State tax ruling strikes blow to Whatcom's acclaimed bus system
A strange tax ruling by the state Department of Revenue will hit hard for a transit system already under financial pressure.
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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."
It seems likely that cities and towns in the border area will try to challenge Holmstrom in court, but there's a catch. Although the director's opinion has the force of law, it's not a formal ruling. It's an opinion. Without a formal ruling, there may be no way to get it before a judge.
State Rep. Kelli Linville of Bellingham asked Dept. of Revenue officials to recast it as a formal ruling, so that it could be challenged. But the Herald account says the assistant attorney general assigned to Revenue, Cameron Comfort, isn't sure how that can be done. So far as he knows, no one ever asked, until now, to have an opinion changed to a formal ruling in order to challenge it.
Whatever the legalities, the exemption is here to stay, both Gov. Gregoire and Director Holmstrom have told border community leaders. B.C. shoppers will get a free pass from Washington sales tax on purchases they buy to take back to Canada.
That's a lot of goods. Some Bellingham stores do as much as 40 percent of their business with B.C. shoppers. They sniff a bonanza, as the tax-free bargains draw Canadians by the thousands. It may also be bit of a paperwork nuisance. Merchants are expected to scrutinize the Canadian shoppers' proof of residence, write down the drivers' license numbers on sales receipts, and keep copies of those for five years in case the Department of Revenue comes calling to check on the legitimacy of the tax exemptions.
Expect the state legislature to take up the problem next year, unless British Columbia voters solve it first. The B.C. tax change that's causing all the fuss appears to be the source of great voter unrest there, for reasons having nothing to do with cross-border shopping (the new tax applies in many more instances than the previous one). An initiative to the provincial parliament demands that it be repealed. Otherwise, B.C. political experts say, there'll be recall campaigns against members of the provincial government.
Meanwhile, the celebrated bus service of Whatcom County seems certain to become less than the model system cited by federal transportation leaders and envied by larger and less efficient transportation agencies in the Northwest.
Bellingham Mayor Dan Pike has suggested that the Bellingham City Council ask its citizens to approve a city-only sales tax increase, with part of the revenue earmarked to maintain WTA service levels inside Bellingham. Such a move seems certain to offend local governments in other areas of the county, while it offers a bit of political justice. The community that voted to support high quality bus service with their tax dollars would continue to have it. Those who voted against it would not get what they did not want to pay for.
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Comments:
Posted Mon, Jun 21, 6:10 a.m. Inappropriate
Political Justice? Don't be absurd. You spent the entire article arguing that Canadians were paying for the service. The sales tax is regressive in nature and an inadequate source of funding for essential services. So exactly, who do you believe is currently paying their fair share? You?
Posted Mon, Jun 21, 8:23 a.m. Inappropriate
"Federal Transportation Administration hailed WTA as the bus service with the highest ridership increase in the United States — up 32 percent in 2007-2008. "
Former WWU student here speaking. That massive increase can be attributed to one thing. In 2007, the WWU student body approved a mandatory bus pass for all students. WTA buses were already packed during the morning school commute, but the following school year they were slammed so bad that they sometimes had to pass bus stops full of waiting passengers because the buses were full to the point of being unsafe. Saying people were packed like sardines wouldn't be doing it justice.
All these students that would have otherwise walked or drove were now taking the bus because they thought of it as free now that they were required to pay for it. My now-wife-then-girlfriend did a study for one of her classes and found that people who lived within walking distance of the school but didn't live right on a bus route would DRIVE to the Lincoln Creek Park and Ride and take the bus to school.
On the routes that were nowhere near campus, I would expect that the ridership increases would have been modest at best. I wouldn't know: that was the year I bought a car.
Posted Tue, Jun 22, 5:07 p.m. Inappropriate
I have a student at WWU and they tell me that the bus system is great. It's a series of loops and runs continuously and with the bus pass there is no need to drive anywhere that at student is likely to go. Bicycling suffers because the campus is on top of the hill, but with a bus pass one can bicycle downtown and then bus it back up with the bike in front.
It would be too bad to see a good system like this hacked up by the lack of funding.
Posted Tue, Jun 22, 10:12 p.m. Inappropriate
jon_sayer provides great insight as to why relying on reports alone is foolhardy. From the article, it would seem that, since the outlying areas rejected the sales tax increase that they should bear the brunt of the forthcoming cuts, at least down to a level that represents their approximate contribution to the agency’s sales tax revenues. No doubt, it’s less expensive to run buses in Bellingham (city) than in the outlying areas.
As for giving the Canadians a free ride, why do we pay about 15% of what was GST and PST in B.C., and I’ve never heard a mention of giving us a full refund. Oh, yes, there was a program where you had to pick up a form at the border, mail it in with all of your receipts of (I think it was) $200 or more, then wait and hope they send you a refund at whatever the prevailing exchange rate was by that time (if it was sent in U.S. $, I can’t remember, if not, we had to pay an exchange fee at our U.S. bank to convert it…either way, a loss to us). It’s something along the lines of sending in a rebate: you don’t know if you’ll qualify or not, not about as likely as your health insurer rejecting your claim, where people are paid more if they do that!
It’s no wonder this state had a $2 billion deficit when they’re giving away money they don’t have. When the Legislature reconvenes and wants to raise taxes yet again, urge them to vote no until they plug up the holes in their revenue stream such as this one.
Posted Tue, Jun 29, 12:08 p.m. Inappropriate
Bob Simmons had technical problems posting but he sent this reply:
Countermeme:
I agree with you, the sales tax is regressive. It's also unreliable, but it's what we've got. That’s another story. Reality is, the bus system runs on fares and sales tax.
No, the story does not say "Canadians are paying for the whole thing," as you assert. It says the loss of BC shoppers' sales tax could cost WTA about eight percent of its sales tax revenue. On a thin budget, that eight percent loss is critical.
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