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How the local economy affects your city’s finances . Washington State NIGP Mike Bailey, City of Redmond. Topics. Sales and other key taxes The affect of economic development on city revenues

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how the local economy affects your city s finances

How the local economy affects your city’s finances

Washington State NIGP

Mike Bailey, City of Redmond

topics
Topics
  • Sales and other key taxes
  • The affect of economic development on city revenues
  • Pending legislative issues (national streamlined sales taxes from both the revenue and the procurement side)
  • Some thoughts on how purchasing professionals can help their communities and their entities
city revenues all funds
City Revenues – All Funds

Utility Rates

Source, Washington State Auditor’s OfficeFull Year - 2007

the price of government city of redmond percent of total household income
The “Price of Government”City of Redmond – percent of total household income

Redmond used the “Price of Government” model for budgeting for 2009-2010. We learned that our “price” has been between .05% and .06% (typically) and that was an acceptable level for the future. This includes all city “revenues”

city revenues general special revenue funds
City Revenues – General / Special Revenue Funds

Source, Washington State Auditor’s OfficeFull Year - 2007

city revenues sales taxes vary renton
City Revenues Sales Taxes Vary - Renton

Good News / Bad News

No sales taxes on airplanes

Lots of use tax

Mostly good news(except recently)

YTD – November 2008

city revenues sales taxes vary lynnwood
City Revenues Sales Taxes Vary - Lynnwood

From theirweb site

YTD – November 2008

economic development
Economic Development
  • Recycling versus importing – money
    • Jobs generate purchasing power
      • 10,000 well paying Boeing jobs at Renton plant
      • 29,000 well paying Boeing jobs at Everett plant
      • 40,000 well paying Microsoft jobs in Redmond
    • Ways to capture tax money
      • Property tax – real property wealth / footprint
      • Sales tax – retail transactions
      • B&O tax – gross revenue tax
      • Utility tax – gross revenue franchise fees
property tax
Property Tax
  • 1% cap on tax growth
  • New construction is in addition
    • Therefore, many have seen 4-6% growth
    • “Living off growth”
    • New construction adds to the base – however
      • Once added – only grows at 1%
  • Annexations
    • Essentially same as new construction
sales tax
Sales Tax
  • Not desirable jobs source
    • Economic development doesn’t like
    • Low wages
    • Doesn’t “import” money
  • HOWEVER – finance directors like it
    • Our tax structure favors retail sales
    • Captures the spending enabled by good jobs
  • Renton “Landing” included “mixed use”
b o tax
B & O Tax
  • Business & Occupation Tax
    • A “gross income” tax
      • No deductions (well very few)
      • Regardless of profitability
      • Flat rate
    • Captures business activity
      • Beyond sales taxes
      • Can tailor to your local economy
        • Caps, thresholds, rates, etc
    • Business does not like!
utility tax
Utility Tax
  • A B&O Tax on utility activity
    • Electric, telecommunications, natural gas – capped at 6% (except. . .)
    • Water, sewer, storm, garbage – no cap
    • A source of revenue growth during good times
    • A bit inelastic (doesn’t fluctuate as much during hard times)
    • Intended to capture franchise / ROW
    • More on this later
legislative issues
Legislative Issues
  • Streamlined Sales Tax
    • Sourcing rules change
      • Affect on revenues – affect on purchases
    • Nationally making progress
      • 22 states and 1,200 businesses participating
      • Federal legislation to require collection of remote sales taxes possible soon
    • Last few challenges – really challenging for local governments
      • “Compensation”
      • Telecommunications
legislative issues15
Legislative Issues
  • 3% withholding on payments
    • Doesn’t apply to most of us ( $100,000,000 budget threshold !)
    • However – a sign of the times
      • Many states have impacted local governments when balancing their budgets
      • Potential for impact on local budgets in the King County budget (for example)
  • GFOA working to get this repealed on principle
telecommunications
Telecommunications
  • Long history of telecom industry working to reduce tax burden
    • Both financially and logistically
    • Some states have “streamlined” their telecom taxes
    • Washington state pressured to as well
    • SST current federal legislation would require
    • The issue of “convergence”
    • Administrative burden
    • In discussions with industry, DOR and AWC
how you can help
How you can help
  • What can public purchasing professionals do to help their entities
    • You already are
      • Clear – sensible policies
      • Leverage purchasing power (cooperatives)
      • Common sense (problem solve)
      • High ethics
      • Level playing field
      • Look for opportunities to “add value” to others in your organization

Be nice to your finance directors!