Posted by: sweeneyblog | April 14, 2013

Steve Oliver Explains Ericksen’s Tax Increase on Lynden Residents

Last week, I published an article about Sen. Doug Ericksen and Rep. Vincent Buys bill to raise the taxes on Lynden residents by exempting the Lynden Fairgrounds from property taxes. There was some discussion about whether or not the fairground pays taxes so I received a clarification from our level-headed County Treasurer Steve Oliver (emphasis mine).

Hi Riley,

I was reading your blog about this issue.  I’m getting ready to send out about $180,000 in new property tax bills to the fair association this month for 2012 and 2013 property taxes due as a result of the Department of Revenue’s recent determination.  My understanding is that the fair association has appealed this administrative determination and will be heard by the State Board of Tax Appeals at a future date.

County Treasurer Steve Oliver

County Treasurer Steve Oliver

Just as a point of clarification, the fair association has received a tax exemption from the DOR for many, many years prior to this recent change of course.  Effectively, the fair association has never paid property taxes (as long as anyone here can recall) and prior to that from my understanding, the property was mostly owned by the City of Lynden (and possibly the County) which would have exempted the property from taxation as well.

If the property continues to be taxable in the future, in very general terms, it doesn’t create new property tax revenue for the taxing jurisdictions such as the City of Lynden or the Lynden School District.  We have a budget based property tax system in Washington.  The amount of property tax to be collected is fixed by the budget processes of the taxing jurisdictions.  For example, the City of Lynden’s 2013 property tax levy is approximately $2.8 million, which the City Council sets by public action typically as part of their city budget process.  If the City chose to collect the same amount in 2014, the addition of the NWWA Fair’s approximately $9 million in taxable value to the City tax base doesn’t generate one dollar more.  It would however potentially reduce other City property taxpayers’ shares of the City’s property tax levy since the tax base of the City was increased by $9 million.

This is often referred to as a tax shift.  It generally doesn’t affect the amount of property tax revenue that will be collected but it does affect WHO pays the taxes. This isn’t something unique to this particular situation, but can be said about any property tax exemption granted by state law, including low income seniors, low income disabled persons, private schools, other non-profits, churches, publicly owned property,  farm equipment, small business, etc.  All of these property tax exemptions shift the tax burden to those that do pay property taxes.  It has no impact on the AMOUNT of taxes collected in total, but it can impact an individual taxpayer’s share of the total taxes collected.  The remaining taxpayers are paying for all of these exemptions in effect due to the reduced tax base that is left to spread the total property tax burden across.

A good metaphor for how property taxes work is ordering a pizza with your friends. You order a pizza and then everyone throws in whatever cash they have in their pockets. If one of your friends decides he doesn’t chip in, the total price of the pizza doesn’t change, everyone else just has to pay more. That’s what Steve Oliver is talking about with shifting the tax burden.

So to put it quite simply, while the City of Lynden owned and operated the Fair, the profit from the fair provided a huge amount of revenue for the City budget. When it was transferred to the non-profit status in 2012, the City was  no longer able to get profit from the fair, since it was now privately owned. However, it was counting on recouping all that revenue from property taxes, since the fair would now be subject to them. However, Ericksen and Buys are pushing through an exemption which means less revenue for the City and everyone else has to pay more. In short, they are raising taxes on their own constituents.

Baron family donates to Buys campaign

Baron family donates to Buys campaign

Now, I personally don’t have a problem with raising taxes, I’ve voted for lots of people who do that. However, Buys and Ericksen both ran on the platform of never raising taxes, they always rail against tax increases in every speech. In his constituent email he sent out nine days ago, he said that the state budget should, “keep the promise of funding priorities like education and environmental cleanup without relying on tax increases.” Do different rules apply to the Lynden city budget?

One last point, the person who receives this giant tax loophole is Jim Baron, the manager of the Northwest Fairgrounds. Over the three years, his family has donated $900 to Vincent Buys campaigns and $200 to the State Senate Republicans (the group that helps elect Ericksen). Now obviously our representatives are above such considerations, but it is an important fact to consider when evaluating why Ericksen and Buys would be bending over backwards to violate their own stated beliefs and raise taxes on the people of Lynden.

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Responses

  1. People just don’t get it. The roads, bridges, police, city hall and other expenses will be paid a share of by everyone who pays tax. So anytime a big corporation or company or football team or developer can get a tax break or pay no taxes, everyone else must pay more tax to make sure the city’s bills still get paid.

  2. My reading of Steve Oliver’s piece is that the Fair has never paid taxes and the Ericksen bill would keep that as the case. If the Fair were to begin paying taxes, the people of Lynden would be getting a tax cut if City spending remained the same.

