Dueling income tax proposals divide Olympia City Council
Olympia voters will likely decide in November whether to become the first city in Washington with an income tax — and at this point, it’s possible the public could see two different plans on the ballot.
City staff is scrambling to draft an income tax proposal that would create a college fund to pay one year of tuition at a public community or technical college for any graduate of the Olympia School District.
At the same time, a group called Opportunity for Olympia has gathered about 7,340 signatures for a petition with a similar mission. The petition needs 4,702 valid signatures from Olympia residents to qualify for the November ballot.
Both proposals aim to raise about $3 million a year. One key difference is the tax’s target.
The city’s proposal would tax all households earning at least $25,000 a year using a graduated income tax in which the households with the highest income would pay the highest percentage of tax.
In contrast, the Opportunity for Olympia proposal calls for a 1.5 percent tax on all residents with income above $200,000 a year.
The biggest unknown, however, is whether either proposal can survive a legal challenge in a state that prohibits an income tax. Supporters say Olympia could blaze a trail for other Washington cities to challenge the income tax ban. Critics say the city is wasting energy, and potentially money, on a political risk that is unlikely to succeed, on constitutional grounds.
At Tuesday’s Olympia City Council meeting, the council voted 4-3 to have city staff revise the proposed city-written ordinance and present it to council for a first reading next week.
Mayor Pro Tem Nathaniel Jones has spearheaded the city’s proposal to address legal flaws and inconsistencies raised about the Opportunity for Olympia petition. Jones said the petition drive demonstrates public demand to reform education funding and tax policy, and he said the matter is worth a public vote.
“This is a real issue for our community,” Jones said. “If our community rejects this, I’m OK with that. It’s called the democratic process.”
Another critical difference between the proposals is that the Opportunity for Olympia initiative would become law if approved by voters and must exist as-is. Any changes would require a new initiative and a new public vote.
However, the City Council already has the power to pass such an ordinance, but will seek a non-binding advisory vote from the public to gauge whether to enact the tax. The City Council would be able to revise the ordinance at will.
Ray Guerra, volunteer coordinator for Opportunity for Olympia, said the group will set up a meeting with city staff with the intention of reaching an agreement for addressing voters. The group is prepared to file the initiative with the county auditor if no agreement is reached.
“We do want the City Council’s support,” Guerra told The Olympian. “Having the support of the council is better for everyone in November.”
Mayor Cheryl Selby joined council members Julie Hankins and Jeannine Roe in voting against the tax proposal. All three are concerned about the lack of public outreach so far and whether the anticipated legal battle is worth it.
“When we rush and force issues, we are not able to address all the unintended consequences of our actions,” said Hankins, who vehemently opposes what she calls an illegal income tax. “I will publicly and actively work against it at every opportunity.”
Seven local residents also spoke against the tax proposal during public comment Tuesday evening. Their concerns included the potential negative effect on downtown development, the diversion of resources away from downtown’s growth, and the overall lack of proper vetting for the proposal.
“Time is being wasted on what appears to be an unconstitutional concept when we need so many other decisions to be made,” said Jim Haley, president of Thurston First Bank. “There’s too much to lose if we become distracted by experimental initiatives that seduce us away from a vibrant Olympia.”
Steve Langer, a former council member, said he supports some kind of statewide income tax, but fears this proposal could chase high-earning residents out of Olympia.
“This is really poor public policy,” Langer said. “This makes the City Council look naïve and poorly informed in its role.”
City Manager Steve Hall said his staff has devoted about 100 hours to the city’s proposed ordinance so far. Much of the work depends on financial assumptions, he said, because the city lacks access to tax information.
For example, based on the city’s calculations, a household that earns about $55,000 annually would pay about $30 a year toward the tax. That particular bracket would generate about $40,770 a year based on an estimated 1,359 households. About 700 households earn $200,000 or more and would generate an estimated $2.3 million, using the city’s math.
Out of 20,657 taxable households, the city estimates bringing in about $3.36 million a year. Administration would cost about $500,000, leaving about $2.85 million for college grants.
The city’s report shows that 2,783 households in Olympia earn between $75,000 and $99,000 a year. Their annual contribution under the graduated income tax proposal would be $173,938 total — or roughly $62 per household.
Roe said she supports the idea of helping people achieve a higher education, but has been disappointed with the lack of public conversation about the tax proposal. She also questions the proposal’s legality.
“This is not a city issue. This is a state government issue,” Roe said. “This is a very peculiar way to try and do good government in the city of Olympia.”
This story was originally published June 15, 2016 at 3:57 PM with the headline "Dueling income tax proposals divide Olympia City Council."