After hosting a roundtable discussion with Lynnwood business owners last month, the Lynnwood City Council Monday night debriefed on what councilmembers learned and ways the city could help businesses facing economic impacts from the COVID-19 pandemic.

During the council’s March 29 work session, Council President George Hurst said he wanted to review “what they heard and what they learned” and invited councilmembers to discuss their takeaways from the roundtable.

Kicking off the session, Council Vice President Jim Smith again brought up the idea of eliminating the city-imposed business employee tax, which he referred to as a “head tax.” At the council’s March 22 business meeting, Smith made an impromptu motion — which failed on a 6-1 vote — attempting to eliminate the tax.

According to Smith, the per-employee fee imposed on Lynnwood business owners is roughly $100 per employee working more than 15 hours each week. For employees working 14 hours or less, the fee is nearly $50, he added. Smith then pointed out that some cities, like Edmonds, have businesses pay a $100 home occupation fee and a $125 flat fee for their businesses.

“Hardly (any other city) charges the fee per employee every single year, so that’s one area that I think that we need to address,” he said.

However, some councilmembers did not think fees were among the top concerns identified during the discussions. Councilmember Shannon Session said those attending the meeting were more focused on ways to stay open.

“I don’t think (business owners) are surprised about some of the fees they need to pay to do business Lynnwood,” she said. “I don’t think that was their major concern.”

During his comments, Councilmember Ian Cotton said he recalled some mention of reducing fees but added that the suggestions to the council were to make the fees easier to understand and with less math involved. According to Cotton, business owners already have enough burdens and shouldn’t have to spend extra time on tasks like calculating payroll and employee hours.

“I think anything that we can do to take work off their plate in engaging with the city is going to be a win for them, because when you’re a small business owner time is everything,” he said.

Council President Hurst suggested the city look at offering incentives – like neighboring cities have — to get people to buy local. He then suggested it could come in the form of a discount card good at local businesses.

“I think (business owners) are anxious to know that the city government is a partner, rather than just someone that wants to charge them a bunch of fees,” he said.

Hurst also said there were frustrations about the city’s employee fee and invited city staff to offer more information about it. 

Councilmember Christine Frizzell recalled that many attendees mentioned the importance of finding ways to boost morale in the business community and city as a whole. She also noted that there was talk about possibly creating a special website with resources for business owners but added that such an initiative would require a city staff member to maintain it.

“I like the idea of shopping local and having there be a reward for that,” she said. “There’s been a number of cities in Washington that have done that, with great success so that’d be fun to check that out.”

City staff then provided the council with a brief background on the city’s employee tax. Senior Manager of Strategic Planning Corbitt Loch said in 2019 a study was conducted weighing the benefits of implementing a business and occupation  (B&O) tax instead of an employee tax. At that time, he said the city agreed there was no perfect model to create complete equity for all businesses, because each one is so different.

“A larger business requires more municipal services than a small business and one of those metrics is the number of employees, so like it or not, that’s — I think — the logic of it,” he said.

Loch went on to say revenue generated by the fee goes to the city’s general fund to pay for essential services for the business community. For example, Loch said the city receives a “tremendous amount” of public records requests, oftentimes requiring city staff to spend time collecting years of records.

“These are, in my mind — while it’s not written in our budget — that specifically goes towards those services,” he said. “It contributes to the general fund and that’s how we pay for those types of services.”

Repealing the employee tax would also have “severe” impacts on the city’s finances, eliminating $4.28 million from the city’s budget, Loch said. Before removing the revenue stream, he said the council would have to find a way to cover the lost funds or cut city services. Loch added that if the council eliminates that revenue without finding a replacement, the budget would be unbalanced, which would violate state law.

“These are important (issues) for you as a legislative body,” he said. “It’s your duty to ensure that we have a balanced budget, so if we just make the cut without the revenue, we would have an unbalanced budget.”

Additionally, Loch said the issue is something that could have been brought up during one of the two public hearings the council held last year before adopting the city’s 2021-22 biennium budget.

During the business roundtable, many business owners mentioned public safety concerns, particularly regarding conflicts with the homeless community. However, their comments were also followed by praise for the city’s police response. Referring to these remarks, Department of Development and Business Services Director David Kleitsch said reductions to the city’s general fund would impact those services and future services the city would want to offer.

“I think the way we do policing here is also very good for the community of Lynwood because we’re embracing the community policing model and that’s going to have future costs for the city,” he said.

Kleitsch also mentioned that the city has worked to provide the business community with support while operating during the pandemic. In addition to the roundtable, the city has set up a business relief program that provided 101 local businesses with federal CARES Act funds and offered information on other available programs and resources.

