Service Tax Task Force Final Report[1]

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Service Tax Task Force Final Report

September 2006

Table of Contents

Transmittal Letter

Chairs Cover Letter

Executive Summary

Service Tax Task Force Introduction

Properties of a Good Tax/Tax System

Tax Alternative A

City Managers Service Tax Proposal

Tax Alternative B

Levy Lid Lift Referendum Proposal Using Current Tax Law Provisions

Tax Alternative C

User's Excess Service Fee

Appendix A

Tax Exporting EstimateCurrent Source of Tacoma City Revenue

Appendix BComparing the Tax Incidence of Tacoma's Existing Tax Structure with The City Managers Tax Proposal:

A Hypothetical Calculation

Appendix C

Critical Statistics

Appendix D

Exempt Properties in the City of Tacoma

Appendix E

Recommendation for City Expense Analysis and Communication


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Executive Summary

Since February 2006 ten community representatives, led by an at-large Chair, have, at theinstruction of the Tacoma City Council investigated the City Managers service tax to fund the

full costs of police, fire and library services in Tacoma. In addition, the group was charged withidentifying, if possible, alternative local revenue options and alternatives to improvetransparency and reliability of funding for police, fire, and library services in Tacoma.

The report of the work of this group, the Special Tax Task Force (STTF), follows. In summary,

the Task Force spent a significant amount of time learning about the intricacies of the Citys

budget, revenue sources and economic projections.

During these discussions, we identified the need for criteria against which to measure various

proposals. To that end, the Task Force adopted the Properties of a Good Tax/Tax System,which was used to evaluate proposals and to guide the presentation of the pros and cons of each.

Each proposal presented by members of the Task Force was debated and acted upon. The reportincludes those proposals receiving a majority vote in support of recommendation. They are:


As revised during deliberations by both the City Manager and the Task Force, the City

Managers proposal would fund police, fire and library services directly from property taxes

collected by the City of Tacoma. Periodic accounting of service levels would be provided toall taxed property owners, and collection would be on a monthly or bi-monthly basis.

Tacomas B&O tax would be repealed, as would Tacomas portion of the Sales Tax.

Provision would be made for periodic voter referendum of funding/service levels, and currentexemptions would be retained.

Levy Lid Lift Referendum

Initiative 747 placed a 1% limit on the amount of property tax revenue that normally can beincreased over the prior year for existing taxable properties. This revenue increase limitation

is a major cause of current city revenue collection concerns.

The city may be able to pursue a levy lid lift to seek additional revenue for police, fire, and/or

library operation needs (or other operating needs). Under certain conditions, current tax lawscould enable the city to propose levy lid lifts of between 1% and 6% over prior-year tax

revenue (see levy lid lift RCW 84.55.050). Assuming this is an option for the city of

Tacoma, levy lid lifts could be implemented with a simple majority voter approval for asingle year or for multiple years.

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Users Excess Service Fee

The City could assess a service fee appropriate to the cost of the service on entrepreneurs(profit or non-profit), organizations, agencies or other service providers whose operations

and attractive nuisance cause demands on municipal fire, EMS or police or solid waste

services. The City Council should set prescriptive standards for different types of activities.

The standard is set to encourage the adoption and implementation of best practices amongthe service providers. It could be implemented with a study of the historical service calls.

Greater detail on each proposal is found in the full report, along with supporting information in

the Appendices. A complete record of the work of the Task Force, including meeting minutes,other proposals and ancillary documents, is available in the office of the City Clerk.

The members of the Special Tax Task Force are honored to have participated in this process and

thank the City Council for the opportunity.

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Service Tax Task Force Introduction

The Service Tax Task Force (STTF) was established by City Council Resolution #36775 onJanuary 31, 2006. The Task Force, which consisted of two business representatives, two

neighborhood representatives, two nonprofit organization representatives, two civicorganizations representatives, two labor representatives, and an at-large chair, was charged withinvestigating a service tax to fund the full costs of police, fire and library services in Tacoma(Resolution #36740) and with exploring alternative local revenue options and alternatives toimprove transparency and reliability of funding for police, fire, and library services in Tacoma.(Resolution #36750). The Council asked STTF to report its recommendations by August 1,2006.

The Task Force met on alternative Wednesday evenings from February 22 to June 21 and weeklyduring July and August. Minutes of those meetings are available on the City of Tacomas Webpage, http://www.cityoftacoma.org The first six meetings were educational; Task Force

members learned about city taxes and revenues. The Task Force heard from Steve Marcotte,Finance Director, on February 22. City Manager Eric Anderson, author of the service taxproposal, met with the Task Force on March 1. Ryan Petty, Director of Economic andCommunity Development, met with the Task Force on April 26. County Assessor Ken Madsenalso addressed the group on May 1.

