despite a nascent recovery in the housing market and Town Center redevelopment, increasing property taxes, construction sales tax revenues and development fees in 2012, a slower-than-expected economic recovery from the Great Recession and the housing bubble and preventing further city cuts in service would cause a projected deficit in 2013.

"We have a structural imbalance,” Conrad said. “The city is still too reliant on the property tax."

Overall, he said that the proposed general fund spending levels of $24.34 million in 2013 — a 2.2 percent increase — and $25.33 in 2014 represents a “maintenance of effort” budget that makes few changes to current services. It’s essentially the same staffing and spending levels as 2007 after adjusting for inflation. According to the City Manager’s office, City Hall is better positioned to make a few strategic investments in the 2013-2014 operating and capital budgets after cuts in the prior years — key among them are communications, sustainability, utility infrastructure and technology management. The city plans on mainly converting several part-time employees into full-time positions amounting to 2.82 full time equivalent (FTE) overall.

“Two years ago we were in budget freefall,” said Conrad. “We’re not growing big in this budget, from current budget to the next … We’re essentially flat.”

The cut an estimated $6 million and nearly 7 FTE — including three employees who received pink slips or retired. The total amount in cuts was later reduced to $4.7 million after the city recovered money from the sewer lake line project and made permanent a new Mercer Island Fire Department ambulance fee.

For the 2013-2014 budget, the city has planned non-service budget reductions, small reductions in selected discretionary services, continued constraints on staff salary increases, as well as a 1 percent property tax increase, and raising overall utility rates 8.8 percent in 2013 and 5.5 percent in 2014 (many of the rate hikes are “pass-through” increases made by another government agency). The property tax hike and utility rate increases combined would cost the typical Mercer Island household owning a $700,000 home occupied by a family of four roughly $66.48 ($57.11 in higher rates; $9.37 in higher tax, based on the 2012 assessment rate) more than the current rates over the next two years.

The estimated increases in the taxes and fees, averaged over the next two years, would combined total $96.24 in taxes and fees — not including a possible voter approved tax increase of $60.20 for the Fire Station/Truck levy.

In total, the city estimates it will raise an additional $602,892 in 2013 and $813,440 in 2014 overall thanks to the increases.

A majority of the City Council indicated its willingness to consider extending the utility tax during its June planning session, but was less enthusiastic about creating a new transportation benefit district to pay for local street and transportation needs. The $20 transportation fee on new and renewing driver’s licenses remains an alternative for the City Council to balance the budget. The city also has the ability to use so-called banked property tax capacity above the maximum 1 percent annual growth limit.

Upcoming Public Hearings on the City Budget (adoption scheduled on Dec. 3):

  • Oct. 15: Regular Meeting, 7 p.m. (6 p.m. Study Session)
  • Oct. 22: Special Meeting, 7 p.m. (budget)
  • Nov. 5: Regular Meeting, 7 p.m. (6 p.m. Study Session)
  • Nov. 19: Regular Meeting, 7 p.m.

(Ed. Note: Due to a mathematical error in calculating the 1 percent property tax increase, an earlier version of this story incorrectly stated the average cost of tax and fee increases of $123.30 over the biennium to the "typical" homeowner. The figures have since been corrected. Mercer Island Patch regrets the error.)

Kendall Watson October 10, 2012 at 05:27 PM
Is $141.81 more in 2013 for the "typical" Mercer Island home too much, based on passage of the levy, property tax increase and the new utility tax and rate hikes? How about $81.61, if the levy fails?

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