How Fire District Merger Could Affect Taxpayers

Note to readers: It seems I’ve been going in for epic blog entries lately. Here’s another one, hopefully with useful information.

I got an e-mail about a month ago from Roger Gay, who asked about the potential impact on taxpayers of a proposal to consolidate the Bremerton Fire Department, Central Kitsap Fire and Rescue, and South Kitsap Fire and Rescue. Roger was worried about the issue of bonus (taxing) capacity such as the City of Port Orchard gained when its fire department merged with South Kitsap Fire and Rescue.

I contacted Kitsap County Assessor Jim Avery to see if a similar scenario could occur with the merger of the three districts, and Avery’s short answer is, conceivably, “yes.” See Avery’s entry dated 3/11/08 (near the bottom of the extended entry).
Avery had this disclaimer, “I think it is very early to know what is going to happen at this point between the City of Bremerton, SKFR and CKFR. Anything that does happen, however must ultimately be authorized by the voters.”

I also contacted Mark Horaski, director of Valley Regional Fire Authority, that was formed in 2007 with the merger of the Algona, Auburn and Pacific fire departments. He provided information on how VRFA dealt with the merger of three taxing jurisdictions with three different fire district rates.

An article by reporter Andy Binion in the Kitsap Sun addressed the potential benefits and complications of the proposed merger.
“A study completed last summer said the three entities could join together to streamline organizations, improve service and save money,” Andy writes.

But exactly how that would work is far from hammered out.

The article continues, “Districts and departments have different levels of service and pay different amounts in taxes. Part of the process will be to determine how much households will pay.”

Here’s the thread of e-mail correspondence on how the proposed merger could (possibly) affect your family’s budget.


From: Roger Gay
Date: Sun, 24 Feb 2008 03:09:34 -0800
To:
Subject: South Kitsap

Out of curiosity have you looked into the potential merger of the three fire districts? With Bremerton wanting to annex a big part of South Kitsap and the sudden desire to combine the fire districts it just seems curious. From reading previous blogs it seems the rural areas of South Kitsap did pay more when the district combined with Port Orchard. Then to top that off South Kitsap Fire wants a levy lid lift in 2009. I just get that feeling there is more to the story and that the rural taxpayers in South Kitsap are going to take it in the shorts again. After the Port of Bremertons 150% increase last year I can’t wait to see what this latest group of officials can pull out of their hats.
Roger Gay
South Kitsap, west of 16

“Henry, Chris” 3/10/2008 10:22 AM
To: Jim Avery
Jim – Got this e-mail from Roger Gay (a frequent blogger). He raises the
question of how the proposed merger of the three fire districts could affect
SK taxpayers (and let’s add taxpayers in CK and Bremerton). Can you respond
to this for a blog post (which may be used in a future story)?
Thanks, Chris

From: Jim Avery
Date: Mon, 10 Mar 2008 13:08:38 -0700
To: Chris Henry and others
Subject: Re: FW: South Kitsap (Fire District Merger)
As I understand it the SKFR, CKFR and the City of Bremerton are exploring the possibility of a Regional Fire Authority (RFA). The RFA is a fairly new concept as far as state law is concerned. I think there are only two of them in the state. There is a lot of flexibility in how such an organization can be organized. Under a full RFA there would be only one governing body and the same levy rate would be charged to all property owners within the combined taxing district. This would be difficult to get started, as the CK ($1.26) and SK ($.98) levy rates are a ways apart. I think the two RFAs currently existing in the state are modified RFAs where the existing governing bodies (fire commissions and/or city council) continue while the existing levies continue in each of the districts. What is hopefully gained is a closer working relationship with more inter-local agreements to share protection areas and operational efficiencies.
I think it is very early to know what is going to happen at this point between the City of Bremerton, SKFR and CKFR. Anything that does happen, however must ultimately be authorized by the voters. Feel free to call if you still have questions.
Jim Avery
Kitsap County Assessor
337-7085

