Large Everett annexation doesn’t add up

  • By Brenda Stonecipher and Drew Nielsen
  • Saturday, December 6, 2008 9:42am
  • OpinionCommentary

Everett has taken the first steps toward annexing about 12,500 people in the Eastmont-Silver Lake area. We think this would be a profound financial mistake that would undermine decades of sound Everett fiscal policies.

Background. The Growth Management Act (GMA) is our state’s attempt to reduce sprawl and manage population growth. The GMA anticipated large-scale annexations of urban areas into the cities, but results have been disappointing because there is little incentive for cities to annex residential areas. Many people believe that residential areas pay for themselves in property taxes, but they don’t. On the contrary, residential areas are subsidized by taxes generated on commercial and industrial lands. To make matters worse, state law after 2001 limits annual increases in property tax revenue to 1 percent, which compares unfavorably to the inflation rate for city services. In 2006, in an effort to increase annexations, Washington extended a temporary sales tax credit to cities that annex at least 10,000 residents. In Everett’s case, such an annexation would generate a credit of about $2 million per year for 10 years.

Everett hired a consultant to assess potential annexations. Our consultant used a 3 percent budget deficit tolerance as the test for whether an annexation is financially feasible — meaning that a budget deficit of about $3 million per year passes the test. Thus, annexing approximately 10,000 people in the Eastmont-Silver Lake area presented an “acceptable” financial case.

We disagree. We are persuaded that if we annex this land, it will cost Everett residents more than $30 million over the 15-year study period (and more after that). Here’s why:

First, financial forecasting beyond a few years is risky. Small changes in assumptions can create wide swings in results. A superior method is to look at the revenue projection for the current city, without annexation, and to compare that to the annexation forecast. The difference is the cost of annexation. Using the consultant’s numbers, the loss in net revenues between no annexation and the 10,000 person annexation is $25.4 million.

But there’s more …

n The study does not include known one-time and capital expenditures. Recruiting, hiring and training costs for 37 employees — particularly police personnel — are expected to approach $1 million.

n Ongoing training costs weren’t evaluated. Police officers and firefighters have costly, intensive training needs. The city will pay more than $1.5 million for training these employees over the study period.

n The new police officers will require 4,000 square feet of office space. Over the 15-year study period, renting this space will cost in excess of $1.5 million.

n Park acreage in the proposed annexation area is significantly lower than current city standards. Meeting council-adopted strategic service levels would require 33 new acres of parks in the annexation area. The cost will be tens of millions of dollars.

n The consultant includes only a one-time cost of $100,000 to meet library needs, but this will obviously not be enough to serve the new residents over the study period. The additional cost is unknown.

n The consultant assumes 3.5 percent inflation on salaries and wages over the study period, but the average salary inflation for city union contracts over the past 10 years has often exceeded 3.5 percent. Most of the city’s annexation cost is salaries, so this assumption is crucial.

Our conclusion. On Nov. 19, the City Council voted 4-2 to spend up to $50,000 on further analysis, outreach and polling in the proposed annexation area. A decision to proceed with annexation will be made by the council after the additional work has been done. We don’t think Everett should spend more money on the annexation process. If we do proceed, somebody should ask the citizens of Everett, not just those in the annexation area, whether they want to take on this financial obligation.

While there are economies of scale to be achieved in expanding city services to the newly annexed area, those economies aren’t enough to make the annexation “pencil” for the city’s current residents. We agree that cities should be the providers of urban services, and we would happily accept our neighbors in the Eastmont-Silver Lake area into the city — as long as it did not financially burden our current residents.

The state needs to re-evaluate how to achieve its policy goals, because a tax credit window that slams shut on our fingers in 10 years isn’t it.

Brenda Stonecipher and Drew Nielsen are members of the Everett City Council.

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