The DuPont City Council reviewed three revenue-generating ordinances and tried to plot out a path for the city’s 2013 operating budget during a four-hour workshop held on Tuesday, Dec. 4.
The city is facing cuts to public safety, parks and maintenance after voters rejected a temporary property tax increase that would have paid for three firefighter positions and $750,000 of the city’s $1.2 million annual debt payment on the Civic Center.
A recent and unexpected $26.1 million land transaction by Duke Realty will bring an estimated $130,000 in Real Estate Excise Tax (REET) revenue in 2013, but it is nowhere near the amount the city needs to sustain itself for the long-term.
DuPont City Administrator Dawn Makso said the $130,000 can only be used for capital projects, which includes paying the Civic Center debt. This frees up $130,000 from the city’s general fund to potentially pay for a fire fighter or police officer – for one year. Proposed budget cuts include eliminating one police officer and four firefighters, closing parks and allowing the grass grow along city greenways and ball fields in 2013. The absence of maintenance on ball fields could mean popular youth recreational programs such as the city’s little league baseball and soccer programs would be cancelled if alternative fields were not found.
The council also debated creating other streams of revenue that are not included in Mayor Michael Grayum’s proposed 2013 budget, as a way to buy back city services currently on the chopping block.
Suggestions included a proposed car tab tax that could generate $29,000 to $58,000 in 2013, and a possible increase to the current business and occupation tax rate of .01 to .0125 percent, which would generate an additional $130,000 in revenue.
Councilman John Ehrenreich suggested the car tab tax could be used to pay for park maintenance. Not everyone was on board with the idea, and even fewer council members were okay with increasing the city’s current B&O rate.
“If you increase the B&O tax rate to .0125, I will not vote for the budget. We cannot target our small businesses like this,” said Councilwoman Penny Coffey.
The new ordinances, which had a first reading during the Nov. 27 council meeting, include a rental property business license, a proposed square footage tax, and reforms to the city’s business license fee structure.
Revenue generated from the rental property business license, estimated at $78,000, and the reformed business license fee, estimated at $20,000, would be used to fund a new position designed to streamline the city’s permit process.
After receiving feedback from local businesses about the way the city processes its building permits, Mayor Grayum put forward the new position in his 2013 budget proposal as a way stabilize the city for long-term development growth.
“We have to have a long-term strategy that invests in our future. The voters were clear that they don’t want to see increased property taxes, but we need to stabilize our city’s financial situation. I see this position as an important first step in that long process,” said Grayum in an interview with South Puget Sound News.
According to DuPont’s interim finance director Steve Marcotte, the rental property business license would have a fee structure of a $75 annual fee on individuals who own up to four rental units. If an individual or company owns five to 24 rental units, an annual fee of $150 plus $5 per unit would be assessed. Anyone owning 25 units or more would be charged an annual fee of $300 plus $5 per unit.
The reformed business license fee would raise the city’s current rate of $50 to $75 for businesses employing zero to 24 employees. A business that has 25 to 99 employees would pay $300 per year. A business that has over 100 employees would pay $500 per year.
A proposed square footage tax would apply to any business in DuPont occupying a square footage area greater than 20,000 square feet. It does not apply to building owners, but rather only to those who conduct business activities within the building. Businesses using less than 20,000 square feet would be exempt from the tax. The proposed rate for the tax is .05 cents per square foot per quarter. In comparison, the City of Bellevue charges .2318 cents per square foot per quarter for a business using 250 square feet.
Marcotte told the council that the square footage tax ordinance provides an exemption for businesses that are conducting activity already subject to the city’s B&O tax.
“The square footage tax ordinance would apply to roughly five businesses in DuPont. Out of those five, only one – Intel – would need to use the exemption,” said Marcotte.
The square footage tax was proposed as a way to create equity in the city’s current B&O tax code.
A handful of DuPont’s largest businesses pay very little or no B&O tax because of the way the city’s tax code is written despite the fact that these businesses engage in substantial business activity within city limits.
Included in this handful of businesses who do not pay B&O are the Dania and Pier One warehouses. Interestingly enough, the newly proposed 1.4 million square foot warehouse associated with the Duke Realty transaction would also likely not pay any B&O tax under the city’s current B&O tax code.
As Mayor Grayum focuses on economic development as a long term strategy to help bring the city out of its financial mess, rumors have emerged that online retail giant Amazon.com might be bringing a distribution center to DuPont.
Some council members are worried that enacting a square footage tax could possibly drive away economic development. This very issue was addressed during meetings held this summer between Mayor Grayum, local businesses and the Economic Development Board for Tacoma Pierce County.
As previously reported, Susan Seuss with the Economic Development Board for Tacoma Pierce County, recommended to council that the city should be very clear as to why reforms were taking place, and to avoid doubling DuPont’s current B&O tax rate.
“If you make any reforms, be clear about why you’re making them. You already have a B&O tax in place. If you modify it, make sure there are clear reasons on why the change is being made. Businesses like predictability,” said Seuss.
Representatives with Duke Realty, Amazon.com and DuPont Corporate Park LLC did not return calls to South Puget Sound News about the status of the project, which is nicknamed Project Granite. Mayor Grayum told South Puget Sound News he doesn’t want to get anyone’s hopes up prematurely.
“What we know is: the property has been purchased and the city is working closely with the developer as they prepare the land for future tenants. We will make an announcement as soon as we know who those tenants are. We’ve been down this road before, specifically with grocery stores, which is why I don’t want to jump to conclusions.”
Grayum added that he is excited about the potential jobs and additional tax revenue a project this size could bring to DuPont.
The DuPont City Council will have second readings on the square footage tax ordinance, the rental property business license ordinance, and the business license ordinance at the December 11 council meeting. A special council meeting has been tentatively scheduled for December 18 to discuss the 2013 budget.