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Friday, March 10, 2006

Tacoma Taxk Force Underway

Tacoma's Revenue Task Force is accelerating rapidly. We may not be going very fast yet, but considering we started at zero mph, the acceleration is great.

The City Services Tax Task Force was nominally created by the city council, but more by the effort of new city manager Eric Anderson. He wasn't on the job six months before he recognized the long-term squeeze Tim Eyman and the rest of the deadbeat dads have put on the city's revenue.

At our first meeting we introduced ourselves and listened to the Finance Director and pretended we knew what we were supposed to be doing. At the second we heard from Anderson and got some of our own ideas on the table.

Anderson carried in from Iowa and Illinois an idea of spreading the cost of basic city services – police and fire – to all those who benefit. Seemingly an admirable sentiment, except when those free riders are powerful nonprofits like hospitals and private universities. In an earlier life, it had been Northwestern University. Anderson tried to enact a tuition tax, and "it took four days for the legislature to pass a bill outlawing the idea."

In Tacoma, it's the University of Puget Sound and the hospitals surrounding Wright Park. Two people from UPS are on the task force, David Droge, a professor in small group dynamics and task force chair, and John Hickey, from the business office. Nonprofits have two representatives as well, Liz Heath and Mike Renner.

Anyway, Anderson's idea of extending taxation to nonprofits is going to get a severe review. (Prior to our meeting with Anderson last week we were set to see a video on property tax. The television showed a few seconds of the news as the video was being cued. The image was of the effigy of somebody, maybe George Bush, in flames. "That's part of our video," Anderson said. "Right after my last meeting with the nonprofits.")

To me, anyway, the key is not the nonprofits, although the idea of taxing them is certainly the issue arousing the most heated debate. The big ones can afford to help the city out. The little ones we can let go. There's not enough revenue there to make it worth trying to collect anyway.

The key is Anderson's idea of using the property tax as the vehicle. At the outset, we need the okay of the legislature to tax the property of nonprofits. It's allowed, but only to fire districts. Then he proposes abandoning the city's B&O, abandoning the city's 1% of the sales tax, and expanding the property base by the holdings of the nonprofits. This new base would be responsible for perhaps 75% of the city's general fund expenditures. Since right now the property tax is only about one-fifth of revenues, even if nonprofits expand the base 30 percent as Anderson estimates, the shift of the load means a bump up in the rate of 2.3x.

Billing monthly is part of the plan, and that would take away some of the sting, but not enough to get by the voters, I'm afraid. And it will need to go past the voters, not only at the beginning, but periodically. That's the last part of the scheme, to submit increases to a "city services referendum" periodically to the voters, allowing them to choose whether they want the services or the few dollars a month they'd save.

There are two other major troubles connected to a big shift to a property tax base. First, the size of the increase would mean a renegotiation of tens of thousands of private contracts between landlords and tenants. Not a happy event for either party. Second, the property tax is not exportable. Tacoma residents traveling to Seattle to shop leave a little in the kitty in the form of the sales tax. Seattle residents in Tacoma should return the favor. Likewise, the B&O tax is collected from businesses operating in the city, whether or not they have property here. The property tax, by contrast, is paid almost exclusively by Tacoma.

I have an alternative based on using both the B&O and property taxes which retains the advantages of transparency and accountability from the Anderson proposal. I'll post it or a link to it after I submit it to the group next week.

One good thing, we changed the name from the City Services Tax Task Force to the Revenue Task Force. Try saying City Services Tax Task Force.

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