Auditor Proposes Extra Real Estate Tax

At the  San Juan County Council meeting last week, County Auditor Milene Henley recommended that “The second quarter percent of real estate excise tax—commonly referred to as REET 2” be adopted by the county to help “fund both infrastructure and parks projects .”

Henley explained that REET 2 is available by the state legislature to counties planning under GMA to deal with infrastructure needs.” She wrote that “demands on infrastructure are increased by development, which typically follows transfers of property. County parks represent one of the values which drive people to buy property here”

In 1982, San Juan County adopted REET 1, the “first one quarter percent of the Real Estate excise tax.” The proceeds of the REET 1 may, by statute, be used to finance any capital project included in a capital facilities plan element of a comprehensive plan, Henley said on Dec. 15. San Juan County has used REET 1 to pay for Courthouse restoration, “the remodel of the Legislative Building, the re-striping of the courthouse parking lot, and carpet replacement in the courthouse.

“A few years ago, [REET 1] was also used to finance Eden (the county’s financial management system) and the County’s PC and network computer replacement program, until the State Auditor clarified that [REET 1] funds are available only for capital improvements of real property, rather than personal property.”

Several San Juan County Parks’ projects were earmarked for REET 1 funds, but “more pressing needs and dwindling tax proceeds have taken priority,” Henley said.

However, following adoption by the State Legistlature in 1990, REET 2 may be used to finance roads, storm and sewer utilities, and  parks projects. “These specific uses are clearly focused on a county’s infrastructure, as opposed to its municipal facilities (buildings, etc.).”

Henley said that four issues need to be addressed in considering county adoption of REET 2 for parks and infrastructure:

• Does the County need additional funds for capital?
• What would be appropriate uses of the proceeds of REET 2?
• Of eligible counties, how many others have imposed the tax?
• Do excise taxes impede the sale of real estate?

Henley focused on the south wall of the County Courthouse’s second wing, “the weeping wall,” and county parks in addressing the need for additional capital funds.

She outlined the uses of proceeds of REET 2 as pending Park projects such as Odlin Park on Lopez Island and the Shaw Island County Park, and said, “REET 2 could also be used to help fund storm water projects, a hot topic in recent years, and/or road projects. Making some of this money available to Roads could … also serve as a local source to supplement the Road Fund for desired projects that have a lot of local interest, such as the Pear Point/Turn Point  Connector, but do not have much grant potential.

“A bigger issue than which projects are allowable is which projects are appropriate. … an outgrowth of land transfer is development. “Development creates additional demands on infrastructure. Infrastructure is what is intended to be funded by REET 2. …Parks have an additional selling point. Our county parks are part of the reason we all live here. San Juan County Parks currently operates 3 camping parks and 14—soon to be 15 with the addition of Lopez Hill—day use parks. The parks are currently open year round.

“So it is clearly the residents and property owners of San Juan County who get the greatest benefit from their operation. It seems only appropriate to assess an additional tax on property transfers in order to maintain a part of the county which represents one of the common values we share.”

Henley listed the state counties and those adjoining San Juan County which have imposed REET 2 (Skagit, Island, Whatcom, Snohomish, Clallam and Jefferson Counties  among them). Eighteen of Washington State’s 39 counties implement the REET 2 tax. She noted that the town of Friday Harbor assesses the REET 2 tax.

“The effect that a one quarter of one percent tax has on sellers or buyers is questionable, and would be difficult to prove or measure. …Friday Harbor is already assessing REET 2, yet like the unincorporated  areas of the county, [it] has experienced slower, but continuing, sales of real estate during this economic downturn,” Henley said.

As County Auditor, she recommended “that the County Council request the Auditor and the Prosecutor to draft an ordinance which adopts the additional tax on real estate sales authorized by RCW 82.46.035, and that a public hearing be set for consideration of such an ordinance.”

After some discussion, the Council directed Administrator Pete Rose to work with Henley and the Prosecuting Attorney’s office to draft exact language for an ordinance establishing the REET 2 tax. Council Member Richard Fralick said that, with the Prosecutor’s office being extremely busy, it was unknown when the ordinance would be presented to the Council for public hearings.