City budget crunch could get tighter
July 3, 2008 · Updated 12:52 PM
"Oak Harbor's budget problems may get much worse if the so-called son of 695 passes in November.On the other hand, city property owners and utility rate payers could get a windfall of $650,000 in cash, plus a tax cut, interim City Supervisor Doug Merriman said.Last year the city struggled to cut and replace 10 percent of its general fund budget after Mukilteo businessman Tim Eyman's Initiative 695, known as the car tab initiative, was passed by voters.Eyman's new Initiative 722, which will appear on the ballot this November, would mean a net loss for the city of $1.3 million, or about 16 percent of its 2001 budget. Half the money would be in tax cuts, the other half in cash refunds to the public.It will be a very, very significant impact financially, said Merriman, who doubles as the city's finance director.Merriman said the city administration is planning to schedule at least five budget workshops with the city council for dealing with the potential budget emergency. The workshops will be scheduled at Tuesday's council meeting.City leaders have until late September to decide if they will ask voters to approve any kind of tax increase on the November ballot. Merriman said this option hasn't been discussed yet.If Initiative 722 is passed, it will roll back any tax and fee increases adopted by state and local government between July 2, 1999, and Dec. 31, 1999. In addition, property tax levy increases will be limited to 2 percent, or the rate of inflation, whichever is less. The increase in value of property will also be capped at inflation or 2 percent, according to the state Office of Financial Management.Merriman said the initiative is aimed at local governments that raised taxes last year in response to Initiative 695, which annihilated the Motor Vehicle Excise Tax and required a vote of the people for any tax or fee increase.Oak Harbor was one of those local governments.After I-695 passed, the city council increased the city's property tax levy by 11.15 percent - which was the maximum 6 percent plus 5.15 percent that was banked the previous year. In addition, the Council approved a new 7 percent tax on city utilities.In all, the tax increases generate about $650,000 a year for the city.But I-722 would invalidate the tax hikes, which means the city would have to find a way to refund the $650,000 to residents. And the city would lose $650,000 that is budgeted for the year 2001. Altogether, that's a $1.3 million chunk out of the budget.However, the 7 percent utility tax has a sunset clause, which means it will go away at the end of the year unless the voters approve it.Meanwhile, Merriman said the state Supreme Court justices are taking a hard look at I-695. A superior court judge found that the initiative is unconstitutional earlier this year after several lawsuits - including one financially supported by Oak Harbor - were filed against it.Merriman said he's heard the high court isn't set to rule on the initiative until after the November elections.According to Merriman, the city council has three basic options for dealing with the effects of I-722:* Ask the voters to approve a tax increase to make up for the lost revenues.* Raise taxes without a vote of the people. Since I-695 is under injunction and declared unconstitutional, Merriman said the city council could technically raise taxes without a public vote. But Merriman said that move would be politically unwise since the voters may see it as a way to circumvent them.* Cut the budget. Since the majority of the general fund budget goes to police and fire, the majority of the $1.3 million in cuts would have to come out of those departments. Both departments, however, unhappily faced cuts last year and any further cuts will likely mean layoffs. "