Analysis of the Financial Feasibility of the Proposed City of Sammamish for Washington State Boundary Review Board for King County*

June 6, 1998

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Executive Summary Does the proposed incorporation of the Sammamish Plateau appear financially feasible? Yes. Assuming existing tax rates, the revenues of the proposed City of Sammamish are sufficient to pay for the current levels of service provided by King County with money left over for additional services or investments in public facilities. Although the proposed City is primarily residential with a weak commercial tax base, the combination of high residential property values and the modest level of existing public services makes the proposed city financially feasible. The City is fiscally sound over a wide range of reasonable assumptions about future growth and tax revenues. Under the most conservative assumptions about future revenues and costs, the proposed City could provide public services at levels that are equivalent to or higher than those now provided by King County What are the key factors affecting feasibility? Suburban municipalities typically rely on four major sources of funding: property taxes, sales taxes, state shared revenues, and fees for services. In the case of Sammamish, elements of each these revenue sources contribute to the City's feasibility: Per capita property values are high. The City of Sammamish has nearly $100,000 of assessed value of property per person. This amount is above the countywide average of $82,000 and very close to that of the neighboring cities of Issaquah and Redmond. While Sammamish lacks commercial and industrial properties, the high value of residential housing boosts the per capita property values above the county average. The State of Washington provides extra money to cities with below average retail sales tax revenues. The State of Washington funds a sales tax equalization program that provides revenue to cities whose per capita sales tax collections fall below the state average. Although Sammamish is rich in property values, it is poor in its retail sales tax base. Under the current funding formulas, the City would receive over $2 million in sales tax equalization payments in 2000 which is approximately 15% of the projected budget for that year. Sammamish would have enough people to receive significant amounts of state shared revenues. Washington cities receive distributions from the state based on their population. With a 1997 population of 26,200 and a projected growth rate of 6%, Sammamish would receive $1.4 million in 2000 in state shared revenues. Rapid growth on the plateau generates one-time revenues that strengthen the City's near-term fiscal position. The continuing boom in construction on the plateau generates fee revenues to permitting agencies, sales tax revenues on construction, and Real Estate Excise Tax revenues on home sales. In the year 2000, sales tax and Real Estate Excise Tax on new construction alone will generate over $1.7 million for the City. Suburban cities can provide a wide range of services including public safety, public works, parks and recreation, planning, and human services. This study assumes that the City of Sammamish would maintain the existing levels of service provided by King County. In key areas such as police, roads, and surface water management, the City would contract for services directly from the County. Over time, the City could choose to stop contracting and provide these services directly. Our assumption about contracting with the County to maintain current service levels yields one more key factor influencing feasibility. The costs to the City of contracting with King County for existing service levels are modest. The single largest expense category for the new City would be police services. Because of its low crime rate and the type of police services currently provided, the City could contract with the County at a cost per capita that is significantly below other cities. Other contracted services can also be provided at modest cost. Accounting for uncertainty in forecasts This study projects the finances of the future City of Sammamish over five years. The future is uncertain and many of the key drivers of revenues and expenditures will vary in the future. For this very reason, this analysis explicitly evaluates the uncertainty inherent in the forecasts. Under the most pessimistic assumptions about growth and tax revenues, the City of Sammamish would generate sufficient revenues to maintain current service levels. Under the most likely scenario, the City would generate revenues in excess of core expenses of $5 to $7 million per year. These revenues would be available to provide additional public services including paying for improved capital facilities such as roads. The table below shows the range of revenues and core expenditures for the City under four different scenarios. Core expenditures represent the estimated cost to provide current levels of service. Under the Baseline assumptions the City's General Fund would earn $15.8 million in revenues and incur $8.5 million in core costs in the year 2003 leaving a remainder of $7.3 million to pay for additional services. The Low scenario generates revenues minus core expenses of $4.8 million while the High scenario generates $9.3 million. The most conservative assumption possible is that Sammamish would have very low growth rates and that an initiative to the voters to repeal the Motor Vehicle Excise Tax passes at the ballot in 1998, which would eliminate sales tax equalization payments and other state shared revenues. Even under this most conservative assumption, the City would earn revenues in excess of core expenses of $2.1 million. The bell shaped figure below presents another way of looking at the potential range in the City's financial cushion. The figure shows a probability distribution indicating that the most likely result is around $7 million but that the potential range is from $4 to $10 million. As one moves above or below $7.3 million the probability of that outcome decreases. There is a very low probability that revenue less core expenses would fall below $4.9 million. The figure also shows the key variables that contribute to the variation in revenues: population growth, growth in assessed value, and the amount of sales tax equalization. What are the limitations of this analysis? This study is not a blueprint for how to run the City of Sammamish. This study only addresses the issue of financial feasibility. It analyzes a reasonable range of assumptions about revenues and expenses and concludes that the City would earn enough revenue to pay for its core expenses with money left over. If the voters choose to incorporate, they will elect a City Council that will have to make many decisions that will influence the actual revenues and expenses of the City. Nothing presented in this document should in any way be interpreted as binding on a future Council. The elected officials in many newly incorporated cities choose to provide additional types and levels of public services to their citizens. The City Council of Sammamish may choose to raise taxes and service levels, keep them the same, or lower them. Projections of revenues and expenses are estimates; readers should not attach undue significance to individual numbers. Any particular number in this analysis, such as the amount of sales tax equalization the City will receive in 2002, will almost certainly differ from the actual number in that year should the incorporation occur. However, while any specific number will be off, the overall findings are correct. The analysis builds an estimate of total revenues by making estimates for each revenue source. Our goal is to reach an estimate of total revenues by making all of the assumptions explicit. * This report was prepared by ECONorthwest with Nesbitt Planning and Management, Norton Arnold Janeway Updated: August 12, 1998 Sammamish Plateau incorporation background King County | News | Services | Comments | Search Links to external sites do not constitute endorsements by King County. By visiting this and other King County web pages, you expressly agree to be bound by terms and conditions of the site. The details.