After these meetings, which also included an overview of the Citys tax and revenue situation,we reached the following conclusions, which guided our subsequent deliberations over the CityManagers proposals and alternatives considered by the Task Force:

1. If no changes are made in either revenue generation or expense reduction, the Cityfaces the prospect of an on-going and ever-increasing revenue shortfall in the GeneralRevenues portion of our biennial budgets. The City Managers original concept calledfor a revenue neutral change in the tax structure. Hence the Task Force was charged withexamining the revenue aspects of the citys budget difficulties; we recognize, however,that controlling expenses is an equally important part of responsible budget management.We would encourage the city to exercise vigilance in controlling expenses.

2. We fully agree with the City Managers desire for transparency. In that regard weurge the city to describe and compare with other cities its police, fire, and library servicelevels, service demands, and operating information. This effort should be pursuedaggressively regardless of current or future taxing mechanisms. See Appendix E forsample categories of information to report and compare.

3. The citys portion of the Business and Operations (B&O) tax, which is collected ongross receipts for eligible businesses and varies depending on the category of businessoperations, is problematic. The City collects B&O taxes over and above the state rate onthe gross receipts of businesses located in Tacoma, regardless of where that business isconducted, as well as the proportion of receipts generated in the City for businesseshoused in surrounding communities. Unfair on its face, the Citys B&O tax puts Tacoma

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at a disadvantage in attracting new businesses and retaining existing business. The cityfinds itself in competition with surrounding municipalities that do not collect anadditional tax above the states B&O tax. Since the tax rate is one factor affectingbusiness decisions regarding new ventures, a majority of the Tax Force believes that thecurrent practice of collecting a separate city B&O tax is disadvantageous for Tacomas

economic development.

4. The Task Force drafted and approved by majority vote a set of criteria for evaluatingtax proposals. We identified these criteria as Properties of a Good Tax/Tax System.Since this set of principles addresses a complex set of goals for tax policy,inconsistencies and contradictions will arise. We believe that use of these principles,although valuable, will require attention to the priority ranking by the City Council ofeach principle when considered in light of the others.

5. A controversial item in the City Managers Service Tax proposal is consideration oftax-exempt non-profits. Mr. Anderson proposed eliminating property tax exemption for

all real and personal property except governmental buildings and houses of worship.Consequently, existing non-profit organizations would be subject to the Service Tax. Thetask force by majority vote supports continuation of the property tax exemption for non-profit organizations. We believe that these organizations benefit our communitytremendously. In particular, they frequently provide services and perform roles thatotherwise would need to be assumed by the city government, creating a need foradditional taxes; thus they merit a tax exemption.

6. Relying on a property tax base to fully fund police, fire, and library services wouldresult in substantial increases in property taxes. As we attempted to foresee theimplications of a service fee derived exclusively from property taxes, we encountered thefollowing information (see Appendix B for greater detail):

a. The General Fund proportion of the citys total budget for the most recent year(2005) was about 17% ($356.1million out of a total budget of $2.1 billion).

b. Property taxes funded roughly 22% of those general revenues, with the salesand use tax, B&O tax, and utilities tax categories each generating approximately20-22% of the General Fund.

c. The Public Safety and Library proportion of the General Fund wasapproximately 70% in 2005-2006.

d. The County Assessors Office calculates the Assessed Value of property inTacoma at approximately $20.1 billion, while the value of Taxable Property was$15.7 billion. The total Assessed Value is probably a low estimate, as theAssessors Office is more vigilant in assessing the value of property likely to betaxed. See Appendix D for a listing of currently tax-exempt properties inTacoma.

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e. The following financial presentations and estimates are only for illustrativepurposes. They are meant to suggest how funding and tax impacts could bepresented. Significant investigation would be required to identify actual fundingand property tax rate impacts. Fully funding the Police, Fire, and Library portionof the General Fund in 2005 from property taxes would have resulted in a city

property tax rate of $8.38 per thousand if only taxable properties are considered.If the full assessed value of all property is included, the rate would have fallen to$6.71 per thousand. The existing property tax rate was $3.67 per thousand. Evenif the property owned by non-profits would be included, the property tax rate forthe city would have increased by 82 %. (period needed here) The total propertytax rate in Tacoma would have increased from $16.71/thousand to $20/thousand.For example, on a property valued at $200,000, the following increase wouldhave occurred:

Existing Proposed

City tax $734 $1342

Total property tax $3352 $3960

As Assessor Madsen told us, the citys property tax rate is already the highest inthe county. Despite the fact that other, less transparent taxes (sales and B&O)would disappear, we believe fully funding these services from property taxeswould be perceived as a significant tax increase.

7. Individual members of the Task Force identified problems in the enforcement ofcurrent tax laws. Some individual businesses might be operating without a businesslicense, hence not paying the B&O tax or sales tax. Some property owners may havereceived an exemption from property taxes by claiming they were housing senior or

disabled residents. When those residents moved out, the owners continued to utilize theexemption. Some owners of assisted-living facilities or nursing homes are using publicsafety services, particularly the fire department, to perform tasks that should beperformed by their own staff members (e.g, lifting heavy residents who have fallen).Clearly, vigilant enforcement of current tax laws should be a regular part of the citysoperations.

