(The Center Square) – As Spokane prepares for potential cuts next year, local officials say that the taxes expanded by the state to fill its projected $16 billion operating budget shortfall will provide little to no relief as they approach a financial crisis back home.
State lawmakers adjourned the legislative session on Sunday after filling the gaping budget with new and expanded taxes. Gov. Bob Ferguson will spend the coming weeks reviewing the framework, but his approval will do little for Spokane as revenue growth falls short of projections.
The Legislature passed several bills to address the shortfall by raising the capital gains tax, levying sales taxes on new industries and repealing “obsolete” exemptions. Spokane County lobbyist Mike Burgess said some of that will trickle back home, but he’s not sure to what extent.
“It’s state dollars, but of course, as you know, you all get a carve-out of that sales tax, too,” he told the Board of County Commissioners on Tuesday. “So those increases will trickle down to local governments, cities, counties, and the like … if the bill gets signed by the governor.”
The board realized in March that the county is facing a $20 million deficit ahead of next year, primarily driven by plateauing revenue growth. Sales tax collections make up a large portion of the region’s revenue, but low consumer confidence has caused the board to consider tough cuts.
An effort to raise the annual cap on property tax increases could have alleviated some of the burdens for the Spokane region but at the expense of rising rates for homeowners.
Ferguson voiced opposition to the lid lift due to the pressure it would put on taxpayers, leading Democrats to drop it from their budget proposals. The governor has until May 20 to sign the state budgets, but if Ferguson rejects some of his party’s revenue plans, he may call a special session.
“He’s going to be pretty engaged on this stuff, so we’ll kind of have to wait and see,” Burgess told the board, “but I would expect a number of vetoes coming out of the operating budget.”
Jeff McMorris, senior director of the county’s Finance and Administration division, said the state’s new and expanded taxes will likely be budget-neutral for Spokane. He told The Center Square that only about 7% of every sales tax dollar stays within county government, but they also pay those taxes.
Cities and counties also pay bills that come with sales taxes. McMorris said that the additional costs the county pays for services will consume most of the new revenue it receives. The taxes will provide significant revenue for the state, but local governments may need to raise their own.
The city of Spokane closed a $25 million deficit in December, but local officials said on Monday that they may need to adjust the budget. Sales tax revenues aren’t keeping up with projections, so Mayor Lisa Brown and her team are identifying potential solutions to balance city spending.
The Center Square contacted city officials for comment but did not receive a reply before publishing. Still, the city will likely see little impact from the new and expanded taxes amid flattening revenue growth.
“Over 72% goes directly to the state,” McMorris told The Center Square. “With county governments only keeping a small percentage of each sales tax dollar, we believe it will be basically budget-neutral.”
