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HomeMy WebLinkAbout07/25/1997 Adjourned Meeting 400 CITY OF YAKIMA, WASHINGTON JULY 25, 1997 ADJOURNED MEETING The City Council met in Special Session on this date at 9:00 a.m., in the Council Chambers at City Hall, Yakima, Washington, Mayor Pro -Tem John Puccinelli, presiding. Council Members Clarence Barnett, Henry Beauchamp, Ernie Berger, and Bernard Sims present on roll call. Mayor Lynn Buchanan and Council Member John Klingele absent and excused. City Manager Zais, City Attorney Paolella, and City Clerk Roberts also present. Mayor Pro -Tem Puccinelli called the meeting to order for Council consideration of an ordinance reenacting local option excise taxes on lodging which would increase the hotel /motel tax within the City of Yakima. City Manager Zais described the combined effort among Council members and the hotel /motel industry who have been working on the room tax issue since the veto by the State of Washington Governor's office. There has been a significant amount of effort engaged by both the City of Yakima and the City of Bellevue over the last month or so in an attempt to address this issue. The latest development was the obtaining of a Preliminary Injunction Order from the State of Washington in Thurston County Superior Court. This was a result of negotiations between the City of Yakima and the City of Bellevue, the Bond Counsel that represents both of cities, the State of Washington Attorney General's Office, and the Governor's office, the Department of Revenue, and staff for the Governor. The preliminary injunction 'has the effect of essentially staying, or putting on hold, the Governor's veto insofar as it would have interrupted and stopped the payment of room taxes to both cities to retire debt service on the bonds. It also has the effect of allowing the revenue to continue to be paid to both jurisdictions and to inhibit the State from receiving a windfall of an additional tax of 2% on the hotel /motel industry. Since the preliminary injunction is effective only through May of 1998, new legislation is needed to permanently correct the problem. The Governor is planning to introduce special legislation at the beginning of the 1998 Session which will be tied to and directly focused on this issue. That new legislation will also correct problems that gave rise to the original veto, which was how the bonds would be impacted by the stadium issue and the Seahawk move. Some other cities had requested another section of the bill be vetoed which would allow them to access the local option tax at an earlier time; they would have had to wait a year otherwise. Mr. Zais pointed out that problems could still happen in the Legislative Session even though the Governor is going to try to make sure that other amendments in room tax be separate legislation, and not tied to this one. Since that can't be guaranteed, bond counsel has recommended that the City of Yakima adopt and reenact local option legislation. This has to be done based on the provisions in the law which created the Lodging Tax ADJOURNED MEETING -- JULY 25, 1997 409 Advisory Committee. Briefings have, been held twice with the Lodging Tax Advisory Committee to provide their recommendations on reenactment to the Council. Meeting the 45 -day time frame required by law, the Lodging Tax Advisory Committee met in a formal session a few weeks ago to review and discuss this issue in depth. They recommended reenactment of the local option legislation to the City Council before the actual effect of the Governor's veto on July 27, 1997, to assure that the bonds would be sustained and the bond holders would be protected by this reenactment process. Mr. Zais directed attention to the Capitol Theatre's requested change in language, which the Committee briefly discussed at their meeting. He suggested this request be deferred for further study until later this fall in conjunction with the budget process. He then reiterated the following reasons for reenacting the local option tax: (1) The veto essentially repealed the statutory authority of Yakima to levy the 3% "local option" portion of the City's 5% tax. (2) The bill partially replaced the lost tax with an authorization to levy, in Yakima's case, the total of 4.1% of . taxes provided a specific procedure is followed including the appointment of the Lodging Tax Advisory Committee and its review during a 45 -day time frame. The preliminary injunction defers the question of whether the 5% tax is constitutionally required. (3) The bill also has the effect of repealing the existing 2% credit which the hotel /motel industry has allowed to credit against the state sales tax. It would otherwise be required to collect and remit to the State. This would have the effect of raising local taxes by 2 %. This loss can only be corrected by the court in terms of a constitutional ruling or by the legislature, not by the City. The preliminary ; injunction temporarily postpones the 2% credit issue until May of 1998 to allow the legislature to determine whether or not the credit is preserved. (4) The fundamental point is the City is covenanted with the holders of the 1996 Limited Tax .General Obligation Bonds in the original amount of $6 million that it would continue to levy the full 5% of lodging taxes to secure the bond as long as they are outstanding. The City has a duty to take all the steps necessary within its power to continue to levy and collect the tax and without the passage of the reenactment ordinance the City risks losing 3% of the tax if something goes . wrong in the ultimate determinations and deliberations by the legislature. Mr. Zais also pointed out that when the temporary injunction ends, all- necessary steps must be taken- to ensure the continued authority to levy the tax. Even though the issue is expected to be corrected, the .bond counsel and City staff recommendation to I/ the Council is to reenact this legislation today for the purposes outlined. Council Member Barnett questioned whether any more changes were made in the draft ordinance. City Attorney Paolella explained there have been no more changes, and City Manager Zais explained there would have been had the Capitol Theatre's section been reworked. Council Member Sims briefly explained the changes requested by the Capitol Theatre and requested this issue be addressed by the Council during the budget review process. 2 410 ADJOURNED MEETING -- JULY 25, 1997 Council Member Puccinelli applauded the hospitality industry for stepping forward and accepting the fact that there could be another 2% added to the room tax. That's a 12% tax on gross sales. He feels it's important that the public understand that there is a $6 million bond, and that bond is not being paid by property owners or by taxpayers. It is being paid from part of the room tax being collected by the hospitality industry. In response to a question from Council Member Beauchamp, City Manager Zais pointed out that if the new bill fails to correct the situation, the two percent credit issue is still uncertain and the City of Yakima might be able to levy only up to 4.1%, even though attempts are being made to secure the full five percent. City Attorney Paolella also noted that the proposed ordinance before the Council today technically doesn't change the status quo; it maintains the status quo, the reenactment of the City's lodging tax is to preserve the formal grandfather rights, which expire in two days, and to preserve the City's existing 5% authority. Ordinance No. 97 -48 having been read by title only, it was MOVED BY SIMS, SECONDED BY BEAUCHAMP, TO PASS THE ORDINANCE. The motion carried by unanimous roll call vote; Buchanan and Klingele absent. City Manager Zais noted that this is an emergency action and the ordinance takes effect immediately to make sure it is in place before the July 27, 1997 time frame. He pointed out that an attempt has been made to collect legal fees incurred by the Cities of Yakima and Bellevue (about $50,000 combined cost, not counting staff time incurred), but it was not addressed in the preliminary injunction. ORDINANCE NO. 97 - 48, AN ORDINANCE of the City of Yakima, Washington, relating to taxation of charges made for the furnishing of lodging, reenacting such taxes, repealing Section 3.92.030 of the City of Yakima Municipal Code, and providing for an effective date. It was MOVED BY BARNETT, SECONDED BY SIMS, TO ADJOURN THE MEETING AT 9:20 A.M. The motion carried by unanimous voice vote; Buchanan and Klingele absent. i READ AND CERTIFIED ACCURATE BY: - 0 - r , CIL MEM / DATE COUNCIL MEM R DATE ATTEST: CITY CLERK OHN PUCCINELLI, MAYOR PRO -TEM Minutes prepared by Deputy City Clerk Skovalo. An audio and video tape of this meeting are available in the City Clerk's Office 3