In its search for additional revenue sources to cover the costs of street improvements and other capital facility projects, the city of Millwood may consider a real estate venture.
The real estate excise tax, a staple of most municipal budgets throughout the state, has been left off Millwood’s financial game plan, although Finance Director Tom Richardson said the topic may emerge at a hearing in June to review the city’s six-year street maintenance plan.
“No one’s in the mood for raising taxes,” Richardson said. “But this is another revenue source that could go toward parks, roads or public buildings.
The tax applies to the sale of any kind of real estate and is usually paid by the seller. The state REET rate is currently set at 1.28 percent while towns and cities typically charge .50 or .25 percent for each transaction.
Over 90 percent of the money collected on the state level goes to the general fund with the remainder parceled out to the public works assistance account, administration costs and the city/county assistance ccount.
According to the Spokane County Treasurer’s Office, Millwood, Latah, Waverly and Fairfield are the only jurisdictions within the county that do not collect the tax, often referred to by its acronym, REET. Statewide, there are fewer than a dozen towns and cities where a local REET levy does not apply.
Millwood Council Member Glenn Bailey brought up the topic of additional revenue sources last year. Bailey said the city would favor an approach that does not take an extreme toll on those residents on fixed budgets, especially in light of an 18-percent increase on sewer and water service approved last year. It was the first time Millwood had adjusted the rates since the mid-1990s.
“If we do something, I think it should be minimal,” Bailey said. “As far as our budget goes, I think we’re doing pretty well.”
Richardson said passage of REET would mean around $12,000 to city coffers each year, an amount that would help offset a loss of roughly $10,000 in property tax revenue the city absorbed in 2010.
“As (real estate) sales pick up, we would collect more,” Richardson said.
The REET roller coaster of revenue has been common in local cities over the past several years as the economy has gone through its share of uncertainty. In Liberty Lake, proceeds from the tax reached a high of $700,000 in 2007 when the housing boom was well underway. During the same year, the city of Spokane Valley saw REET receipts climb upwards of $2 million.
These days, those numbers are not nearly as lofty for both cities. Liberty Lake is in the neighborhood of $250,000 annually, according to Community Development Director Doug Smith while Spokane Valley is in the $800,000 to $900,000 range, based on reports from Finance Director Ken Thompson.
“When real estate is taking off, it represents considerable revenue for the city,” Smith said. “It’s been tremendous for our capital projects.”
REET funds in Liberty Lake helped purchase a 27,000-square-foot building in 2008 for $1.96 million that was eventually transformed into the site of the municipal library and police precinct. Another $675,000 went toward renovation costs.
Thompson described how REET revenue in Spokane Valley has been a key factor in generating matches for state and federal grants that go toward roads, parks and other capital projects. The tax has been part of the municipal budget since the incorporation year of 2003.
Richardson said the addition of REET in Millwood could help fund much-discussed upgrades to roads like Empire Way, Fowler and South Riverway. After a series of meetings in which residents raised concerns about speeding vehicles through the neighborhood streets, the Millwood City Council approved the addition of an elevated intersection and other safety features last October.
Depending on whether or not REET is discussed as a funding option at the street hearing in June, Richardson said the item could be added to the city’s annual budget talks this autumn.