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Properties of a Good Tax/Tax System

The following are commonly accepted properties of a good tax/tax system. What is important to

note first is that all taxes/tax systems involve trading off one principle for another it is rare to

find a tax that meets all the criteria of a good tax.

Taxes have two purposes that of raising revenue and that of creating or implementing social

policy. The first four properties of a good tax or tax system relate to the revenue-generating

purpose. The fifth is related to social policy.

1. Taxes Should Have an Adequate and Stable Tax Base.A good tax system should have a broad base so that it is adequate to raise the funds needed.

The base should also be relativelystable over time so that tax revenue is also stable. The

problem with an inadequate base is that rates (since tax revenue = base * rate) need to be

high to raise needed revenue. High tax rates are not only politically unpopular, but are ofteninefficient as well (see #3).

Adequate: the base should be adequate both for the present and future meaning it

should grow at approximately the same rate as does the demand for publicly-provided goods

and services. Thus the base should beadequate in the long term.

Stable: the base should be relatively constant during short run changes in the economy.

Thus it should bestable (not volatile) in the short run.

Examples: the state of Washington relies heavily on a sales tax (the base being purchases of

goods, but not services, with many goods (food, housing) excluded). This base has not kept

up with economic growth, and has contributed to severe State budget shortfalls.

Washingtons sales tax is thus an example of a tax that is not proving to be adequate in the

long run. On the other hand, taxes on goods and services (like sales taxes) tend to be more

stable in the short run, than do taxes on income, because income is more volatile in the short

run than are purchases of goods and services. Oregon State, which relies heavily on an

income tax, has suffered over the last few years from the volatility of revenue from this tax.

Consumption tends to be more stable over time than does income, and thus sales taxes tend

to lead to a more stable source on income than do incomes taxes.

2. Taxes Should Be Fair.A good tax system should distribute the tax burden across taxpayers in a manner that is

consistent with accepted norms of fairness and equity.

Background. There are two different ways to view fairness, but both are based on tax

incidence. Tax incidence refers to who actually pays the tax. Many taxes are paid by one

person (gasoline distributor, landlord, corporation), who has the ability to look to others for

reimbursement (consumer of gasoline, renter, consumer). If this happens, the incidence of

the tax falls on someone other than who writes the check to the government. Tax fairness is

judged by a taxs incidence, rather than who pays the tax.

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Examples: with some caveats, most economists consider the incidence of business and sales

taxes to fall mostly on consumers; the incidence of landlords property taxes to fall on

renters; and the incidence of corporate income taxes to fall on consumers. Examples where

the incidence of a tax falls on the same person who pays it would include income taxes and

property taxes in the case of home owners.

What is a fair tax? One or both of two definitions may apply:

a. Fairness in the burden of the tax according to ones ability to pay. A fair tax is onethat is levied according to ones ability to pay the tax. A commonly-held principle is that

ones tax burdens should rise at the same rate as ones ability to pay (this would be a flat

tax) or it should rise at a faster rate (this would be a progressive tax). Taxes that fall

disproportionately on those with a lower ability to pay (called regressive taxes) are

generally considered to be unfair in their burden.

Examples: sales and business taxes tend to be quite regressive, income taxes tend to be

progressive, and property taxes tend to be mildly regressive. It is perhaps noteworthythat the State of Washingtons combined state and local tax system is the most regressive

tax system of all States in the US. (see attachment) On the whole, state and local taxes

are almost always regressive. The federal income tax makes the federal tax system quite

progressive.

b. Fairness in the burden of tax according to benefits received. A second way fairnessmay be evaluated is with reference to who benefits from government activities. If some

citizens disproportionately benefit from the government, a fair system may call on them

to pay a larger share of the burden.

Examples: the origin of the property tax may be in this principle, since property owners

disproportionately benefited from police, fire, sewer, lighting, streets, and so forth.

Revenue from gasoline taxes is often targeted to the transportation sector, thus making

drivers pay for road maintenance and so forth. Many cities and states charge citizens for

the use of government-provided goods such as parking spaces, roads and bridges, and

entry into parks in a sense taxing users more. A reoccurring issue in public finance is

whether families with children should pay more in taxes, since educating children is one

of the most expensive undertakings of governments. Is taxing seniors and those without

children the same as those with children fair?

3. Taxes Should Be Efficient.An efficient tax is simple to comply with and simple to collect.

Example: The best example of inefficiency in this sense is the federal income tax system. It

is extremely difficult and costly to comply with; moreover, collection and monitoring by the

IRS is also costly. Sales and property taxes tend to be pretty efficient in the sense used here.

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Taxes Should Be Transparent.

