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HomeMy WebLinkAbout2016-024 2017 Ad Valorem Taxes ORDINANCE NO. 2016 -024 AN ORDINANCE fixing and levying the amount of ad valorem taxes necessary to discharge the expected expenses and obligations for the 2017 Budget for the City of Yakima (ordinance B). WHEREAS, the City Council finds that the total net amount of $18,497,656 in revenue must be raised by ad valorem taxes on real and personal property within the corporate limits of the City of Yakima to discharge the expected expenses and obligations for the 2017 Budget for the City of Yakima, now therefore, BE IT ORDAINED BY THE CITY OF YAKIMA: Section 1. There is hereby fixed to be raised by general property taxes upon real and personal property within the City of Yakima the amount of $18,497,656 for the following purposes: General Government Levy Operating Funds $17,256,896 Firemens' Relief & Pension Fund 1,240,760 Amount of tax levy for General Government Purposes (1) $18,497,656 Special Purpose Tax Levy 0 Total Levy Amount (1) $18,497,656 (1) Includes an additional $50,000 to provide for final adjustments in State assessed, refunds, new construction and annexation values. Section 2. The City Clerk is directed to transmit and file a certified copy of this ordinance with the Board of Yakima County Commissioners and the Yakima County Assessor on or before November 30, 2016. Section 3. Pursuant to Article VI, Section 2 of the Yakima City Charter, this ordinance shall take effect on November 15, 2016. PASSED BY THE CITY COUNCIL, signed and approved this 15th day of November, 2016. ATTEST: ; � ° Y � 1k Kathy ■ offey,1 =y ,r 9 11(L r t � 4 / ' S /fi 4 4 i Sonya Claar'Tee, City Clerk t. � ` •, i � Publication Date: November 18, 2016 4s -! , ,\-. Effective Date: November 15, 2016 ITEM TITLE: SUBMITTED BY: SUMMARY EXPLANATION: BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDASTATEMENT Item No. 10. For Meeting of: November 15, 2016 Public hearing and ordinances pertaining to Ad Valorem Taxes to be levied for collection in Fiscal Year 2017 Cliff Moore, City Manager Cindy Epperson, Director of Finance and Budget Ordinance A— Declaring the City Council's intent to increase the City's 2016 regular property tax levy up to 101 % of the amount levied in the previous year, plus new construction, annexation, and refunds. Ordinance B— fixing and levying the 2017 ad valorem property taxes and excess levy taxes for the City of Yakima. These ordinances follow state law imposing a 1 % increase in the property tax levy for 2017, plus new levies for construction and refunds, and are the basis on which the 2017 budget was developed and balanced. Because the 1 % increase is greater than the inflation rate (Implicit Price Deflator or I PD), these ordinances require super- majority approval (i.e. 5 -2). The attached memorandum discusses the importance of the property tax levy, and sets forth the "substantial need" to exceed the rate of inflation of 0.953 %, and approve a modest 1 % increase in the levy. The full 1 % increase amounts to about $180,000, while the inflationary increase is about $171,600. If Council does not approve the 1 %, then General Government revenue would be reduced by $8,400. Council could choose to use beginning fund balance, or direct a corresponding reduction in expenditures. ITEM BUDGETED: STRATEGIC PRIORITY: Yes Public Trust and Accountability APPROVED FOR SUBMITTAL: '°City Manager STAFF RECOMMENDATION: City Management is recommending that City Council conduct a public hearing on the 2017 property tax levy, and then pass ordinances. BOARD /COMMITTEE RECOMMENDATION: Upload Date Type 111912016 Cmer Memo 1111012016 CDxer Menio 111912016 Cceer Memo 111912016 Co r Menio 111912016 Coxer Memo Memorandum Date: November 10, 2016 To: The Honorable Mayor and City Council From: Cindy Epperson, Director of Finance and Budget Re: 2017 Property Tax Levy Background State law requires several administrative and legal steps to establish the property tax levy. This agenda item includes two (2) separate ordinances. Ordinance A and B will set the property tax levy for collection in 2017, based on the limit of a 1 % increase (or the rate of inflation, whichever is less) over the prior year base levy, plus new levies for construction and annexation. The law defines the rate of inflation as measured by the Implicit Price Deflator (IPD) for consumer goods. For this year, the IPD increased by 0.953% from June 2015 to June 2016. Since this is less than the statutory 1 %, our property tax increase is limited to a 0.953% increase. However, state law does allow the property tax to be levied at the 1 % maximum, by a super- majority (i.e. 5 -2) vote of Council declaring the existence of "substantial need" for the increase. The 2017 budget was developed assuming a 1% increase. Exhibit I details the calculation of the property tax levy with a base of 101% of the prior year using preliminary information obtained from