May 14, 2011 in Washington Voices

Facts, fallacies and questions to ask about city taxes

Bill Gothmann
 

We are approaching the time of year when citizens turn to running for Spokane Valley City Council. This can bring with it extravagant claims and dire predictions about taxes. Therefore, permit me to present to you four fallacies and four critical questions you should ask to sort out the city’s financial facts in this political year.

Four fallacies

• “City taxes greatly inflate my property tax.” City taxes take about 13 percent of your total residential property tax bill. On a typical $165,000 house, your total property taxes will be about $1,900, with the city taking about $248 of this. The bulk of the rest goes to schools, fire districts, the county and the state.

• “This project will raise your property taxes sky high.” The city is permitted to raise your city property taxes by only 1 percent per year without going to you for a vote. On our typical, $165,000 house, this maximum 1 percent would increase the taxes from $1,900 to $1,902.48.

• “The city is deep in debt.” We owe only 1.63 percent of our total debt capacity. This comes from bonds the city issued in 2003 to finance CenterPlace and some street improvements.

• “We will go broke after 2014.” Financial projections are useful in analyzing what we should do now to influence what may happen in the future. Typically, we overestimate expenses and underestimate revenues. However, the basic assumptions in the forecast can easily make a 50 percent difference in the 2014 carry-out reserves, now projected at $13.6 million. Because we were conservative, actual results have exceeded every yearly financial projection the city has made since it was incorporated, resulting in more, not less, reserve funds in the bank.

Four important questions to ask

Assume someone asserts, “This project will cost the taxpayers over $35 million.” You need to ask four important questions to prevent falling into the trap of false inferences:

• “When will the $35 million project be done?” The inference is that it will be done soon. However, good planning and the Growth Management Act require us to plan projects and finances for the next 20 years. This is, of course, our best estimate of what could happen, but future happenings could easily change that estimate.

• “What is the per-year figure for the $35 million?” Anyone can raise an alarm by using a large, 20-year figure. However, a $35 million, 20-year project would cost only $1.8 million per year. (For comparison, our total budget is about $100 million per year).

• “Which local taxes are tapped for the $35 million?” Anyone can infer that your property taxes will increase, whereas sales taxes, Real Estate Excise Taxes (REET), or some other revenue may be the local source of funds. For example, road projects typically tap only REET taxes, not property taxes.

• “How much of the $35 million will come from local taxes?” Anyone can infer that all the funds come from the city. In fact, local REET funds account for about 20 percent of road construction projects and the remaining 80 percent comes from grants by the state or the federal government. For a $35 million project, local REET funds would supply about $7 million and grants would pay the remaining $28 million. Those figures could easily decrease if developers pitched in as they did on Pines from Mansfield to Mission.

In summary, question. Get answers. Seek the truth. Being well-informed is the primary key to success for your city’s future.

Spokane Valley City Councilman Bill Gothmann can be reached by email at bgothmann@ spokanevalley.org.

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