City Council votes to eliminate utility tax, permit fees for local business-sponsored events

Lynnwood City Councilmember Jim Smith (center left) speaking at the council’s May 26 business meeting about his measure to eliminate the city’s 6% utility tax. (Image courtesy of Youtube)

Aiming to reduce the cost burden to those affected by the coronavirus pandemic, the Lynnwood City Council voted Tuesday to eliminate the city’s water and sewer tax on residents’ utility bills effective January 2021.

At its May 26 business meeting, the council voted 4-3 — with Councilmembers Christine Frizzell, Shannon Sessions and Ruth Ross voting against — to adopt an ordinance proposed by Councilmember Jim Smith to eliminate the 6% tax imposed by the city.

The motion was proposed during the council’s May 11 meeting and delayed two weeks to allow the council time to gather more information about how eliminating the tax would affect the city. Speaking to his motion, Smith said removing the tax would help residents save extra money and send a message of good faith to the community.

“If we do this it’ll be reaching out to our citizens and saying we care,” he said.

According to City Finance Director Sonja Springer, residents would save roughly $10.50 on their bi-monthly utility bill if the tax was removed. However, she added that eliminating the tax would be “financially devastating” to the city’s general fund, which finances a variety of departments and services.

During her presentation prior to the vote, Springer advised the council against eliminating a source of city revenue during this time of financial uncertainty. According to Springer, Lynnwood collects around $1.4 million annually in utility tax revenues that fund city services. Before the council begins to cut revenue streams, it should first look at ways to cut city services to accommodate the financial loss, she said.

“This is serious,” Springer said. “(The city is) going to be losing a lot and again it’s not going to help your community.”

Additionally, Springer said eliminating the tax would “most definitely” affect Lynnwood’s bond rates and put the city in a situation where it is unable to make future bond payments and impact funding for future projects like the proposed Community Justice Center.

Some councilmembers did not think the amount paid by residents was significant enough to warrant eliminating the tax. After calculating the cost of the utility tax on her own bill, Frizzell said during the council’s May 18 work session that the amount only came out to $5.

“At $5 a month I don’t see a lot of benefit to our community,” she said.

However, the majority of the council believed reducing the burden to residents should be a priority. Speaking in favor of the motion, Councilmember Ian Cotton said the money saved by families could help ultimately help them get by.

“There’s a lot of folks that have been out of work for 10 weeks and those savings accounts are running dry,” he said.

Smith initially proposed eliminating the tax effective June 1, but councilmembers in support of the measure said they did not think eliminating a source of revenue while the city faces financial uncertainty was a good idea. Instead, Councilmember George Hurst said the council should continue monitoring the economic impacts the pandemic will have on the city and suggested the measure be amended to go into effect beginning January 2021.

“I do have a concern that we’re doing this during a time when we don’t know what the impact is as far as revenues,” he said. “I’m not comfortable with it taking effect during this year just because of the unknowns.”

During the Tuesday night discussion, Smith amended his proposal to change the date the measure would go into effect to January 2021. The council voted 4-3 — with Frizzell, Sessions and Ross voting against — to amend the date.

Though she supported Smith’s efforts to help residents save money during a time of financial uncertainty, Sessions said the council should heed Springer’s warnings about layoffs leading to reduced city services supported by the city’s general fund.

“Anyone who is planning on voting on this, would be 100% responsible in deciding on who’s going to be laid off,” she said. “This isn’t a fix and this isn’t going to help our community.”

However, Smith — who campaigned last year on reducing city taxes — was adamant that Lynnwood would be able to continue to function without the utility tax, as he said it had done in the past.

“It’s time to start doing all we can to bring back the old Lynnwood that was very positive, financially, where it didn’t hurt the Lynnwood citizens,” he said.

The council also unanimously voted to approve another motion proposed by Smith to eliminate the city’s application fees for local businesses to hold special events for the remainder of 2020.

At the council’s May 11 meeting, Smith proposed eliminating the $420 cost for a permit fee and refundable deposit for businesses to hold commercial special events. Smith said removing the fees would help small businesses to recover sooner and would kickstart the city’s economy by bringing in more sales tax revenue.

“The $400 is absolutely nothing compared to what we’d be bringing in and it would help our people get started once again,” he said.

