Sound Progress

Research and insights from Puget Sound Sage.

Local Services Will Get a Boost from Proposition 1

Earlier this fall, we released a report showing how SeaTac’s Proposition 1 will inject $54 million into the local economy and create over 400 new jobs.  We also showed how local businesses, particularly in SeaTac, will benefit.  Before the elections close on November 5th,  we wanted to show how this new economic activity will affect government budgets.  We found that local government (city, county, transportation, etc) and school district budgets will increase by nearly $1.2 million from Proposition 1.   SeaTac itself could receive up to $50,000 a year directly to its general fund.

It’s pretty intuitive how local budgets will benefit.  More money in the pockets of thousands of workers will result in spending at local businesses for goods and services.  Increased spending at local businesses means more sales and use tax revenues for local government.

The bottom line for both state and local government? Nearly $2.8  million in total sales tax collected.

How?  For every dollar that a worker spends of his or her new earnings, we estimate that 59.5 cents will be spent in the regional economy – or about 60%.  (The estimate is based on figures from the Federal Bureau of Economic Analysis.  See Martin Associates, 2007 Economic Impact of the Port of Seattle, page 62.)  This represents spending after taxes, purchase of goods from outside the region and savings.

Applying 60% to the $54 million additional earnings generated by Proposition 1, we arrive at a $32 million increase in purchase of local goods and services.  Because groceries are largely exempt from sales tax, we remove another 9% (according to the Bureau of Labor Statistics, households earning between $20,000 and $29,999 spend 9% of their budget on food at home), leaving a total of $29 million.

Now, we apply tax rates. Assuming the remaining income is spent on items that are taxed, local governments will receive an additional $877,000 and State government an additional $1.9 million.

 

Use and Sales Tax Rates

Total Sales Tax Collected

Local Taxes

3.0%

$877,027

State Taxes

6.5%

$1,900,226

Total

9.5%

$2,777,254

How will this money be spent?  The three percent of the every dollar spent that goes to local government typically includes:

  • .85% for cities
  • .15% for general county purposes
  • .2%  for county mental health and criminal justice
  • .9%  for Metro
  • .9%  for Sound Transit.

SeaTac and other nearby communities benefit from all of these governments.  In particular, SeaTac benefits from Sound Transit’s new light rail stations.  In addition, a portion of the state sales tax comes back to local schools. (Here’s the math – about half of the state’s general fund comes from sales tax and 44% of the state’s general fund goes back to school districts.  So, of the $1.9 million, about $400,000 will support schools around the state.)

The City of SeaTac’s budget will see direct benefit as well.  In our report, we estimate that between 15% and 20% of covered jobs are held by workers who live in the SeaTac and are even more likely to spend locally as well.  Although many SeaTac residents do not spend all of their money in the city, we also point out that dozens of small businesses in and around Sea-Tac Airport cater directly to people who work at the airport.  Workers commuting to their jobs in SeaTac also spend money there, making up for loss in sales by residents shopping in other cities.  Hence, we estimate that 15-20% of those new expenditures will be at SeaTac businesses.  Applying the rate for the city’s proportion of the sales tax (0.85%), we estimate that the city will see an increase of $37,000 to $50,000 a year in revenues.

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