City Finance Director Chip Corder spoke to the League of Women Voters’ (LWV) Mercer Island chapter on Oct. 8, explaining how I-1033, an initiative that caps revenue tied to the consumer price index and population, would negatively affect the city of Mercer Island if approved. Conservative political activist Tim Eyman brought forth the bill, which will be up for vote on the Nov. 3 ballot.

A strong opponent of I-1033, Corder explained the ramifications that the legislation would have on state and city government; namely, that the cap on revenue would deplete city finances over the coming years.

“The initiative to bring in excess revenue goes away. There is no incentive for economic development,” Corder said.

According to the finance director, I-1033 has received little publicity, and this is a problem.

“This initiative has gotten very little press, which is a concern to me because it’s a big deal,” Corder told the women of LWV.

If I-1033 were passed, caps would be placed on total revenue growth in the general funds of Washington state, its counties and cities. These caps are based on inflation and population growth in the previous year and apply to all taxes — property, sales and utility — fees and other revenues. Any revenues collected above the limit would be used to reduce the property tax levy in a subsequent year. There is, however, an opportunity for cities to exceed the limit.

“The city could go back to the voters to raise their taxes,” Corder said, adding that it would need a simple-majority 51 percent vote.

Yet such a situation would push Mercer Island toward a direct democracy rather than a representative democracy, as decisions over the city’s tax rates, fees and services would be transferred from the Council to Island voters.

This, according to Corder, would seriously slow down governance.

“It would bring us to a halt,” the finance director said.

According to a Sept. 22 poll by Rasmussen Reports, 61 percent of likely voters support I-1033, 31 percent oppose it and eight percent remain undecided.

Those who support the initiative do so because of its fiscal discipline and property tax relief. I-1033 proponents argue that the private sector, not the public sector, creates the jobs that drive Washington’s economic recovery.

Those who criticize the legislation point to its detrimental effect on city services and budgetary reserves. Corder, for one, is especially concerned with this facet of the bill.

According to his calculations, I-1033 would result in a $13.4 million revenue reduction for the City of Mercer Island’s general fund between 2010 and 2015. This would mean an expenditure cut of $1.5 million (6 percent) in the 2010 budget, resulting in “significant employee layoffs and service reductions,” such as public safety, maintaining Island parks, roads and other amenities.

The city would no longer have the luxury of using excess revenues from the prior year to fund unanticipated budget costs — such as the response to last year’s snow storm — or one-time capital needs, such as the Sewer Lake Line Project. The city’s rainy-day fund and Capital Reserve Fund would also disappear, said Corder.

Similar financial restrictions will occur on the county and state level.

If I-1033 passes, Corder pointed out, Mercer Island will become more dependent on sales tax revenue. And in an economy like last year’s, this could have serious consequences.

“We’d no longer have that protective layer of fat. We’d be cutting into the [city’s] muscle,” he explained metaphorically.

According to city numbers, Island property taxes made up 43 percent of the 2009 budget. Utility taxes made up 15 percent, while sales taxes made up 14 percent.

Speaking to the Mercer Island League of Women Voters, Corder was preaching to the choir. As a whole, Mercer Island’s LWV has publicly opposed the initiative, along with the Mercer Island PTA.

Yet others support the initiative.

The state Republican Party has endorsed I-1033. The governor’s budget office projects the measure would divert more than $8 billion from state, city and county general funds into property-tax relief from 2011 to 2015.

“We’re thrilled to be on the side of the taxpayers by unanimously endorsing I-1033,” said Washington State Republican Party Chairman Luke Esser. “The taxpayers deserve a break from the unsustainable fiscal policies of Gov. Gregoire and the Democrats.”

For Corder’s full report on I-1033, visit the city’s Web site: www.mercergov.org.