Wednesday, February 13, 2013

Amount of City Budget Shortfall

Amount of City Budget Shortfall

From a report by the City Treasurer:
The Assessable Real Property Base has gone down by $57,757,585.  The Constant Yield Tax Rate (CYTR) for the City is $0.9272.   The City will receive less real property taxes by approx. $456,000 in FY 2014.
For the Fiscal Year 2012 budget year (FY12) all of the taxable real property in the city was assessed at about $376 million. That means the projected $58 million decrease in the real property tax base represents a loss of just over 15% of the city's property value.

Property in the city is assessed by the county on a three-year cycle, so this decreased property tax base is going to stay with us for the FY14, FY15, and FY16 budgets (Fiscal Years - the city budget year starts in July). That means we need to find a real solution to plug this hole in the city budget. We don't have enough money in the bank to cover this deficit for three years running (and I would oppose significantly drawing down the reserves for even this year).

The 15% decrease in assessed property value is obviously going to lead to decreased tax revenue. Property taxes are the largest source of revenue for the city budget so this presents us with a serious problem. The decreased assessments results in a projected $456,000 loss in property tax revenue.

The yearly budget of the City of Mount Rainier is about $4.5 million, so a $456,000 loss of property revenue represents about 10% of the city's annual budget. The current FY12 budget is extremely lean already due to an existing structural deficit that the council did not fix in last year's budget process. It will be very difficult to cut our way to a balanced budget. We may even need to consider a fundamental realignment of the services the city offers to its residents.

The Constant Yield Tax Rate (CYTR) is determined by state law. It is actually a pretty simple concept: given a change in property tax value from one year to the next, how would the property tax rate have to change in order to produce the same amount of tax revenue? The important thing to understand is that the council is not using political double speak when we make a distinction between raising your taxes and raising your tax rate. 

For example, if your property tax assessment has gone down then you will pay less property tax if the rate does not change. Conversely, even if the city does increase the property tax rate, the increased rate may not actually recapture all of the tax savings you experience from the decrease in your assessment. The CYTR is the rate that will keep property tax revenue constant across the whole city, but the tricky part is that citizens will experience the rate change unevenly, depending on their individual property tax assessments. However since we have seen such a large decrease in assessments, the majority of property owners have probably seen a decrease in assessed value that would therefore set off an increase in tax rate.

This is the very beginning of the budget conversation. I hope this information has been useful for understanding some of the issues that are before the city. To me a 10% decrease in revenue means that the city can't simply cut or tax or way out of this budget deficit - we'll need to consider several things to balance the budget including raising licenses and fees for apartments and businesses. Please stay engaged over the course of this process through the final budget decision in May and feel free to contact me at any time.


  1. It's amazing that, right across the border, we have $400 million more than we budgeted for. If only DC could loan the $400K to Mt. Rainier. It's a drop in our bucket. :(

  2. Interesting idea. I wonder if something like that could be developed, since at least some of our money probably goes to things that have ultimate benefits on both sides of the border? Thinking about things like policing but I am sure there are others. What about DC 'investing' in MtR for that amount of money?