the County Assessor's office. According to state law, the certification of ad valorem taxes must be filed with the Board of Yakima County Commissioners on or before November 30, 2016 or the City will receive no funding from this source in 2017. The Commissioners have requested to receive this packet by November 21 so they can incorporate all of the requests into their required legislation. Ordinance purposes are: Ordinance A identifies Council's intent to authorize an increase in the tax levy over 2016 levels. Because the limit factor is greater than the rate of inflation, this ordinance requires a super - majority (i.e. a minimum affirmative vote of five members) to pass. It is required by RCW 84.55.120. This is legally necessary to increase the 2017 tax collections by any amount over 2016 levels. Ordinance B fixes the tax levy for collection by the City in 2017. This ordinance would include not only the regular tax but also special levy taxes for bond repayments. It should be noted that all voted bond issues were paid in full in 2014, so the 2017 levy does not include a special bond levy. This ordinance complies with RCW 35.33.135 and in accordance with Article VII, Section 2 of the City Charter, also requires a super- majority approval by City Council. These ordinances are in substantially the same format as the prior year levy legislation, with the exception of the additional declaration of substantial need in Ordinance A. General Government Revenue Discussion In reviewing General Government revenue, there are 4 revenues that each make up approximately one fourth of the total —i.e. there are four "legs" that support General Government operations. Sales Tax (including the City's allocation of both county -wide Criminal Justice sales taxes) represents about 27% of the total. Property tax as proposed is about 23 %; Utility Taxes as presented in the Preliminary Budget make up about 22 %; and all other revenue comprise the remaining 28 %. (See Attachment 1 for a summary of General Government revenues.) 2016 General Government revenue is estimated to be $73.7 million, $3.4 million or 4.8% more than 2015, due to a combination of sales tax growth of about $731,000 or 3.8 %; an increase in state shared revenue of $530,000; and the sale of two Tiger Mart properties after their environmental clean -up of $688,000. Going into 2017, Sales and utility tax revenues are projected to grow as a result of ongoing economic development in our community and increases in utility rates so that revenues are forecast to grow by $1.9 million or 2.6% from the 2016 estimate, (and $2.3 million or 3.1 % from the 2016 Budget). The proposed 1% increase in Property Tax is projected to be about $180,000 in 2017. The initial estimates from the County on the 2017 property tax levy included a growth rate for new construction that is 1.2% or $223,000, along with a refund levy of about $38,000 which approximates the budget estimate when added together. Property Tax Discussion The total 2017 City of Yakima property tax levy includes the 101 % levy, and amounts for new construction and prior year refunds. The 2017 budget currently includes an estimated revenue of $18,310,210 for the regular levy, an increase of $414,420 over the 2016 year -end estimate of $17,895,790. There is no voted levy debt, since the 1995 voted Fire bond issue paid in full in 2014. The total operating tax rate for next year is estimated to be $3.111 per $1,000 of Assessed Valuation (AV), up slightly from the 2016 rate of $3.0879. (The statutory limit is $3.60 less the Library levy, which is capped at 50 cents per $1,000. The estimate for the 2017 Library levy is 47.4 cents per thousand) It should be noted that the amounts included in the budget differ from the levy as shown in attached Exhibit I because of the timing of collections. In other words the budget is built on collection estimates of the levy. A home with an assessed value of $150,000 in 2016 paid $463.19 for the regular levy. (According to the preliminary valuation estimate provided by the County Assessor, the underlying assessed value of all taxable property in the City grew slightly – about 0.2 %). The regular levy tax for 2017 is estimated to be $466.76, and there is no voted levy so there is a slight increase of $3.57 in the total annual levy. We believe the current request for the property tax levy is justified by the following conditions, which combine to indicate the City has a substantial need to increase the levy to the statutory maximum of 1%: 1. The property tax is needed to help meet mandates and contractual obligations, principally Public Safety pensions /medical costs. Attachment 2 demonstrates the amount of property taxes dedicated to these areas. 2. In the Street budget, property tax represents about 66.7% of all revenue in this budget. (see Attachment 3). Investing in maintaining and repaving the City streets has been a high Council priority for several years. The other major revenue source in this fund is Gas Tax, which is based on a "per gallon" charge. The economic downturn created a "new normal" in consumption -- the 2017 gas tax estimate is about equal to 2007 levels. 