Initiative 695 - Local Government Impacts
By Rich Yukubousky, MRSC Executive Director
MRSC News, September 1999
This article is to inform our readers of the potential revenue impacts of Initiative 695 on local governments. It is provided for informational purposes in response to questions received from local officials. It is not intended to express support or opposition to I-695. MRSC is attempting to summarize objective information on I-695, suggest ways you can present local information to your communities, and refer you to other resources that address I-695. We strongly stress the importance of following the election activity regulations established by the Public Disclosure Commission.
A motor vehicle excise tax (MVET) of 2.2 percent is currently applied to the value of motor vehicles. A license fee of $23.75 is also required for registration renewal. Initiative 695 would replace the motor vehicle excise tax with a $30 license tab fee, and require voter approval of all future tax and fee increases. If approved by the voters, the initiative would take effect January 1, 2000.
If passed, this initiative would directly affect city and county programs. The MVET also provides revenues for public transit, carpool lane construction, highway projects, and ferry services that benefit local government. In addition, the MVET is the primary funding source for Municipal Research & Services Center (MRSC). Approximately 84 percent of MRSC funds are derived from the cities' distribution of the motor vehicle excise tax.
Voters will decide the fate of Initiative 695. Absentee ballots will be received on October 14; voters will go to the polls on November 2.
Effects on City Revenue
Passage of this initiative would have significant budget implications for all cities beginning in the year 2000. Cities would receive the last quarter distributions from the 1999 MVET collections in January 2000 and nothing after that. Cities directly receive almost $100 million annually from the MVET. The state collects the tax, and then shares a portion of it with cities to be used for public safety, criminal justice, and sales tax equalization.
Cities would lose all their public safety distribution beginning January 1, 2000. This is a per capita distribution of approximately $10.50 per person in the year 2000 and $14.52 in 2001.
Cities would also lose the portion of criminal justice assistance that comes from the MVET. In the year 2000, this is about 41 percent of the total allocation of criminal justice assistance to cities; the other 59 percent comes from the state general fund and is not affected by the initiative. In 2001, cities will lose approximately 55 percent of the allocation.
Currently, 168 cities and towns whose per capita local sales and use tax collections are less than 70 percent of the statewide average are entitled to distributions from the municipal sales and use tax equalization account. Also, cities that do not impose the sEcond 0.5 percent sales tax receive a distribution from this account. These cities would lose approximately 75 percent of sales tax equalization money in 2000 and all of it in 2001.
For transportation purposes, cities over 2,500 population are to receive $18.25 million ($5.70 per capita) in March 2000 and $19.6 million ($6 per capita) in March 2001. The distributions will not be made if I-695 passes.
Effects on County Revenue
Counties would no longer receive the public health, criminal justice, sales tax equalization, or rural/distressed county assistance they have previously received from the MVET distribution. The amount of revenue at risk is approximately $60 million in 2000 and $95 million in 2001.
In 2000, counties would normally receive about $28.1 million from the MVET for law and justice purposes and $29.6 million in 2001. These monies are used for courts, jails, prosecution services, public defense, sheriff operations, probation services, and the like.
About $25.5 million in public health money is at risk in calendar year 2000 and $26.9 million in 2001. These monies are used for a variety of health services: disease prevention, environmental health, individual counseling, and community-based services. Several years ago, cities gave up a portion of their MVET to pay for health services that were shifted over to the counties. If Initiative 695 passes, there will be pressures to give these responsibilities back to the cities. Since public health MVET distributions are a source of local matching funds for grant funds, the loss of public health dollars is potentially greater than shown.
If the initiative passes, counties would lose a scheduled distribution of $10 million dollars in road monies from the state transportation budget in 2000.
Also lost would be $7.8 million earmarked for "rural/distressed counties." Eleven million dollars would be lost in 2001. These monies are meant for public facilities (sewer, water, and roads) that encourage Economic development and job creation.
Counties will lose about half their sales tax equalization monies in 2000 and all of it in 2001.
Effects on Transportation Projects and Services
Approximately 75 percent of MVET revenue is used for transportation purposes including transit services, ferry operations, and transportation projects that benefit local governments. The Washington State Department of Transportation is estimating a revenue loss of over $500 million from the MVET in the 1999-2001 biennium, if I-695 passes. This loss would grow to over $800 million in the next biennium. Additionally, the department will not be able to sell approximately $600 million in bonds authorized by the legislature as a result of Referendum 49 passed by the voters last November.
Potential local impacts include higher transit and ferry fares, reduced services, or both; and delays of road projects aimed at easing congestion, creating and maintaining carpool lanes, and improving freight mobility.
Effects on Future Revenue Increases
I-695 would require that all future tax and fee increases be subject to voter approval. Before your city or county could raise any tax, fee, or charge for service, it would have to be approved by the voters. This includes everything from property taxes, utility rates and developer charges, to park fees, business license fees, and pet license fees.
What Should Local Government Do?
Citizens and the media will be interested in the impacts of I-695 in your community. Local officials should follow a well thought-out process to determine where legislative bodies will have to make cuts if Initiative 695 passes. Since absentee ballots go out in mid-October, start looking at the facts now. Provide accurate information and analysis. September is a critical month for preparing educational materials in response to public and media questions. Your jurisdiction will be a credible information source if you approach this issue openly and thoroughly. Above all else, be certain you understand what you may or may not do to support or oppose a public ballot measure.
Rich Yukubousky, Executive Director
Municipal Research & Services Center
This information is provided for analytical/educational purposes only and is not provided as an expression of support for or opposition to the November ballot proposition.