Redmond `Head Tax' Likely -- Employers Would Help Pay Costs Tied To Growth

REDMOND - A booming economy has given this city an internationally famous address, and that's Liz Bernberg's problem.

The Redmond mother never asked the Microsofts and Nintendos to set up headquarters in her hometown. And from her front window, she sees big business eroding her dream of a safe, quiet life.

Bernberg and other fed-up Redmond residents have a growing antipathy toward the colossal companies they think are overloading city services. They want businesses to pony up millions more in taxes to widen roads, hire police officers and keep their dreams alive.

"This growth has come way too quick, and we can't handle it," said Bernberg, who was raised in the area and bought her Redmond home 15 years ago. "I think a lot of people are moving here because they want quality of life, but this place is turning into what they're running from."

Bernberg supports an employee "head tax" that is uncommon in Washington and similar to one Bellevue repealed this year. A cautious Redmond City Council is poised to approve it tomorrow night.

Under the tax, businesses would pay an annual amount based on their number of employees.

Across the Eastside, people are asking whether such a tax is prudent planning or killing the goose that laid the golden egg. Redmond's job base is expected to grow by up to a third over the next two to three years. That growth will include a 50 percent expansion of Microsoft.

"Head taxes are really anti-job. The more employees you have, the more it costs you, and that is not encouraging economic growth," said Sarah Skoglund, president and chief executive officer of the Bellevue Chamber of Commerce.

"If it becomes burdensome, you have to focus on keeping a business afloat, and they'll make cuts (in staff). That's somebody's husband, somebody's mother and somebody's provider."

Business taxes are largely a rarity among the state's cities. Only about 40 of the 275 in Washington charge a business-and-occupation tax, and just five impose a head tax.

Traffic-weary Bellevue imposed an employee tax while skyscrapers were going up. In time, however, it became a disincentive, and the city lost several businesses to other areas.

Bellevue had a tax of about $45 per full-time employee annually, levied in 1990 to pay for street improvements. It was later reduced to $28. Redmond Mayor Rosemarie Ives has proposed a tax of about $128 per full-time employee, and the City Council is leaning toward $65.

"The real issue here is whether the council will have the political backbone," Ives said.

While Redmond's business base booms, residential growth is comparatively slow. The city is expected to grow by only about 2,000 residents by 1998, but up to 15,000 more jobs are anticipated. And the city already has more jobs than residents.

If Redmond was primarily a residential community, "we wouldn't need to have four-lane roads, a (hazardous materials) team or a hook-and-ladder truck to put out a fire at my house," Ives said. "You have to ask who's going to be the recipients of these services, and it's clear that it's the business sector."

Big companies such as Eddie Bauer or Physio-Control draw attention, but the city is dominated by small businesses, said Dan Ramirez, executive director of the Redmond Chamber. About 80 percent of Redmond businesses have 50 or fewer employees.

"Those are the ones we have to protect the most and that employ the most people," Ramirez said. "A lot of businesses are just making it. It comes down to whether you can afford to do business in a city."

Long before Microsoft came to town, Bob and Shirley Ferguson opened a Redmond craft store. Over the past 22 years, they've built Ben Franklin Crafts into a successful business with 70 employees, but now they face a tax like they have never before seen.

"Redmond certainly has a difficult financial situation," Bob Ferguson said, "but climbing on the backs of the business community to solve that problem doesn't seem like the most equitable solution."

City leaders opened their arms to the growth boom, he said, and the traffic problems are not necessarily the fault of businesses.

Employers already pay a business license fee, and property and sales taxes. It's the sales tax that cities rely on to hire police and firefighters, and to make road, sewer and water improvements, said Lynda Ring-Erickson, executive director of the Suburban Cities Association.

But as a business incentive, the Legislature granted sales-tax exemptions statewide to high-tech and manufacturing companies. Redmond was hit harder by the tax deferrals than perhaps any other city because of its large number of high-tech firms.

Redmond officials say that has cost the city about $5.5 million in the past two years.

Redmond businesses are prepared to help the city, said the Chamber's Ramirez, and the City Council's $65 per employee proposal is within the range business owners can accept, he said.

A head tax may dissuade prospective employers from moving to Redmond, but given the incredible demand, business fees are clearly too low, Redmond City Councilman Richard Grubb said.

He supports a $65 head tax, but for people like Bernberg, it may not be enough.

"Nobody wants their taxes raised, but it's life," she said. "They wanted all this growth, but they don't want to pay for it."

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King County cities with a business-and-occupation tax: Bellevue, Black Diamond, Mercer Island, North Bend, Pacific, Seattle and Snoqualmie.

Washington cities with a "head tax": Ocean Shores, Puyallup, Renton, Richland and Spokane.

Source: Association of Washington Cities