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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. Topics. Sales and other key taxes The affect of economic development on city revenues

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How the local economy affects your city’s finances

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  1. How the local economy affects your city’s finances Washington State NIGP Mike Bailey, City of Redmond

  2. 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

  3. City Revenues – All Funds Utility Rates Source, Washington State Auditor’s OfficeFull Year - 2007

  4. The “Price of Government”City of Redmond – percent of total household income 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”

  5. City Revenues – General / Special Revenue Funds Source, Washington State Auditor’s OfficeFull Year - 2007

  6. City Revenues Sales Taxes Vary - Renton Good News / Bad News No sales taxes on airplanes Lots of use tax Mostly good news(except recently) YTD – November 2008

  7. City Revenues Sales Taxes Vary - Redmond

  8. City Revenues Sales Taxes Vary - Lynnwood From theirweb site YTD – November 2008

  9. 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

  10. 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

  11. 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”

  12. 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!

  13. 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

  14. 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

  15. 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

  16. Telecommunications • Long history of telecom industry working to reduce tax burden • 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

  17. 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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