Annexations’ Multiple Effects on Port Orchard’s 2010 Budget

Sales tax revenue, even with annexations, will remain flat in 2010, city treasurer estimates.
By Chris Henry
chenry@kitsapsun.com
PORT ORCHARD
Annexations to the City of Port Orchard in 2009 have added more than 2,000 residents to the city’s population and pushed its total assessed valuation above $1 billion.
The city council will need to consider the effects of annexation in planning its 2010 budget, treasurer Allan Martin said Tuesday at a public hearing on the budget.
The shrinking economy plus the increase in population from the McCormick Woods annexation mean the council would have to approve an ordinance showing “substantial need” to achieve the 1 percent increase in property taxes it has automatically been eligible to take in the past.
Before the annexation, the city’s population was 8,420. Now, it’s 10,836.
Cities with fewer than 10,000 people can collect up to one hundred one percent of the previous year’s amount, plus new construction.
Cities with more than 10,000 people are subject to the lesser of two limits: one hundred one percent of the previous year’s collection or one hundred percent plus inflation. Thanks to the recession, inflation declined over the past 12 months by .848 percent. That means, without an ordinance, the city in 2010 could collect 99.2 percent of the $1,633,307 in property taxes it collected in 2009. With an ordinance, it could take in up to an additional $16,333. The one percent increase in 2009 totaled $15,437.
Martin estimates the one percent increase for 2010 would cost the average property owner less than a penny per $1,000 of assessed property value.
At the hearing, City Councilman Fred Chang asked if the ordinance could be crafted so that the city’s property tax revenue would remain flat for 2010. The answer, said City Attorney Greg Jacoby, is yes.
With annexations, including McCormick Woods and the Fred Meyer complex on Bethel Road, the assessed value of the city rose from $833 million in 2009 to $1.167 billion.
Although income from property and sales taxes will increase with annexation, Port Orchard must share that revenue with the county. Under a 2000 interlocal agreement between Kitsap County and local cities, transfer of revenue is to take place in stages over a three-year period, with annexing cities receiving 25 percent of revenue the first year, 50 percent the second and 75 percent third year, before receiving the entire amount the fourth year and beyond.
The city is also facing a sharp drop in sales tax revenue, despite commercial annexations on Bethel Avenue. Revenue is down 11 percent year-to-date. Martin predicts sales tax revenue will remain flat in 2010.
Port Orchard resident Wayne Patterson, who spoke at the hearing, said the city council should refrain from taking any property tax increase. Property owners have had to live with the financial constraints of a shrinking economy, and the city should do the same, he said.
A report on the city 2010 revenue can be found on the city’s Web site, or portrochard2010revenueest.