Everett, Wash.
Published: Wednesday, March 12, 2008

Cities around Snohomish County feel sting as home sales sink

As sales begin to decline, so do tax dollars they brought in.

By David Chircop
Herald Writer

 EVERETT -- When the number of homes sold in Everett boomed last year, the city pulled in millions of dollars in taxes that paid to spruce up parks and pave city streets.

The boom appears over.

The city saw the amount of money collected in these taxes plunge during the first couple of months this year compared with last year.

January saw a 42 percent drop in the amount of taxes collected year over year, or a drop from $574,949 to $329,810. February proved even softer, with a 64 percent drop from $496,596 to $177,609. The taxes are called a real estate excise tax and are added onto every home sale.

"I don't want to call one or two months a trend; however, we are very aware that there could be some softening in the housing market and it could be reflected in (real estate excise tax) collections," said Debra Bryant, Everett's finance director.

The tax revenue represents a fraction of the city's $488 million budget, but it is still considered an important slice of the city's budget pie and it is being watched closely.

It's not just Everett. Cities and counties all over the state are seeing a drop in real estate tax dollars and many are adjusting their budgets to reflect the new reality.

It's the leading factor behind the state's decision last month to drop the state's revenue forecast by $423 million.

Snohomish County government's real estate tax collections are lagging about a half-million dollars below predictions so far this year, county finance director Roger Neumaier said.

The county expected to collect about $2 million in the first two months, but it has collected about $1.56 million, about a 22 percent drop.

"We're going to watch it really closely, and hopefully the credit markets strengthen and the ball continues to roll," Neumaier said.

In Washington, real estate excise tax is collected by state and local governments and varies from city to city.

In Everett, the real estate tax rate is 1.78 percent per home sold; the city collects .5 percent of that for capital projects and the rest goes into the state's general fund.

On a home selling for $350,000, homebuyers pay $6,230 in excise taxes. Washington has one of the highest real estate excise tax rates in the country.

Robust home sales last year resulted in a record high year for real estate tax collection in Everett, with tax receipts peaking in July at $932,923.

In all, Everett collected about $5.5 million in real estate excise taxes in 2007, more than twice what it collected in 2003.

Everett used the money last year to pave golf cart paths at Walter E. Hall Golf Course, overhaul Garfield Park and lay fresh blacktop on Everett streets.

Signs of a weakening housing market emerged in September 2007, prompting Everett's budget planners to lower projections for 2008 to $4.2 million.

Still, the city is collecting less than its lowered expectations. For instance, the city received $133,000 less than it expected for February from these taxes.

Jim Justin, assistant director of Washington Association of Cities, said declines in real estate revenue are being felt in communities all over the state. He said it's an important source of revenue for cities that will have to be made up in other places.

Marysville is expecting to collect $1.5 million this year, a drop of $500,000 from last year.

Lake Stevens collected about 15 percent below what was expected so far, city administrator Jan Berg said. So the city lowered its projected revenue from the tax for all of 2008 from $300,000 to $250,000.

The city plans to use real estate excise tax money accumulated over the years to pay $3.3 million for nearly 22 acres on Grade Road as part of its planned civic campus, and sell bonds to eventually fill that space. The drop in revenues this year won't affect these plans, Berg said.

Mukilteo, which collected $2 million in 2007, is safeguarding its budget by lowering expectations this year to $1.65 million, said Scott James, the city's finance director. The money is one possible source of funding to replace Rosehill Community Center

Edmonds' finance director Dan Clements said the city has experienced a downturn so far this year.

The city expected to collect $1.4 million but if the trend continues at current levels the city will collect $500,000 less than that, he said.

The city may have to postpone some projects, such as a street repaving project, Clements said.

The county is at a 14-year low for building permits, County Councilman Brian Sullivan said. Fewer building permits and less construction means fewer sales and real estate taxes.

"I don't think the economy is going south as much as we rushed into the market and overbuilt," Sullivan said.

As the council's finance committee chairman, Sullivan is calling for scrutiny of the county's list of roads, parks and stormwater projects.

"We have to do a prioritization of all the projects to see where we fall short," Sullivan said. "Obviously if the money's not coming in, the money's not coming in. I think we need to act sooner than later."

The county's revenue could be down all year long, Sullivan said. "The whole country is going backwards in property values. We haven't gone backwards, we've gone flat."

Reporter David Chircop: 425-339-3429 or dchircop@heraldnet.com.

Jeff Switzer, Bill Sheets and Scott Pesznecker contributed to this report.
© 2009The Daily Herald Co., Everett, WA