Proposed initiative is already generating financial concerns

POULSBO — Tim Eyman’s newest initiative attempt is already sending shock waves through Poulsbo’s finances and it hasn’t even officially made the ballot.

Currently known as Initiative 860, the “25 percent property tax initiative” is among the list of those proposed for the 2004 state ballot. In order to make the vote, petitioners Permanent Offense (also known as Voters Want More Choices) must get the signatures of 197,734 registered voters by July 2.

The measure would cut property taxes by 25 percent each year beginning in 2005. Voter-approved levies and property taxes for education would be unaffected.

“I don’t think you have to convince people that our state has a huge property tax problem,” commented Eyman, one of the sponsors of the initiative. “This is something to solve that problem.”

However, city councilman Ed Stern took a different approach after hearing about the proposal for the first time.

“This bill is very self-serving to the voter,” Stern said. “Anyone looking for a fig leaf of a reason why they should cut their property taxes will find it here ... I would anticipate it’s going to be highly controversial and popular.”

For the City of Poulsbo, the cut would take an estimated $250,000 out of the city coffers beginning with the 2005 budget as property taxes are one source from which the city derives revenue. Finance Director Donna Bjorkman alerted Mayor Donna Jean Bruce and the Finance/Administration Committee last week that the loss could be devastating.

“We are very conservative with our budgeting and most of the time we can cover for these kinds of cuts, but we could not survive a quarter cut to our property tax,” Bjorkman commented.

The City of Poulsbo’s overall budget for 2004 is about $27 million, which includes things like the general fund, utility funds, debt service and capital projects. Stern explained that the anticipated revenue lost if the initiative passes is equal to about one-eighth of Poulsbo’s sales tax revenue, another of the city’s revenue sources.

“So it would be like cutting two months of our sales tax revenue out,” he commented.

But Eyman said the 25 percent tax initiative does not necessarily mean that property tax revenue will all go out the window. First and foremost, he said the drafters made sure to allow voter initiatives and education measures to be exempt from the cuts.

He said in past initiative attempts, both successful and otherwise, they’ve learned that these things were important to Washington voters.

“If the voters want to tax themselves into oblivion, that’s okay with us,” Eyman explained of the clause. “Kitsap County voters tend to support fire districts and things like that but you recently with great verve defeated a tax for foot ferries. It’s obvious that they have to make the case that this is necessary. We’re saying, ‘What about the property taxes you don’t get a vote on?’”

The initiative would also be a boon to local jurisdictions in the form of a state-wide economic boost, Eyman added. He said the expected tax relief in the State of Washington for the measure is $550 million per year. Eyman said the drafters arrived at a 25 percent cut by using figures calculated by the Washington Policy Center. The aim, he said, was to cut taxes enough to stimulate the state’s economy by leaving more money in the hands of individuals across the state without taking too much.

“Obviously, we make the case that voters aren’t going to shove that money under mattresses,” Eyman said. “They’re going to spend it.”

Though it will be known in July whether or not the initiative even makes it to the ballot, Poulsbo must begin its budgeting process for next year in June. Bjorkman said city staff and council will likely draft two 2005 budgets — the primary one assuming I-860 passes and an alternate in case it doesn’t.

It will be up to council to prioritize and to decide where cuts to services or personnel would be added to cover the lost revenue.

“Right now, how we distribute property tax is that 5 percent goes to the street reserve fund, 5 percent goes into the park reserve fund, 40 percent goes to city streets and the rest goes to the general fund,” Bjorkman explained. “So council will have to decide how that impacts each — whether to eliminate reserves for streets or parks or hit the general funds with reductions.”

Eyman said so far, reactions have been mixed to the proposal although he’s optimistic about the measure’s chances of going out to a statewide vote. He said voters Want More Choices have a number of supporters who think property taxes are totally unnecessary. He said he’s also heard from elected officials who believe the only true way to stimulate the economy would be to raise property taxes.

“You’re dealing with both ends of the political spectrum so we were trying to find a good middle ground,” Eyman said. “I’m hoping voters will think this is a reasonable proposal.”

And the possibility of I-860 passing isn’t far fetched, Poulsbo officials feel. Stern said the fact that education is exempt will likely make people feel better about voting for it. Also, the promise of 25 percent off property taxes might be a lure too great for many, he added.

For Poulsbo, having the biggest commercial development in Washington State in progress might also be a reason folks vote for I-860.

“I’ve got friends who will vote for this,”Bjorkman said. “Their argument is that, ‘Well you’ve got Olhava and your sales tax will go up.’ But we can’t budget for that money until it’s there.”

“For those who would say, ‘Not a big deal. Look at the revenue that will be coming from Olhava.’ I say that’s all in the future,” Stern said. “Look how little we’ve gotten done in 10 years. We would be very foolish to count our chicks before they hatch.”

However, Stern said while I-860 has serious implications for next year’s budgeting, he said be felt Poulsbo’s general belt-tightening in recent months has made it ready for this concern as well. He commented that while all jurisdictions could be facing similar predicaments, Poulsbo has the benefit of having undertaken a process study and bare-bones budget cuts already.

As to whether he thought Poulsbo will weather the storm, the councilman had no doubts.

“Absolutely,” Stern said. “We prepare for storms. Sailing in good weather is easy. Literally, we prepare for the worst and hope for the best.”

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