Tax Reform in Tacoma?

The city services assessment scheme proposed by Tacoma's first-year city manager will go to a citizens advisory panel in the next few weeks. Is it reform? Does it offer any hope for other Washington cities squeezed by the anti-tax dynamics of the past decade?

Outline of the Plan: The proposal put forward by city manager Eric Anderson would cut regular property taxes for all by eliminating the city's portion of the regular levy. It would eliminate utility taxes for all, as well as taxes on businesses, the city's B&O and gross revenue tax. In their place would be a probably bimonthly assessment, a tax based on property values, dedicated to the core city services of police, fire and libraries. Under Anderson's preferred option, the assessment would apply to all property owners other than houses of worship. A biannual referendum would set the level of the assessment. The remaining non-utility city operations would be financed by the existing local option sales tax, which would be retained.

Advantages: To many, the chief advantage would be the initial cut in effective taxes if the shift of some of the burden to nonprofits goes through. Utility bills would be smaller. Regular semi-annual tax bills would be 25% smaller, reflecting the shift of the city's portion. The new assessment would likely come every other month, staggered with the combined utilities bill.

If the nonprofits were left out of the tax base, average tax burdens would stay the same, but it might still be preferred by Tacomans. The new assessment would make a structure that is slightly less "lumpy," since it would reduce the regular property tax bill. Voters tend to prefer taxes that are not "lumpy." They prefer sales taxes to income taxes partly on this count. The bill is small and frequent, rather than large and infrequent.

To Anderson, the chief advantage is clarity. Citizens can support the city's services or not, in a simple vote. He doesn't have to be the bad guy. His reduction of 41 positions in the current budget was not as painless as it has been portrayed.

One advantage to getting the hidden taxes off the books is administrative simplicity, both for businesses and government. Another benefit may be in avoiding difficulties should some telecommunications sources be legislated away in the US Congress, as has been threatened recently.

Improvements in clarity and simplification may be modest reforms. There may also be some improvements in progressiveness, since property values relate generally to income and wealth.

The greater reform could be to adequacy. When people see directly the public good they are financing, they tend to step up to the plate. Andrew of NPI did research some time ago showing that, statewide, 75% of local levies passed, for parks, schools, libraries, fire and so on. Anti-tax deadbeats have a more difficult time distorting the situation in local elections. Their bureaucratic bogeymen and voodoo black holes play better in statewide elections where the direct public good is not explicit.

If that pattern of success for local levies continued, it would be good news. It has to be the calculus Anderson is contemplating. The city's revenue architecture has been crippled by anti-tax initiatives, and it cannot support projected demand for services past the next biennium. Over ten years the shortfall grows to $100 million. Police, fire and libraries comprise two-thirds to three-quarters of all tax supported services.
But it is a vote. And the prospect for failure could well increase should economic times get harder. Note, the referendum would be on increases from a base level carried forward from the previous vote.

Is the city council be abdicating its function as a representative body by putting basic city budgeting to a vote? Anderson believes it is "too late" for government representatives to get control of revenues. The sequence of anti-tax initiatives which occasioned the current contortions, he thinks, also removed effective control.

It is true that Tim Eyman and his anti-government fellow travellers in the Republican party have intentionally eroded confidence in representative government as a campaign tactic. This is very unfortunate. The complex issues facing our society need to be decided by careful study and deliberation at each level, not by knee-jerk reactions to hot button campaigns.

Making the citizens face a vote which is explicit can only help in getting the public's concept of government back closer to reality. Government is schools, police, libraries, parks, fire protection, roads, courts, and so on. It is not the caricature of bureaucrats and lazy clerks painted by the wingnuts.

Most councilmembers have been cautions in their support. One, Mike Lonergan, was adamant in his opposition. In his comments he made the case for representative government, but only in passing. He is much more alarmed by the prospect of taxing nonprofits. He is past head of the Tacoma Rescue Mission and current executive director of a private school.

Is taxing nonprofits regressive? This is not clear. One can envision opponents of the assessment wheeling nursing home residents into the council chambers. But prosperous hospitals and schools would reap a windfall should they not be included in the tax base, since their utility and business taxes would disappear. Nonprofits are receiving city services without paying full price now, a de facto subsidy by taxpayers.
The question may turn on the magnitude of net effect, the difference between current business and utility taxes and the contemplated property assessment. And remember, the entire scheme needs to be authorized by the state legislature. The precedent for taxing nonprofits currently lies only in special fire districts.

Personally, I am in favor of broadening the tax base as much as possible. While there are many nonprofits who might feel a pinch, there are plenty of others who are hiding from taxes in their nonprofit status. In any event, there ought to be ways to tweak the categories or assessment criteria to meet the worst situations.

For those who may worry that the loss of business taxes means the contribution of non-city residents will be diluted -- Don't. Commercial property values directly reflect their access to customers outside the city limits.

The specific effects will need to be sorted by the task force.

No other action on the fiscal plight of Washington's cities is in sight. Virtually all face the same grim future as Tacoma. Any public debate is better than none. This alone is a compelling argument for going forward with the process.

The last word needs to be, This is not about taxes. It is about responsibility. Funding city services cannot be a matter of good luck and accounting gimmicks. Tacoma is one place where they are doing more than sitting and wringing their hands. They are looking for answers. The rest of the state is watching.