In response to a petition that some say is legally flawed, Olympia is pursuing its own proposal to become the first city in Washington with an income tax.
After an intense discussion Tuesday night, the Olympia City Council voted 4-3 to draft an ordinance that would tax all city households — about 20,000 — to create a college fund for local high school graduates. The proposal would go before voters in the November general election.
Whether the income tax can survive a legal challenge is another story.
Volunteer group Opportunity for Olympia began circulating a petition in April that seeks a 1.5 percent tax on any household income in excess of $200,000. The tax would raise about $2.5 million to pay the first year of tuition at any community college — or apply an equivalent amount at any public university in the state — for every public high school graduate in Olympia.
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The petition needs 4,702 valid signatures from Olympia residents by June 16 to qualify for the November general election ballot.
However, a city analysis has called attention to inconsistencies and loopholes in the initiative’s legal language.
At Tuesday’s council meeting, City Manager Steve Hall and city finance director Jane Kirkemo outlined the administrative challenges associated with the initiative.
One major challenge is that the Internal Revenue Service is prohibited from sharing confidential tax information, meaning that the city would rely on taxpayers to voluntarily disclose that data.
“How do I get the information? How do I know who is subject to this tax?” Kirkemo asked.
Another flaw, according to the city, is the inconsistent references to the number of years of college that each recipient would be entitled to under the ordinance. In some places, the initiative’s language says one year, but another line says the fund would pay for the first and second year of college.
City staff also reports that the ordinance lacks a provision for penalties and enforcement in case a household refuses to pay.
“We can’t just say ‘please,’ ” Hall said of collecting the tax.
With all this in mind, Mayor Pro Tem Nathaniel Jones made a motion Tuesday for an alternative ordinance that addresses these uncertainties.
Jones said such an initiative would fulfill the wishes of Olympia residents. He referenced a 2010 state income tax proposal that failed at the polls statewide, but passed with Olympia voters.
“Within these borders, our citizens said do it,” said Jones, noting how thousands of people have signed the latest petition. “We’ve got a community that’s actually on fire for this issue.”
Instead of taxing just the households that earn more than $200,000 a year, Jones has proposed placing a graduated income tax on all households. In a graduated income tax, the households with the highest income would pay the highest percentage of the tax.
But Jones hasn’t yet proposed specific percentages.
“I don’t have a number for you tonight. I don’t have a percentage,” Jones said.
The alternative tax proposal should be based on each household’s current federal tax liability, Jones said. The goal would be to collect an amount similar to the Opportunity for Olympia measure’s goal of $2.5 million a year.
Jones said one of his main complaints is that the original initiative unfairly taxes wealthy households.
“I am not pleased with something that taxes people at a certain income level, and people below that line have no obligation to participate,” he said. “We as all Olympians need to participate.”
Hall said his staff will need to “scramble” to put something together in time for council consideration June 21.
“The proposal is for a graduated rate, so we can make up a graduated rate,” Hall told the council upon receiving the directive. “There will be some guesstimation going on to get there.”
Council members who supported Jones’ motion also mentioned the long-term potential for improving Olympia’s quality of life by providing an educational opportunity for students in need.
Councilman Jim Cooper said he is concerned that city staff has not met with Opportunity for Olympia proponents to work together and iron out some of the issues. However, he supported Jones’ proposal as a way to stay in front of the issue.
“We can either let it hit us in the face, or try to grab the reins and steer it,” Cooper said. “We all need to think about the long game.”
Also supporting the motion were council members Jessica Bateman and Clark Gilman.
Opposing the motion were Mayor Cheryl Selby and council members Jeannine Roe and Julie Hankins. All three expressed concerns about the legal and financial uncertainties surrounding the proposal. They also questioned whether tax collection and funding education are appropriate roles for the city.
One particular point of contention was that the Opportunity for Olympia initiative is fueled by the Seattle-based Economic Opportunity Institute.
“This is not about education and our kids. This is about someone else coming into our town with their agenda, which is to challenge the state’s tax system,” Hankins said. “It sets our community up for failure.”
Selby echoed that notion and said she is unwilling to take risks with local taxpayers’ money.
“This isn’t about affordable college. It’s about a Supreme Court challenge that will be on Olympia’s back to defend,” Selby said. “The more we talk about it, the less confidence I have in the idea.”
In April, state tax law expert Hugh Spitzer told the council that the proposal would likely lose a court challenge. The issue comes down to whether Olympia has the power to adopt a tax that is not allowed by the state Legislature, he said, noting that voters will “wind up being quite disappointed.”