By at least one measure, Whatcom County has one of the best-run bus systems in the United States. It also calls itself, credibly, the most efficient transit system in Washington. But a change in tax policy in Canada, paired with a peculiar opinion in Olympia, threatens much of what the Whatcom Transit Authority has accomplished in the past several years.
On July 1, the provincial government of British Columbia will do away with its long-standing "goods and services tax" in favor of what it calls a "harmonized sales tax." Recently, the Washington Department of Revenue announced, rather casually, that B.C.'s new tax is not a sales tax at all (never mind what the Canadians call it), but a "value added tax."
That means B.C. shoppers qualify for an exemption from Washington's sales tax. It means the loss of a whopping slice of the revenue Bellingham and other Whatcom County governments depend on to pay their bills. And it hits WTA hardest of all.
The Transit Authority depends on sales tax for 85 percent of its revenue. It has been struggling to carry more riders and do it with fewer dollars. A recession-borne decline in sales tax was already pinching in 2008, just as the Federal Transportation Administration hailed WTA as the bus service with the highest ridership increase in the United States — up 32 percent in 2007-2008. Last year, its buses managed nearly 5 million passenger trips in a service area of only 196,000 people. It carries more riders per dollar than any other communitywide transit system in the state.
No good work goes unpunished, and every day of WTA's success runs it closer to the threat of financial failure. The agency's sales tax revenue fell by 11 percent in 2008 and another 4 percent in 2009. Draining its reserves to maintain service, the transit authority asked Whatcom County voters to approve a sales tax increase of 0.2 percent, 2 cents on a $10 purchase.
The results confirmed a long-standing political split between the county seat and the outlying communities. Voters in all six of the county's small towns, all of them served by WTA, rejected the sales tax increase by large margins. So did the unincorporated areas. The tax increase passed overwhelmingly in Bellingham, but overall it fell 930 votes short, losing by about 1.8 percent. WTA began planning service cuts of as much as 14 percent, along with wage freezes and layoffs. Then came the British Columbia-Olympia bombshell, potentially costing WTA another 8 percent of its sales tax revenue.
The exemption is one the state legislature created 45 years ago, for residents of states and provinces with a sales tax lower than 3 percent. Oregon, Idaho, Alberta, and Alaska qualified. It was designed to help merchants in Clark and Spokane counties attract more out-of-state customers. Up until now, B.C.'s cross-border shoppers did not qualify for the exemption. Whatcom County's public agencies depend heavily on sales tax paid by Canadian shoppers.
Thanks to the state Department of Revenue's new finding, that source of revenue goes suddenly missing on July 1.
The Transit Authority's predicament may be the most serious, but it's not the only one. Bellingham Mayor Dan Pike figures his city could lose between one-sixteenth and an eighth of its sales tax revenue. Whatcom County government, already facing draconian cuts in funding for courts, the jail, county roads, and public health services, could lose 5 percent. To make matters worse, public agencies weren't able to plan for the tax loss; it took them all by surprise.
"We learned about it from the press, last week," Dewey Desler, Whatcom County's deputy administrator, told Crosscut. "They (Department of Revenue staff) put out a press release and the press called us."
County Executive Pete Kremen gave Revenue Director Cindi Holmstrom an earful when she came to Whatcom County June 15 to talk about the impact of the change with local government officials. As reported by the Bellingham Herald, Kremen accused Homlstrom of issuing the opinion "recklessly, cavalierly, without the opportunity for the affected governments to have any input."
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