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City finances: Future could be in diversity

According to Mayor Darlene Kordonowy, Bainbridge is in the midst of a personality crisis, one that is split between economic growth and identity.

On one hand, having a stronger economic base would support community development projects and guard against volatile revenue streams. Then there’s the perceived loss of island identity to that economic growth.

“Bainbridge Island is still deciding what it wants to be when it grows up,” Kordonowy said. “There is always this push and pull. If we had a larger economic base we would be able to do more (capital projects), but people have not wanted growth.”

The future of Bainbridge Island’s economic vitality is tied to diversified business, city finance and executive officials said. This point was made more evident since the current collapse of the housing and real estate industries, on which the city relies on heavily for revenues.

“To some it is going to change the nature of this community,” Kordonowy said. “The delivering of services and the building of community, open space, a new senior center... to do all that we need to have a stronger revenue base.”

A solid revenue base ideally would spread tax-generated revenue across a number of industries. City administration officials often cite Poulsbo as a prime example of a diversified business community.

According to Poulsbo’s finance director, Debbie Booher, the city has taken a hit in revenue with the decline of the economy. However, it is nothing compared to the millions that Bainbridge had hoped it would receive this year.

This is largely attributed to the development of Northwest Poulsbo as a retail center, something that has given the city enough diversity to edge away from its traditional housing development and automotive revenue sources.

“Our strongest tax revenue is “Our strongest tax revenue is not property tax but sales tax,” Booher said. “The College Market helped us diversify. We are lucky that we don’t have to depend on property tax.”

Booher said that even five years ago the City of Poulsbo leaned heavily on it’s automotive dealerships for sales-tax revenue. Now with the annexation of business areas and aggressive retail development, Poulsbo’s tax base spread fairly evenly throughout the city’s districts.

Comparing sales-tax revenue generated by both cities, Poulsbo collected $3.32 million in 2006 compared to Bainbridge’s $3.2 million the same year.

The numbers are a wash, but with a population more than twice that of Poulsbo, Bainbridge lags behind in per-person spending within its the city limits.

The goal of economic diversity would be in keeping island dollars within the city limits.

“They call it sales-tax leakage,” said Bainbridge Finance Director Elray Konkel. “If we just got just the state average (for per-capita sales tax), we would get another $2.2 million in sales-tax revenue.”

New State streamlined sales-tax measures have made moves ensure that items bought online and shipped into Bainbridge are taxed locally.

But, actual stores are still an important foundation to sales-tax base.

“You go to Poulsbo and it’s alive. There are lots of things happening there,” Kordonowy said. “They decided they want economic diversity and it is helping them build a new city hall and a new main street, they have come to terms with what growth means.”

Bainbridge has done its part to attract businesses in an attempt to diversify its tax base. Its business-and-occupation tax is one of the lowest in the state. B&O taxes are 0.1 percent on revenues above $250,000 for most island businesses.

However, Kordonowy pointed out at the recent 2009-2010 budget meeting that she would like the city and the council to look at lowering the $250,000 threshold as a way to gain more tax revenue in the future. Poulsbo had roughly $1 million in B&O tax revenues compared to Bainbridge’s $348,000 in 2006.

Speaking to how Bainbridge could diversify, Kordonowy suggested more home-based businesses and small business entrepreneurship, something that would fit with the island’s aesthetic and values. However, there is also emphasis on how much a revamped Winslow Way would play into the economic picture.

“I am not saying we need the same kind of businesses (as Poulsbo),” Kordonowy said in regards to the megastores recently built in Poulsbo’s College Market Place. “But to say we want to constrict and don’t do our Winslow Way project because it could benefit some business owners, those are some of the messages we are still getting.”

According to the city’s growth plan, business and development is supposed to be concentrated in Winslow, Lynwood Center, Island Center and Rolling Bay areas.

According to state sales tax reports from the fourth quarter of 2007, the Winslow area contributes to roughly 17 percent of island sales tax revenues.

Other island areas (minus High School Road) account for 33 percent,construction amounted to almost 40 percent of tax revenues.

But diversifying business and expanding the sales tax base within the city will impact how the island looks. Recent developments along Winslow Way’s east side indicate where the island is heading – mix-use buildings to accommodate business and residential needs.

“What do we want our city to look like over the next few years? What type of retail space is there going to be, basic infrastructure, and support for businesses?” Kordonowy said.

“We can’t pay for all these things that (the community wants) with property tax and the construction industry. We need to broaden our economic base.

However, balancing revenue and identity will continue to be the push-and-pull debate among all islanders.

“We decided we don’t want to drive through Bainbridge and have it look like a retail strip like Poulsbo and that has a cost to it,” Konkel said. “It’s a choice we as a community have to make – to stay rural to not have boxes. By doing that we are very challenged in our revenue base.”

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