County Council lays foundation for second one-fourth of 1 percent Real Estate Excise Tax

The San Juan County Council last week set the stage to charge an additional one-fourth of 1 percent tax on local real estate sales in order to give county parks, roads and the fledgling stormwater utility a financial shot in the arm.

In a 5-1 decision, the council on July 14 agreed to have legislation prepared which would allow the county to collect revenue generated by a so-called "second" one-fourth of 1 percent tax on real estate sales. The county has collected a one-fourth of 1 percent real estate excise tax, or REET, since it was authorized by state law some 30 years ago.

Councilman Gene Knapp, East Orcas, cast the lone dissenting vote.

Despite a lingering slowdown in the local real estate market that could aptly described as historic, Auditor Milene Henley doubts that a second REET would work as a deal-breaker. She said excise taxes, in general, which typically amount to a fraction of a sale price, do not appear to discourage potential transactions.

"I'm not convinced that they do," Henley said. "My conclusion is it's not a big factor, if it's a factor at all."

The second REET, if approved, would add $1,200 onto the price of a $500,000 sale, and would be paid by the seller. It can be enacted by the council without a vote of the people.

Authorized by the state in 1990, the second REET is available to counties, cities and towns whose long-range planning efforts are dictated by the Growth Management Act. According to Henley, 18 of the state's 29 GMA counties, including Island, Skagit and Whatcom, have enacted a second one-fourth of 1 percent REET. She said that within those counties, a total of 73 cities and towns, including Friday Harbor, collect a second REET.

As with the first REET, state law strictly limits the way in which revenue from a second REET can be used. Both are earmarked exclusively for "bricks and mortar" type projects, rather than for wages, operations or "soft" projects, such as purchasing computer software.

The county's roads, parks and sewer and stormwater utilities are potential beneficiaries of a second REET. Henley recommended that the council seek a legal opinion to determine whether the languishing capital needs of Public Works' solid-waste division would qualify for funding.

The first REET is expected to generate $375,000 this year, a staggering drop from the $915,000 it produced just three years ago. Henley said the second REET could help lessen demand on the capital improvement fund, which is increasingly under pressure, as well as providing the chronically cash-strapped Parks Department a new source of funding.

The Parks Department, she said, might be better able to generate revenue on its own if many of its long-stalled improvements, such as those slated for Lopez Island's Odlin Park, were financed and completed.

Henley said islanders may be more likely to embrace a new tax, even in these tough economic times, if proceeds help improve parks and keep the agency afloat.

"County parks represent one of the values people move here for," she said.

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