3. Property tax is also a key revenue source for the Parks and Recreation Division, representing about 47% of all Parks revenue. Parks maintenance is supported entirely by property taxes, which includes the funding of the City Charter amendment to spend $750,000 annually on Parks capital projects. Other programs such as the Senior Center and Aquatics are supported in part by the property tax. The cost to maintain and operate these facilities increases annually. (Also see Attachment 3). 4. Again this year, the City is not expected to collect the full levy because of senior citizen exemptions, delinquent taxes and other refunds for disputed values. For the year 2017, the City is estimating a reduction of up to 2.3% in actual collections from the authorized levy, offset by a portion of delinquent taxes that are predicted to be collected. 5. Yakima's per capita property tax ranks $90 below the average of comparable Washington cities with populations of 50,000 to 135,000 in 2015, the most recent year this information has been compiled. Yakima ranks 9th out of 11 cities in this group. Further, for these same cities, Yakima's total per capita revenue collected from all taxes, fees and charges is $1,510 or $813 less than the average of $2,323 and again ranks 9th out of the 11 cities. Our residents are currently taxed and /or charged substantially less than other similar size cities. (See Attachments 2 & 4). 6. Finally, the City's current property tax levy represents only 24% (approximately 1/4) of the total property taxes paid by City residents. The State, local School District levies and County government receive approximately 3/4 of all property taxes paid. (See Attachment 5). In conclusion, property tax is a vital component of General Government revenue. Based upon the previous discussion, City management /budget staff respectfully requests the passage of both Ordinances A and B to set the 2017 property tax levy, which is the basis on which the 2017 budget was developed. If a super- majority does not approve "substantial need" to go to the 101 %, then the ordinance will need to be modified for the increase to be 100.953 %, and the requested amount will be reduced by $8,463 from $18,497,656 to $18,489,193. Since the General Government budget is already projected to use reserves, a reduction in property taxes of about $8,500 would result in a budgeted use of reserves, unless Council directs a reduction in expenditures. City of Yakima Property Tax Limitation Calculation Prior Year (2016) = Base IPD 0.953% Increase Substantial need 0.047% Increase Base 101% Valuation Increase - -- 0.22% New Construction - -- 1.24% State Assessed Value Tax Limit Before Annexations Add for Annexation Limit for Subsequent Years Plus Refunds (estimate) 2016 Tax Assessed Rate Values Applied (Dollars in Thousands) $3.1117 $5,831,302.790 $3.0879 EXHIBIT I 2017 Levy Dollars $18,006,395 $171,601 $8,463 $18,186,459 $12,707.458 N/A $0 $72,324.696 $3.0879 $223,331 $3.0879 $0 $5,916,334.944 $3.1117 $18,409,790 $0.000 $3.1117 $0 $5,916,334.944 $3.1117 $18,409,790 Plus Contingency Total- ordinance Est. Change in rate per $1,000 of Assessed Value $0.0238 State of Washington Constitutional Limit Assessed Valuation $5,916,334.944 $3.6000 Less: Library Levy (Estimate) $0.4743 2015 Levy for Collection in 2016 (Estimate) $3.1257 $37,866 $50,000 $18,497,656 $21,298,806 $2,806,118 tit : = 27.1 Sales Tax ($20,519,080) ATTACHMENT #1 GENERAL GOVERNMENT REVENUE (BASED ON 2017 BUDGET OF $75.6 MILLION) 21.8¢ 6.5¢ 3.6¢ Franchise & Intergovernment & Other Utility Tax State Shared Revenue Revenue ($16,507,100) ($4,898,728) ($2,742,270) Source General Sales Tax Crim. Justice Sales Tax (1) Property Tax Utility & Franchise Taxes Charges for Services State Shared Revenue Fines and Forfeitures Other Taxes Other Revenue Transfers from other Funds Other Intergovernmental Licenses and Permits Total Revenue Beginning Fund Balance Total Resources 22.6 Property Tax ($17,069,450) 14.0(r 4.4(r Licenses, Permits Fines & & Charges f /Services Other Taxes ($10,552,576) ($3,289,610) GENERAL GOVERNMENT RESOURCES THREE YEAR COMPARISON 2015 Actual $15,770,269 3,260,050 16,444,895 15,689,913 8,242,444 2,873,947 1,589,895 1,557,541 936,511 1,449,559 1,578,128 872,276 70,265,428 9,412,400 $ 79,677,827 2016 Year -End Estimate $16,400,000 3,361,500 16,755,030 15,973,100 8,791,326 3,404,000 1,690,464 1,554,300 1,544,287 1,490,700 1,696,478 990,500 73,651,685 7,152,826 $80,804,511 % of -- 2017 vs. 2016 -- 2017 Increase Percent Total (Decrease) Change 22.7% 2017 Percent Projected Change Revenue 4.0% $17,023,200 3.1% 3,495,880 1.9% 17,069,450 1.8% 16,507,100 6.7% 9,571,576 18.4% 3,433,050 6.3% 1,721,110 (0.2 %) 1,568,500 64.9% 1,229,210 2.8% 1,513,060 7.5% 1,465,678 13.6% 981,000 4.8% 75,578,814 (24.0 %) 6,942,980 1.4% $82,521,794 % of -- 2017 vs. 2016 -- 2017 Increase Percent Total (Decrease) Change 22.7% $ 623,200 3.8% 4.5% 134,380 4.0% 22.6% 314,420 1.9% 21.8% 534,000 3.3% 12.7% 780,250 8.9% 4.5% 29,050 0.9% 2.3% 30,646 1.8% 2.1% 14,200 0.9% 1.6% (315,077) (20.4 %) 2.0% 22,360 1.5% 1.9% (230,800) (13.6 %) 1.3% (9,500) (1.0 %) 100.0% 1,927,129 2.6% (209,846) (2.9 %) $1,717,283 2.1% (1) Some Criminal Justice sales tax is allocated to the Law and Justice capital fund (a non - general Governmental fund) for capital needs. 