Finkelstein: Sammamish must diversify revenue
June 18, 2008
By Emily Keller
As financial analysts debate whether or not the United States has fallen into a recession, Sammamish has fared well. However, maintaining financial viability over the long term will require the city to diversify its revenue sources and prepare for state and national funding reductions beyond its control, a financial expert recently told the City Council.
“Whether we want to use the recession term or not, we’re in a softened economy,” Stan Finkelstein, executive director of the Association of Washington Cities, said to the council at a June 10 meeting in advance of its annual budget retreat. The association is a non-profit corporation that lobbies state officials on behalf of Washington’s 281 cities and towns.
Finkelstein said Sammamish has benefited by setting aside capital funds, a luxury he said few cities enjoy. The city has also benefited from having a relatively high median income, which was $101,592 – almost twice that of similar cities – when the last U.S. Census was conducted in 2000. The closest contender was Redmond, which had a median income of $66,735.
But Finkelstein warned that increases in the federal debt and health care costs will lead to reductions in entitlement programs and funding for services like higher education. He also said Sammamish is likely to face a rise in contract expenses and in the cost of delivering services, and it will need to diversify its revenue sources as new construction slows.
Most cities are developing an increased reliance on the commercial tax base, while Sammamish relies most heavily on property taxes. Sammamish received 61 percent of its 2006 revenues from property taxes, which is more than double the percentage that property taxes accounted for in other cities of 30,000 to 80,000 people.
“Here’s something that I found a little bit surprising,” Finkelstein said. “Your city is one of the most heavily dependent on property taxes in all of the state of Washington.”
Despite Sammamish’s good fortune, the city’s 2006 per capita revenue was lower than that of similar cities, at $754 per person compared with an average of $931. The city’s comparatively low sales tax revenue of $89 per person compared with an average of $244 per person was one factor.
Sammamish received only 12 percent of its revenues from sales and use taxes in 2006, compared with 26 percent for similarly sized cities, and the city did not receive any revenue from business and utility taxes, while comparable cities received 17 percent, or $156 per person.
“There’s very little you can do to really grow your sales tax base except changing the nature of your community and I expect that is not something you really want to do,” Finkelstein said.
Sammamish has also had a decline in the levy rate as the city’s assessed value rose, which Finkelstein attributed to new construction improvements and inflation in housing costs resulting from the city’s desirability. Initiative 747, which limits levy increases to 1 percent annually, is simultaneously pushing the levy rate down, Finkelstein said.
Council members said they planned to incorporate Finkelstein’s advice in their upcoming discussions about the 2009-2010 budget.
Councilwoman Kathy Huckabay responded that Finkelstein’s news about an imminent reduction in state and federal funding seemed to encourage privatization for infrastructure, but Finkelstein warned that doing so could be risky.
“I’m a little uneasy about that personally,” he said, expressing concern over whether companies would maintain infrastructure like streetlights if they ran into economic problems.
Finkelstein also predicted tolling will become more popular. “We are going to see tolling whether we want it or not,” he said.
Councilman Jack Barry responded to the presentation by saying, “Perhaps we will not have the revenue we thought we would have on new construction, but we’re in good shape.”
Reporter Emily Keller can be reached at 392-6434, ext. 242, or ekeller@isspress.com.
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