People should know how much they and others pay. Thus, a good tax system is thus one

where thetax incidence is clear, or transparent. Perhaps of note is that one of the alleged

benefits of City Manager Andersons tax proposal is that it is transparent. The claim is that it

will make citizens more aware of the uses of taxes. This is a different use of the termtransparency, but it applies insofar as the reason transparency is important in a tax system is

that it improves the democratic process surrounding taxes.

Examples: The State of Washington has a very nontransparent tax system, which is why

despite being the most regressive in the nation, there is not much support for changing it

citizens are by and large unaware of who pays what in our state, and thus they are

unaware of how unfair our tax system currently is (see attachment).

4. Where possible, taxes should be used to advance social policy.Tax policy is regularly used to stimulate economic development and to provide support foractivities that contribute to community well-being. Examples range from the tax abatement

on certain properties, exemptions of nonprofits from property tax, higher B&O taxes on

certain businesses and exemptions from B&O on other businesses.

The common textbook example of the use of taxing authority as a social policy tool was the

taxation of early sulfurous matches. The first matches, called Lucifers, and were made of

sulfur compounds that had very negative impacts on workers health as well as a volatility

that made them hazardous. Government wished to favor the new safety matches, composed

of safer compounds to manufacture and use. However, price advantage kept the new safety

matches from succeeding in the marketplace. Government placed a tax on the Lucifers that

gave safety matches a price advantage, which resulted in the safety match dominating the

marketplace and running Lucifer-manufacturers out of business.

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Tax Alternative A


City of Tacoma Service Tax Task Force

August 2006

Proposal Summary

The City Managers original proposal described in the Introduction - has changed significantly

since it was originally proposed during the City Council Biennial Budget Adjustments meetings

in Fall 2005. At that time it was presented as a means to address the impending funding shortfall

for the Citys Direct Services (Police, Fire, and Libraries) in fiscal years beyond 2008.Originally, it was conceived as a service fee levied on every resident, commercial entity or

nonprofit organization within the service areas of the three Direct Services.

Due to various constraints, including RCW and other codified legal roadblocks and challenges,

and subsequent discussion with the City Manager regarding his proposal, the Service Tax Task

Force (STTF) believes the proposal would:

1.) Create separate funds for each of the three Direct Services

2.) Repeal Tacomas portion of the total B&O tax

3.) Repeal Tacomas portion of the Sales Tax

4.) Fund Direct Services directly from property taxes collected by the City of Tacoma

5.) Provide a periodic accounting (Transparency Accounting) to every taxed property owner,

showing the service levels provided during the accounting period, etc.

6.) Collect the Citys portion of property taxes on a monthly or bi-monthly basis, making it a

regular, more frequent payment process for those taxed, rather than one or two large bills per

year.

7.) Provide for periodic referendum by the Citizens through an initial Referendum and at some

regular interval thereafter (perhaps every six years).

8.) Retain the status of those constitutionally and statutorily tax exempt.

9.) Maintain the senior and disabled exemptions.

Pros and Cons Relative to Properties of a Good Tax/Tax System

Following is an assessment of this proposal relative to the Properties of a Good Tax/Tax System

document developed and approved by the Service Tax Task Force.

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Taxes Should Have an Adequate and Stable Tax Base.

Pros

A sufficient tax base would be approved by voters or an accepted level of service

that could be provided with available funding would be accepted.

Cons

It reduces the tax base by about 1/3.

The amount of increase necessary to fund services at existing levels may begreater than voters are willing to pay.

Taxes Should Be Fair.

Pros

Ownership of real property is a better indicator of ones ability to pay than is the

consumption of goods and services in Tacoma.

It would eliminate unfair B&O taxes and the Citys portion of the retail sales tax

The tax burden would be spread among all entities receiving benefit from thebasic services except exempt entities.

Cons

It would shift a significant tax burden onto property owners and renters to the extent thattaxes would no longer be exported to entities outside of the tax boundaries of Tacoma.

See Appendix A for an example. Property taxes will increase by an unknown amount.

Taxes Should Be Efficient.

Pros

The City Manager believes that existing staff, now dedicated to the collection of

the B&O tax, could handle the billing of the Citys share of property taxes.

Cons

There would almost certainly be an initial, significant cost to implement thecalculation, billing, and collection of the taxes.


Pros

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It offers potential for making police, fire, and library expenses and service levelchoices more transparent (assuming expenses, revenues, and service level options

are communicated clearly by the city).

Requests for funding adjustments of police, fire, and library services could occurdifferent years on an alternating basis. This would facilitate clearer

communication of revenue/service options because voters would assess serviceand tax options for a single service vs. considering tax options for multipleservices.

Cons

The lack of transparency would be unchanged for renters.

Where Possible, Taxes Should Be Used To Advance Social Policy.

Pros

It would enhance economic development by removing the current disincentive of

business and occupation taxes. This would support business retention and

attraction.

