Mill Creek studies five property-tax and revenue scenarios, weighs utility tax and car-tab fee

City staff presented the Mill Creek City Council on Oct. 14 with five preliminary property-tax levy options for 2026 and a set of potential new revenue sources intended to close a projected structural gap in the general fund.

Finance Director Irmina reviewed the calendar and explained the mechanics of Washington’s budget-based property-tax system: counties supply assessed valuations, taxing agencies set levy amounts, and the county computes the levy rate. Staff reported that the citywide assessed value increased from about $6.4 billion to $6.7 billion — roughly a 5% rise — which, if the levy amount remained unchanged, would reduce the city’s levy rate per $1,000 of assessed value.

Council was shown five levy options that began from the 2025 levy amount of $4,400,000: a statutory 1% increase (an increment of roughly $44,236), a 1% increase plus $178,000 (keeping the levy rate roughly flat), a larger increase using about $1.1 million of banked capacity producing a levy amount near $5.5 million, and two still-larger bank-capacity options (an additional $1.5 million and roughly $1.8 million). Staff provided impact estimates for an average homeowner with an assessed value of $900,000: the statutory 1% scenario showed roughly a 1% increase in the city portion of the homeowner’s tax bill; larger bank-capacity options showed materially higher percentage increases.

Staff also presented revenue levers to complement or replace levy increases. Options included a citywide utility tax (illustrated at 1%–6%), which staff estimated could raise about $571,000 (1%) up to about $3.4 million (6%) if applied to the full set of utilities; a transportation benefit district (TBD) vehicle-registration fee (the so-called car-tab fee) graduated by statute — $20 per vehicle for the first 24 months, $40 for the next 24 months, and up to $50 without voter approval (higher amounts require voter approval) — with an estimated yield of about $295,000 at $20 per vehicle and up to $1.5 million at $100 per vehicle (voter approval required); and combinations of smaller utility taxes plus levy increases.

City Manager Yamamoto and staff stressed that the general-fund baseline assumes a 1% property-tax increase and no utility tax or TBD; under that baseline the city will continue to draw on fund balance and could fall below the adopted reserve level by 2028. Staff highlighted drivers of rising costs: salary and benefit growth (modeled at 3% annually in staff assumptions), increases in jail and district court costs tied to state policy and caseloads, rising insurance costs related to tort exposure, and the expiration of one-time federal ARPA funds used in prior years.

Council members questioned assumptions and asked for additional analyses. Requests included a new scenario combining the 1% property-tax increase with a 3% utility tax (in addition to the already-present 6% illustration), a clearer breakdown of which mixed-use spaces and storefront vacancies are producing the observed decline in sales-tax growth (staff will check Department of Revenue rules about granular disclosure), and a briefing on how annexation might affect revenue and expenses. Members also asked staff to show the effect of the state’s councilmanic sales-tax option dedicated to public safety and to provide modeled impacts for any TBD timing and implementation issues (staff said vehicle-registration data would need to be confirmed with the Department of Licensing for geolocation and start dates).

Staff presented five combined scenarios (baseline 1% levy only; 1% plus bank capacity and utility tax plus TBD; 1% plus larger bank capacity with 3% utility tax; 1% plus larger bank capacity with TBD; and bank-capacity only options). In staff scenarios that included a $20-per-vehicle TBD and a 6% utility-tax assumption the long-term model showed a structural reversal (revenues exceeding expenditures) after a few years; scenarios that used bank capacity without ongoing utility or TBD revenue generally left the city on a long-term structural deficit path. Council did not take final action; staff requested direction on additional information to model and provide at upcoming hearings, and council asked for a supplemental scenario that combines the earlier Option B with a 3% utility tax (requested as an additional line item), plus analysis on the councilmanic sales-tax option for public safety and sample annexation impacts.