It’s no secret, but let’s be very clear about this: During the next few years, the city’s financial health will continue to be dependent on what occurs off island. Why? Because the island needs to have real estate and building activity return to the halcyon days of 2002-2007, when housing units proliferated and, on a good day, there seemed to be a real estate sale every time the ferry docked. To be sure, there was a multitude of buyers driving their SUVs off jumbo ferries Tacoma and Puyallup, headed for Windermere or John L. Scott with bags stuffed full of greenbacks. The number of sales and the housing stock increased, so did the prices, which, of course, is the way it works. Up, up and away. For example, in 2002 the average sale price for a single-family house on Bainbridge was $426,407, but then the market caught fire and five years later, by the end of 2007, the average sale price was $820,569. Yikes! The island’s 200 real estate agents smiled while builders put up spec houses and condo units as fast as they could pound nails.
Then, the subprime meltdown occurred, the economy slowed and buyers became cautious. The bottom of the market certainly has not revealed itself on Bainbridge as it quickly did in places like Cleveland and St. Louis. But its effect has been resounding because of the island’s lack of industry and its economic dependence on people wanting to live and visit here. And no one employer has felt the crunch more than the city.
City Hall’s revenue stream is no longer a gusher, primarily because the number of residential housing sales have been halved during the past year that ended in April, building projects have dwindled and consumers’ buying habits are downright conservative. While it’s an established fact that property and utility taxes consistently bring in about half of the city’s revenues, the municipality is no less dependent on the dollars it collects from sales taxes (15 percent), real estate excise taxes (7 percent) and building/development service income (6 percent) to pay its bills and serve the public. Unfortunately, the revenue from the latter three sources tends to be precarious.
During a City Council workshop held Wednesday (a day when the price of oil jumped to more than $120 per barrel and the price of gas continued its interminable rise toward $4 a gallon), the city’s administrator and finance director offered a “preliminary financial capacity analysis” for 2009-2014. The presentation included revised revenue assumptions that predicted sales tax, real estate taxes and building revenues would remain “flat” through this year and 2009. Thereafter, the report said, real estate would “return to historical levels and growth” and the others would increase by normal inflation. In other words, things would return to normal on Bainbridge Island. No recession here. Yay!
The sources for this good news? One was the state’s economic report that surfaced in January (an updated one will be coming out soon) and predicted, among other things, that the price of oil would soon return to $70 per barrel. Well, maybe not. The other came from the smiling mouths of some local real estate brokers and economic forecasters – an optimistic lot, you might say. The real estate business has a tendency to be cyclic, but don’t forget that the island is a unique property and there’s no reason the masses won’t continue to cross the moat to find the American dream. Yes, we have become somewhat spoiled by a bullish market that – up until the last six months – seemed to have a life of its own. But, relax, we’re still at the top of our game.
But what if…? What then? How will the city manage rising expenditures and falling revenues? Such questions were actually heard from council members and city staff during the workshop, followed by… was that a gasp from the audience? Perhaps. Or maybe just someone snoring.