Cons

It is possible that property taxes could reach a level that would retard property sales.

Service Tax Task Force General Findings

The STTF evaluated a tremendous amount of information and data having to do with current

taxes collected, current and anticipated funding levels required by the three Direct Services,current tax levy rates, etc. Our primary findings are:

1.) There is an anticipated revenue shortfall and corresponding funding shortfall for each of thethree Direct Services of Police, Fire and Libraries in 2008 and beyond.

2.) Neither the City Manager nor the City Council wish to balance the Direct Services budget

through further service cutbacks.

3.) The City Managers Tax Proposal in its current form has the potential to provide ongoing

funding for each of the three Direct Services of Fire, Police, and Libraries.

4.) Further, the City Managers Tax Proposal has the potential to provide much-needed

information to the citizens of Tacoma regarding the use of their tax dollars for DirectServices. It promotes active citizen participation in service and funding level decisions.

5.) After review, it appears the Tacoma property tax would need to increase significantly(depending upon service levels provided by that funding). See Appendix B for a

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hypothetical calculation.

6.) The Service Tax Proposal has merit with regard to providing transparency for funding of

police, fire, and library services.

7.) Eliminating the Tacoma portion of the B&O tax is proposed as an economic developmentincentive, rather than an immediate revenue generator; i.e. by eliminating the Citys B&Otax, Tacoma would become competitive with surrounding communities who have no

municipal portion of the B&O tax.

8.) The task force agrees that current nonprofit property tax exemptions should be maintained.The City Manager has stated that his proposal is viable with or without inclusion of

nonprofits in the tax base. See Appendix D for list of tax exempt properties in Tacoma.

9.) A major challenge of this proposal is that it would require voter approval and state legislative

approval to implement. According to the City Manager, no city in the United States has

implemented service taxes in the way that he has proposed. Therefore, there are unforeseenrisks to pioneering this approach.

10.) Another disadvantage is the significant, potential increase in property tax paid by property

owners and renters, depending upon how much revenue is needed/approved to fund police,fire, and medical services.

Service Tax Task Force Recommendations

Based upon the above findings, the Service Tax Task Force finds that the City Managers TaxProposal has merit and recommends that the City Manager and City Council explore it as an

Alternative Tax Structure.

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Tax Alternative B

Levy Lid Lift Referendum Proposal Using Current Tax Law Provisions


August 2006

Proposal Summary

Initiative 747 placed a 1% limit on the amount of property tax revenue that normally can be

increased over the prior year for existing taxable properties. This revenue increase limitation is a

major cause of current city revenue collection concerns.

The city may be able to pursue a levy lid lift to seek additional revenue for police, fire, and/or

library operation needs (or other operating needs). Under certain conditions, current tax laws

could enable the city to propose levy lid lifts of between 1% and 6% over prior-year tax revenue(see levy lid lift RCW 84.55.050). Assuming this is an option for the city of Tacoma, levy lid

lifts could be implemented with a simple majority voter approval for a single year or for multiple

years.

Pros and Cons Relative to Properties of a Good Tax System

Following is an assessment of this proposal relative to the Properties of a Good Tax/Tax Systemdocument that was developed by the Service Tax Task Force.


Pros

It would use the existing property tax base, which is more capable of supporting

additional taxes than some other tax sources.

Cons

It may not generate sufficient revenue to fully fund critical police, fire, or library

service needs.

Pending judicial consideration of I 747 could affect the stability of this option.


Pros

It is inherently fair because property tax payers are taxed at the same rate.

Cons

Property tax is viewed by some as regressive.

Taxes Should Be Efficient.

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Pros

It would be efficient to collect using existing systems.

Cons

This approach could require one or more referendum processes.


Pros

Tax increases could be requested in a transparent manner for police, fire, or library

needs in the same way such increases would be requested under the Service TaxProposal.

Cons

This would not be very transparent to leaseholders.

Where Possible, Taxes Should Be Used To Advance Social Policy.

Pros

Cons

Task Force General Findings

Assuming the city of Tacoma is eligible to use this funding tool, the city could pursue a levy lidlift for some period of time or indefinitely. This mechanism could be used until such time that a

more preferable tax program is implemented or that I 747 might be eliminated.

This strategy could create some political challenges to implement. It also would not fully

address long term budget deficit challenges on a stand-alone basis.

This levy lid lift proposal would provide a short-term opportunity to approach voters with atransparent explanation of funding needs for police, fire, and/or library services. It could serve

as a precursor for funding these services under another future taxing mechanism that could be

equally transparent.

This proposal provides opportunity to request additional service funding from existing taxable

property owners, as opposed to increasing business and occupation or other taxes.

Service Tax Task Force Recommendations

The Service Tax Taskforce recommends that the city manager and city council consider using

the levy lid lift as a short-term strategy for addressing revenue needs.

