Spokane real estate excise tax revenue again expected to hit post-recession highs

Spokane’s strong real estate market has again helped boost city street and other projects.

The city is expected to collect about $7 million in real estate excise taxes for the second year in a row, a significant increase after levels plummeted in the recession starting in 2008.

Gavin Cooley, Spokane’s chief financial officer, said revenue from the taxes grew substantially last year, and he projects that by the end of this year the city could bring in close to the same amount.

Cooley said real estate excise tax revenue tends to fluctuate in cycles due to the volatility of the real estate market. The tax is a 1.78 percent charge on real estate transactions in the city, with half a percent going to the city and 1.28 percent going to the state.

Between 2006 and 2007, the city brought in more than $6 million in real estate excise taxes before revenues plummeted in 2008. Collections continued to drop to their lowest point in 2011 when the city brought in just $2.1 million in excise taxes. They have increased incrementally since then.

Spokane is one of 10 local governments in Spokane County that collect real estate excise taxes, and last year, the city collected more than all other cities in the county combined.

Spokane County collected almost $5.4 million last year and has brought in almost $4.6 million to date this year. Spokane Valley’s real estate excise tax revenue did not change as dramatically as Spokane’s after the recession. That city collected $2.9 million last year and to date this year has collected $2.7.

Though Spokane has brought in more real estate excise tax dollars so far this year relative to the same date last year, Cooley said he does not anticipate revenue will significantly exceed last year’s numbers because the last few months of the year tend to be slower for real estate sales.

Rob Higgins, executive director of the Spokane Association of Realtors, said residential real estate sales have been at record levels this year, but said the growth in sales may slow due to lack of available homes.

“I’ve been doing this for over 30 years and I’ve never seen the inventory this tight in Spokane,” he said.

Higgins said the shortage may drive up prices, which could raise tax revenue, but the smaller number of real estate transactions could also level out the upward trend.

Casey Brazil, director of brokerage at Kiemle Hagood, said commercial real estate sales are up across the Pacific Northwest due to lack of available leasing space. He said before the recession, developers would construct buildings for tenants, but due to low rents, businesses are now purchasing land or entire buildings to remodel and occupy themselves.

He said on average Kiemle Hagood’s business is 60 percent leasing and 40 percent sales, but this year sales have dramatically outpaced leases which could affect real estate excise tax revenue across the Inland Northwest. He said there were several large commercial sales in both Spokane County and in the city recently, which could have contributed to the recent tax revenue numbers.

In the past 12 months, four multimillion commercial real estate sales have been finalized in Spokane: the Centennial Hotel, which sold for $35 million; a former Albertsons building which houses Goodwill and Planet Fitness, which sold for $5.9 million; the Old City Hall building, which sold for $5.25 million; and the Broadview Dairy building, which sold for $5.1 million, according to data provided by Valbridge Property Advisors.

Cooley said real estate excise tax can act like a pulse for the economy, but isn’t a good indicator for future economic issues. He added that regardless of how much the real estate tax revenue grows, the city still bases its budget on 20-year averages. If officials based the city’s budget on just a few good years, he said, they could fall short if the economy falters.

Real estate taxes are also only a small part of the city’s budget, and state law requires they go toward specific areas and not into the general fund, which covers basic services like policing and firefighting. Instead, real estate taxes are used for capital projects or street work.

City spokeswoman Marlene Feist said when funding sources like real estate excise taxes are up, the city can accelerate existing street work, like arterial grind and overlay projects. She said the Southeast Boulevard, Palouse Highway, Sunset Boulevard and Martin Luther King Jr. Way projects have all received some real estate tax dollars.

Another area where real estate tax dollars will soon go is affordable housing. In 2017, the state legislature made a temporary exception to real estate excise tax revenue rules, which allowed local governments to use the tax dollars for housing the homeless. The funds will go toward relocating people who may be displaced due to increased housing costs, incentivizing landlords to partner with housing assistance providers to improve opportunities for home ownership. Some real estate excise tax dollars also will go to the new EnVision Center, which is located in the WorkSource building.

The new center is home to housing, health and career development services. Kelly Keenan, the city’s Community, Housing and Human Services Department director, said funding would be dispersed to the different programs next year, but the city had not yet determined how much money each program would receive.