Consumer confidence has been a driving force of the national and regional economy. The Economic Forecaster writes: "During the past year, the consumer buying spree has driven the personal savings rate to zero and has accounted for 90 percent of the nation’s economic growth." Durable goods sales (items lasting more than one year) have been very strong in 1999, with first quarter 1999 over 1998 increases of 13% for automobile dealers, and 17% for furniture. Total taxable sales increased 10% in the first quarter of 1999 compared with 1998; 1998 taxable sales were up 8% over the prior year.

The largest consumer-sensitive revenue source is sales tax. King County’s uses sales tax revenues for transit, criminal justice, and the General Fund. The forecasted slowdown will lead to a reduction of the rapid growth in the sales tax to a point that there is very little growth in nominal dollars. The forecasted growth rate for the sales tax is 2.5% from 1999 into 2000 after growth of nearly 7% in 1999. After adjusting for the impact of annexations and incorporations,

sales tax will grow only 2.2 % between 1999 and 2000. Similar growth rates are expected for the Public Transportation Fund and the Criminal Justice Fund.

Governance transitions continue to impact King County’s unincorporated areas. 1999 saw the creation of Sammamish with nearly 27,000 persons and governance studies in several other areas of King County. In 1989, about 590,000 people lived in unincorporated King County, the 28 suburban cities had appoximately 350,000 in population and the city of Seattle approximately 500,000. Over the next nine years, governance changes and growth shifted those categories to the current totals of: unincorporated King County, 390,000; the 37 suburban cities, a total population of over 700,000 and the city of Seattle about 540,000. Further reductions in the unincorporated area population are expected as new cities are created and existing cities annex remaining portions of the unincorporated area.

The largest impacts of annexations and incorporations are felt in agencies which are partially dependent upon user fees or property taxes from the unincorporated areas, such as the Surface Water Fund and the County Road Fund. The General Fund also is impacted by the decline in sales tax revenues as formerly unincorporated areas are annexed or incorporate. The County Road Fund receives funding from the unincorporated area levy as well as other funding sources.

King County entered into local service agreements with the new City of Sammamish, and continued its contractual relationships with many of the suburban cities. The service contracts help to partially offset the loss of sales tax, road levy and other revenues which now accrue to the cities.

Interest earnings continue to be difficult to forecast. During 1999, CX interest earnings were considerably below forecast. Some of the reduction was due to interfund borrowing and were repaid in accounts not covered by the interest earning forecast; however, much of the reduction results from fund balance policy changes, a late bond sale and forecast errors.

Fund balance changes in the Criminal Justice Fund has reduced investable balances because funds have been expended faster in order to meet policy goals. The lack of a bond sale in 1998 resulted in less available funds for short term investment. Finally, forecast errors in the final months of 1998 were continued into 1999 resulting in much higher balances than were expected. Offsetting some of these negative trends were slightly higher interest rates than had been forecast.

For 2000, it is predicted that interest rates will remain fairly stable at around 5.75%.

The following table presents our forecast short-term interest rates to be earned on County investment balances:

Total revenues to the County exceed $2 billion dollars, which King County distributes into over 50 separate funds. The largest funds include those for transit, wastewater, surface water management, roads, and the County general fund. Table 3 identifies the major revenue sources for King County for all funds:

The largest revenue sources are taxes and charges for services, respectively. Taxes include the property tax, the sales tax, and taxes on real estate transactions. Charges for services include both direct contracts, interfund payments, and other services provided by the County.

In the remainder of this section each of the major revenue sources is discussed. Following that will be a discussion of the County’s funds, with a special focus on the Public Transportation, Water Quality, and the Current Expense Funds. An appendix provides further detailed information on revenues.

The major factor affecting revenue estimates in 2000 and beyond is the passage of Initiative 695. This measure eliminated the Motor Vehicle Excise Tax and required voter approval of tax and fee increases. There remain many uncertainties about how the Courts will interpret this Initiative. In adopting the budget and the financial plan, the King County Council assumed that taxes which required voter approval would remain at current levels for planning purposes.

The loss of the MVET affected three funds within County Government. Table 4 below provides the estimated annual revenue loss to each of these funds.

*These losses do not include lost grant funds in transit and losses in fare box collections due to decreased routes.

Taxes are the largest source of revenues to King County, accounting for 35.4 percent of all operating revenues and 60.5 percent of the revenues to the Current Expense Fund. The major tax sources for the County include property taxes, sales and use taxes, motor vehicle excise tax, hotel and motel taxes, E911 excise taxes, and other sources. Total King County tax revenues are projected to be $ 779 million in 2000, an increase of 1.8 percent over the 1999 estimate. These revenues support operating expenses and debt service. The property tax is the single largest tax source for the County, with a proposed levy of $370 million in 2000. Figure 2 below provides the breakdown of the tax sources to the County.

