Council may skirt tax limit imposed by I-747 approval
July 3, 2008 · Updated 5:14 PM
The Oak Harbor City Council will consider reinstating a 6 percent utility tax and raising property taxes by 4 percent at the Dec. 18 meeting.
Thats on top of the 1 percent increase in the citys share of property taxes that the council members unanimously approved Tuesday night.
The city can get around Initiative 747, which limits property tax increases to 1 percent unless approved by voters, by using a provision of Referendum 47. Under the constitutional amendment approved by voters in 1997, a taxing district can bank any unused property tax increase up to 6 percent.
Last year, the council approved a 2 percent property tax increase, but banked the remaining 4 percent. So now the council can unbank that 4 percent without violating I-747, which would amount to about $100,000 in extra tax revenue.
After passing the 1 percent property tax increase this week, the council members unanimously voted to bank the remaining 5 percent. Yet it is questionable whether the city will ever be able to actually use the banked 5 percent.
The provision is more of a protection measure, Finance Director Doug Merriman said, in case I-747 is ever overturned.
In other words, if I-747 is ruled unconstitutional, the city could theoretically pull the 5 percent from the bank and raise property taxes by a total of 11 percent next year.
Only Councilman Paul Brewer voted against putting the 6 percent utility tax and the 4 percent property tax increase on the agenda for the next meeting. He also said he was reluctant to approved the banking of the 5 percent property tax.
We still need to cut all the fat from the budget and find other revenue sources like annexing the Goldie Road area, he said.
Brewer has been pushing hard all year to annex the businesses on Goldie Road into the city, which would increase the citys sales tax and property tax revenue. The city allows the businesses to hook up to city water and sewer even though they are in the county.
Were losing all that potential revenue, but at the same time were going to ask the people to pay more in taxes? he said. It doesnt make sense to me.
The citys budget problems, exacerbated by the sales tax slowdown and I-747, may put fiscally conservative council members Richard Davis and Sheilah Crider, whos the chair of the county Republican Party, in the unusual position of arguing for tax increases.
Councilman John LaFond has been advocating bringing back the 6 percent utility tax ever since it expired at the beginning of the year, after being created only a year before. He also says hes in favor of the 4 percent property tax increase.
I dont know what else we can do, he said.
The citys 2002 budget is projected to be in the red by about $500,000. The proposed 6 percent utility tax would raise about $420,000 a year, according to Merriman. Together with the proposed extra 4 percent in property taxes, the citys budget would be more than balanced.
But that doesnt solve the long-range funding conundrum caused by I-747.
Merriman said the citys expenses historically increase by about 4 percent a year, but I-747 prevents the city from raising revenue from property taxes by more than 1 percent a year.
The mismatch we have in revenue and cost of living is great, Merriman said. Theres a $300,000 difference annually and every year it will compound.