SNOHOMISH — Snohomish Station was supposed to provide the city with a big boost in sales tax revenue.
Instead, city officials now expect about a $1 million less and the new retail development in the city’s northwest corner, along Bickford Avenue, south of 56th Street SE, is partly to blame.*
“The economic changes have already overwhelmed our conservative assumptions,” said Larry Bauman, Snohomish’s city manager.
The city had hoped to generate $4.8 million in sales tax revenue this year. The new projection is $3.7 million — $100,000 less than last year, he said.
Snohomish’s sales tax total includes every business in the city, not just what’s collected from Snohomish Station.
Snohomish is not the only city in Snohomish County to see sales tax revenues drop. A survey of some of the cities around the county found that many expect lower amounts of sales tax revenues this year. And most expect to receive less this year than last year. Snohomish, for instance, is now predicting to bring in $100,000 less in sales tax than in 2007.
Marysville, which saw great growth at Lakewood Crossing, is the exception. The city is expecting to receive about $1 million more than last year — up from $5.5 million to $6.5 million. Many new stores opened at the Lakewood Crossing shopping center. The revenue still is low, though, compared with what it would have been without the economic downturn, finance director Sandy Langdon said.
Relying on sales tax is a challenge, said Bauman, because it’s a volatile source of revenue. Snohomish has already reconfigured the 2009 budget three times in the last several months based on sales tax receipts.
For the city, those paltry sales tax receipts have serious consequences.
The city pays nearly half of its general-fund bills with sales tax revenue. In 2009, the city is budgeting $8.8 million for the general fund, which pays for basics such as city employee salaries, city vehicles, training, supplies and equipment.
The loss of that extra sales tax revenue also means the city has to put off large capital projects.
The most significant of those are roads. This year, the city spent about $1 million resurfacing roads, fixing storm drains and replacing waterlines. Next year, road repairs will be put on hold with the exception of a few smaller projects, such as a new streetlight at the intersection of Second Street and Avenue A.
The final hearing for the city’s $40 million budget is planned for tonight.
Sales tax has become the biggest source of revenue for the city since the Legislature limited property tax collection increases to 1 percent per year unless voters approve more.
The 1 percent limit causes property tax revenues to shrink in proportion to the rest of the budget. Taxpayers’ bills continue to grow, but that growth is due to increasing property values and other voter-approved levies, Bauman said. Property taxes pay for 11 percent of the 2009 general fund budget.
In comparison, property taxes paid for 30 percent of the general-fund budget a decade ago.
The Snohomish City Council approved a 1 percent property tax levy increase last week, but the city sees just a small fraction of property tax revenues — the rest is split between the hospital, the fire district, the library, the county, the state and the city.
For most cities, property tax is the No. 1 source of revenue, although sales tax usually isn’t far behind, said Jim Justin, assistant director for the Association of Washington Cities.
Most cities have been surviving on revenues from new construction and growth, and when the economy goes into the tank, those cities struggle. Justin said the association heard from many cities who expect to lay off employees. Like Snohomish, many area cities have prepared multiple budgets since September.
Snohomish is balancing the 2009 budget by reducing one full-time vacant police officer position, bringing the full-time force to 21. This position was added in 2008 with the expectation that more homes and businesses warranted another officer. That growth didn’t happen, Bauman said, and that’s why he recommended the city cut the position.
Other positions within the city may be left open next year, but Bauman didn’t expect any layoffs — for now. If sales tax receipts continue to slump, the city may consider laying off employees.
He said the city also is considering changing city employees’ health-care benefits to a preferred provider organization, a move that would have employees pay more out of pocket. Paying employees remains one of the city’s biggest expenses, and health-care costs have increased at double-digit rates for eight of the last 10 years, he said.
City officials had predicted Snohomish Station would be full by the end of this year. It features 400,000 square feet of retail space. Key anchors Kohl’s, Fred Meyer and Home Depot are all open. Many of the smaller spaces aren’t leased yet, said Steve Malsam, one of the development’s owners.
“We’ve been selective with our tenants,” said Malsam, whose company is negotiating with several potential candidates.
Some of the smaller tenants are having trouble getting financing because of tighter lending restrictions, he said. He expects the development to be at full capacity by summer.
*Correction, Nov. 18, 2008: This article originally listed an incorrect figure for sales tax estimates.
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