The Kent City Council voted 4-2 Tuesday night to use the city’s new business and occupation (B&O) tax to cover a $2 million shortfall to fund the Southeast 256th Street project.

Council members scrambled to find another funding source after property owners along the street in April dissolved a Local Improvement District (LID) approved by the council to pay for about $2 million of a $7.1 million project to upgrade and widen 256th Street on the East Hill from the “Y” intersection at Kent-Kangley Road to 116th Avenue Southeast.

Property owners dissolved the LID because they gathered signatures from those who own at least 60 percent of the assessed land value within the LID boundaries. The LID would have charged them extra property tax fees to pay for the street improvements.

The council needed to adopt a funding plan this month in order to hold on to a $2 million state grant awarded to the city six years ago by the state

Transportation Improvement Board (funded by the gas tax). That grant could have been taken back and given to another jurisdiction if the city wasn’t ready to start construction by July 1. The board wanted evidence that the city has a funding package to pay for the project.

Council members also voted to repay the B&O fund over the next several years when enough money comes into the city through its Transportation Impact Fee (TIF). That fee is charged to new developments and pre-existing structures with a major change in use.

“If we don’t award this contract by the end of the month, we will lose $2 million from the state,” Council President Dennis Higgins said prior to the vote. “At a minimum, that turns a $5 million city expenditure into a $7 million expenditure to create the project. More likely, it would be delayed another five years and instead of a $7 million project you’re talking about a $10 million or $12 million project all that would need to be picked up by the city.”

Higgins, Elizabeth Albertson, Les Thomas and Bill Boyce voted to approve the 256th Street funding. Deborah Ranniger and Jamie Perry voted against it. Dana Ralph had an excused absence to deal with a family emergency.

“What fundamentally concerns me about the payment plan is that to date we have actually only collected about $600,000 in the B&O tax and we are projected to collect $3.2 million this year,” Ranniger said. “This funding plan is based on the assumption we’re going to have those funds and what concerns me is spending money that we don’t have or might not have. It makes me feel like we’re putting ourselves in a very precarious position that we don’t need to be in right now.”

The city’s TIF fund has brought in $233,000 so far this year and $802,000 since the city adopted the fee in 2010. Under the ordinance, the city charges TIFs up front to new retail and residential developments as well as when pre-existing structures see a major change in use. The rate of the TIF depends on the kind of development being proposed. Single-family residences pay a different rate than a hotel, as would a warehouse, or a movie theater. The key is how much more traffic each development would put on Kent’s roads.

Perry said she opposed the plan because of using TIF funds to repay the B&O fund. She preferred simply using the B&O tax to pay $2 million toward the street upgrade.

Construction crews will start work on the street in July and expect to finish the project by fall 2014. The city will turn a two-lane road without sidewalks and lights into a three-lane road with a center turn lane, sidewalks and lights. City officials want to improve the street not only for vehicles but to provide sidewalks and lighting for children who walk to school as well as those who walk to nearby businesses.

“I can’t in good faith do nothing while children are walking on those perilous ditches,” Albertson said. “Right now it’s a sunny day but we know the snow, rain and ice will come and we have the duty to take care of all of our citizens even those who do not own large pieces of property.”

Albertson added that four major property owners of apartment complexes along Southeast 256th Street were the reason the LID failed.

“It still causes me great angst to think that $1.4 million of the $2 million we needed would have been paid by those four or five property owners who decided to opt out and not be part of the community,” Albertson said.

Higgins said 6,600 people live in that area and they deserved a street with sidewalks and lights.

The route also serves commuters to Covington and Maple Valley, which is a major reason the city received a state grant for what’s considered a regional project, Thomas said.

The council decided to use the TIF fee to pay back B&O because when it adopted the B&O tax last year it said the money would be used for street repairs, mainly paving, to improve city streets.

The city already has devoted $500,000 of the fund to repairs with asphalt overlays this summer. That list includes portions of West Meeker Street, West James Street, Fourth Avenue North and 64th, 72nd, 76th, 80th and 81st Avenue South. City staff said just one paving project next year along Central Avenue would be delayed because of the diversion of B&O funds to 256th Street.

Council members also agreed to raise $300,000 from LID covenants that were pre-approved when developers built projects along 256th Street. Those 20 or so parcels were separate from the LID dissolved by 124 property owners.

Paying for SE 256th Street project

(Total cost $7.1 million)

• $2 million (state grant)

• $2 million (city B&O tax)

• $1.8 million (city water, sewer, drainage fund fees)

• $1 million (city Transportation Impact Fee)

• $300,000 (LID on no protest parcels)