The City of Oak Harbor may not be hit as hard by the coronavirus due to its unique economy, the city’s interim finance director told the city council.
Mike Bailey presented an update on city revenues at the meeting Tuesday night as city officials prepare to create the next two-year budget.
COVID-19 presents budget challenges for almost every city and town in Washington, and Oak Harbor is no different. However, Bailey told the council that Oak Harbor may not feel its effects as strongly as some other cities in the years to come.
“Because of the unique nature of the Oak Harbor economy, not much decline is forecast in 2021 or 2022,” Bailey said.
The city’s general fund is supported through a number of taxes, but primarily through property and sales taxes. It’s the fund used to support most city operations.
The finance team ran an analysis of sales tax generated in the city so far this year to forecast what it can expect to receive in 2021 and 2022.
Bailey explained that the state Department of Revenue shared the sales tax payments made by businesses collecting sales in the city. The information is confidential and city staff use it to forecast revenue to help create the next biennial budget.
The amount of sales tax generated this year is “on par” with how much was generated this time last year, Bailey said. Within that, retail sales have increased by 10 percent year over year, and non-local sales (or remote sales for delivery) have increased by 40 percent year over year. The city expects retail sales to continue to climb in 2021 and 2022.
Those may seem like big gains, but Bailey shared that other sectors like construction, accommodations and restaurants have seen a significant decline in sales taxes.
“What that says is that those large sales tax payers are having a better year this year than they had last year to some significant extent. The smaller sales tax payers, the small businesses, are not. And they are offsetting some of that increase. Therefore your net is pretty much status quo at this point,” Bailey explained. “Sales tax is such a significant indicator of whats happening in the community.”
Mayor Pro Tem Beth Munns said she thought the Navy played an important role in why sales taxes remained largely the same this year.
“I think we are blessed in this community because we have the Navy here,” Munns said. “They have not lost their jobs, they get their paychecks, and I really think that helps us, actually the whole county, to stay stable.”
The interim finance director also updated council members how 2020 is an “unusual year” for setting the property tax rate.
Bailey shared that the implicit price deflator rate, a number used to direct how a city can set as its property tax rate, is less than 1 percent this year.
The rate of inflation is usually more than one percent, Bailey explained, which makes this year’s implicit price deflator of slightly more than 0.6 percent unusual.
According to Washington state law, local governments with 10,000 or more people are only allowed to raise property tax rates by up to 1 percent, or the rate of inflation, whichever is less.
Local governments are allowed to raise the property tax rate more than the implicit price deflator, but they have to adopt a resolution or ordinance that says there is a “substantial need,” according to the Municipal Research and Services Center and state law.
The city administrator told council members that is something the city’s legal team is preparing to provide the council with options when deciding the year’s property tax rate.
Bailey cautioned that the budget is conservative and figures are subject to change. A recession is still possible, he added.
No action was taken. The council will set the property tax levy at its Nov. 17 meeting.