Kent city leaders debate B&O tax fund use

It remains a debate among Kent city leaders whether excess business and occupation (B&O) tax funds should all go to street repairs or continue to help pay off some of the city’s debt.

The full, seven-member council will consider an amended ordinance to the B&O tax code at the 7 p.m., April 7 regular council meeting at City Hall. Under the current code, $700,000 goes to cover staff costs and $4 million to street repairs with any extra revenue (currently about $600,000) used to pay down debt in the city’s capital improvement fund, which is used for transportation, parks, facilities and other projects.

Mayor Suzette Cooke spoke at the council’s Operations Committee meeting on March 17 to ask the council to oppose the tax code change.

“I strongly recommend we hold off as a city on removing the cap on the B&O tax that is currently applied,” Cooke told the committee. “When we are getting to the point to eliminate the negative balances, then we can talk about the B&O tax and eliminating the cap. I think it’s premature to do so when we are making progress to eliminate this debt.”

Despite Cooke’s pleas, the committee voted 2-1 in favor of the code change. Les Thomas and Bill Boyce voted for it, Dana Ralph against it.

“I strongly believe I want fellow council members to weigh in on this so I’m going to make a motion to move this on and put it on other business (at the April 7 meeting),” Boyce said.

Boyce said he remembers the council selling the B&O tax to business owners on the premise that all funds would go to street repairs. The council voted  6-1 in 2012 to approve a B&O tax. Thomas had the lone vote against it.

“The B&O keeps coming up, we’ve talked about it for quite sometime,” Boyce said. “I think about the intent of the B&O and the intent is for the funds to help us repair our streets. We still have a problem today with our roads. That’s where I am kind of struggling. I know more than $4.7 million is coming in but I understand the intent is for B&O funds to go to the streets.”

Cooke replied to Boyce’s comment.

“That was a point of controversy during discussion by the full council (in 2012) and some of you have had conversations with the Chamber (of Commerce) and an implication that many of you felt that the commitment was only to the streets,” Cooke said. “But that view is not held by the full council or by me. I was never committed to it being strictly for streets.”

Cooke also sent a memo to the Operations Committee where she said that $1 million of excess B&O funds over the last two years has helped eliminate the negative fund balance in the capital improvement fund. She said that fund still had a debt of $5 million at the end of 2014.

“With the action the city took in the 2015-16 budget to use $2.6 million of the general fund toward debt reduction, the city is on track to eliminate the negative fund balance by the end of 2016,” she said. “Removing the cap at this time will slow the progress we are making in the capital improvement fund and delay the ability for capital resources to be used for purposes other than debt reduction.”

Cooke said the city’s 2016 general fund budget already includes a funding gap of $1.6 million which must be filled by either new revenues or cuts in expenses.

If the cap is removed, it would take the city an extra year to pay off the debt and not as much money would be available in future years for other capital projects.

Ralph said she opposes the tax code change because once the capital improvement fund debt gets paid off more money will be available for street projects out of that fund, which receives revenue from sales taxes, utility taxes and the real estate excise tax.

“As a business owner, I don’t want to pay the B&O but I understand the need,” Ralph said. “But if we tough it out, the streets gain $900,000.”

She added it also would help the city to have less debt in case the state reduces funds to the city.

“My other concerns are more big picture, (sales tax) annexation credits will be coming to an end, and we’re at the mercy of the Legislature as far as the streamlined sales tax,” she said. “The more debt paid off, the better our position will be.”