Property taxes are collected through the countywide levy, the unincorporated area levy, the Emergency Medical Services levy and voter approved debt. These monies are dedicated to various funds within King County.

Property tax revenues are limited by both policy and State law. The levy amount is limited by the 106% annual lid on increases. (As a matter of policy, King County has not applied this limit to lid lifts, such as the Automated Fingerprint Identification Services levy. The one important exception to this rule is that the value of any new construction is assessed at the prior year's levy rate and added to the 6 % increase to set the total new levy amount. Therefore, the level and value of new construction activity is the key variable in estimating the total revenues the County can expect to receive from property taxes. Due to the limitations on property tax, the revenue source is a fairly stable source of income to King County.

The Unincorporated Area Levy (traditionally called the "road levy") will levy $476.07 million in 2000, and will total $46.3 million after distributions to new cities and undercollection. This is an increase of 3.4% over 1999’s actual receipts of $44.8 million to the Road Fund and a levied amount of $48.2 million.

The County-wide sales tax rate is 8.6%. Of this amount, the following percentages are collected:

• 1.00% in unincorporated portions of the County
• 0.15% in incorporated portions of the County
• 0.60% transit tax (entire County)
• 0.10% criminal justice tax (entire County)

Sales tax revenues are distributed to several funds within the County. The largest recipient is the Transit Fund. The following funds are projected to receive the indicated amounts in 2000:

• Public Transportation Fund receives $188 million;
• General Fund receives $68.8 million;
• Criminal Justice Fund receives $10.2 million.

The Criminal Justice Fund receives sales tax from the extra 1/10 of 1% County-wide tax approved by the voters in 1992. The total collected in the County is distributed to local jurisdictions (which includes unincorporated King County) on the basis of population after 10 percent is taken off the top and allocated to King County government. King County’s total allocation will amount to approximately $10.2 million from the sales tax in 2000.

The Transit Fund receives a County-wide sales tax at a rate of 0.6% to fund public transportation. The projected 2000 revenues are $188 million, based on a projected growth rate of 2.5%.

The sales tax is strongly influenced by changes in the economy and by the geographic areas from which it is collected. The Public Transportation Fund and the Criminal Justice Fund receive revenues from County-wide sales while the CX Fund receives 1% from unincorporated area transactions and 0.15% from incorporated areas.

Total projected 2000 sales tax revenue to the CX Fund is $68.8 million which includes the impact of annexations and incorporations. The "base" 2000 tax receipts are projected to grow over the 1999 level of receipts by 2.5%, but after annexations and incorporations, the growth is only slightly over 2%. This estimate is above that provided by the Economic Forecaster but consistent with current local economic trends. Of the total, nearly $3.2 million will be deposited to the Children and Family Services Subfund and $3.4 million to the Sales Tax Reserve Subfund, with the remaining $62.2 million dedicated to the Current Expense Subfund. These three subfunds comprise the CX Fund. During 2000, Sammamish’s 1999 incorporation will reduce CX sales tax revenues by $1.25 million, and other annexations are projected to reduce revenues by nearly $200,000.

The MVET provides over $118 million in revenues to King County. These funds are dedicated to public health, roads, criminal justice and other purposes. The State of Washington Department of Licensing’s (DOL) of Motor Vehicle Excise Tax Revenues has been relied on to develop the forecasted revenues. The DOL projects that under current law, total collections under R.C.W. 82.44.020 will decline 6.1 % between FY 99 and FY 2000, with 6% growth between FY 2000 and FY 2001.

The passage of Initiative 695 on the November 1999 had a major impact on King County’s receipts during 2000 and beyond. Distribution lags to each of the fund reduced the 2000 impacts: public transportation will receive two of its four distributions; Criminal Justice one of four distributions; and Public Health one of twelve distributions. The first full year of impact will be 2001 when King County ballot could have a significant impact on MVET revenues to King County. Absent alternative funding sources, the County will lose $122 million in 2001. These amounts may change pending the outcome of the legislative session in Olympia. and a lesser amount in 2000, depending on final legal interpretation of distribution schedules for transit, public health, and criminal justice.

King County levies the Real Estate Excise Tax (REET) in unincorporated King County and collects a 1% collection fee on all REET taxes collected in the County. High levels of real estate sales in 1999 brought in significant amounts for all REET-related accounts. The Proposed Budget forecasts a decline from these levels as real estate sales slow with the economy.

