City budgets & finances

Cities are economic generators for the state

Cities are the economic engines of our state, serving as hubs for regional economies. Most of Washington’s population lives or works in a city, contributing to an economy that benefits the state.

An uncertain future

Washington cities are more financially stable now than they were five years ago, but many are concerned for the future. City revenues grew due to strong economic growth over the last five years, thanks in part to the economic contributions from people who live and work in cities. But the current need for infrastructure construction and maintenance limits resources available for other basic services. On top of that, public safety and health services compete for limited resources.

Cities are looking ahead to the next predicted economic slowdown and are facing the reality that they may need to reduce services.

City budgets strained

City residents rely on their local governments to provide the many services they care about, like transportation, affordable housing, and public safety. These services expand every year due to population growth, aging infrastructure, and changing community needs. In light of this, cities need access to stable and reliable revenue sources to make critical investments in crumbling infrastructure and to keep basic city services working for all residents.

How the state can help cities

The Legislature can help by providing additional revenue tools to local elected officials and by honoring commitments to share revenues and fund infrastructure through the Public Works Trust Fund. Cities are worth the investment. For every $1 dollar in revenue the state shares with cities, cities generate at least another $132 back to the state.

The Legislature can also address property tax limits. Property tax revenue is one of the bedrocks of government funding. In fact, 93% of cities say that increasing the 1% cap would positively impact their community. We need to have a real conversation about the impacts of the 1% property tax cap and find a more meaningful cap that recognizes and honors communities’ demands for services.

Arbitrary 1% property tax cap

Property tax is the single largest revenue source for cities in Washington, comprising 22% of city revenues. However, annual property tax increases have been arbitrarily capped at 1% since 2001, which prevents revenues from keeping pace with inflation and population growth. Furthermore, the artificial cap strips authority from local elected representatives and channels revenue generation efforts into other, less reliable taxes and fees. Compared to sales tax, which fluctuates with the economy, property tax is a much more stable and reliable revenue source.

The 1% limit on annual increases has deeply strained many city budgets. Cities have the option of levy lid lifts and excess levies. However, both require voter approval and neither option permanently raises the annual increase in levies. In the first five years after the cap was introduced, cities lost an estimated $500 million in property tax revenue, and the devastating impacts continue to reverberate in city budgets.

The rising cost of real estate increases assessed values, which should positively influence city revenue (and the potential to support critical city services like infrastructure and public safety).

Unfortunately, that positive growth hits the 1% limit, leaving cities with revenues that can’t keep up with the rising costs of community services.

Revenues are falling short of expenditures

Cities are extremely concerned about their revenue collections in the next five years. More than a third of Washington cities say their revenues are falling short of their expenditures, and the consequences of insufficient revenues are felt most dramatically in smaller, more rural cities.

Current revenues are not enough for many cities to support community expectations and priorities. On top of that, the price of goods and services purchased by local governments is rising much more quickly than consumer goods and services. That means it’s getting more expensive to buy the same things.

57% of cities report that the amount and frequency of public records requests negatively impact their budgets. 48 cities spent more than $100,000 in the last year to fulfill requests.

Consequently, cities’ tax structures are not keeping up with either the traditional rate of inflation or cities’ actual growing costs. Most significantly, cities struggle to manage ever-increasing costs of basic services like complex public safety challenges, aging infrastructure, and responding to increasing public records requests.

Funding the future

More cities are pessimistic about their ability to meet service needs and about signs pointing to an economic recession in the near future.

Despite the recent economic growth, cities are depleting their capital and operating reserves in order to fund critical capital investments, public safety, affordable housing options, behavioral health and human services, and employee wages and benefits.

Without reliable state investment through state-shared revenues like liquor taxes, Municipal Criminal Justice Assistance, Fire Insurance Premium Tax Account, and programs like the Public Works Trust Fund, cities are forced to shift funding from other city service areas and are losing the ability to fund other services valued by their communities. Threats to core services require cities to shift resources from other critical departments, and ultimately limit opportunities for cities to invest in our communities.

Next chapter: Public safety