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Monday, May 25, 2020

Nope, Medina Is Hardly A Poster Child For Runaway City Spending

Let’s start with the misleading headline in the Seattle Times: “Bill Gates and Jeff Bezos live there. So why is Medina asking its residents to pay more in property taxes?”

Does the headline writer imagine that the city manager could just knock on the Bezos’s front door and say, “Hey, we’re a little short this month, can you help us out?” Somebody returns with a big bag of cash, and all is good for a while.

Medina is a city of 3,000 people and operates just like any other city. The city council writes a budget based on the City Manager’s recommendation and the expectations of the residents. It funds that budget with taxes that are allowed by the state at rates that the state permits.

The structure of local government, as dictated by the state, does not care if you have the two wealthiest people in the world living there. There are no mechanisms to tax just the wealthy or to hit them up with special requests. This is baked into the state constitution and statutes. Medina faces the same fiscal constraints as Omak.

Although Seattle often seems to forget, cities are creatures of the state and can only do things authorized by the state. Cities have limited taxing sources, nearly all of which are capped. In Medina’s 2019 general fund budget, 78 percent of revenues come from three sources: property tax (44 percent), sales tax (19 percent), and utility taxes (15 percent). The remaining 22 percent consists largely of development service fees. There is no revenue line item for gratuities from resident plutocrats.

The taxes that Medina relies on have growth constraints.

  • Sales tax. Medina collects sales tax on services, internet sales, and a few retail outlets, but mostly from construction. Medina residents do their shopping and pay taxes elsewhere. In a city with lots of retail, sales tax grows with the economy. Not so in a place like Medina, where retail is very limited.
  • Utility taxes. Collections are based on usage, and we are all being encouraged to use less power, gas, and water, so this is not a growing source of revenue.
  • Property taxes. The Big Problem. Under state law (misunderstood by 99.9 percent of Washington taxpayers) any jurisdiction collecting property tax can increase the total collection from its existing tax base by no more than 1 percent per year (thanks to Tim Eyman). So no matter how much assessed values increase, Medina can only get 1 percent more from existing properties. It adds revenue from new construction, but that varies from year to year and cannot be counted on as a growth source.

The Times story notes that the property tax rate in Medina is very low by state standards. But under the Washington property tax system, rates themselves are not meaningful: they are an outcome of a calculation involving the total amount allowed to be collected and the total assessed value in the jurisdiction. With very high assessed values, of course Medina will have lower rates. And the rate will change each year as assessed values change, but the city will never get more than its 1 percent bump.

In 2019, the Gates family paid a total of $1.04 million in property tax on their Medina estate. Of that, Medina received $83,319. They would have paid Medina $82,494 in 2018, $81,685 in 2017 and so on. The Times article suggests that families like the Gates’ are not paying their fair share, but under the uniformity provisions of state law, property is assessed at fair market value and everyone pays the same rate. This system may not be as progressive as we might like, but it is also not subject to the manipulation faced by taxpayers in other states.

The expense side in Medina is far from extravagant. Like most local governments, about half of general fund spending goes to police and fire (Medina has its own police department and contracts with Bellevue for fire service). Development services are fairly large, but these are covered by fees. City crews mow the parks, fill potholes, and replace demolished signposts. For all the wealth in its borders, Medina does not provide gold-plated services.

But those limited services get more expensive each year and the tax sources can’t keep up. Medina is a nice place to work, and unionized staff stick around. Low employee turnover is great for service, but it’s tough on budgets: the city pays step increases and COLAs and rarely gets to replace long-term, high-cost employees with newer, low-cost employees.

The situation in Medina has nothing whatever to do with people like Gates and Bezos. Costs are growing for perfectly explainable reasons, and these costs would not be a problem if the city was not hobbled by the Eyman brilliance of the 1 percent lid. Revenues should grow with the economy and not be held below inflation.

The six-year levy-lift tax increase being asked for on the November ballot is simply backfilling a de facto tax decrease.

Michael Luis served on the Medina City Council from 2012 through 2015 and served as mayor from 2012 to 2014.

Michael Luis
Michael Luis
Michael Luis is a public policy consultant who has been wrestling with housing, growth and economic development issues around Washington State for over 30 years. He is author of several books on local history and served as mayor of Medina.

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