Thursday, November 4, 2010

Whatcom County Proposes $1 million tax shift to City Residents

The Whatcom County Executive has proposed a shift in tax levies that results in a significant tax shift to cities.  The Executive's budget message that the proposal is "revenue neutral" and does not rely on tax releases is false.

This coming Tuesday, the Whatcom County Council will be holding two hearings that affect the tax levy for city residents.  The first ordinance increases the General Fund property tax levy by $1 million.  The Executive calls this "revenue neutral" because he is proposing to decrease the Road Fund also by $1 million.  However, the Road  Fund is collected only in the unincorporated areas.  Thus, the increase in the General Fund property tax levy is being borne by city property owners, while county residents get a tax cut.

The lack of clarity and transparency in this budget gimmick is disconcerting.  The impact of the tax increase on city residents is not at all transparent.  In an effort to get to what it would cost a city resident, the Whatcom County Assessor was contacted to ask what the levy rates might be if this tax shift was done.  The response, received on November 1st, is that the "Levy rates cannot be calculated until budgets are set and valuations are certified."

How is the public supposed to provide public input on the ordinance this coming Tuesday that is advertised as an "Ordinance authorizing the levy of taxes for County and State purposes in Whatcom County for the year 2011"? 

The ordinance available to the public says that the "levies shall be fixed per "Exhibit A" which shall be prepared by the County Assessor, and attached and incorporated herein by reference."  On page four of the ordinance, it says:  "Exhibit A and B will be available after the first of the year 2011."

Thanks to the effort of Councilmember Ken Mann, we found that there are levy rates that are being used for this budget proposal, just not available for the public to see.  Councilmember Mann provided the following answer to my inquiry:

"In 2010 the levy rates were 1.02054 for general fund and 1.33610 for road fund.

"If there was a levy shift, the general fund would be 1.06042 and road fund 1.25771.

"For a 250,000 house in county, the tax goes from 255+334 to 265+314, for a $10 decrease.

"For a 250,000 house in city, the tax goes from 255 + 0, to 265+0, for a $10increase."  (Ken Mann, November 4, 2010)

Based on this information, I have completed rough calculations[1] as to how this tax shift affects cities in general.   

Total Assessed Valuation
% of County Tax Base
Cost of Tax Shift to City

$ 486,385

The second ordinance being heard on Tuesday is about limiting the 2011 General Fund Property Tax Levy.  This ordinance makes clear that the County general levy is increased by $1 million, which is a percentage increase of 3.9% from the previous year.

With the passage of Initiate 747, there are only two ways for a jurisdiction to increase property taxes by more than one percent (1%).   If the local jurisdiction has taken less than the maximum increase in the past, they have what is called "banked capacity".  The other way to increase property taxes is to do a levy lid lift through a vote.

The County Executive, in his proposed budget, acknowledged that the "General Fund levy will increase by $1 million, using banked capacity."  (2011-2012 Executive's Recommended Budget, Volume 1 - Page 28)  Under state law, the public does not have to vote on this use of banked capacity. 

But, early in 2010, the County Council passed an ordinance (Ord. 2010-025)  that placed local limits on the use of banked capacity.   This ordinance stated "the County Council recognizes that the will of the people shall be considered before property taxes are levied or increased."  It goes on to state that the County General Fund "be limited in....increases each year to a maximum amount equal to the previous year's tax levy plus one percent...any proposed tax levy increase to provide revenue for a future County budget year cycle, beyond the amount specified by this locally-imposed limitation, shall be put to a non-binding advisory vote of the people of Whatcom County by means of a ballot measure to be voted upon in a Countywide November General Election."

The ordinance goes on to say that the "capacity to increase these levies beyond this one percent limitation through accumulation or "banked capacity"...shall be implemented in current or future assessments only after the non-binding advisory vote of the people of Whatcom County."

Councilmember Mann informed me in his communication that council members believe that the final clause in this local ordinance is considered to allow this transfer.  It reads that "revenue neutral transfers between existing levies shall be exempt from the provisions of this ordinance."

A 3.9% increase in the General Fund levy that results in increased taxes from city property owners of approximately $486,000, is not revenue neutral.  The only ones benefitting from this proposal are the unincorporated property owners.  City residents are getting a higher bill and less services. 

Especially Bellingham residents.  Maybe that is the point.

[1] The  total assessed valuation is from 2010 County GIS data, and includes both taxable and non-taxable properties.  Adjustments to the valuation would need to be made to include only taxable properties.  For general purposes of tax shift burden, this analysis provides that information.


  1. Thanks for clarifying this complicated subject. Put simply, this is aggressive government-coerced wealth redistribution, a thing that people calling themselves "conservative"* profess to hate.
    Abe Jacobson

    * will someone please tell me what "conservative" means? I'm increasingly confused by the data out there.

  2. Abe, I'm not sure that this is "wealth" redistribution. Based on Census data, the per capita income of city residents is less than county residents. And, it is the county residents that are getting the tax break. Sounds like Reagonomics at work.

    The county is facing a real budget situation that needs resolution. The cuts to PDS have resulted in 27 positions lost since 3 years ago. So, real solutions are needed.

    I don't think the Executive's proposal is the real solution. All taxpayers in the county should share in funding this budget deficit, if not a disproportionate amount coming from unincorporated areas. There are very few county services that are provided in the cities. PDS, Public Works, Sheriff, Council, Hearing Examiner, Executive, Humane Society -- all of those budgets provide little, if any service to cities.

    Finally, the County Council appears to pick and choose how they apply ordinances. They ignore the will of the voters that chose to set aside money for conservation, a fund that has resulted in acquiring development rights in agricultural lands and big park purchases like Lily Point and Lake Whatcom. Then, when it comes to increasing taxes on city residents, they ignore their own ordinance.

    My recommendation is to amend the ordinance requiring a public vote on banked capacity as long as that lift is done equally amongst city and county residents, and to leave the Conservation Futures Fund intact as the voters decided somewhere around a decade ago.

  3. The use of REET to backfill the road fund is a bad idea on two levels. 1) this fund should be used for projects that have a broader benefit. The Executive has done a poor job managing this fund for broad benefit. 2) By cutting the Road Fund, the Council will by their own poorly thought through ordinance be limited to 1% increases in the future without asking voters for advice first. It will be interesting to see how voters in the cities will vote on a tax increase that they won't have to pay.
    At this point I will not be critical of the council. This budget reflecting poor governance came from the executive. It is clear that little public input or council input was sought.
    That said, I was disturbed at Mr. Nelson's comment in the paper today (Sunday). He said he would be talking to the administration. It seems to me that this conversation should have taken place some months ago, not now. Mr. Nelson might have a hard time having a sit down meeting with Executive Kremen. Even though Whatcom County sets budgets only every other year, Mr. Kremen has decided now is a time to go on vacation in Puerto Vallarta.

  4. Will there be some energetic, capable candidates running for County Executive in the next election in 2012?