Prior to the vote, Lynnwood Deputy Parks Director Sarah Olson briefed the council on the city’s application process and was asked if there would be any negative impacts from eliminating the permit fee and deposit.

In her response, Olson explained that the cost to hold a commercial event was broken into fees — a $170 permit fee and a refundable $250 deposit to cover the cost of clean-up or any events held in the public right of way.

“(The deposit) is usually held in reserve for any damage done in the public right of way,” she said. “It would just be for damages or clean-up that would be required by the city.”

When asked by Sessions if he would be willing to amend his motion to leave the $250 refundable deposit, Smith agreed.

Smith also agreed to another amendment to his motion after Olson pointed out his proposed limits to the number of events a business can hold were more restrictive than the ones under the city’s municipal codes. 

Ross said she supported the motion, which she called “low-hanging fruit” for the council to help business owners.

“I think we owe that to the citizens of our community…so the impacts are reduced as much as we can,” she said.

In other business, the council unanimously voted to authorize Mayor Nicola Smith to enter into an agreement with the Washington State Department of Commerce to access $1.188 million from the coronavirus relief fund for local governments. 

The funding will come from the federal CARES Act, to reimburse the city for expenses related to COVID-19 response. According to city spokesperson Julie Moore, the funds will be used to ensure the city has enough personal protective equipment (PPE) for city employees and cover the cost of the Families First Coronavirus Response Act, which requires certain employers to provide employees with sick leave or extended family and medical leave related to COVID-19.

Additionally, Moore said $500,000 will be used to create relief programs for local businesses and community members. Under the CARES Act, the city would be authorized to use the funding for economic recovery for small businesses.

Moore said city staff has requested that two councilmembers work with them to establish guidelines to determine who will qualify for assistance.

“We know that people are hurting and they need relief now and we’re hoping to get these work groups established within the next two weeks,” she said.

Councilmember Hurst suggested the community relief funds could be used to offer assistance to residents struggling to pay rent – especially since Washington state’s moratorium on evictions for those who can’t pay rent expires on June 4.

“It could be hard times come June 4 for some people,” he said. “The quicker we get that community fund going, the better.”

The city can also use funding to cover food delivery for community members, PPE for health care providers and nonprofit organizations, and support the homeless community. However, Moore said the guidelines for spending the funds are not clearly explained and city staff is hoping to clarify them.

“Those are the explicitly defined things in the CARES Act, but we believe that we can expand and provide more community grant-type efforts,” she said.

During her briefing, Moore also announced Snohomish County recently launched the Small Business Relief, Recovery and Resiliency Act to help small businesses across the county. Small businesses with 20 employees or fewer can apply for a grant up to $25,000.

According to Moore, $7.5 million is available in funding. Within 24 hours, nearly 900 applications for grant funding were filed, totaling between $16 million and $17 million.

“That is a big indication of the individual need throughout Snohomish County for our small businesses,” she said.

Also during the meeting, the council unanimously voted to adopt an ordinance authorizing the city to use state sales tax revenue for affordable housing initiatives.

Last year, the Washington State Legislature voted to approve legislation authorizing the cities and counties to access state sales and use tax revenue to fund affordable and supplemental housing projects. The new law creates a sales tax revenue sharing program that allows cities and counties to access state sales tax revenue to invest in affordable and supportive housing projects for 20 years.

The amount each city receives is based on its 2019 sales tax revenue, up to $200,000. Lynnwood is estimated to receive up to $196,581 annually.

Under state law, the funds can be used to create housing for households at or below 60% of the area median income. As of 2018, Lynnwood’s median household income was just over $59,000, according to the U.S. Census Bureau. The city could use the funds to acquire, rehabilitate or build affordable housing, and to operate and maintain new affordable housing facilities. Due to its size and population, Lynnwood would also be authorized to provide rental assistance.

During the discussion, Council President Frizzell pointed out that the ordinance does not create a new tax to impose on residents. In Washington, 6.5% of sales tax revenue goes to the state and the measure gives the money back to cities, she said.

“It’s a very small percentage and it will come back to the city,” Frizzell said. “But it’s a step that hasn’t been taken before, which makes it a really large step in the right direction.”

–By Cody Sexton

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