ANALYSIS: Can Burien Afford To Annex The Rest Of North Highline?

Click image to see larger version of the proposed annexation area.

[EDITOR’S NOTE: This is an analysis of the negative side of annexation of so-called Area Y. This analysis is not intended to be a balanced news story. Many stories on The White Center Blog have already reported on those who support annexation, but less has been written about the negative. This piece is intended to balance the discussion.]

By Jack Mayne

Annexation of the rest of North Highline is a hot topic, but only to a relatively few people in both Burien and the White Center/North Highline area.

Many say that only a few people consider this a major issue, both inside the unincorporated area and in the rest of Burien.

Gov. Chris Gregoire tossed a new impediment into the fray recently when she proposed eliminating the Annexation Sales Tax Credit (read our coverage of that here).

One thing is certain, annexation will not happen for about a year, no matter what the Burien City Council does. The city would have to negotiate with the entities that provide services to the area (library, police, fire, sewer etc.) to work out new cost sharing amounts.

A main potential problem would be that the people of the unincorporated area must vote whether to join with Burien or not, and there are many who will not want to be in Burien and want to join with Seattle. Many of the ethnic groups living in the region will not vote at all because they are not registered, or rely on their own people and not on governments.

We have spent a lot of time reading both the Berk Report, a fiscal analysis of the proposed annexation, and a report written by the staff of Beth Goldberg, director of the Seattle Budget Office.

In short, the Seattle view is that annexation of the area would simply be too expensive, even though some Seattle Council members and others think annexation would be a good idea.

“I still think annexation is a good idea,” said Seattle Council President Richard Conlin, but the city is continuing to cut its own budget to make up for tax shortfalls, so it is not in the cards now – more of that later.

Too expensive?
The analysis of these reports shows there are some serious financial concerns for Burien residents. It just may be too expensive to annex the area.

Gov. Gregoire may have struck the final blow to those who want to take the rest of Highline into the city. She has proposed that the Washington Legislature eliminate the state annexation sales tax credit, which her budget office projects would save $17.8 million.

If it remains the credit would provide Burien with upwards of $50 million over the next 10 years to help pay for the cost of annexation. If the Legislature buys the governor’s request, Burien will not get any of the $50 million.

The Washington Legislature is expected to meet Nov. 28 to make more large cuts in the state budget. The total budget reductions needed are in the range of $2 billion to provide for a minimal reserve fund.

The Legislature can accept or reject the governor’s proposal. But Gregoire noted the tax credit benefits only seven Puget Sound cities including Burien.

Eastern Washington legislators are as solidly Republican as King County is Democratic, so they are usually unsympathetic to the fiscal woes of the Seattle area.

Most Burien City Council members who support annexation have touted the $5 million a year sales tax rebate at the strongest reason to bring the unincorporated area into the city. The Berk Report, a study paid for by the city to assess the financial impact of the annexation supports that reasoning.

“(T)he costs borne from annexation are not covered by the revenues,” says the Berk study.

King County is even more financially stressed than Seattle or Burien so it banded together with various cities adjacent to unincorporated “islands” and got the Legislature to agree to rebate sales tax revenue up to $5 million a year.

That money “would more than cover the city’s incremental cost (new costs directly related to the annexation) of annexation for the 10 years that the credit would be in place,” said Berk.

Burien costs going up
Meanwhile, Berk says that if “the current trends were to continue without intervention, the City of Burien is expected to see costs increasing at approximately 3.6 percent per year and revenues increasing at about 1.8 percent per year, leading to an increasing deficit over time.”

No Washington city may legally operate with a budget deficit.

Click image to download PDF of the Berk Report.

“But the $5 million credit would give the city more income each year until the tax credit expired (estimated to be in 2023).”

Berk says the city would collect 22 percent more in 2013, 29 percent more in 2014 and 28 percent more than needed in 2022, but the surpluses would end in 2023.

Then, Berk projects Burien would suddenly take in 22 percent less money than necessary to operate the city at current income projected 10 years.

If the city annexed the area but did not get the sales tax credit, it would continually bring in less revenue than needed, 21 percent to 24 percent over various years.

Nobody in the city has ever made it clear what city leaders think will happen when the tax rebate ends in 2023. Apparently they believe that Burien leaders a decade away can deal with that problem then.

Otherwise it’s ‘neutral’
There is a glimmer of positive for annexation in the report. Leaving the sales tax credit aside, Berk says the long-term perspective of annexation “would be a fiscally neutral proposition to the current city. Does annexation make it more or less challenging for the city to balance its budget over time?” asks Berk.

“Stated another way, the fiscal impact of annexing the area is defined by the degree that annexation introduces any new service cost or tax revenue challenges not already being addressed by the city. From this perspective, the annexation of the area does not worsen, nor does it substantially improve the city’s ability to balance its budget. In a post annexation world, future city councils will not have to make special choices between higher taxes and reduced levels of service to expressly accommodate the annexation area.

In other words, addressing the current city fiscal challenges also addresses the fiscal challenges of the annexation area.”

So Burien’s fiscal management would be up to city officers and the Burien City Council.

Seattle is not interested in annexation of the North Highline area, at least for now, say both city council members and a January report done by the staff of City Budget Director Beth Goldberg.

“After considering the finding of the attached report, the mayor believes that Seattle is better positioned to provide services to the residents and businesses in the area than is King County,” the report’s transmission letter from Goldberg said. “At the same time, the city’s current and future financial reality . . . make the decision to annex difficult to contemplate at this time. The city simply does not have sufficient resources (and resource growth) to meet existing demands for its services and take on the new demands that the annexation would require.”

Seattle Council President Conlin holds out hope for the area, though.

“If voters (in North Highline Area Y) turn down Burien, there will be a lot of time for Seattle to consider it again. I still think that is would be good to annex the area but the finances are just not there now.”

The Berk Report noted some reasons why Seattle found costs too high, mainly because the way Seattle and Burien do many things is very different.

“The City of Seattle report estimates that annexation area would require expenditure increases of about $19.2 million to $28.7 million annually compared to increases of $7.1 million to $9.8 million annually for the City of Burien,” says Berk.

Problems Seattle saw that aren’t true for Burien are such things as policing. Burien contracts for police service from King County, while Seattle would have to hire more officers to cover the area. Similar problem for fire services because there is a freestanding fire district that collects its own taxes and fees, but Seattle would have to expand the new fire station on 35th Avenue to accommodate up to 29 additional firefighters or provide services to the area out of the fire district’s station on SW 112th Street.

“While each city levies the same four major general fund taxes (e.g. property tax, sales tax, utility taxes, and business and occupation taxes), keen differences exist in the rates applied,” says Berk. “Applying these rates to the existing tax bases (i.e. total assessed value, business income, utility usage) in the area yields greater amounts of tax revenues for Seattle.”

And even that additional revenue was far short of what Seattle would need to handle the annexed area.

Just the wrong time
While some say annexation may be a great idea for Burien, the current financial crisis makes it appear that this a very bad time to take on additional costs, in particular with the potential loss of the state annexation sales tax rebate that helps cover the costs of governmental services.

Some say that the fact there is lax zoning in the unincorporated area, which makes the possibility that blight will be on the very border of Burien, but without the money to tackle those very problems, what would change?

Perhaps, like Seattle, maybe the annexation idea should be put on hold for a few years. Maybe that extra time will spur King County and the Legislature to find ways to make the addition of the area more affordable.

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