From: Henry, Chris [mailto:chris.henry@kitsapsun.com]
Sent: Monday, March 10, 2008 4:33 PM
To: Mark Horaski
Subject: FW: South Kitsap (Fire District Merger)
Mark – I’m a reporter with the Kitsap Sun. I had a question from a reader about how a proposed merger of three fire districts here in Kitsap County might affect taxpayers. I’m wondering if you could give me your thoughts, as well as letting me know how the issue of different tax rates was handled when VRFA was formed.
Thanks so much for your help in this matter
Chris Henry, South Kitsap Reporter

On 3/11/08 8:59 AM, “Mark Horaski” wrote:
Hi Chris,
Thanks for your question–it is my pleasure to assist you with this.
The Valley Regional Fire Authority was officially formed on January 1, 2007, the result of a proposition approved by the voters during the November 2006 election. The agreed upon taxing structure was that 2007 would see each participating city (Algona, Auburn and Pacific) continue to levy their regular property tax rates and transfer funds to the
VRFA for its operations. Starting in 2008, the VRFA has levied its own property tax, which is comprised of the following:
1. A property tax levy; and
2. A fire benefit service charge.
Note that this funding mechanism was also approved by the voters in November 2006. The fire benefit service charge must be renewed by the voters every six years, and in exchange for the ability to levy it, the maximum property tax rate that the VRFA can levy is $1.00 per $1,000 of assessed value (versus $1.50 per $1,000 of AV for a non-FBC funding model).
It is important to emphasize that each of the participating cities reduced its own 2008 property tax levy rate to reflect the fact that they were no longer providing fire services to their citizens.
During the original vote on the proposition, it was outlined to taxpayers that the average citizen would not see an increase in the cost of funding fire operations of approximately $60 per year. We were pleased to keep this increase to approximately $38 for 2008.
You are correct that some of our cities experienced higher increases than the average due to differences in the original city levy rates and fire services that were being provided. This was discussed during the vote on the VRFA establishment however, and it was outlined that some citizens would be paying more for fire service under the VRFA model.
However, in exchange for a higher rate, they would receive:
1. A full time 24/7/365 professional firefighter staffed station (one VRFA city was previously staffed with a combination of professional firefighters and reserves, and did not provide 24/7/365 service); and
2. Full three person engine crews for our entire service area (this increases fire fighter safety, and provides additional response capabilities while on a call–one VRFA city previously ran with 2 person engine crews).
Finally, it was noted that the service contract that one city had with another for the provision of fire services did not reflect the cost of providing service to that city–as a result, that city’s contract rate would have gone up significantly at the next renewal. The VRFA formation took care of this situation.
I trust this addresses your question. Please feel free to contact me if you would like to discuss this further.
Sincerely,
Mark W. Horaski, CPA
Director of Finance & Administration
Valley Regional Fire Authority
Telephone: 253-876-1938
Fax: 253-931-3055

From: Henry, Chris [mailto:chris.henry@kitsapsun.com]
Sent: Tuesday, March 11, 2008 11:16 AM
To: Mark Horaski; Jim Avery
Subject: Re: South Kitsap (Fire District Merger)
Mark – Thanks for your detailed response. I have one additional question about the following paragraph:
“It is important to emphasize that each of the participating cities reduced its own 2008 property tax levy rate to reflect the fact that they were no longer providing fire services to their citizens.”
It seems that this would result in an increase in taxing capacity on the part of each city. With the reduction of taxes as the fire district is taken out of the city’s budget, the city would then have the capacity to raise taxes back up to the lid originally allowed. What was your region’s experience in this regard with the formation of VRFA?
I’m cc’ing to our county auditor, Jim Avery, and invite both of you to respond.
I understand that a similar situation occurred when the City of Port Orchard merged it fire department with South Kitsap Fire and Rescue.
(Jim correct me if I’m wrong that this is potentially a similar situation.)
Thanks to you both for your help. Chris Henry

“Mark Horaski” 3/11/2008 11:24 AM
Hi Chris,
My understanding is that with the ‘spinoff’ of the fire service, each city’s maximum levy rate potential was reduced by $1.50 since they are no longer providing the fire service. Thus, there should not be an increase in taxing capacity.
Mark
Mark W. Horaski, CPA
Director of Finance & Administration
Valley Regional Fire Authority