REET #1 and REET #2, both at 0.25%, are dedicated to the unincorporated area. Revenues from each tax are estimated at $5.7 million in 2000. This represents a decline from revenue estimates of $5.8 million during 1999. The REET collection fee, which is dedicated to the Current Expense Subfund, is also forecast to decline during 2000 to $2.2 million.

After taxes, the second largest income category for the CX Fund are charges for services. Charges for services include public safety and court contracts, motor vehicle licensing, recreation programs, health services, recording and reproducing County documents, and other

services. Charges for service also include interfund charges since many of these charges are not charges to the public but charges to other County agencies. Charges for services provide the major source of revenue for the wastewater funds, transit, solid waste. Figure 3 below provides the breakdown for charges for services.

As Figure 3 demonstrates, the majority of charges are associated with the disposal of solid waste, sewer treatment, and transit activities. The category of "All Other" includes primarily interfund charges within King County (such as personnel benefits) and are not direct charges to other governments or to the public.

Other revenues include a wide variety of revenues, many related to interfund payments. Some of the larger revenues include motor pool rental, insurance, facilities management, and related internal transfers.

The County allocates its financial resources into a variety of accounting entities called "funds" or "subfunds" to account for revenues and expenditures. The use of multiple funds is necessary to ensure compliance with State budget and accounting rules, and to promote accountability for specific projects or activities.

Operating expenditures for services typically associated with the County, such as adult detention, public safety, parks, and other functions are accounted for in the General Fund. The Current Expense Fund is a subfund of the General Fund.

Many departments or programs have separate funds or subfunds. Special revenue funds include the Mental Health Fund, the Public Health Fund, Community Development Block Grants, Department of Development and Environmental Services, and other funds. Enterprise funds include Transportation, Wastewater, Solid Waste, and other functions. Capital project funds account for all resources received and used for the acquisition or development of capital improvements. Table 4 identifies the major funds and the revenues for each fund:

The Public Transportation Fund is one of the largest funds operating within King County. This fund accounts for the operations and maintenance of public transportation facilities in King County. Primary revenue sources include sales and motor vehicle excise taxes and passenger service fees. This discussion does not include the capital funds associated with public transportation. The total operating revenues received by the fund for 2000 are projected to be $370 million. Figure 4 provides detail on the operating revenue sources:

Of the taxes received by the fund, only two sources are used. The local sales tax provides $158 million while the motor vehicle excise tax provides the remaining $101 million.

Two funds account for the activities of the Water Quality Enterprise Fund. Fund 461 accounts for the operations and maintenance while fund 461-6 accounts for capital improvements and expansion of the County’s water pollution control facilities under the King County Water Pollution Control Division. Two major treatment plants exist, the West Point Treatment Plant in Seattle and the East division Reclamation Plant in Renton. Major construction projects are funded through revenue bonds.

The Wastewater Treatment Division operating budget for 2000 is $184.8 million and the capital budget is an additional $91.3 million. The sources of funds for these are primarily customer charges and bond proceeds, respectively.

The Current Expense Fund (CX) raises its money from six principal sources. Table 56 indicates that the majority of this money is from taxes, which account for 60.5% of revenue sources.

Of tax sources, property tax is the most important. Figure 5 provides the breakdown of the tax sources:

In 2000, the County expects tax revenues to increase 5.8% over 1999. Most of the increase is accounted for by increases in property taxes and other revenues.

The greatest amount of change in revenues has occurred in the areas of charges for service and intergovernmental payments. Charges for services in the Current Expense Fund have grown rapidly in the past decade. In 1991, charges for services plus intergovernmental services accounted for $64.7 million in revenue, or 24% of General Fund revenues. By 2000, this is projected to increase to $127 million, or 29%. Table 67 provides detailed information for the past three years:

The largest two areas where the County provides contract services are Public Safety and Adult Detention. The King County Sheriff’s Office provides contract services to many jurisdictions around the region while the Department of Adult Detention provides contract services for the incarceration of misdemeanants.

Outyear CX revenue projections--In the years beyond 2000, a significant slowdown in some of the major County revenue sources is projected. The Economic Forecaster predicts that regional taxable sales tax growth will decline to 1.5% in 2000; as noted above, the budget assumes a growth rate of 2.5%. In 2001, the Economic Forecaster forecasts that regional taxable retail sales will grow by 1.0%.

King County's 2000 economic outlook projects a slowdown from the rapid growth of the past few years. There is significant uncertainty about some of King County’s revenue sources, such as the sales and real estate taxes, since these are very responsive to changes to economic conditions. The revenue forecasts contained in this budget are conservative. The possible passage of Initiative 695 and the corresponding impact on the County’s budget has limited the county’s current and future revenues. creates significant uncertainty about the revenues which are available to the County. Numerous legal issues require resolution to remove uncertainty about some of the County’s revenue sources, such as the property tax.

