Saturday, December 15, 2012

OPINION: We can do better on the city budget, By Councilmembers Myers and Carson

On Tuesday, December 4, the Redmond City Council passed a budget for 2013 through 2014. The administration says the budget “is reduced to take into account the continued lack of service demand in development review [and other items]” is a 4% increase over the current budget. The budget includes a 1% property tax increase even though we will have a $10 million surplus at the end of 2012 (the 1% increase is worth about $450,000 over the next two years). As the two dissenting votes on the budget, we want the residents of Redmond to know that the city can do better.

In 2008, we adopted a process called Budgeting by Priorities, a technique designed to fund the highest priority services first, with input from the public. It was proposed by the authors of the book “The Price of Government” as a method to counter unsustainable growth in government taxes and fees. Essentially we establish a revenue prediction, and go through the various services in priority order until we run out of money. This is not a stand-alone process, however. Central to the premise of the book is that there is an acceptable price for each level of government that citizens are willing to support. Get above that level and taxpayers react negatively by rejecting tax levies, supporting restrictions on raising taxes (58% of Redmond voters supported I-1185), and even electing candidates who promise to be more fiscally responsible.

On the one hand, the price of government as a percentage of the total income base in Redmond is going down. One the other hand, the reason is because we have increased the population density in Redmond so that the total income base has gone up faster than the cost of government services. This is true for all eastside cities. Redmond even has a policy of encouraging this by creating high density development in downtown and Overlake. This is why high income density communities such as Clyde Hill, Hunts Point, Medina and Yarrow Point have costs of government half of Redmond levels.
On the third hand (economists always need at least three hands), how do we compare to similar cities in our area? As a group, the cities of Redmond, Bellevue, Kirkland and Issaquah spend about 4.7% of residents’ total income for all services including water, sewer and storm water utilities. For Redmond, the cost of these services is 6% higher at 4.98%. Woodinville and Sammamish don’t provide the same utility services, but we can compare the cost of basic government services for these cities as well. For the six largest eastside cities, the population weighted price of basic municipal government is 2.83%. For Redmond, it is 14.5% higher at 3.27%.

Mayor Marchione has said that it is an improper use of the Price of Government tool to compare relative costs of neighboring cities. That is like saying that it is improper to compare new car prices in Bellevue with car prices at Kirkland dealers, or wrong to compare grocery prices at QFC in Redmond to those at QFC in Sammamish. All six neighboring cities share the same labor pool, cost of living, topography and service expectations. All six cities provide high levels of basic municipal services and enjoy similarly high satisfaction ratings by residents. Probably the most directly comparable city to Redmond is Kirkland, yet our cost of municipal government including utilities is 31% higher than Kirkland and the price of basic government excluding utilities is 16% higher in Redmond. All cost data come from the Washington State Auditor for the same categories of costs, while population and income data are from the U.S. Census Bureau for 2011.

Two arguments were raised to support raising property taxes to the legal maximum. First, it costs something to maintain any new capital project we build. We all understand this. Whether it is a house or a car or a lawn mower, anything we buy will generate ongoing maintenance costs. When we look at the data provided by the administration, it is amazing how little it will cost to maintain our proposed projects. The Mayor’s projected ongoing costs related to the proposed new capital projects is 0.65% per year. For every $100 we spend on capital, it will cost us 65 cents a year in ongoing costs. Anyone who has ever owned an Audi or a Fiat can tell you what a bargain that is. This argument also overlooks that the purpose of these capital projects is to encourage and accommodate new development, which in turn generates new taxes at an even higher rate than the current tax base. We won’t be paying those new ongoing costs from the current tax base, but from a significantly larger one.

The second argument for raising taxes is concern about possible shortfalls in future years. This argument has been used every budget for the last three budget cycles, and yet each biennium our surpluses have increased. If we had not taken any property tax increases in the last six years, our current budget surplus would be “only” $8.5 million, or over 5% of the current basic budget. These rhetorical arguments are contradicted by any data analysis of possible effects.

Proponents of higher taxes argue that the increase isn’t really very much. We ask, are they even necessary? As a government, we should not be taking any more money from our residents than we need in order to operate our services honestly and efficiently. We know any money that’s collected will be spent because Governments don’t do profit sharing or pay dividends. In addition to being more diligent about our cost of government, we need to have a higher threshold for raising taxes than simple anxiety or rhetoric. Raising taxes should be the last option, not the first.

David Carson
Hank Myers

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