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Pullman staff recommend revisiting decade‑old sales‑tax formula that funnels surplus to capital projects
Summary
City staff told council the longstanding formula that earmarks sales‑tax growth for capital improvements has produced a large restricted balance and may be out of balance with current operating needs; staff offered options including raising the baseline, reducing the percentage directed to CIP, or unrestricting part of the balance.
Interim city administrator Jeff Albrecht presented a historical review of a sales‑tax designation enacted in 2010 that directs surplus sales‑tax revenue above a baseline into a capital improvement (CIP) reserve. Albrecht told the council the formula has worked but that cumulative results now require reconsideration to avoid constraining operations.
Albrecht summarized the mechanism: when quarterly sales‑tax collections exceed a baseline average (stated in the original ordinance as $594,000 per quarter), half of the surplus (after excluding construction sales tax volatility) was earmarked for capital, with the other half applied to general operations. The policy was intended to create a steady CIP funding stream.
Why it matters: The formula’s math has produced a restricted balance that has grown faster than overall sales‑tax revenue, constraining the city’s flexibility for operating needs. Albrecht said council can uncommit (remove designation from) restricted funds or change the formula going forward.
Numbers and options cited by staff
- Historical growth: staff told council cumulative sales‑tax growth over the life of the policy is roughly 75%. By contrast, deposits to the CIP reserve under the formula have grown roughly 250% cumulatively.
- Cash and reserved balances: the presentation cited a 2024 cash balance of about $6.6 million with approximately $4.1 million restricted for CIP under the current designation; projected year‑end balances may reduce general operating flexibility.
- Current CIP spending: the 2026 approved general‑fund CIP expenditures were cited in the presentation as $735,000.
Possible changes discussed
- Raise the baseline figure used to calculate surplus and deposits.
- Reduce the percentage of surplus directed to the CIP reserve (or change how construction sales‑tax is treated).
- Unrestrict a portion of the existing restricted balance to make funds available for operations in the near term.
Albrecht advised that council has authority to change the designation or to uncommit funds if it chooses. He offered to return with scenario modeling (for example, raising the baseline or adjusting the split) and financial projections for council consideration before year end.
Ending: Councilmembers signaled interest in reviewing options rather than eliminating the CIP concept. Staff will prepare numerical scenarios showing the impact of raising the baseline, lowering the percentage directed to CIP, or unrestricting a portion of the reserve and return with recommendations for council action.
