Spokane leaders have promised to take an annual 1 percent property tax increase through 2016 to help fund $26 million worth of new vehicles and equipment for the fire and police departments.
It’s a strategy that allows the city to make significant purchases without asking voters for new taxes.
Of the $26 million, the fire department will receive $17.5 million to buy eight fire engines, two ladder trucks and two pumper ladder trucks, among other things. Police will use $8.5 million toward new cars and establishing city precincts. The fire and police departments have a long list of outstanding equipment needs, thanks in part to the failure of a 2009 fire bond turned down by voters.
The property tax increases, allowed under state law without voter approval, will be matched with other city money to take out a city-issued loan, or bond. The bond debt will be borrowed against the Spokane Investment Pool, the city’s collection of investments totaling $300 million that will act as a bank managing the debt. In effect, the city will borrow money from itself, and pay itself back with interest.
The new funding stream will put future city leaders on the hook for debt payments, whether they want to take the annual property tax increase or not.
Mayor David Condon said Thursday that he wants to dedicate the annual 1 percent property tax increases and matching city funds through 2019. But, he said, it was too early to promise them, considering he and other elected officials at the city may not be in office after 2016. Yet if 2017 comes and a new mayor or council declines to continue the $26 million debt program, the city would still have to pay off what already was spent. By that time, officials say, potentially half may be used.
It’s unclear how that would be repaid if future leaders reject the concept.
“Whatever we issued at any point in time has to be paid back. So, yeah they’re on the hook,” city Chief Financial Officer Gavin Cooley said. “If people in the future don’t want a permanent funding stream for capital, there’s nothing I can do about it.”
Councilman Jon Snyder, the sole council member to vote last month against the bond issuance plan proposed by Condon, said he didn’t argue with the need for equipment, but rather with the financing.
“We had to expand the limit of our self-bonding number by $26 million. I thought that was a bit high,” he said. Snyder said other options to pay for the vehicles and equipment should have been explored, including pulling money from the city’s reserves.
Cooley said the reserves are “depleted.” Contingency reserves, intended for emergencies, stand at $12 million, even though the city has a stated goal of keeping the reserve at 10 percent of the general fund, about $16 million. The only other reserve is the revenue stabilization reserve, which Cooley said contains $600,000.
“We’re coming out of a recession,” he said. “Now is the time to rebuild reserves.”
Snyder said he sees the plan as a way to build into the budget a way to permanently take the annual 1 percent property tax increase.
“Part of this is political cover for the mayor to take the 1 percent,” he said. “I don’t need political cover for this. We’re always going to have public safety needs, and the 1 percent increase is below the rate of inflation.”
It’s not unprecedented for Spokane to lend itself money. The controversial $5 million purchase of Riverfront Park’s YMCA building in 2010 and the construction of a new property evidence facility used a similar borrowing plan.
Steve Eugster, who helped author the city charter at the turn of the century, said he questioned the financing scheme. He said it violates the charter, specifically Section 85, which states, generally, “a vote of the people shall be required for capital expenditures.”
Brian Coddington, the mayor’s spokesman, said the financing was “a property tax bump. This is not indebtedness.”
“This is like an interfund loan, not an indebtedness to the people,” he said, adding that local law firm Foster Pepper had looked into the issue and decided it was not violating Section 85.
Eugster called the strategy “fancy accounting.”
“I don’t think it makes any difference. It’s still a taxpayer indebtedness,” Eugster said. “I think they’re wrong.”