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Tax Alternative C

Users Excess Service Fee


July 2006

Proposal Summary

The City should assess a service fee appropriate to the cost of the service on entrepreneurs (profit

or non-profit), organizations, agencies or other service providers whose operations and

attractive nuisance cause demands on municipal fire, EMS or police or solid waste services.

The City Council should set prescriptive standards for different types of activities.

The standard is set to encourage the adoption and implementation of best practices among the

service providers. It could be implemented with a study of the historical service calls.

General Task Force Findings

The Users Excess Service Fee was reviewed by the STTF at its meeting on May 24, and

concluded it would make a positive contribution to revenues for basic services, although perhaps

with minimal budgetary impact. The greater potential and intended consequence would be a

reduction in demand (and thereby costs) for services.

Initial inquiries indicate that the database necessary for implementation of this fee exists and can

easily generate the necessary administrative information.

The major advantage of this fee is that it directs the costs for service to those that most demand

them. It also meshes with other recommendations and initiatives that seek to manage the impact

on neighborhoods of public and private provision of community services.

Residents are familiar with this concept through the Citys assessment of charges for responding

to false home alarms.

In no event should this suggested course be applied as a deterrent to the reporting of crimes or as

a penalty on crime victims.

The major disadvantage is that it will not solve the budgetary problem.

Pros and Cons Relative to Properties of a Good Tax System

Following is an assessment of this proposal relative to the Properties of a Good Tax/Tax System

document that was developed by the Service Tax Task Force.


Pros

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Cons

It would not solve the forecast budget crisis.

It should diminish demand and thus revenue over time.


Pros

It targets the most prolific users of the basic services.

Other users continue funding of basic services through established conveyances

to the general fund or any forthcoming special funds.

It encourages managers of community services and businesses to cover the full

costs of their actions.

Cons

It has a potential for misapplication to the victims.

It increases minimum costs on the managers of community services and

businesses.

Taxes Should be Efficient.

Pros

Its implementation costs should not be significant.

The fee should be simple to comply with and simple to collect.

Cons

The fee may apply to those who defy social and/or business norms and thereby be

difficult to collect.

Taxes Should be Transparent.

Pros

It directs the costs for service to those that most demand them.

It increases the transparency of basic services fees so that not all funding for basic

services is included in more general taxes.

Cons

The action causing the calls for service may be generated by customers of

businesses or clients of community services.

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Where Possible, Taxes Should Be Used to Advance Social Policy.

Pros

It meshes with other recommendations and initiatives that seek to manage the

impact on neighborhoods of public and private provision of community services.It should indirectly contribute to the community development efforts of

neighborhoods and business districts.

Cons

The fee may apply to those who defy social and/or business norms and thereby be

difficult to effect change.

Service Tax Task Force Recommendation

The Service Tax Task Force recommends the Users Excess Service Fee as a useful tool to helpin curing demand, but anticipates that it will not cover the full cost of the service.

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Appendix A

Tax Exporting Estimate

Current Source of Tacoma City Revenue

2005-2006 General Fund Revenues by Sources (biennium)

Source $ Amount % of Budget

Property Tax $78,821,900 22.1

B&O Tax $70,732,500 19.9

Utilities Tax $65,743,000 18.5Sales & Use Tax $78,996,700 22.2

Other Taxes $45,365,400 12.7

Charges for Services $5,167,150 1.5

Transfers from Other Funds $2,385,800 0.7

Cash Balance $8,894,200 2.5

Total $356,106,650 100.1

Source: Budget in Brief 2005-2006, City of Tacoma, undated, pg. 15.

Question: By how much will would taxes need to increase under proposal

to reflect the fact that all B&0 and Sales Tax Not Paid by Tacoma Citizens?

Assumption 1: 10 percent of B&O and Sales Tax Paid for by Non-Citizens

Current Taxes Paid for By Tacoma Citizens Under Assumption 1:

Property Tax $78,821,900

B&O Tax $63,659,250 (90 percent of above)

Utilities Tax $65,743,000

Sales & Use Tax $71,097,030 (90 percent of above)

Other Taxes $45,365,400

Charges for Services $5,167,150

Transfers from Other Funds $2,385,800

Cash Balance $8,894,200Total $341,133,730

Shortfall $14,972,920 ($356m-$341m)

Percent Shortfall if shift BO and 4.2% ($15m/$356m)

Sales Tax to Property Tax

Assumption 2: 35 percent of B&O and Sales Tax Paid for by Non-Citizens

Current Taxes Paid for By Tacoma Citizens Under Assumption 2:

Property Tax $78,821,900

B&O Tax $45,976,125 (65 percent of above)

Utilities Tax $65,743,000Sales & Use Tax $51,347,855 (65 percent of above)

Other Taxes $45,365,400

Charges for Services $5,167,150

Transfers from Other Funds $2,385,800

Cash Balance $8,894,200

Total $303,701,430

Shortfall $52,405,220 ($356m-$303m)

