Federal Way Mayor Jim Ferrell recommended taxing the Lakehaven Utility District, adjusting business registration fees and increasing permit fees as a way to help fund nine additional police officers in the 2017-2018 biennium at a Council meeting Tuesday.

He announced his desire to add more police after the eighth murder of 2016 in Federal Way occurred in late September. But how exactly the city would pay the $1.3-$1.8 million needed for additional officers took longer to determine.

Ferrell gave a detailed presentation on his recommendations at a special Council meeting. The council is expected to vote on those funding options, as well as the city’s 2017-2018 biennial budget, on Nov. 15. A public hearing on the budget will be held on Nov. 1.

Of the nine officers, four would be hired in 2017 while the other five would be hired in 2018 using a $230,000 grant, called a COPS grant, that would cover 60 percent of salaries over three years.

Federal Way’s total officer count if the city hires five officers by the end of this year would be 140.

To accommodate the officers, two police cars in 2017 and three in 2018 are planned with the hiring of 1.5 full-time IT workers in 2017 and one records specialist in 2018.

Ferrell said new revenue options are needed since he and his office were “already ringing every dollar out of the initial budget.” The mayor added that it was also “tremendously important” to ensure no layoffs or service cuts occurred and to maintain the fund balance reserve of 17 percent ($9 million).

“With regard to the revenue … we had put forward the full range of applications and there was a full need for more than double the expenditure request when we first provided options to the Council, which included several parks positions and another IT person,” Ferrell said. “But when we were taking a look at raising revenue, essentially raising taxes, my position and the position of my administration is, we’ve gotta make this impact as low as possible while hitting and maintaining the No. 1 priority of city government – that we’re all on the same page about police.”

Ferrell said these are difficult decisions – there was also a $300,000 market adjustment for employees in the initial budget, but raising taxes, specifically by implementing a Business and Occupations (B&O) tax, could create disincentives for businesses.

But B&O taxes, along with increases in property tax, sales tax, admissions fees and implementing a Transportation Benefit District were all options Ferrell considered before deciding they would be axed from his recommendation.

Still, the funding options Ferrell is suggesting could have a significant impact.

Lakehaven Utility Tax

The current utility tax the city collects is 7.75 percent, but the current taxes paid on water and sewer is zero, Ferrell said.

Although the city collects a 3.6 percent franchise fee from Lakehaven, Ferrell said they lose about $100,000 per year because the franchise fee is less than the costs incurred.

Alternatively, the city could collect enough to net and additional $1 million per year if Lakehaven was taxed just as “every other utility” in Federal Way is, he said. If done, the franchise fee would cease.

During Council discussion, Councilman Mark Koppang said looking at an alternative to the franchise fee was attractive to him, as was the idea of making utility taxes apply to all utilities so the city is “not picking favorites.”

“I understand this would have an impact on the ratepayers, but I also think there’s revenue available or there’s enough revenue on Lakehaven’s site that would probably cover this, and I think, with a little bit of analysis, that’s going to be pretty readily apparent to anybody that takes a serious look at that,” he said. “I don’t think they would need to pass on those rate increases or a rate increase to cover the utility tax.”

The city’s financial director, Ade’ Ariwoola, said Lakehaven’s financial statement and their debt level show that they have the capacity to absorb the increased cost.

“What they do, of course, is up to them, but looking at their financial statement, I think they’re sitting very well,” Ariwoola said.

Ferrell said he reached out to the Lakehaven Board of Commissioners president and vice president to let them know they were discussing this.

In an interview with the Mirror, Lakehaven General Manager John Bowman said the Board of Commissioners are aware of the “imposition of a utility tax on water and sewer revenues” but said there was “no indication at the present time” that it was more than just an option under consideration.

Because of this, he said, the board wouldn’t have further comment.

“If the tax was implemented and the district chose to pay it, it would, under the current franchise agreement, eliminate the 3.6 percent franchise fee that is collected by the city on district water and sewer rates within the city,” he said. “Because our current rates do not include an amount for utility taxes to the city, the net cost of any tax collected for the city would be passed on to customers.”

Business registration fees

If the city increased business registration fees on a graduated scale, Ferrell estimates the city could collect $360,000. The current fee is a flat rate of $75 for all businesses, but under the mayor’s recommendation, it would increase to $80 for businesses with 0-10 employees, $125 for 11-25 employees, $250 for 26-50 employees, $1,500 for 51-100 employees, $4,500 for 101-501 employees and $9,500 for businesses with 501 or more employees. An additional $20 would be added to outside contractors that are not Federal Way residents.

Councilwoman Kelly Maloney questioned why the mayor didn’t recommend a B&O tax, to which he said that not having one allows the city to remain competitive and attractive businesses.

“I agree 100 percent,” Maloney said. “In fact, I told Mayor Ferrell several months ago the reason my company now is in Federal Way is because we don’t have a B&O tax and we could get a licensing fee for $75. That’s why we made that decision.”

Councilwoman Lydia Assefa-Dawson questioned why there was such a steep increase in the registration fee amounts between businesses with 26-50 employees to those with 51-100. Ariwoola said it was determined based on nearby city’s costs.

“We want a lot more businesses to come here, obviously,” Koppang said. “We have a tremendous amount of inventory in office space right now, and obviously we’ve got premier property… right here in Federal Way vacant. So I think continuing to not have a B&O tax is important for us. But this business registration fee, I think, is one of those things that can bridge… not having the revenue a B&O tax creates.”

Permit fees

Although Ferrell is recommending permit fee increases as a funding option, budget calculations show business registration fee adjustments, the Lakehaven utility tax, and the COPS grant alone would pay for the officers, their equipment, and staff.

But Ferrell said the city’s existing permit fees are lower than comparable fees in nearby cities – “some even lower than labor costs.”

Ariwoola said the revenue from increased permit fees depends on development projects in a particular year.

“It is not as stable as other form of revenues like property tax or business registration,” he said. “We have not finalized the fee schedule, therefore the estimate is still very raw. That said, the preliminary estimate is about $100,000.”

If approved, the Council would have to pass the fee schedule before the end of the year.

To comment on the funding options or the 2017-2018 biennial budget, attend the public hearing at 6 p.m. on Nov. 1 at City Hall (33325 8th Ave. S.).