    It is the tax on the Fairgrounds that is new. Doug is trying to reverse that–consistent with his abhorrence of tax increases.

    In doing so, he is possibly denying some citizen’s some tax relief that they would otherwise get, but he is not raising their taxes.

    The linkage to the Baron family is also weak. That is like saying it would be important to note that you contributed to Kris Lytton or Jeff Morris or the state Democrats if any of them proposed legislation favorable to Western..

    I just think there is no there, there in this whole storyline.

    • The missing piece is that the city was making money off the fair, just over $206,000 in 2009, and then when they transferred it to private ownership, they were going to make up that lost revenue by charging property taxes. There was revenue coming in, now there won’t be because of Ericksen/Buys, that’s the crux of it.

  3. The Northwest Washington Fair has never been owned by the City of Lynden, ever. As an entity, it (the Fair) is and has been owned by the Northwest Washington Fair Association, a non-profit group started around 1909 to buy land for and operate a community fair.
    The City of Lynden took ownership of some of the land in the early 1940’s so that the federal governments WPA could rebuild the grandstands. The City of Lynden has never operated the fair, received a profit from the fair, or incurred a loss from the fair (it has been far more common over the last 100 years for the fair to “lose” money than ever make money)
    The City of Lynden has never received money from the property of the Northwest Washington Fair in the form of property taxes. While under ownership of the city, it was designated as a park, and 16 or so years ago when the fair property was sold back to the fair by the City of Lynden at fair (ha ha!, I made a funny!) market value, it was zoned public use and was non-taxable and anyway, the State of Washington and Whatcom County never billed property tax.
    The only income ever received into the City of Lynden coffers from the Northwest Washington Fair was the payment for the purchase of the property that was the fairs to begin with (the Fair has actually paid twice for the same land that they have for over 100 maintained for the community Fair and recreation purposes) as well as the sales tax revenue generated by sales at the fair.
    As a matter of fact, the State of Washington forbids cities from owning fairs. Counties are the only municipalities that may own and operate fairs which is why the City of Lynden called it a park and the Northwest Washington Fair Association (which has several hundred members) operated the fair. Jim Baron is the fair manager, not the owner. He is the manager of the non-profit association that operates the fair with a board of directors like any other non-profit.
    Again, where you came up with a $206,000 I have no clue. Even if the tax bill was $206,000, the City of Lynden would only get a portion of that. But having never received any property tax dollars from the Fair, and continuing to receive nothing from the Fair is status quo, not an tax increase or decrease. It the way it always has been.

    • So yes, the City of Lynden has received revenue from the fairgrounds – not the fair itself. Good distinction, Mr. Vis.

      You can find the $206,000 figure at the City of Lynden 2010 budget. It is included as “Special Revenue” to the City of Lynden here: http://www.lyndenwa.org/wp-content/uploads/2011/03/2010-Published-Budget-Document.pdf

      You can split hairs about the legal terminology of the fair but the bottom line is this – the City was receiving a significant amount of revenue as a result of the Fairgrounds. It then transferred ownership of the fairgrounds in 2012, losing out on that revenue.

      They could have made that revenue back in property taxes but Ericksen is trying to exempt the Fairgrounds from property taxes leaving a hole in their budget you could drive a dairy truck through.

  4. I think there may be a misunderstanding of the City of Lynden NWWF Special Revenue fund. The Northwest Washington Fair Special Revenue Fund is more like a savings account for the monies received from the sale of the original fair association property that was “gifted” to the city that was sold back to the fair by the city. This sale occurred in 1997 ish, then payments are made annually until 2017 or so.

    So the city was in fact receiving no ongoing revenue from the Fair. The fund started with the sale of the property and has been expected to end since that sale. That is why it is called a “special” revenue fund. It is truly unique and the revenue is not and never was expected to be an ongoing revenue stream, so you would not use it as a source to fund a bond or ongoing expense such as labor or operations.

    If you notice in the City of Lynden budget, The NWWF Special Revenue Fund does not have offsetting NWWF Special Revenue Fund expenditures, so the money builds up every year, with occasional one-time purchases coming from the fund. For the last several years, the fund has been a part of the reserves but again, this payments for the sale of the property were never expected to be ongoing. Like any “special” revenue, it has an end.

    I must emphasize, this fund is like a savings account. The actual revenue to the City into this fund is in the neighborhood of around $20,000 a year, for the sale of property that was originally owned by the Fair Association, gifted to the city, then sold back to the Fair Association in the late 1990’s. The City never ever received revenue from the operations of the fair, as it is not legal for cities to own fairs. It simply is not possible. Nor did any transaction take place in 2012.

