Olympia eyes property tax increase as potential source for climate response funding

Olympia’s climate program manager has identified some options for the city to generate more money to combat climate change. The most viable route appears to be increasing the property tax rate, but it would have to be approved by voters.

Pamela Braff spoke to the Olympia Finance Committee last week to give an update on the city council’s climate funding. Staff had been asked to research legal and viable options for a dedicated revenue stream to help the city achieve its adopted climate goals.

There are several options, including increasing property, sales, private utility or municipal utility tax rates.

Property tax increase

The city can increase property taxes but it would need voters to approve the levy. Braff said doing this would create a consistent and predictable source of funding, and it could be imposed for a specific amount of time.

The amount collected and charged could fluctuate alongside changing property values, but City Manager Jay Burney said a levy lid lift may be needed in the future if the city chooses this option.

Based on 2022 property assessments, if the rate were to be increased by 1 cent per $1,000 of assessed value, that would generate $117,000 a year dedicated to tackling climate change. Bring it up to 10 cents per $1,000 and the city would collect nearly $1.17 million a year. At 20 cents per $1,000 of assessed value, $2.34 million could be dedicated per year.

Braff said the property tax option increases costs to property owners, but it is the least regressive model in terms of burdening low-income households. She said higher property values often correlate with a higher ability to pay. There are also programs that low-income households can use to reduce their tax burden.

Sales tax increase

Another option is to raise the sales tax, but the city doesn’t have authority to do that because it has already reached its maximum on imposing unrestricted sales taxes on top of the state’s 6.5% sales tax. The state would have to authorize any increases to the city’s sales tax for a dedicated purpose.

Another downside is that most sales taxes are imposed permanently, so there’s not much flexibility. It would generate revenue from out-of-town visitors, but Braff said the tax burden would fall the hardest on low-income households.

Raising the sales tax by 1% based on 2022 numbers would generate about $2.2 million a year.

Private utility tax

The city has the authority to implement a local private utility tax increase, but Braff said it would burden low-income households the most. This includes rates on electricity, gas and telephones. Raising the private utility tax by 1% also would have to be approved by voters.

Braff said increasing rates on some utilities could persuade contractors and developers to move toward electrifying their buildings to save money, but it would take a pretty steep change in rates.

A 1% increase over the current 9% tax rate on electricity would generate about $590,000 a year. For gas, it would be about $166,000 a year, and telephone rates would generate about $216,000.

Municipal utility tax

Lastly, the city has authority to raise the municipal utility tax rate, and there’s no established upper legal limit for how much they can charge.

Currently the tax rate is at 12.5% for garbage, sewer, stormwater and water. If the city were to raise each by 1%, garbage would generate $137,000, sewer would generate $202,000, stormwater would generate $62,000 and water $140,000. But this option, too, burdens low-income residents the most.

The Finance Committee also mentioned other options including an excise tax, which would most affect business owners and developers. And the city could make some modifications to fees that could generate more money every year.

Braff said staff also is creating a budget and maintenance plan to give the city council a better idea of what the city needs. That information is supposed to come in August.

Considering the options

City Council member Jim Cooper, who sits on the committee, said this isn’t the first time the committee has talked about needing climate money without having a hard number to look at. He said they need a better picture of what the need is or what the plan of attack is before the committee can make a decision on where the money should come from.

But Braff said it’s hard to estimate the future need. She said it’s complicated to model future emissions and how to achieve reduction goals, but how much to reduce vehicle miles traveled and how many buildings need to be retrofitted are easier to figure out.

“Getting down to levels of specific actions and how much it’s going to cost, particularly when you don’t know where technology is going over the next 20 years and when you don’t know what level of state and federal funding is going to be available, there are a lot of unknowns,” Braff said. “It makes it hard to come up with some of those numbers.”

City Council member Lisa Parshley, also a member of the finance committee, said that even though the city doesn’t need to ask the state legislature for permission to change local taxes, they should still be pushing legislators to put more funding into battling climate change. The idea is more to have a dedicated stream of local funding so Braff’s team has time to apply for grants and other funding sources.

“I think there is a role for jurisdictions like ours to keep doing the work locally, because sometimes we can encourage the state to do the right thing as well,” Parshley said.