On 3/11/08 1:18 PM, “Jim Avery” wrote:
Mark you are right the maximum levy rate is adjusted following an annexation, but no one worries about the maximum levy rate these days. With levy rates as low as they are due to the rapidly increasing assessed values we have all seen, Chris is exactly right there is bonus capacity gained by a city when a fire district annexes a city that previously provided fire protection service.
The city’s highest allowable amount to be levied/collected, which is essentially their limit, is not reduced even though they no longer provide the fire protection service. In the last five years both Port Orchard and Poulsbo got out of the fire protection business via FPD annexations. Neither city could resist the urge to collect the bonus tax revenue.
Jim Avery
Kitsap County Assessor

From: Mark Horaski
With regards to Mr. Avery’s comments, I obviously cannot speak on behalf
of any of our cities as they are separate jurisdictions. My email only
related to the reduction in the maximum taxing capacity available to
them.
Thanks,
Mark

6 thoughts on “How Fire District Merger Could Affect Taxpayers

  1. It will be very interesting to see our group of officials will spin this potential merger with the taxpayers and voters. You throw in a levy lid lift by South Kitsap and the insatiable demand for funds by Bremerton to improve itself we could be in for an interesting discussion. With Bremerton and Port Orchard starting the discussion on annexing the South Kitsap Industrial Area (SKIA) and the potential for growth the Bethel Corridor may bring it will make it even more interesting. Then of course we must add the potential loss or reduction of funds for the cities and counties due to the housing market crisis. Bremerton condo’s auctioned off for hundreds of thousands of dollars less does not bode well for future income and I for one do not want my fire tax money for South Kitsap spent to improve Bremerton. The Port of Bremerton’s plan to pour my money in the marina is bad enough, now others see a way to spread out the cost of protecting the downtown core by merging with 2 other fire districts. I hope those who support this merger are better at communicating the benefits and pitfalls than the Port of Bremerton. Then again, any communication would be an improvement. I want to thank Chris Henry for the response to this bloggers question. Hopefully it will bring some light on the subject and future articles in the Sun.

  2. Even though we have to work with hypotheticals until the planning committee starts putting out some real numbers, we can begin to figure out what the tax and fee structure would be.

    Here’s my first cut. I would like to know if I’m making mistakes as I try to figure it out, so speak up, anyone!

    Start with RCW 84.52.044 and try to figure out what the limits on taxes and benefit charges may be.

    The “regional fire protection service authority” (RFPSA) would have the same maximum allowable tax rate for its regular levy for fire protection purposes as the existing fire protection district, namely $1.50 per $1000.

    If the RFPSA gets voter approval for “benefit charges,” RCW 52.26.240 takes away part of the RFPSA’s levy authority — namely 50 cents per $1000, so that the RFPSA’s maximum tax rate becomes $1 per $1000 for fire protection. (EMS is a separate levy authority of 50 cents per $1000 under RCW 84.52.069.)

    For unincorporated South Kitsap areas within Fire District 7, the maximum allowable tax rate would apparently be the same. And, since Port Orchard was annexed into the fire district several years ago, the city residents would be treated the same as taxpayers living in the unincorporated areas.

    The “benefit charges” are something new for us. The RFPSA could, with voter approval, collect 60 percent of its operating expenditures via benefit charges rather than property tax levies. Imagine a hypothetical district where the tax rate is at the maximum already and the annual levy collected is $6 million. With maximum benefit charges, the levy amount would drop to 2/3 of its previous total, or to $4 million — and the benefit charges could be $6 million for a total of $10 million.

    That hypothetical shows how important it would be to pay close attention to the proposed benefit charges, since the effect can be a large increase in the total paid by residents. (It doesn’t have to be a big increase, but it could be if the voters approve.)

