The proposed B&O tax is a financial last resort
Pat McDonnell
was appointed by the Vancouver City Council as City Manager in September 2000. He has spent 27 years in public administration.
The Vancouver City Council is currently engaged in discussions about reinstating a local business and occupation tax that was phased out between 1993 and 2002. Limitations on local taxing authority have left the City Council with few viable options to fund the services our community says are most important—police and fire—and to make critical investments in our transportation infrastructure.
When the decision was made to eliminate the B&O tax, the City Council believed it to be the right decision given what they knew about the city’s financial future. What they could not have predicted was I-695, which replaced the motor vehicle excise tax with a $30 license tab fee in 2000, effectively eliminating millions of dollars that funded public safety and transportation programs. Nor could they have predicted I-747, which requires the state and local governments to limit increases in property taxes, the major source of local government funding, to 1 percent a year. Since 2001, these initiatives and the elimination of the B&O tax have resulted in a cumulative loss of almost $66 million in revenue to Vancouver.
City Council has developed three courses of action over the last three years to strengthen the city’s financial structure. Since 2003, we have made almost $8 million in cuts and eliminated more than 25 positions. We have instituted business planning and performance measures in all our departments to prioritize programs. We conduct internal audits and process reviews and have empowered employees to seek ways to increase efficiencies and cut costs, including employee benefits.
In 2005, City Council approved a sales tax increase of two-tenths of 1 percent, which is dedicated to transportation projects. Finally, we worked with businesses for two years on a business license surcharge proposal that would have offered short-term funding for transportation projects. The City Council ultimately rejected the final business license surcharge proposal because it placed an unfair burden on smaller businesses.
A business and occupation tax is currently the only tool we can use to begin to address the basic transportation and public safety needs for our community. The current proposal reestablishes the tax at an initial rate of $1.10 per $1,000 of gross receipts and would gradually increase it to $1.50 per $1,000 of gross receipts by 2010. Businesses with gross receipts less than $50,000 per year would be exempt from the tax. In addition, there would be a reduction in the current business license fee from $125 to $75.
A local B&O tax would raise $8.8 million in revenue in 2007 and $12 million by 2010. The majority of the revenue would fund transportation projects critical to economic development and job creation. Some of these projects include improvements to N.E. 18th Street, between N.E. 87th and N.E. 162nd, along S.E. 164th and to Fruit Valley Road from Whitney to N.W. 78th, as well as the realignment of N.E. 87th Avenue from Lieser to 5th Street. Additional revenues will be used to pay for two medic units including staffing, to allow for the construction of a new fire station and to add sworn police officers to keep us at minimum staffing ratios.
Every dollar raised from the tax will fund transportation and public safety. Clear accountability will be established and City Council will review the B&O tax structure regularly in conjunction with the city’s budget and legislative processes to make sure the dedicated funds are spent as promised.
In the next few weeks, Council will weigh all of the information before them. The first reading on the ordinance will be Monday, Aug. 7. If approved, the second reading and public hearing will be Monday, Aug. 21. We are committed to working with businesses and the community on solutions to fund these critical investments and encourage you to share your comments on the proposal.
