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City hikes tax to the max
The Oak Harbor City Council declared a “finding of substantial need” and raised property taxes by the legal limit of 1 percent Tuesday night despite a negative rate of inflation.
Doug Merriman, city finance director, said the 1 percent bump to the current property tax level is a routine, annual tax increase to help keep up with inflation.
According to state law, a city council cannot increase property taxes more than 1 percent each year unless approved by a public vote. In addition, property taxes cannot be increase if inflation is less than 1 percent, unless officials declare a “finding of substantial need.”
This year, inflation was below zero by .848 percent, leaving the council with a difficult decision: Decrease the property tax in a time of economic struggle, leave it the same, or increase taxes by 1 percent.
“It’s been a while since we’ve seen an economy like this and we’re in it deep,” said Councilman Bob Severns.
“If you wanted to meet in the middle, you can decide not to increase taxes,” Merriman said. The ability to raise the city property tax by one percent will be “banked,” he said, meaning that the council would still have the option of adding the unused 1 percent increase to any future year’s increase.
For example, if the council decided to maintain the current level of property taxes this year, they could add the “unused” increase to next year’s hike, which would raise the 2011 property tax by 2 percent instead of 1 percent.
Councilman Rick Almberg pointed out the unusually large number of unemployed people, home foreclosures and a “20 to 30 percent” reduction in business.
“Frankly, I don’t think I have the gall to go to the public right now to ask for an increase,” he said. “I’d be a lot more comfortable passing a 1 percent increase if we could present a cap on our expenditures.”
Merriman reminded Almberg that the city is able to “cap” its expenditures.
“It’s called our budget process,” he said.
Councilwoman Beth Munns warned the council that a vote to keep property tax steady would ultimately hurt the city.
“’Banking’ has really gotten the county into trouble. I know the pain the council went through to balance that budget,” she said, listing a few tough decisions made last year, including no cost of living increase and a hiring freeze. “I don’t want to pay any more taxes than anyone else, but I’d much rather do 1 percent and keep it steady.”
Councilman Jim Campbell sympathized with Almberg, adding that a plan is necessary.
“The next budget cycle we go into we need to do a lot better planning because I think the next one is going to be worse,” he said.
But in the end, Campbell voted with Munns.
“I believe, to keep us alive, we should pass the 1 percent,” he said.
Councilman Jim Palmer noted the irony of the situation.
“Who would have thought (a 1 percent increase) would be high and not low?” he said.
In an effort to lessen the blow of a tax increase, Councilman Eric Gerber suggested the council pass a 1 percent increase and earmark the money generated from the tax for the Oak Harbor Fire Department reorganization. The department’s reorganization plan received a cool reception when it went before council in early October. The council decided not to vote on the proposal at that meeting because the bill did not identify a funding source. A new reorganization proposal will return to the council in December.
“If we can show the public that they’re going to receive a direct benefit, I think the fire department is a good idea,” he said.
Gerber made a motion to pass an ordinance declaring a “finding of substantial need,” increase Oak Harbor property taxes by 1 percent in 2010, and earmark the new revenue for the fire department. The motion, however, received no second and was dropped.
Campbell then motioned to declare a financial need, which was seconded by Almberg.
“Our hands are tied,” Campbell said.
The motion passed with a 5 to 1 vote, with Severns voting against.
Campbell also made another motion to pass an ordinance to increase the 2010 property tax levy by 1 percent to meet the 2010 budget. Almberg seconded his motion, which passed with a vote of 5 to 1. Again, Severns voted against the motion.
The increase approximately translates to an additional $3.60 in property taxes on a $180,000 home in 2010.
The city council adopted its 2010 budget in 2008 when it completed the biennial budget process. No changes will be made to update the 2010 budget until March or April of next year, according to Merriman.