A recent letter of mine about the Edmonds 2013 budget caused some to comment to me that one big reason why our city has insufficient revenue is because the city cannot increase property tax, its major source of revenue, by more than 1 percent annually – which is below the rate of inflation.
It might be helpful to review a little bit of relevant history. In 1937 the motor vehicle excise tax was adopted. The percentage amount of this tax was increased over the years, as was the vehicle value upon which the tax was based. By the end of the 1990s the State said that the value of your new vehicle did not decrease until it was three years old, when we all know that the value drops as soon as the vehicle leaves the dealer’s premises.
In 1971, annual increases in local regular property tax levies were limited to 6 percent; in 1997, the increases were further limited to the rate of inflation. Presumably even higher increases had been allowed prior to 1971.
Those two taxes provided the revenue for cities to meet the ever-increasing compensation negotiated by the unions representing their workers. Pay for workers in the public sector grew faster than in the private sector, and their benefits (notably health insurance and pensions) surpassed the benefits generally received in the private sector.
Both taxes eventually became unsustainable and were eliminated by initiatives and legislation. In 2000 the motor vehicle excise tax was reduced to $30, and in 2001 annual increases in local regular property taxes were limited to 1 percent.
The 1 percent limit on property tax increases is not a factor of any significance relative to our city’s revenue shortage. If property taxes were able to be increased by the rate of inflation — current Seattle area estimate is 2.7 percent — that would allow collection of only an additional 1.7 percent of $9.8 million (2013 regular property tax) = $156,000; the city’s revenue shortage for 2013, before the reductions proposed by Mayor Earling, is $1.5 million – and forecast to grow beyond that in the following years.
The City of Edmonds would now be collecting near $2 million additional revenue had the motor vehicle excise tax not been reduced to $30. The last full year this unsustainable tax was collected was 1999; Edmonds received $1,244,796. In 2011 all the city received was $11,387. It was an unsustainable tax that is now essentially gone, but the taxpayers, throughout Washington state, are left to deal with unsustainable employee compensation. Economic development can alleviate this situation, but it is by no means a remedy.
The remedy is reduced compensation. The “golden eggs” that funded the superior compensation are gone. The unions are unlikely to accept any reduction in compensation, so the alternative is fewer employees. In order to maintain services, my view is that the employee reductions should be achieved by obtaining efficiencies through the amalgamation of municipalities. It is time for our State government to act.