“We steered people to that as best we could,” he said. “We kept really going through updates as best we could a lot of people in Lynnwood — both in the city and in the end in the unincorporated Lynnwood areas took a big advantage of the (Paycheck Protection Program).”

Smith then said he was glad to hear praise for the city’s police department, before repeating claims that the city’s police department had “so many positions” left unfunded in the biennium budget. Smith has repeatedly called for the hiring of more police officers, saying the department is understaffed. 

However, a police services study conducted in Lynnwood in 2016-17 examined the department’s staffing levels and concluded that it was the right size for the city’s population. Currently, the department has one unfunded vacancy, said police spokesperson Joanna Small.

Moving on to the topic of the employee tax, Smith said it sounded like the city was sending the message that it needs money more than business owners. In Lynnwood, roughly 41% of the city’s general fund comes from sales tax revenue. Since the city relies on a healthy business community, Smith said the city should cater to business by creating a more inviting city to come to.

“We need to have healthy businesses, we need to have new businesses to increase that money,” he said.

Smith also said more business would mean more jobs in the city, which he pointed out the council has prioritized during its meetings.

“Our per-employee tax is a penalty,” he said. “We penalize people for bringing in more personnel and we also incentivize them to not hire more people if they can help it. If they can get by without hiring more people, they will do that.”

In response, Councilmember Cotton said the council can “pound our fists and stomp our feet and say we penalize people for this, or we charge too much for that” but unless they are willing to discuss and propose cuts to city services to close the budget gap, there was little the council — as a policy making body — could do otherwise.

“It is our job to not just hack and slash revenue streams but also articulate what services we feel our voting constituents don’t value as highly as others,” he said. “That’s a hard decision and that’s a hard discussion to have but it’s one that we quite frankly need to have if we’re going to say ‘OK, we’re going to cut this now.’”

Council President Hurst said the topic warranted further research and then suggested that the council review additional data from other cities. He also said the council should invite business owners back to the discussion to provide feedback as opposed to making a decision for them.

Also during the meeting, the council received an update on the South Lynnwood Neighborhood Plan– an effort by the city’s Parks, Recreation and Cultural Arts Department to address social inequity in south Lynnwood, including income and language barriers.

The concept is part of the city’s Park, Arts, Recreation and Conservation (PARC) Plan adopted in 2016. Through that plan, city staff creating equity composite maps that identified areas in the city by income, race, household language and poverty to locate areas in need.

During the briefing, Lynnwood project manager Ashley Winchell provided information on the neighborhood and its unique zoning for industrial and residential uses. According to Winchell, about 20% of the city’s residents live in South Lynnwood and its density is the result of several new and old apartment complexes 

“A big part of this plan is balancing industrial and residential properties, (which) can have very different needs and very different impacts,” she said.

The recommendation to revitalize the neighborhood came from the city’s economic development action plan, which identified a need for a focused effort to improve the area and create more housing and jobs.

The neighborhood is also designated as an Opportunity Zone, which is a federal designation that allows investors to receive tax breaks in return for revitalizing low-income areas.

“As a city, we wanted to better understand how this impacts the neighborhood and understand how the businesses and the neighborhood and the residents feel about the upcoming changes,” Winchell said. “Then, also how we can help make the neighborhood a better place to live.”

Additionally, Winchell said all of the city’s land zoned for industrial use is located in South Lynnwood. According to Winchell, staff have found the area contains higher-paying jobs. While the city is looking to redevelop the neighborhood, Winchell said the city aims to keep it affordable for those already living there.

Right now staff is working with the consultant team and a codesign team of community stakeholders to set up an online public open house and create surveys and materials available to the public.

“The neighborhood contains everything from homes to small local businesses, to utility company offices, to warehouses, auto body shops,” she said. “There’s a number of different businesses in South Lynnwood and a lot of them are local in terms of they’re not necessarily franchise businesses or owned by out-of-state entities.”

Businesses located in the area are a combination of smaller businesses that have been here for a long time and businesses that have either been priced out of Seattle or they’re looking for more affordable places to house their business.

Next, Winchell said staff plan to meet with consultants and the codesign team to establish some form of a public open house to host online and are also looking to create surveys and outreach other materials. Winchell also said staff plan to conduct phone interviews with south Lynnwood business owners to find out their experiences in the neighborhood and what they need to succeed and to better understand what doing business and South Lynnwood looks like.

“Once we get that information from the public we will be meeting with our codesign committee to let them know what we heard and figure out where we can align our recommendations,” she said.

Winchell said staff would be back with more information in mid-May or early June.

–By Cody Sexton