On the following pages the proposed Current Expense Financial Plan is presented for the years 2000 through 2002 with 1998 actuals and 1999 estimates. Further descriptions of each of the major revenue items are contained in the appendix to this section.

Detailed Descriptions

Property taxes and the retail sales and use tax are the major tax accounts. Other significant sources of tax revenues include taxes on gambling, the real estate excise tax, and the E-911 telephone excise tax.

Property Taxes: Property taxes generate more revenue than any other single source, and 2000 current year property tax receipts are projected to be about $370 million, including the General Fund, the Road Fund, General Obligation Debt, Emergency Medical Services, and other levies. The table on the following page displays 1999 and 2000 property tax rates and tax levies for current year assessments. Projected receipts from current year levies are determined by collection rates which are estimated at 97.25% for the All-County Levy.

Real Estate Excise Tax. Revenue from a 0.25% excise tax on the value of real estate sales in unincorporated King County are deposited in a special revenue fund and used for capital projects benefiting unincorporated area residents. Real estate excise tax revenues from the 0.25% tax are estimated to be $5.7 million in 2000.

In 1992 the King County Council enacted the remaining 0.25% R.E.E.T. The funds are to be used for parks in unincorporated King County. As with the first 0.25% discussed above, this tax should yield $5.7 million in 2000.

Charges for licenses and permits are imposed as a means of regulating certain private activities in King County to ensure the protection of the health, safety and welfare of the general public. State law and County ordinances provide for permit processing fees to support the costs of reviewing residential and commercial development plans and of inspecting construction sites to ensure compliance with applicable codes and regulations.

Development permit fees are the largest source of revenues from County issued permits. Revenues from these fees accrue to the Department of Development and Environmental Service, the Road Fund, the River Improvement Fund, and the Public Health Pooling Fund.

The County also issues business/occupation and non-business licenses. The County issues professional licenses for such activities as taxicabs, carnivals, fireworks stands, amusement devices, massage parlors, food handlers, and private security guards. In the category of non-business licenses, animal licenses represent the largest revenue account. Revenues from licenses and permits depend on the volume of activity and on the portion of costs to be covered by the fee. As a general rule, regulatory fees are established to recover the costs of administration, review and regulation, and enforcement.

Although the County issues motor vehicle licenses for the State, the County is paid a fee for this service by the State, and revenues from this source are included in service fee revenues.

Intergovernmental contributions include: (1) reimbursements to the County for services provided to other jurisdictions; (2) direct contributions in the form of project grants; (3) State allocated revenues such as grants-in-aid for mental health and developmental disabilities, gasoline tax, and liquor taxes. These sources represents 16.8% of all King County operating fund revenues.

Intergovernmental payments are revenues from reimbursements or payments for services to other jurisdictions which result from such activities as administration of elections, provision of municipal court services, delivery of public health care, booking and custodial care of jail inmates, and provision of public defense and public safety services. Provisions and terms for reimbursements are normally stipulated in contracts or interlocal agreements. Revenues from these sources are generally expected to follow changes in costs for the services and fluctuations in the volume of activity.

Charges for Services is made up of two components, Service Fees and Intergovernmental Interfund.

This category also includes charges for various services provided by King County which benefit specific individuals or identifiable groups of people, rather than the public as a whole. It is more equitable to charge users all or a portion of the cost of the service rather than finance the program entirely from general revenues.

Other service fees include charges for court filings, motor vehicle licensing, recreation programs, health services, spaying, neutering and sheltering of animals, recording and reproduction of public documents, and use of County facilities. Most of the fees are based on the actual costs incurred by the County in providing the services. However, some fee structures, such as those for health and many recreation services, are set at a level below full costs in order that these programs will be accessible to a broad cross-section of people.

In the category of payments for services between County funds, there are direct payments and overhead payments. The 2000 amount collected from other funds for Current Expense overhead is $24.8 million.

Revenues from fines and forfeits amount to only 0.5% of the County's total operating revenues. The largest source of revenues included here comes from assessments imposed by the District Courts for traffic violations and crimes committed in unincorporated King County.

The miscellaneous revenue category contains sources of income that are not accounted for elsewhere. Taken together, these sources account for 6% of all King County operating revenues. The largest single source included here is interest income.

The "Other Financing Sources" category the pass-through of taxes collected for the Public Facilities District to pay bonds issued to build the new baseball stadium, as well as other sources.