2020/12/16 Council Agenda Packet

Like most cities, property tax is the single biggest revenue source for the General Government. And here is perhaps the single biggest revenue constraint that Everett (and other cities) face. Initiative 747 (I-747), approved by Washington state voters in 2001, capped the amount a government jurisdiction in Washington can collect from property tax in any year to no more than 1% more than the prior year, plus the value of property taxes on new construction. The 1-747 cap results in this major revenue source lagging behind general inflation every year. Voters must approve any increase in property collections above the 1-747 cap, through what is known as a "property tax lid lift." Sales tax and business and occupations taxes —the second and third largest sources of Everett's revenues respectively-- are sensitive to economic cycles. In boom times, they can grow faster than inflation, but in an economic downturn such as that we are now experiencing, the amount of resources these revenues produce can drop significantly. Everett's fourth largest revenue source —utility taxes —have been on a declining trend over the past several years. A combination of factors, including consumer behavior, weather, conservation, and billing structures have all come together to reduce utility tax receipts that support General Government services. Virtually all of the City's current General Government revenues are being levied at the maximum rate allowed by law without a vote of the people. Everett has not asked its voters for an increase in property taxes —to fund operations or new capital projects for over thirty years —since 19881. • The Gap between General Government Revenues and Expenditures Figure 3 below shows the projected growth rate of General Government revenues and expenditure from 2021 through 2027. Figure 4 breaks down the revenues and expenditures into sub -categories to highlight the different growth rates between major components. Figure 5 shows the resulting General Government deficit forecast between 2021 and 2027—increasing from an estimated $14 million in 2022, to just over $30 million by 2027. These estimates are based on information as of October 2020 and incorporate the impacts of the Boeing 787 shutdown and ancillary impacts on the broader Everett business community. The current budget forecast anticipates General Government revenues to grow at an annual average rate of 2.0% per year between 2022 and 2027. In contrast, General Government expenditures — the cost of supporting the programs listed in Figure 1 - are projected to grow at 4.5% per year over the same period. The expenditure forecast is artificially increased due to the suspension of the LEOFF 12 Pension prefunding allocation and other one-time adjustments proposed to balance the 2021 budget; these expenditures are restored in the forecast for 2022. Removing 2022 from the measurement period results in an average 3.5% expenditure growth rate, which more closely reflects the actual anticipated trend. Under either calculation the gap between revenues and expenditures is a major problem for the City — and for the residents, employees and business owners who live or work here. 1 This was for the construction of the Senior Center and Senior Housing. In 1987 voters approved an unlimited tax general obligation bond for the expansion of the main library and construction of the Evergreen Branch library. z LEOFF: Law Enforcement Officers and Fire Fighters. The state has established two pension funds for police and firefighters. LEOFF 1 was the first such program. 5