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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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