2017 PROPOSED GENERAL PROPERTY TAX LEVY — BY FUNCTION Gen _� 9 Pension .................... General Parks & Recreation Street & Traffic Sub -Total General Government Fire Pension Total ■ °eets 80,100 .6`7. 2016 2017 Year -End Projected Estimated Revenue $ 10,660,930 2016 2015 Amended Actual Budget $ 9,914,078 $ 10,660,930 2,956,085 2,659,400 3,574,732 3,332,700 16,444,895 16,653,030 1,182,452 1,240,760 ■ °eets 80,100 .6`7. 2016 2017 Year -End Projected Estimated Revenue $ 10,660,930 $10,927,450 2,659,400 2,561,900 3,434,700 3,580,100 16,755,030 17,069,450 1,140,760 1,240,760 $ 17,627,347 $ 17,893,790 $ 17,895,790 $18,310,210 ATTACHMENT #2 2016 Est. vs. 2017 Budget 2.5% (3.7 %) 4.2% 1.9% 8.8% 2.3% The graph below depicts how the City of Yakima compares to other cities of somewhat similar population relative to property tax. This comparison shows that Yakima's property tax is below the state average. This data was compiled from the State Auditor's Local Government Comparative Statistics. $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 2015 PER CAPITA PROPERTY TAXES Comparable Cities between 50,000 and 135,000 in Population (Rounded to the closest dollar) Yakima's per capita property tax is $190, which is $90 less Kennewick Kent Yakima Auburn Marysville Bellevue Richland Kirkland Renton Everett Redmond PROPERTY TAX AS A PERCENTAGE OF TOTAL FUND REVENUE 2017 BUDGET YEAR 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% ' 20.0% Qa 10.0% a 0.0% General Parks Streets Fire Pension Fund Property Tax 0 % Other Revenue ATTACHMENT #3 ATTACHMENT #4 The largest revenue source for the General Government Funds is sales tax. Yakima is just slightly below the average per capita sales tax compared with similar cities in the State. However, Yakima is in the lower 1/3 of ranking in all other revenue comparisons per capita and is the third lowest out of the twelve cities compared in combined per capita revenue. This comparison demonstrates that the City of Yakima has limited revenue /tax base compared with most cities of its size in the state, and yet provides similar or enhanced services to its citizens. (For example, of the cities included in the comparison, only Everett has a transit system; there are no other city -owned irrigation systems; and a few of the cities are members of a Regional Fire Authority, so have no fire expenditures). $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2015 PER CAPITA TOTAL REVENUES Comparable Cities between 50,000 and 135,000 in Population (Rounded to the closest dollar) Kennewick Marysville Yakima Kent Auburn Kirkland Everett Renton Redmond Richland Bellevue ATTACHMENT #5 Property Taxes The total property taxes paid by property owners within the City of Yakima include taxes levied by several governmental entities: the State, School Districts, special county -wide voted levies and the City's general and special voter approved levies. The percentage of the total property taxes levied by, and allocated to, each individual governmental entity will change slightly from year to year. The City's portion is generally under 30% of the total amount collected. (Refer to the graph and chart below for how the 2016 property taxes were allocated between these governmental entities.) Yakima School District 0.38c 2015 PROPERTY TAX DISTRIBUTION State of Washington Schools Library 0.18c .04c City of Yakima Yakima County EMS .24c .14c .02c City of Yakima Property Tax - In 2016, a typical City resident pays approximately $12.64 per thousand of assessed value on property taxes. Only $3.09, or about 24.4 %, goes to the City, with the balance divided between the County, schools, and other special districts. Description Of How Property Taxes Are Levied - The following explanation is included to help the reader understand how property taxes are assessed to the individual property owners. To aid in this explanation, three commonly used terms must be understood. They are Property Tax Levy, Property Tax Rate and Assessed Value. ➢ Property Tax Levy - is the total amount of money that is authorized to be collected. ➢ Property Tax Rate - is the property tax amount that will be applied to every $1,000 of assessed value; the rate is determined by simply dividing the levy amount by the total assessed value amount and dividing that number by 1,000. ➢ Assessed Value - is the total value, as determined by the County Assessor's Office, of all property within the City.