Percent Shortfall if shift BO and 14.7% ($52m/$356m)

Sales Tax to Property Tax

Answer: Depending on size of tax exporting, this estimates that on averageTacoman's would pay 4-15 percent more in taxes under the C. M.'s proposal


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Appendix C

City of Tacoma STTF

Critical Statistics(rounding used)

2005-2006 Total Expenditures by Fund Type (biennium)Fund $ Amount % of Budget General Fund $356,106,650 17.0Special Revenue $127,318,000 6.1Trust & Agency $275,389,000 13.1Debt Svc/Capital Projects $42,165,000 2.0Internal Service $110,117,700 5.3Enterprise & Utilities $1,186,240,000 56.6

Total $2,097,665,815 100.1Source: Budget in Brief 2005-2006, City of Tac

2005-2006 General Fund Expenditures by Function (biennium) City Manager's Proposal

Function $ Amount % of Budget $ Amount Public Safety $229,400,000 64.6 $229,400,000Library $21,000,000 5.9 $21,000,000 $250,400,000

Transportation $32,400,000 9.1 Source: Pauli, Elizabeth, City Attorney, MeNeighborhoods & Dev. $22,000,000 6.2Administration $20,900,000 5.9Health & Human Svcs. $13,400,000 3.8Arts, Culture, Recreation $10,300,000 2.9Debt $3,600,000 1.0Capital $2,400,000 0.7

Total $355,300,000 100.1Source: Budget in Brief 2005-2006, City of TacHandouts: STTF Minutes, February 22, 2006.

Budget Deficits % of Total Budget % of General Fund

$17,000,000 0.81 4.8

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e s

Service Budgets Amount % of GF Budget Apportioned Deficit by Service

Police $140,738,500 39.6 $6,732,000Fire $106,040,000 29.8 $5,066,000Library $21,836,100 6.1 $1,037,000Source: Handout: Biennial Budget for Departments January 2006, OMBA, 3/21/06

2005-2006 General Fund Revenues by Sources (biennium) City Manager's Proposal

Source $ Amount % of Budget $ Amount Property Tax $78,821,900 22.1 $78,821,900B&O Tax $70,732,500 19.9 $70,732,500Utilities Tax $65,743,000 18.5 $65,743,000 $215,297,400

Sales & Use Tax $78,996,700 22.2 Source: Pauli, Elizabeth, City Attorney, MeOther Taxes $45,365,400 12.7Charges for Services $5,167,150 1.5

Transfers from Other Funds $2,385,800 0.7Cash Balance $8,894,200 2.5

Total $356,106,650 100.1

Source: Budget in Brief 2005-2006, City of Tacoma, undated, pg. 15.Handouts: STTF Minutes, February 22, 2006.

Tacoma Revenue

Tax Year Taxable Value Tax Rate General Fund Re % Increase*

2002 $11,587,717,000 3.4210 $39,641,6002003 $11,824,449,000 3.4604 $40,769,500 2.82004 $12,455,913,000 3.3495 $41,643,100 2.12005 $13,212,371,000 3.2394 $42,713,500 2.62006 $15,739,885,000 2.7926 $43,865,100 2.7

*1% max increase+new construction+voter approved

Source: Madsen, Ken, Pierce Co. Assessor-Treasurer, PowerPoint: Property Tax 2006, slide 11, May 12, 2006

General Fund Annual Rev Historical % Increa 1% increase 101% Total 6% increase 106% Total

$43,865,100 2.7 $438,650 $44,303,750 $2,631,900 $46,497,000*1% max increase+new construction+voter approved

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T R

Property Tax Rate

$ per/$1,000 valuationEntity Rate 2005 $ Amount Rate 2006 City of Tacoma $3.67 $78,821,900 $2.98 (Tacoma City and Tacoma Tacoma School District $7.28 $6.56

State $2.91 $2.64County $1.59 $1.38Metro Parks $0.85 $0.88EMS $0.47 $0.40Port of Tacoma $0.19 $0.19

Total $16.96 $15.02Source: Budget in Brief 2005-2006, City of Tacoma, undated, pg. 22. Source: Madsen, Ken, Pierce Co. Assessor-Tre

PowerPoint: Property Tax 2006, slide 10, M

2005 Assessed Valuation Pierce County City of Tacoma

Taxable Property $63,955,847,000 $15,739,885,000Non-taxable Property $9,238,151,000 $4,348,215,000

Total $73,193,998,000 $20,088,100,000Source: Madsen, Ken, Pierce Co. Assessor-Treasurer, PowerPoint: Property Tax 2006, slide 12, May 12, 2006

Apportioned Deficit by Service

City of Tacoma 2009-2010 Deficit as % Budg Police Fire Library

Budget Deficit (biennium) $17,000,000 4.8% $6,732,000 $5,066,000 $1,037,00Source: Handout: Long-Term Cumulative Deficit Effect of 2005 Budget Proposal, March 29, 2006.

