FAQs: Referendum 2
Posted on 10/14/2020

PUBLISHED OCTOBER 1, 2020

This November, Newcastle residents will be asked to vote on a proposed 3% utility tax. To address common questions related to the proposed utility tax, we've compiled a list of FAQs. Click the dropdown menus below to learn more.

Q: Why is a utility tax needed?

A: Newcastle has three primary sources of revenue: property tax, sales tax and development fees. Multiple forecasts have shown that projected revenues cannot keep pace with projected expenditures. The City’s largest revenue source is from property taxes which account for roughly 50% of operating revenue. The City only collects a portion of the overall property tax bill a household pays, typically about 15%. In addition, state law caps increases in property tax revenue to 1% per year, while inflation generally rises at a greater rate.

The revenue collected from sales tax and development fees are prone to fluctuation based on economic conditions. The end result is that the City’s three primary revenue sources cannot keep pace with expenditures, creating what is called a structural budget deficit. Because of this, financial professionals have recommended that Newcastle diversify its revenue sources with more stable revenue options, such as a utility tax.

Q: Why is a utility tax needed now?

A: The cost of city services, including public safety services like police and fire, are increasing and existing revenue cannot keep pace. Current projections show that by 2025, 100% of property tax revenue would go to just fund public safety. This is up from 81% only six years ago. Additionally, since the vast majority of land available for new growth has already been developed, the City needs a new, more reliable source of revenue to replace that funding source.

After concerns over sustainability were raised by the state auditor's office and the City Council Finance Committee, City leaders commissioned a financial study by a third-party consultant firm. After careful review of city budgets and projections, these consultants recommended adoption of a utility tax to diversify revenue sources.

Q: Is this budget shortfall a result of COVID-19?

A: No. Discussions to address the City’s anticipated budget shortfall began before the COVID-19 pandemic and City leaders have been exploring ways to address it for over two years. The fiscal impacts of COVID -19 are being monitored and will be discussed further during the 2021 budget process.

Q: Doesn’t Newcastle already have a utility tax?

A: No. Newcastle is one of only three municipalities in King County that does not have a utility tax. The only other two cities without this source of revenue is Sammamish and SeaTac. Looking at our neighboring cities, Renton’s utility taxes are set at 6% and Bellevue’s range from 4.5% to 10.4%.

Q: How would the utility tax be applied?

A: The utility tax would distribute the burden among all Newcastle businesses, homeowners and renters, and is anticipated to generate sufficient revenue to maintain existing city services. Unlike property and sales taxes, 100% of the revenue collected would go to the City. Additionally, the proposed rate of 3% is not set to increase.

Q: What utilities would this tax apply to?

A: The 3% tax would be applied to the following utilities:
- Electricity and Natural Gas (Monthly from Puget Sound Energy)
- Garbage (Quarterly from Waste Management)
- Water/Sewer (Bimonthly from Coal Creek Utility District)
- Cable TV (Monthly from Comcast)
- Phone Voice Fees*

*The voice portion of a mobile bill typically accounts for one-third of the total bill

Q: What utilities are not subject to the utility tax?

A: Cable internet, stormwater, mobile phone text, data and non-voice fees.

Q: How much will this cost me and my family?

A: The average household in Newcastle will pay between $8 and $14 a month total.

Q: What are the impacts of approving/rejecting the utility tax?

A: If approved, it is estimated the utility tax will generate approximately $880,000 in revenue. The City anticipates using the projected revenue to pay for public safety services (fire and police), as the City’s 2020 budget identified increased costs relating to police and fire contracts in the future. If rejected, it is projected that the City will have an approximately $1 million shortfall in the 2021 budget alone, and will need to consider cutting public safety (police and fire) and other services.

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