City of Gig Harbor General Revenue Sources Prepared by Dave Rodenbach 1/11/2016

Current Revenue Sources

Taxes Sales & Use Tax The City of Gig Harbor has a local sales and use tax rate of 1% (City actually receives 0.85%). The total sales tax rate in the city is 8.5%; and is distributed as follows: Sales tax revenues are accounted for in the General Fund, and are the largest single revenue source for general government activities in the City of Gig Harbor. Sales taxes made up: 47% of General Fund revenue in sales tax revenues are expected to be 5% over Historically 15% - 25% of sales taxes are due to construction related activities; therefore, are considered one-time revenues.

Sales Taxes - continued

Parks Sales & Use Tax Voters approved a ballot measure to increase local sales taxes by one-tenth of 1 percent in September The sales and use tax is equal to one-tenth of one percent (0.001%) within Pierce County. The money collected is split between the Park District and the cities not contained in the District and the county. The City receives the parks sales tax from the Pierce County on a monthly basis. Gig Harbor received nearly $72,000 in 2015 from this tax. Criminal Justice Sales Tax Criminal Justice Sales Tax is a local option sales tax of 0.10 percent that is collected in addition to retail sales tax and use tax by the Department of Revenue. The tax is distributed within the county in which it was collected based on population. Gig Harbor received $124,000 in 2015 from this tax.

Property Tax The maximum regular property tax levy rate for Gig Harbor is $1.60 per thousand dollars assessed valuation (AV). Gig Harbor’s tax rate for collection in 2016 is $1.23 per thousand dollars of AV. This equates to $2.4 million.

Utility Business and Occupation Taxes Utility taxes are levied on the gross operating revenues earned by private and city-owned utilities from operations within the boundaries of the city. The City currently charges a five percent (5.0%) tax on all businesses conducting telephone, electrical power, water utility, sewer utility, storm drainage utility, and natural gas businesses within the city.

Other Taxes Gambling Tax Cities that choose to allow gambling activities within their borders may tax the gambling revenues. The City’s gambling taxes are as follows: The City averaged $72,000 per year in gambling taxes from 2011 through Real Estate Excise Tax (REET) The city is allowed a quarter percent tax and a second quarter percent real estate excise tax. The revenues from the REET are receipted and accounted for in the Capital Development and Capital Improvement Funds; and is limited to projects that are listed in the capital facilities plan element of the comprehensive plan.

Licenses, Permits and Fees Franchise Fees Franchise fees are charges levied on private utilities for their use of City streets and other public properties to place utility infrastructure and to recoup City costs of administering franchise agreements. Cable TV franchise fees are governed by the Federal Cable Communications Policy Act of 1996 and are negotiated with cable companies for an amount not to exceed 5% of gross revenues. The current franchise agreement with Comcast calls for fees equal to 5% of gross revenues.

Business Licenses Businesses located or doing business in the City must obtain a local business license. Currently, the cost of a general business license is $30 for a 12 month period. The city issues nearly 3,000 business licenses annually. In 2014, the City received $81,000 in business license fees. Building Permit Fees Building permits & fees include plan review, building, plumbing, mechanical, grading, sign and fire permit fees. Application fees are deposited into the General Fund and are used to offset building department service costs.

State-Shared Revenues State-collected revenues that are shared with all cities are derived from liquor receipts (profits and excise taxes) and motor vehicle fuel excise taxes. Cities as a group receive a fixed percentage of each of these sources, and the funds are then allocated to individual jurisdictions on a per capita basis. Liquor Receipts – Profits and Taxes The City received $83,000 from liquor profits and taxes in 2014; and the estimate for 2015 is $100,000. Motor Vehicle Fuel Excise Tax – “Gas Tax” The state currently levies a tax of 37.5 cents per gallon on motor vehicle fuel. These funds are distributed monthly and are receipted into the Street Operating fund. Gig Harbor received $158,000 in Gas Tax in This represents 7% of the Street Operating fund resources for 2014.

