Download How the local economy affects your city`s finances

How the local economy affects
your city’s finances
Washington State NIGP
Mike Bailey, City of Redmond
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Topics
• Sales and other key taxes
• The affect of economic development on
city revenues
• Pending legislative issues
(national streamlined sales taxes from both the revenue
and the procurement side)
• Some thoughts on how purchasing
professionals can help their communities
and their entities
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City Revenues – All Funds
Rents, Insurance
5%
Governmental
7%
Capital Contributions
2%
Fines & Forfeits
1%
Property Taxes
13%
Sales & Use Taxes
11%
Interest Earnings
3%
Business & Utility
Taxes
11%
Other Local Taxes
4%
Utility Rates
Fees for Services
40%
Licenses & Permits
3%
Source, Washington State Auditor’s Office
Full Year - 2007
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The “Price of Government”
City of Redmond – percent of total household income
0.07
0.06
0.05
0.04
0.03
0.02
Note: 2007 includes a one-time sales tax audit correction and
unusually high Real Estate Excise Taxes
0.01
0
1999
2001
2003
2005
2007
2009
Redmond used the “Price of Government” model for budgeting for 2009-2010. We learned
that our “price” has been between .05% and .06% (typically) and that was an acceptable
level for the future. This includes all city “revenues”
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City Revenues –
General / Special Revenue Funds
Rents, Insurance
5%
Governmental
9%
Property Taxes
23%
Fines & Forfeits
2%
Interest Earnings
3%
Fees for Services
7%
Licenses & Permits
4%
Other Local Taxes
6%
Sales & Use Taxes
21%
Business & Utility
Taxes
20%
Source, Washington State Auditor’s Office
Full Year - 2007
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City Revenues
Sales Taxes Vary - Renton
Good News / Bad News
Other
2%
Services
19%
Wholsale
5%
Construction
23%
Manufacturing
5%
No sales taxes
on airplanes
Automotive
17%
Lots of use tax
General Retail
29%
Mostly good news
(except recently)
YTD – November 2008
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City Revenues
Sales Taxes Vary - Redmond
Information
5%
Hotels / Food
9%
Other
2%
Construction
21%
Manufacturing
3%
Services
14%
Furniture
Electronics
Wholsale
11%
Automotive
1%
General Retail
34%
Building
Materials
Food /
Beverage
Clothing
Sporting
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Goods
General Merch.
City Revenues
Sales Taxes Vary - Lynnwood
From their
web site
Others 25.0%
Motor Vehicle and
Parts Dealer 16.2%
Wholesale Trade,
Durable Goods 3.5%
Clothing and
Accessories 12.9%
Construction of
Buildings 3.8%
Sporting Goods,
Hobby, Books 4.5%
General Merchandise
Stores 12.2%
Furniture and Home
Furnishings 4.9%
Miscellaneous Store
Retailers 4.9%
Food Services,
Electronics and Drinking Places 6.8%
Appliances 5.3%
YTD – November 2008
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Economic Development
• Recycling versus importing – money
– Jobs generate purchasing power
• 10,000 well paying Boeing jobs at Renton plant
• 29,000 well paying Boeing jobs at Everett plant
• 40,000 well paying Microsoft jobs in Redmond
– Ways to capture tax money
•
•
•
•
Property tax – real property wealth / footprint
Sales tax – retail transactions
B&O tax – gross revenue tax
Utility tax – gross revenue franchise fees
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Property Tax
• 1% cap on tax growth
• New construction is in addition
– Therefore, many have seen 4-6% growth
– “Living off growth”
– New construction adds to the base – however
• Once added – only grows at 1%
• Annexations
– Essentially same as new construction
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Sales Tax
• Not desirable jobs source
– Economic development doesn’t like
– Low wages
– Doesn’t “import” money
• HOWEVER – finance directors like it
– Our tax structure favors retail sales
– Captures the spending enabled by good jobs
• Renton “Landing” included “mixed use”
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B & O Tax
• Business & Occupation Tax
– A “gross income” tax
• No deductions (well very few)
• Regardless of profitability
• Flat rate
– Captures business activity
• Beyond sales taxes
• Can tailor to your local economy
– Caps, thresholds, rates, etc
– Business does not like!
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Utility Tax
• A B&O Tax on utility activity
– Electric, telecommunications, natural gas –
capped at 6% (except. . .)
– Water, sewer, storm, garbage – no cap
– A source of revenue growth during good times
– A bit inelastic (doesn’t fluctuate as much
during hard times)
– Intended to capture franchise / ROW
– More on this later
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Legislative Issues
• Streamlined Sales Tax
– Sourcing rules change
• Affect on revenues – affect on purchases
– Nationally making progress
• 22 states and 1,200 businesses participating
• Federal legislation to require collection of remote
sales taxes possible soon
– Last few challenges – really challenging for
local governments
• “Compensation”
• Telecommunications
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Legislative Issues
• 3% withholding on payments
– Doesn’t apply to most of us
( $100,000,000 budget threshold !)
– However – a sign of the times
• Many states have impacted local governments
when balancing their budgets
• Potential for impact on local budgets in the King
County budget (for example)
• GFOA working to get this repealed on principle
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Telecommunications
• Long history of telecom industry working to
reduce tax burden
–
–
–
–
–
–
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Both financially and logistically
Some states have “streamlined” their telecom taxes
Washington state pressured to as well
SST current federal legislation would require
The issue of “convergence”
Administrative burden
In discussions with industry, DOR and AWC
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How you can help
• What can public purchasing professionals
do to help their entities
– You already are
• Clear – sensible policies
• Leverage purchasing power
(cooperatives)
•
•
•
•
Common sense (problem solve)
High ethics
Level playing field
Look for opportunities to “add value” to others
in your organization
Be nice to your finance directors!
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