No new taxes in budget

Oak Harbor officials have been able to budget for the next two years without any new taxes, staff or program cuts, despite a troubled economy, ever-increasing costs and a voter initiative that limits revenue.

Oak Harbor Mayor Patty Cohen called the biennial budget a “maintenance document,” which means the city probably won’t have money for special projects or any aggressive plans to promote a healthy and growing business community, for example.

“For the most part, we’re going to be in a maintenance mode,” Cohen said. “It’s not where I like to be. ... We need a plan. We can’t wait for the state to bail us out. We have to put into play a new strategy for the city.”

Finance Director Doug Merriman said the goal of the budget was to “take the 2002 budget and maintain same level of service” in 2003 and 2004 without cutting any more staff or creating any new taxes.

Merriman said the city was able to do this, but it will be tougher in years to come as Initiative 747’s 1 percent limit on tax increases “continues to erode” to city’s revenue potential.

In addition, Merriman said the city is concerned about tax-initiative guru Tom Eyman’s possible new initiative to limit all city revenue increases to 1 percent a year. The possible implications for the city are staggering.

According to Merriman, the city has budgeted $9.8 million for the 2003 general fund and $10 million for the following year. The 2 percent increase comes from estimated increases in health insurance costs and a $150,000 computer service upgrade that the city saved up for years.

Overall, Merriman said he budgeted $28 million for 2003 and $29 million for 2004. The total budget includes the general fund departments and the public works programs are funded through user fees and state money. The $1 million increase is due largely to a scheduled replacement of large chunks of sewer lines in 2004.

“If you take that out of the ‘04 budget,” he said, “the overall spending is actually coming down.”

The 2003 budget will have a 7 percent minimum cash balance as required by the state, Merriman said. He explain the goal is to increase the minimum cash balance by 1 percent a year until it reaches a healthy 10 percent. Large organizations like the city should have a 10 percent minimum balance in order to pay monthly bills on time, especially since the city doesn’t always get its revenue from the state and other entities in a timely manner. Also, the city would be able to pay for unforeseen costs without borrowing money.

The city’s budget problems started more than five years ago, during former Mayor Steve Dernbach’s administration, when Merriman first came in and discovered that the city was missing about $1 million due to accounting errors.

After the city cut spending to make up for the missing money, Eyman’s Initiative 695 — the car tab initiative — was passed by the voters. Oak Harbor lost nearly $800,000 a year in sales tax equalization funding, which came from car tab money. The measure was later invalidated by the state Supreme Court, but the Legislature took the hint and cut car tabs to $30.

Then voters passed Eyman’s Initiative 747, which limits government bodies from increasing property taxes by more than 1 percent or inflation, which ever is lower, unless there’s a vote of a people. Before that, the Oak Harbor city council had a long history of raising property taxes by 6 percent annually. They made up for some of the loss of property taxes by creating a 6 percent utility tax, which raises about $480,000 a year.

The problem with I-747 is that it erodes the city’s revenue potential over time. The cost of inflation — the cost of doing business — is usually quite a bit more than 1 percent.

“It’s sort of like a person on a fixed income,” Merriman said. “The income is fixed, but the costs are still going up. The city is in that situation.”

The city also loses a 5 percent property tax increase each year, which means it won’t be part of the overall tax rate to be taxed in following years.

Merriman said this erosion of property taxes will likely catch up to the city someday, though not in the next couple of years. That’s why the city department heads are in the process of prioritizing the programs within their departments.

At some point, Merriman said, the city will either have to cut lower priority programs or ask the voters to increase taxes to pay for specific programs.

In addition to prioritizing, Cohen said the city’s mission statement and goals, recently adopted by the council members, have been integrated into the document. Each department’s budget will include a narrative explaining how the different programs relate to these goals.

“We’ve been spending a lot of time working on this document,” Cohen said. “It’s more than we’ve ever spent in the past.”

After the budget is completed, Cohen said economic development will be her top priority, as is stated in the city’s lists of goals. She said she wants to start by working with the council to “form a consensus” on what economic development is and how is can be achieved.

The city council is scheduled to have a public hearings on the budget Dec. 3 and 17 at 7 p.m. at City Hall.

You can reach News-Times reporter Jessie Stensland at or call 675-1166.

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