    I am not trying to split hairs with legal terminology, and I apologize if it seems that way. The facts, in order are this:
    The Northwest Washington Fair Association has operated and received all income and dealt with all debt since the inception of the fair in the early 1900’s. The Association is in no way affiliated with the City of Lynden.

    The City of Lynden has never operated the fair, nor received any income from the operation of the fair or revenue that has been used to offset operations of the City of Lynden.
    In the early 1940’s the NWWF gifted property to the City of Lynden so the grandstands that had burned to the ground could be rebuilt by the federal WPA. The WPA could not spend monies on private property
    At the time of the gifting the State of Washington informed the City of Lynden that it was not legal for the City to own a fair. The City then called the fair property a “park” and leased said “park” to the Fair Association for a token amount.
    In the late 1990’s the Fair Association purchased back the land that had been gifted to the City.
    At the time of the sale, the City of Lynden created the NWWF Special Revenue Fund to account for the yearly monies received from the fair for the duration of the contract between the City of Lynden and the Northwest Washington Fair Association. (To my knowledge the only expenditures of this fund have been the painting of the City owned water tank at the fair with a very nice mural and for City Hall construction, both one-time events)
    The property payments are due to be paid off in 2017.

    Please excuse me for any perceived rudeness, but you have a number of incorrect assumptions and staements in your blog.
    1) The Fair Association has been acknowledged by the Washington State Secretary of State since at least 1976 ( http://www.sos.wa.gov/corps/search_results.aspx?search_type=simple&criteria=all&name_type=starts_with&name=Northwest+Washington+Fair&ubi= ), not 2012

    2) The City of Lynden has never received property tax from the fair, so if it did, that revenue would be counted as new taxable property and would in fact increase the amount of revenue collected by the City, but it could never decrease other property taxpayers portions. ( See Washington State Department of Revenue property tax first question on 1%) http://dor.wa.gov/content/getaformorpublication/publicationbysubject/taxtopics/propertytax/onepercentqna.aspx

    3)The City of Lynden never received money from the operation of the fair, only a one time property sale. So the City of Lynden was never counting on property tax to recoup lost revenue. The only revenue was know to be a limited dollar amount for a limited time frame.

    4) The amount of money received from the NWWF into the City of Lynden was around $20,000 per year. The amount of property tax received by the City of Lynden would be less than $20,000 per year, or less than 1% of revenues of the City of Lynden, somewhat less than significant.

    5) The $206,000 figure in the NWWF Special Revenue Fund is the fund total at year end. (see the note on the bottom of the fund where it states that the fund are fund balances at end of year. Also notice “proceeds of Sale of fixed asset)

    6) The meeting fo the Lynden School Board was not a special meeting to figure out how to keep school open but an attempt by the elected officals of the City of Lynden, the Lynden School District and the Lynden Regional Park and Recreation District to prioritize potential projects that will go to the voters for taxpayer approval, with a potential new middle school and elementary school being two of those proposed projects.

    7) Property tax revenue increased, not decreased by 25.29%, in 2012 (See the 3rd paragraph in the introductory letter from the Mayor to the Council where he states “A property tax revenue increase…”

    8) Erickson and Buys could not take away this revenue stream even if they wanted as this revenue only exists because of a contract between the City of Lynden and the NWWF for the sale of property.

    I should state that I served on the Lynden City Council for 9 years, the Lynden Parks and Rec District for one year and the Lynden School Board for 3 years and 6 months or so and am currently Chamboer of Commerce director here in Lynden. I am very, very familiar with how this (fairgrounds revenue) works and the history. Most fairs in Washington are property tax exempt by the very fact that they are County-owned. Only 4 or so are not, those being non-profits, and only one is on land that was once owned by a city (Lynden). Therein lies the reason the Lynden fair has to be singled out in the bill.
    Again, I am not trying to be a bugger, only trying to explain something that seems straight forward at first blush but is complicated and very unique, as are many things in Lynden 🙂

    If you have any other questions I would love the opportunity to clarify. I like to teach when I can and learn when I can.

  5. […] UPDATE: Gary Vis of the Lynden Chamber of Commerce makes some important clarification that the money the City of Lynden receives from the Northwest Fair is actually leftover from the sale of the land from the city to the fair back in the 1990s and that revenue stream will be unaffected by Sen. Ericksen and Rep. Buys efforts to exempt the Northwest Fair Association from taxes. You can read about it here […]


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