Poulsbo looks at options to bring in more revenue

Poulsbo has reached the point that it needs more money to accomplish more of what people want.

So at their Sept. 13 City Council meeting councilmembers were presented with potential revenue opportunities, such as a Business & Occupation tax, levy lid lift, parking fees, cannabis allowance and even establishing a parks district. The council will continue the discussion in October.

“We have people who want more police. We have people who want this and that, “ City Councilmember Gary McVey said. “We’re really kind of reaching a tipping point.

“What we’re trying to do is have a wise, sage conversation about where that additional revenue should come from, that we have already been spending in many cases, and what’s the fairest way to do it. I think some of the ways we’re talking about here are a fair way to do it. I think we need to have the hard conversation,” McVey added.

B&O is a tax on businesses operating in Poulsbo, usually based on a percentage of gross income, and has a minimum gross income threshold for exemption. Based on neighboring cities, the estimated gross income could be $600,000. It would need a public hearing and council approval. The city says the best time for implementation of the B&O tax would be January 2025, but it could be implemented by July 2024 if the council desires, documents say.

Mayor Becky Erickson said most businesses in the city would be impacted. “This could be a lot of money,“ she said. “So many of the owners in our business community are taking advantage of our city services and not paying revenue. The retailers are but the service sector isn’t. The citizens that live here are subsidizing business owners that aren’t paying into the services that we’re providing. It’s not right. The reality is this is a way we could strengthen our tax base. In a way, I think it’s fair.”

As a former business owner in the city, Councilmember Ed Stern agreed. “In my mind, this is a given,” he said. “I made my career in Poulsbo as a businessman paying taxes until I retired from that in 2019. Given the timeframe, this is something we need to start considering shortly.”

Councilmember David Musgrove expressed sympathy for the businesses that would be affected by a B&O tax. “This is off gross sales, not profit,” he said. “When you have a tenth of a percent for gross, and your profit margin is ten percent, you’re talking about cutting your take-home pay by ten percent. You’re asking them to take a pay cut of ten percent next year.”

Another option, a levy lid lift would have a maximum rate of $1.60 per $1,000 valuation in property taxes, which could create about $4.5 million. The current rate is $1.03 per $1,000, which would create about $2.9 million. It must be approved by voters. The timing of a potential levy lid lift would be most likely over a year.

The addition of parking fees would add revenue without restrictions. It would require council’s approval with projected revenue streams ranging from $200,000 to $500,000. The downside of implementing parking fees would be: enforcement, court time to mitigate parking tickets, along with citizens and downtown business reaction to potential business impact, per documents.

Another idea being looked at is the allowance of retail cannabis within the city, which would require council approval. It would add two revenue streams – the excise tax with estimates at $15,000 and retail tax, which depends on an establishment in Poulsbo. Other neighboring cities have reported anywhere from $75,000 to $150,000 from similar retail taxes.

Other resource opportunities include: voted debt (requires 60% approval) and a parks district (75 cents per $1,000 property tax). That vote would be a simple majority. It can be supported by the city but it can’t run a campaign, documents state. It’s a separate taxing district with a separate governing body but it could contract with the city for administrative/accounting services.

“Phases 2 and 3 of the PERC would be a parks district,” Erickson said of the Poulsbo Events and Recreation Center. “It’s the only way we could pay the construction for that kind of building and the ongoing operations.”

Regarding debt payments, the presentation states debt capacity is not an issue. The city’s debt payment for 2023 is $1.2 million. Annual payments will be reduced in 2026 by $348,000, then by $137,000 in 2032 and $390,000 in 2034. All debt is projected to be retired with final payment in 2040.

Councilmembers also were presented with information about existing resources, consisting of unrestricted use taxes, grants, real estate excise taxes (REET) and impact fees.

Unrestricted use taxes (property, sales, utility, admissions) can be used for any government purpose, documents say. The total amount of general fund taxes in the 2024 budget is about $10.89 million.

Grants are specific to projects and have restricted use with several requiring matching funds.

REET is collected in two ¼ percent increments. The first ¼ percent can be used for capital projects in the comprehensive plan. The second ¼ percent can be used for certain transportation, water/storm/sewer and park capital purposes. Each ¼ percent annual revenue ranges from $350,000 to $500,000.

Impact fees are charges to developers/new homes to mitigate the impact of infrastructure and capital facilities due to increased demand, per documents. Impact fees are restricted for streets and parks and must be used within 10 years of receipt.

Project commitments

The council also was presented with projects the city has already committed to such as the Nordic Cottages, Raab Park Play for All project and the next phase of work on Noll Road.

The Nordic Cottages affordable housing project is projected to cost $3.1 million. The debt structure would be a 20-year term based on 4.5% interest rate and an annual payment of $195,000. Funding would come from the affordable housing sales tax. Projected revenue is expected to be about $500,000 a year.

“We’ll have rental income that should be pretty close to retiring debt service,” Erickson said. “They’ll be paying market rate through HUD (Housing and Urban Development) vouchers. In theory, it should almost pay for itself.”

The Raab Park Play for All project costs $1.1 million and is primarily funded by grants.

Total cost for the next phase of Noll Road work is slated at $20.3 million, consisting of grants, impact fees, REET and debt issue. The debt structure is a 20-year term based on 4.5% interest rate with an annual payment ranging from $195,000 to $270,000.

Then the council went over projects that have been prioritized for funding, such as phase one of the PERC, land acquisition for other phases of the PERC, phase 3 of the Public Works relocation, improvements to 3rd and 8th Avenue, work on the waterfront boardwalk and Rotary Morrow Park.

The cost of PERC phase 1 (tournament fields with outdoor recreation) is $13.9 million, with the city slated to pay $4.9 million and the rest funded by the Kitsap Public Facilities District. Debt would be annual payments of $200,000 and the funding source would be the general fund and REET.

For potential land acquisition for future phases of the PERC (rec building, pool), total project cost would be $2.5 million with annual payments of $195,000 out of the general fund. Phase 3 of Public Works relocation to Viking Avenue is slated to cost $8.5 million with annual payments of $590,000 coming out of the general fund and utilities.

The 3rd Avenue transportation portion costs $2.3 million with funding coming from grants, impact fees, REET and reserves. The 8th Avenue transportation portion costs $3.9 million with funding coming from grants, impact fees, REET and reserves.

The waterfront boardwalk project costs $1 million with annual payments of $75,000 coming out of the general fund/park reserves.

And for Rotary Morrow Park, the cost is $600,000 with funding coming from grants, impact fees, park reserves and donations.