    Within Bremerton, the picture looks more complicated. First, it appears that Bremerton’s maximum tax rate is $3.375 per $1000 right now. (Even though Bremerton is part of the rural library district, its tax rate back in 1999 and 2000 indicates that it didn’t lose part of its allowable tax rate by joining the library district way back when it did. It appears to have been “grandfathered” at the rate allowed for cities that aren’t annexed into library districts.)

    If Bremerton joins the RFPSA, then its maximum allowable tax rate would be reduced by the rate imposed by the RFPSA. Imagine in the hypothetical above that the maximum of $1 per $1000 is imposed by the RFPSA (along with benefit charges). Then, Bremerton’s maximum tax rate would become $3.375 minus $1, or $2.375 per $1000. (If the RFPSA didn’t collect benefit charges, but instead went with the maximum levy at $1.50 per $1000, then subtract that from $3.375. Bremerton’s maximum allowable tax rate would be $1.875 per $1000 then.)

    Right now, the city’s actual tax rate is slightly more than $1.90 per $1000, so joining the RFPSA wouldn’t force a reduction in its levy lid or its actual levy rate (assuming benefit charges keep the RFPSA’s rate at no more than $1).

    As shown by the examples of Poulsbo and Port Orchard, passing the cost of fire protection from the city to the fire district via annexation doesn’t mean the city will not collect property taxes as though it were still using them to pay for that fire protection.

    The “levy lid” is the number of dollars the city can collect, not the tax rate. (Back before I-747, many taxing districts were able to increase their levy amounts so much each year that they eventually bumped up against their maximum allowable tax rate and could go no higher. So, a lot of people tend to think of the rate as the lid, when it’s actually the total dollar amount that is the lid.)

    Bremerton’s levy lid would not go down after joining the RFPSA, even though its residents would begin paying property taxes and benefit charges directly to the RFPSA.

    Since neither its lid nor its actual tax rate would go down, Bremerton could still collect its property taxes and use them for other purposes — having passed the fire protection expense off to the RFPSA. Bremerton’s residents obviously need to look closely before leaping into this. They will pay about $5.7 million to the city this year, not counting the EMS levy and bond levy amounts.

    If the limits on what could occur can be figured out, then we could look at the probable effect of joining South Kitsap to CK and Bremerton. That takes a crystal ball, but I think the crux of the matter is the possible shift of tax burden from one area to another based on total property valuations. Right now, if SK’s property valuation grows faster with things like the new retail stores, we can benefit by having part of the burden lifted from our homes. If we grow in that way faster than CK and Bremerton, joining with them in an RFPSA would mean they get to share in the benefit of the growth, leaving less of a benefit for us. Of course, if either of them grows faster than SK, we would get to share in that benefit. So, what is likely to be the relative rate of growth for each of the three areas?

    On the other hand (There has to be an other hand in this sort of thing, right?), if Bremerton is able to gobble up commercial areas, it can leave CK or even SK without that potential revenue. So, you can’t just look at the probability of greater development in one area compared to another — you have to look to see if Bremerton could make you regret leaving them by themselves as they annex whatever is within their grasp.

    I think this will be a complicated enough topic to keep people puzzled for quite a while. Until we get the actual figures from the RFPSA planning committee, we cannot know what we are asked to approve. We can just try to understand what limits on future tax and fee increases would be built into the system — and what sorts of tax burden shifts might occur from one slow-growing area to a faster-growing area.

  3. Jim Avery emailed to let me know that I was missing an additional levy that Bremerton can impose. It’s in RCW 41.16.060, which authorizes the imposition of 22.5 cents per $1000 in addition to the city’s other regular levy authority.

    That explains why Bremerton’s actual tax rate in 1999 and 2000 was $3.325 per $1000. I had thought Bremerton must not be affected by the library’s levy the way RCW 27.12.390 states for cities that are annexed into rural library districts, since I thought the city’s maximum allowable rate would have been $3.10. Add that extra 22.5 cents and you get the $3.325 that was the city’s rate back then.

    For cities in rural library districts, the maximum allowable tax rate is no longer $3.375 per $1000. It becomes $3.60 per $1000 minus whatever rate the library levies.

