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Fiscal Home Rule for Tacoma?

There's a conversation going on at the City about the ways Tacoma receives revenue. With a significant structural imbalance to address in Tacoma's budget, City staff are considering not only short-term adjustments to fix the budget for the next biennium, they're also looking at ways that long-term imbalances between revenues and expenditures can be addressed.

In a recent conversation Mayor Strickland described one of the challenges for Tacoma, and for other Washington cities, as the challenge of trying to make the most out of available revenue in a regressive tax system that is highly dependent on sales tax dollars. In the current system much of the revenue that is collected by the State (liquor tax money, new money from marijuana sales, etc) stays with the State. 

One of the ideas that has come up to address that problem is to push for "fiscal home rule" for Tacoma and other interested cities. The idea came up in the biennial process of revising Tacoma's Legislative Policy Statement. The general idea would be to push for more control over revenue streams at the city level.

It sounds kind of like a no-brainer on the surface, but when you start talking about what that might look like, it gets a little hairier. Fiscal home rule has been a no-go around here in the past, but this time around City staff are proposing something a little different. They're suggesting that in exchange for greater local tax authority, Tacoma give up certain existing State revenue sources.

City staff introduced the idea of adding fiscal home rule as an organizing principle of the City's Legislative Policy Statement at the Council's study session last week. Proposed changes they included in the new draft of the document would include the addition of a bullet point under "Legislative Philosophy" that reads:

"[the City always] Believes it has broad authority to raise revenue and works to reduce restrictions placed on revenue sources that have been specifically authorized by the State."

Further into the 70+ page document, under "General Revenue," a proposed addition lays out the quid pro quo idea more explicitly.

The City believes the best way for both the State and local government to be able to address revenue needs and properly structure basic services to meet the unique needs of each city is to establish fiscal home rule as an option for the cities that are willing and able to utilize it. In return for being granted the increased flexibilitv to raise revenue and spend what is collected as local elected officials determine, a city would agree to forgo receiving any further shared operating budget revenue from the State. Transportation shared revenue and grant programs and capital budget member requests and grant programs are not included in the fiscal home rule equation. 

The City supports establishment of fiscal home rule for cities in return for ending receipt of certain operating budget shared revenue. 

If this new direction is adopted by the City, it could include actions to increase revenue through removal of rate caps, non-supplant language, and restrictions on how revenue is spent for State-authorized sources like the sales tax tenths (for mental health, criminal justice, etc), property taxes, alcohol taxes, vehicle fees, and gambling taxes.

On the other side of the coin, it could also include the loss of shared revenue streams from the state, which in the 2013-2014 biennium totaled about $7 million from the Criminal Justice Assistance Account and the liquor tax and revolving fund. Not included would be revenue streams like state gas tax dollars, capital budget and transportation grant programs, or the first two cents of the hotel-motel tax.

The idea met with a range of Council reactions, with a lot of questions for staff before they're ready to make a decision. Some seemed more open to the idea than others, at least as a starting point. Councilmember Thoms said he didn't know if it was the right approach, but that he likes the idea of pushing the envelope with discussions of new ideas. Mayor Strickland expressed her support for these changes to the policy statement as a conversation worth having, while not setting anything in stone. 

We heard a lot of concern from council members that the gamble of sacrificing State dollars for possible increased local revenue wouldn't pay off, and that it might even backfire by over-burdening Tacoma taxpayers relative to those in other areas. Councilmember Lonergan expressed concern that we don't want to ask for changes that we don't ultimately end up wanting.

It doesn't seem likely that the City will end up with fiscal home rule in the next two years, but staff described the proposed changes as intended to start a discussion - hopefully to break out of the frustrating cycle in which the City keeps asking the same questions, only to keep getting the same answers. This would be an attempt to change the funding conversation by asking a different question.

The City's Legislative Policy Statement doesn't commit the City to any specific legislation, but it does give the City's lobbyist direction on related issues in Olympia, and it gives staff guidance on which issues are important uses of their time. This and other changes to the Legislative Policy would pivot the City's position to something a little more aggressive than it has been. It may all be semantics at this point, but sometimes semantics matter.

Can cities interested in fiscal home rule can forgo State shared revenue streams in exchange for greater flexibility in their remaining revenue streams... can they do that and be better off?

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