Charges for Services Planning & Development Fees Planning & Development fees include planning review and land use fees. All Planning fees are deposited into the General Fund. Public Works (Engineering) permits and development fees include right-of-way permits, plan review fees, inspection fees. Engineering fees are deposited into the Street Fund.

Fines & Forfeitures The Municipal Court of the City of Gig Harbor generates revenue through fines and sentence compliance fees (Technically speaking, sentence compliance fees are for services provided, and therefore, are not fines).

Potential Revenue Enhancements Property Tax One exception to the one percent rule is the levy lid lift. Taxing jurisdictions with a tax rate that is less than their statutory maximum rate may ask the voters to “lift” the levy lid by increasing the tax rate to some amount equal to or less than their statutory maximum rate. Gig Harbor’s maximum rate is $1.60 Based on statutory limits, the 2016 rate is $1.23 The difference ($ $1.23 = $0.37) may be levied This equals an additional $730,000 at the City’s current assessed valuation Excess levy Even cities that are currently levying their statutory maximum rate can ask the voters, at any special election date, to raise their rate for one year. Many cities refer to this levy as an O and M (operations and maintenance) levy. It is not fiscally prudent to build an annual budget that assumes that the voters will renew the levy authority each year. A good use of these funds would be for a one-time expenditure. Every $0.10 increase to the tax levy rate is about $200,000 in additional revenue.

Utility Business and Occupation Taxes Utility taxes are levied on the gross operating revenues earned by private utilities from operations within the boundaries of a city and by a city’s own municipal utilities. What Are the Limits on the Tax Rate? Six percent (6%) on electric, gas, steam, and telephone utility services Cellular telephone and pager services may be taxed at the same rate as other telephone services A city may ask the voters to approve a rate of higher than six percent on these utilities Cable is most likely limited to tax rate charged on other utilities. Effective July 1, 2008, cities may no longer tax Internet access due to the passage of the federal Internet Tax Freedom Act Amendments Act of 2007, Public Law , the federal moratorium against the imposition of state and local taxes on Internet access There is not a limit on the tax rates of water, sewer, storm drainage and refuse utilities. Possible Changes to Utility Taxes A 1% increase to the current utilities tax (all utilities) would be about $270,000 in additional revenue to the city. A 5% tax on solid waste disposal would bring in an estimated $100,000. Vote most likely required for all changes

Admission Tax All cities may levy an admission tax in an amount no greater than five percent of the admission charge. This tax can be levied on admission charges (including season tickets) to places such as theaters, dance halls, circuses, clubs that have cover charges, observation towers, stadiums, and any other activity where an admission charge is made to enter the facility. The statute provides exceptions for admission to elementary or secondary school activities and any public facility of a city or county public facility district for which the district has levied an admission tax under RCW or A city may, however, impose its own tax on admission to activities at a public facility district, in addition to the tax the district levies, if the revenue is used for the construction, operation, maintenance, repair, replacement, or enhancement of that public facility or to develop, support, operate, or enhance programs in that public facility. A 5% admissions tax will bring an estimated $150,000 annually.

Transportation Benefit District (TBD) A TBD is an independent taxing district that can impose specific taxes or fees, either through a vote of the people or through district board action. Revenue options not requiring voter approval: Annual vehicle fee up to $20$120,000 annually Transportation impact feesNo estimate Revenue options requiring voter approval: Property taxes – excess levy(every $0.10 per $1,000 Av = $270,000) Sales tax (up to 0.2%)$1,100,000 (based on a 0.2% sales tax) Vehicle fee (up to $100 per vehicle) (up to $600,000) Vehicle tollsNo estimate

Business and Occupation Tax Four major revenue options are given to Washington cities by the legislature. They are: 1.Sales tax 2.Property tax 3.Utility taxes 4.General B & O tax General B & O taxes are levied at a percentage rate on the gross receipts of the business, less some deductions. Businesses are put in different classes such as: Manufacturing Wholesaling Retailing Services At the maximum rate of 0.2 percent (0.002), the City could conservatively expect to receive $1,500,000 annually from this tax.