Island Forum | Use city surplus, new revenues to reduce taxes

Island Forum | Mike Cero

At our next meeting on Monday, November 18th, the Mercer Island City Council has an opportunity to decrease property taxes up to 6 percent without adversely affecting General Fund revenue or the fund's service capacity.

The opportunity is truly unique in circumstance.  The Council is in unanimous agreement that the Development Services Group, aka Building, Planning and Permitting, should be more self-funded.

An outside consultant determined that up to $650,000 a year in City development costs are funded from the General Fund.  Legal and other issues make it prudent not to recover a full 100 percent. For perspective, approximately 1 percent  in property taxes equates to $100,000.

The City does not have a revenue shortage. Because of multiple tax increases, robust construction and an improving economy, the City had a General Fund revenue surplus of at least $785,000, just 2 1/2  months ago.  Raising building, planning and permitting taxes (or fees) relieves the General Fund of these expenses. With fewer services demanded of the General Fund, there is the opportunity to decrease property taxes an amount equal to the increase in Building, Planning and Permitting Taxes.

My sense as the Council approaches the November 18, 3rd Quarter Mid-Biennial Budget Review is that there is majority support to raise Building, Planning and Permitting Taxes and to raise property taxes.  In fact,  the more fiscally responsible policy is to raise Building, Planning and Permitting Taxes so that indeed “growth pays for growth,” while concurrently decreasing property taxes an amount equal to that which the General Fund is relieved.  If the Council anticipates $300,000 through increased Building, Permit and Planning Taxes, the Council take the opportunity to decrease property axes a corresponding amount, or percent.

At the recent joint Council/School Board session, a fellow Councilmember asked Superintendent Plano what more could the Council do to help the School Board.  In anticipation of the School Construction Bond and School Operations and Maintenance levies, of which I support, there was the suggestion that the Council do what it can to minimize our citizens’  tax burden.  With the Board's and City's contiguous borders, all School and City taxes are paid by the same citizens.  Decreasing City taxes will enable Islanders to better absorb the School Bond and School O&M Levy tax increases scheduled for a February vote.

Between the $785,000 General Fund surplus and the increase in Building, Permitting and Planning Taxes, the Council can improve the Island's affordability by lowering property taxes. Helping families with lower property taxes make it more probable our citizens will pass the School Construction Bond and the School O&M Levy scheduled for vote in just four short months.

No doubt there are already designs or commitments for this money.  But using this money to lower property taxes in this pre-dominantly single family community is the right policy to improve the Island’s affordability and Islanders’ quality of life.

Mike Cero


City of Mercer Island


Response | Another view of the city’s ‘surplus’

The Reporter asked City of Mercer Island Finance Director, Chip Corder, how he views the present General Fund surplus and the impact of new development fees.

As part of the 2nd Quarter 2013 Financial Status Report, which I presented to the Council on September 3, I projected that the General Fund would have at least a $785,000 revenue surplus in 2013.

I’ll be revising that projection based on the 3rd Quarter 2013 Financial Status Report, which I’m currently preparing and will be presenting to the Council on November 18.

This projected revenue surplus is wholly attributable to stronger than expected development activity on the Island, which has resulted in higher than projected construction-related sales tax revenue and development permit fees.

This is a temporary revenue bump, not an ongoing increase. As a result, I won’t be recommending that it be used to fund ongoing operating costs in 2014, which is what would happen if the Council opted to correspondingly reduce its 2014 property tax levy by $785,000.

Rather, I will be recommending that the temporary 2013 revenue surplus be used primarily to replenish or build various reserves toward target levels (e.g. City’s Rainy Day Fund) and to fund various capital project needs.

This has been the City’s long-standing financial practice.

There are two notable examples of how this approach has helped the city.

In 2004, it enabled us to accumulate one-time funding for the construction of the Mercer Island Community and Events Center, thereby reducing the amount of debt the City needed to issue. Next the approach allowed the  city to accumulate one-time funding for the Long-Term Care Reserve for Police and Fire LEOFF I (Union) retirees.

Regarding the Long-Term Care Reserve, I should mention that it is only partially funded, with an actuarially estimated liability of $4.08 million versus a $1.04 million cash balance as of the end of 2012.


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