    If the library got voter approval for a lid lift back up to its maximum tax rate of 50 cents per $1000, then Bremerton’s maximum allowable rate would be $3.60 plus $0.225 minus $0.50, or $3.325.

    If Bremerton joined an RFPSA, then the levy of that RFPSA would further reduce the maximum allowable tax rate for the city. If the RFPSA had both a levy and benefit charges, its maximum rate would be $1 per $1000. Subtract that from the city’s $3.325 and you get the city’s maximum rate in that situation: $2.325 per $1000.

    Since Bremerton’s actual rate this year is only a little more than $1.90 per $1000, joining an RFPSA wouldn’t force the city’s maximum allowable tax rate down below where it is now. Where I had said in the earlier comment that the maximum allowable rate for the city would be $2.375, I was a nickel higher than the actual tax rate cap in that situation.

  4. Sheesh!

    With all of these tax rates, and taxing authorities and rates and RCWs, et al ad nauseum…

    No wonder taxpayers are confused, angry and suspicious over their taxes.

    When understanding taxes requires a law degree or. at least, a CPA, it begins to look like we are being scammed by some pretty good con artists.

  5. “Dazed and Confused,” nobody said it would be easy to figure out, but we probably will be asked to vote on it — so figuring it out is necessary.

    Rather than suggesting that we are being conned, try saying what part you don’t understand and want more information about.

    Recognizing that my first cut is unavoidably long, here it is “boiled down”:
    –Bremerton could continue to levy the property tax it now collects, while its residents would begin paying an additional tax (and probably a benefit charge too) to the regional fire protection service authority.
    –South Kitsap residents (including Port Orchard residents) might not see such an additional tax burden, unless, of course, our fire district commissioners decide to use whatever part of their levy authority is left over to collect something in addition to what the RFPSA collects.

    The planning committee will eventually put some real numbers on the table for discussion. In the meantime, we could attempt to understand what limits would exist on taxes and benefit charges.

    Trying to figure out how the costs would be shared among the three jurisdictions will probably have to wait for real numbers.

  6. Here’s a “second cut.” I’ve been wondering exactly how the levy authority of the RFPSA affects the levy authority of the fire districts.

    Under RCW 84.52.044 it looks as though the SK and CK fire districts could do something like what the City of Bremerton could do – assuming the RFPSA imposes benefit charges rather than using 50 cents of its allowable $1.50 per $1000 maximum tax rate.

    RCW 52.26.240 says that the RFPSA cannot use the 50 cents per $1000 levy authority in RCW 52.26.140(1)(c), if it imposes benefit charges.

    RCW 84.52.044 would take away levy authority from the SK and CK fire districts when the RFPSA uses its levy authority. The first 50 cents per $1000 that the RFPSA uses under RCW 52.26.140(1)(a) eliminates the 50 cents per $1000 that the fire districts could levy under RCW 84.52.044(1)(a). Likewise, the second 50 cents that the RFPSA uses under RCW 52.26.140(1)(b) eliminates the second 50 cents that the fire districts could levy under RCW 84.52.044(1)(b).

    But, when the RFPSA imposes benefit charges, so that it cannot use its third 50 cents per $1000 under RCW 52.26.140(1)(c), that leaves the fire districts’ with authority to levy their third 50 cents per $1000 under RCW 84.52.044(1)(c).

    Only when the RFPSA actually levies that third 50 cents per $1000 would the fire districts lose all their authority to levy property taxes. So long as benefit charges are imposed by the RFPSA, the fire districts would retain the ability to levy at least 50 cents per thousand.

    The fire districts start with a maximum allowable tax rate of $1.50 per $1000, and their allowable tax rates are reduced by the tax rate actually imposed by the RFPSA. (If the RFPSA levied at a rate of 95 cents per $1000, for example, the fire districts could levy at a rate of 55 cents per $1000.)

    Since the fire districts’ levy lids aren’t reduced by joining an RFPSA, they could levy a property tax in addition to the property tax levied by the RFPSA.

    That’s something to look closely at, when the planning committee puts its numbers on the table. What would keep the fire districts from continuing to levy a property tax after joining an RFPSA?

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