A closer look at the structural gap

King County is now the 12th most populous county in the nation, with about 2.3 million residents, and King County government is the second largest provider of public services in Washington State.

In addition to the services they usually provide to residents, counties have had to fill the gap as federal and state governments have made significant reductions to their support of vital human services and left other critical needs unfunded. These service responsibilities have come without additional funding from the state or other sources to meet the expenses they incur.

Annexations and incorporations have also reduced King County’s tax base, as previously unincorporated areas now send their tax revenues to cities.

Counties have only two principal sources of tax revenue to support public services—property tax and sales tax. In contrast, the State of Washington and cities have more revenue sources, such as business and occupancy taxes and utility taxes, in addition to property tax and sales tax revenues.

By voter initiative in 2001, subsequently passed into law by the Washington State Legislature, the amount of property taxes levied by counties can increase by only 1 percent per year, plus revenue from new construction. As a result, revenues counties receive grow at a much lower rate than the cost of maintaining services to residents. This gap is called the “structural gap.”

The county budget is not sustainable, and the General Fund is projected to be out of balance by $35 million for 2025.

King County is not alone in this situation. Counties across the Washington State face the problems created by this structural gap.

The line graph above illustrates in a simplified way the effect of the structural gap over the course of a few years, showing the widening gap between revenue that grows at a lower rate than the cost of maintaining the same level of services for county residents.

Due to the cap on property taxes, King County revenues grow by 1 percent a year. In the past several years, the County has been able to contain growth in costs to about 3.5 percent a year through various cost saving measures. However, the rising cost of providing the same level of public services has gone up by 5 to 9 percent a year due to historic inflation.
 
In the past decade, predicted deficits, or difference between revenues and costs, have forced King County to cut a few hundred million dollars in services. Such deficits must be addressed by the County Executive when he presents a balanced budget, as required by law, for review and approval by the County Council. 

In the short term, the County must make difficult decisions to balance its budget, as counties are required by law to adopt a balanced budget. In the long term, this structural gap between revenues and costs of county services can be resolved only through the collaboration of the State Legislature, counties, and voters.