Why such a large increase? Is the City short of funds?
The Quick Answer
The City took in more revenue in 2021 than was expected, resulting in a significant surplus.
City staff predicts, conservatively, that Proposition 1, if it passes, will result in a very large $15 million surplus over the six years that it will be in effect.
We don’t know why they need such a large surplus.
The City took in more revenue in 2021 than was expected1, and expenditures were lower than predicted2, resulting in a surplus of over $8 million in 2021.
City staff predicts that Proposition 1, if it passes, will result in a $15 million surplus over the six years that it will be in effect. (The staff seemed to underestimate the increase in assessment values for this year, and so their estimate of the surplus is likely to be an under-estimate as well.)
Here is a graph presented by the City at the July 18, 2022 City Council meeting showing just how large the effect of Proposition 1 will be on the property tax levy. We have added the notes and arrows in red; the rest is from the City. (The original, unannotated, graph is available here.)
Staff presentation at the June 13 City Council meeting
Here is a slide from Staff’s presentation3 at the June 13, 2022 City Council meeting on the Levy Lid Lift options. (Keep in mind that at that time this slide was prepared the City was underestimating the size of the levy increase4 and therefore underestimating the projected surplus.) (The red annotations are ours. The rest is by City Staff — here's the original.)
The City is Presenting a False Dilemma
The City considered Levy Rates of $1.02–$1.08 and found that, over the course of six years, they would result in a significant deficit. (Okay, let’s not do that.)
They considered rates of $1.35–$1.49 and found that they would all result in significant surpluses.
Why were no Levy Rates in the huge gap between “option 3” ($1.08) and “option 4” ($1.35) considered? Presumably, a rate somewhere in between those two figures (e.g. $1.22) would have still resulted in a six-year surplus, albeit a more moderate one.
$15 Million is a Large Surplus!
To put these values in perspective, the City’s total general property tax levy for 2022 is $15 million. If Proposition 1 passes, the City is predicting surpluses on the order of the entire amount collected from property tax for the general fund in 2022.
It is not at all clear why the City needs such a large tax increase or what plans it has for the extra funds.
Staff presentation at September 19 City Council meeting
Here are a couple more slides from the staff presentation on the 2022 Second Quarter Financial Report for the City.
This slide5 shows the General Fund is projected to have a surplus (more revenue than expenses) of over $8 million for the 2021-2022 biennium. Also, note that this is a staggering $21 million more than the $13 million the City initially projected it would be spending down from the General Fund reserves over that period.
Here's another disturbing slide6 that shows that staff is still low-balling their estimates as to how much Proposition 1 will increase taxes:
- Staff are still assuming that assessed values (AV) will be rising 17%, when we now know from the reports published by the King County Assessor that assessments in Shoreline are rising, on average by over 20%.
- Bewilderingly, staff are assuming a Levy Rate, should Proposition 1 pass, of $1.29 per thousand, when Proposition 1 clearly calls for a Levy Rate of $1.39!
Taken together, City staff appear to be underestimating revenue (taxes) from the general levy by roughly 10%!
Staff Has Consistently Underestimated the Size of the Tax/Revenue Increases Written Into Levy Lid Lifts
Staff predicts a $15 million surplus should Proposition 1 pass. There is every reason to believe that that is an underestimate and that Proposition 1 will result in a significantly larger surplus than even that.
Staff presentation on Item 9(a) 2021-2022 Mid-Biennial Budget Update (p. 3) at the November 1, 2021 City Council meeting.↩
City of Shoreline, 2021 4th Quarter Financial Report (p. 5).↩
Staff presentation on Item 8(b) 10 Year Financial Sustainability Strategy #7 - Levy Lid Lift Renewal, (p. 13) at the June 13, 2022 City Council Meeting.↩
In June, City staff were estimating that total assessed property values in Shoreline would increase 12% from 2021 to 2022. It now appears that the increase will likely be over 20%. This means that staff were underestimating the increase in revenue for the first year of the Levy Lid Lift by roughly $1.5 million. Since the Levy Lid in subsequent years is based on the 2023 Levy, the revenue for those years was similarly underestimated. That extra 8% increase in assessed values leads to perhaps an extra $9 million contribution to the six-year surplus.↩
Staff presentation on agenda item 9(a), 2022 2nd Quarter Financial Report (p. 68) to City Council on September 29, 2022.↩
Staff presentation on agenda item 9(a), 2022 2nd Quarter Financial Report (p. 78) to City Council on September 29, 2022.↩