Tax Assessment Ratios at Various Revenue and Valuation Levels

Basic Service Annual Budget Am Biennial Budget Amount

Police Services $70,189,000 $140,379,000Fire Services $53,020,000 $106,040,000Library Services $10,918,000 $21,836,000

Total $134,127,000 $268,255,000

Annual Budget Amount City Assessement City Portion Tax Police Subset Fire Subset Library Sub

$134,127,000 $16 billion $8.38/thousand $4.39 $3.31 $0.68$134,127,000 $20 billion $6.71/thousand

Source: Handout: STTF Meeting, April 12, 2006.

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Appendix D

Exempt Properties in the City of Tacoma

Exemption Type

% of Total #

Exempt

Parcels "Market Value" % of Total

Value based

Assumption

Government Exemptions

County-owned property 51.22% 184,662,800 4.0%

Taxing Districts 20.41% 1,571,965,000 34.0%

Native American 1.09% 52,270,500 1.1%

Tacoma Public School 2.70% 542,256,000 11.7%

Public utilities 2.03% 33,601,500 0.7%

State deferral 0.26% 4,301,800 0.1%

State of Washington 3.42% 191,095,100 4.1%

Tax Title property 1.86% 10,548,400 0.2%

Buildings (Government) 0.65% 39,534,600 0.9%

Communications (Qwest, AT&T, etc.) 0.15% 26,369,100 0.6%

Abatement 0.26% 8,928,500 0.2%

2,665,533,300 57.7% 11,535,785,

Social Policy Exemptions

Reference parcels (many upscale condos-242 2.82% 0 0.0%

Historical Designation 1.83% 108,022,900 2.3%

Home Improvement 1.32% 33,763,000 0.7%

Less than $500 market value 0.65% 16,600 0.0%

Multi-family Housing 2.48% 76,608,400 1.7%

Permanent disability A, B, C 2.81% 35,455,700 0.8%Senior/Disabled A, B, C (3661 parcels) 42.62% 610,994,300 13.2%

Temporary disability A, B, C 0.63% 7,428,800 0.2%

Libraries (apartments, medical facilities) 2.13% 527,816,900 11.4%

1,400,106,600 30.3% 6,059,323,

Nonprofit Exemptions

Nonprofit church property 6.02% 265,227,500 5.7%

Nonprofit miscellaneous organizations 0.20% 44,143,000 1.0%

Nonprofit schools, colleges 0.42% 129,504,100 2.8%

Rehabilitative social services 2.42% 116,814,900 2.5%

555,689,500 12.0% 2,404,890,

Total 150.38% 4,621,329,400 20,000,000,

Note:

Market value is understood not to be true market value.

Values used here were provided by the Assessor-Treasurer

and are for comparison purposes only

Clearly some properties have multiple exemptions

Assumption 1:

That the overall value of all exempt properties

is approximately $20,000,000,000

prepared for the City Special Tax Task Force by Liz Heath based on information provided by the Assessor-Treasurer's Office; May 17, 2006


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Appendix E

Recommendation for City Expense Analysis and Communication

If no changes are made in either revenue generation or expense reduction, the City faces the

prospect of an on-going and ever-increasing revenue shortfall in the General Revenues portion of

our biennial budgets. The City Managers original concept called for a revenue neutral change inthe tax structure. Hence the Task Force was charged with examining the revenue aspects of the

citys budget difficulties; we recognize, however, that controlling expenses is an equally

important part of responsible budget management. We would encourage the City to exercise

vigilance in controlling expenses.

We fully agree with the City Managers desire for transparency. In that regard we urge the City

to summarily describe and compare with other cities its police, fire, and library service levels,

service demands, and operating information. This effort should be pursued aggressively

regardless of current or future taxing mechanisms.

Following are examples of information that might be developed and compared with a group ofsimilar cities:

Policeo Service levels

General description of service levels and impacts relative to variousfunding levels

Average incident response timeo Service demands

Total calls for service Crime statistics (for various types of crimes)

Total population served/per capita # of police officers Total square miles served/square miles per police officer

o Operating information Number of police officers and administrative/support staff Salary and benefits information (totals and average per each employee

rank)

Summary of primary budget expenditures (compensation, operatingexpenses, capital expenses)

Fireo Service levels


Average incident response timeo Service demands

Fire/medical aid call statistics (for various types of calls) Total population served/per capita # of fire fighters Total square miles served/square miles per firefighter

o Operating information Number of fire fighters and administrative/support staff

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Salary and benefits information (totals and average per each employeerank)


Number of fire stations Librarieso Service levels


o Service demands Number of patrons using various library services Total population served/per capita # library staff

o Operating information Number of library staff by category Salary and benefits description (totals and average per each employee

type)


Number of library branches

Service Tax Task Force Final Report[1]

Documents

Transcript of Service Tax Task Force Final Report[1]