The Walla Walla City Council wants to be able to vote on increasing tax on real estate sales, drawing the ire of real-estate agents statewide.
Council members and local legislators are pushing to change language in the law to expressly allow city councils in certain counties across the state, including Walla Walla and Columbia counties, to decide on whether to raise the real estate excise tax from 0.25 percent to 0.5 percent.
Some cities, including Waitsburg and College Place, have interpreted the law differently, imposing the tax increase through a vote of council, but Walla Walla wants a change in the law that specifically gives city councils, not voters, the authority to decide on it.
In response, the local and statewide real-estate associations sent 7,000 Walla Walla voters two different fliers in the last week, urging them to contact local lawmakers and ask them to oppose the change. The groups are planning further messaging to make their point.
Walla Walla City Council members unanimously supported the change of law in a vote on its legislative agenda in November. Revenue from the potential tax increase, called REET 2, could be used for any capital project, but city officials have said they would use it to repair sidewalks.
The issue is rooted in the fact that cities are liable for injuries as a result of defective sidewalks, but property owners are responsible for paying to repair sidewalks bordering their properties. Walla Walla paid out over $400,000 for insurance claims between 2012 and 2016, and sidewalk repairs commonly cost homeowners between $8,000 and $10,000, according to city officials.
A Walla Walla homeowner would currently pay $617 in local real estate excise tax on the sale of a $246,800 house, which is median price for the community, according to Zillow. That tax would double if REET 2 were enacted.
Combined with county and state excise taxes, homeowners currently pay a total of 1.53 percent tax — $3,776 on a median-priced home.
Realtors push back
Ben Wolfram, who heads the Walla Walla Board of Realtors’ legislative committee, said the Board’s main concern was the principle of giving city councils rather than voters the power to enact the tax.
“We’re just against taking away a vote of the people,” Wolfram said.
He also said information the city was putting out on the tax was “one-sided” specifically pointing to the city’s claim that it was a often one-time tax. Some people sell homes more than once, he said, and they would have to pay the 0.5 percent tax on each sale.
Nathan Gorton, Washington Realtors’ government affairs director, said the association has been communicating with Walla Walla on this issue since last year, when the city supported similar legislation. Gorton said the conversation has been “pretty disappointing up to this point.”
He said the group had offered to request the state government include funding for the sidewalk repairs in the capital budget, but the city was convinced REET 2 was the only alternative to forcing homeowners to pay for sidewalk repair. He described conversations with city officials as “heartless.”
Gorton said Washington Realtors opposes many tax increases without voters’ consent, including property, utility and sales taxes.
“We think it’s a fundamental right (for people) to vote on a tax increase that affects them,” he said, adding that REET 2 in particular attracted their attention because it affects the prices of homes their constituents hope to sell.
Gorton said the association was targeting Walla Walla because its city council was pushing the legislation. The association plans to run full-page ads in the Union-Bulletin to further encourage residents to speak out. He said he disagrees with Waitsburg’s and College Place’s decision to impose REET 2 by council vote.
A local decision
Sen. Maureen Walsh, R-College Place, Rep. Bill Jenkin, R-Prosser, and Rep. Skyler Rude, R-Walla Walla, are co-sponsoring bills that would change the law to allow cities in certain counties to decide on REET 2. The Senate bill passed the Local Government Committee with only one of its five members voting against. The House bill is scheduled for a Finance Committee hearing at 8 a.m. Monday.
In an email, Rude wrote he supported allowing councils to decide on implementing REET 2 because it would unify the policy with the other counties, avoiding a patchwork of policies.
“The decision whether or not to increase REET is a local one that I feel is best made at the local level with input from residents,” he wrote. “Because government closest to the people is more accountable to the people it represents, I am comfortable with local councils (making) this decision.”
Walla Walla City Manager Nabiel Shawa said the current method of charging homeowners with fixing sidewalks has stalled crucial repairs and created headaches for the city.
“It’s a real torturous, slow, inefficient process,” Shawa said, adding that the city has faced court battles when trying to get homeowners to pay for sidewalk repairs.
Shawa and Public Works Director Ki Bealey pitched REET 2 as “a possible solution to Walla Walla’s failing sidewalks” at a presentation at the public library Tuesday night.
In an interview, Shawa said allowing the City Council to decide on imposing the tax is fair. Cities in many other counties are allowed to do it, many homeowners are not aware they are responsible for repairing sidewalks in front of their houses, and REET 2 could bring in hundreds of thousands of dollars to go toward the city’s $3 million sidewalk repair backlog, he said.
Last year, the city brought in about $550,000 in tax revenue from the 0.25 percent real estate excise tax rate, spending it on street projects and debt service for the Memorial Pool. Public Works Director Bealey said at the current rate of investment, it would take over 40 years for the city to address the sidewalk repair backlog.
Shawa said the city views sidewalks the same way they view roads, as a transportation system.
Repairing transportation systems is “not up to the individual property owner,” Shawa said. “That’s a function of government.”
The Board of Realtors’ mailers complained the city had rejected their ideas of alternative ways to fund sidewalk repair. In their presentation Tuesday, Shawa and Bealey said the alternatives proposed would not work.
They explained the revenues Realtors’ suggested for use are tied to specific projects such as water, sewer and road repairs. They added that they would not want to repair sidewalks at the expense of maintaining staff in places such as the police department.
The Realtors also suggested fixing sidewalks with grant funding from the state or federal governments. Shawa and Bealey said winning a grant for sidewalk repair was highly unlikely.
Waitsburg City Council imposed REET 2 in 2012; College Place City Council followed suit in 2016. Administrators from both cities said they have not gotten any pushback from homeowners or real estate agents and have not seen any indication that REET 2 had an effect on their housing prices.
Waitsburg City Administrator Randy Hinchliffe said cities are very restricted when it comes to finding new sources of revenue, and Waitsburg City Council members were looking for a way to work on the city pool and relieve pressure on the city’s general fund.
Priorities have shifted since then, he said, and the city has used REET 2 revenue to repair sidewalks.
“We’ve installed thousands of feet of sidewalk that we wouldn’t have otherwise been able to,” Hinchliffe said.
He also said imposing the tax had to go through the county government and the state Department of Revenue, neither of which objected, and the move has not gotten any attention on audits since 2012.
College Place City Administrator Mike Rizzitiello said the city enacted REET 2 in 2016 after multiple attorneys agreed that the law allowed cities in counties with populations over 50,000 to do so. He said there was “no adverse response at all” when the tax increase took effect and no indication housing prices have changed as a result of REET 2.
Rizzitiello echoed Hinchliffe’s point that cities have a hard time finding new revenue sources, especially when it comes to state grants and limited property tax.
He said REET 2 has brought in about $110,000 a year, which College Place has used to match with state funds for improvements to Lions Park.
Tim Donaldson, Walla Walla’s city attorney, said he believes the city cannot enact REET 2 under the conditions of the Growth Management Act.
Under the GMA, adopted by the state government in 1990, the state’s 19 fastest growing counties were required to comply with state regulations regarding land use and urban growth. Cities in those 19 counties — often called “mandated” counties — were expressly given permission to enact REET 2 by a vote of the council. Other counties, including Walla Walla and Columbia, decided to “opt in” to the GMA. Cities in opt-in counties have disagreed on whether their councils can impose REET 2. As Donaldson sees it, cities in Walla Walla County do not have that power.
“We never met the threshold to be a mandated county,” Donaldson said. “It’s just that simple.”