It was part of Initiative 747, conceived by anti-tax crusader Tim Eyman, and it said the main way for a city or county to boost revenue by more than 1 percent was to attract new development.

For the next seven years, that’s exactly what Clark County did: grow, grow, grow.

No more. Though economists say development will return, for now it’s nearly gone. Inflation is far above 1 percent. And county leaders suddenly find that their escape hatch has snapped shut.

“The bottom line is, we are funded by growth,” Commissioner Betty Sue Morris said Wednesday.

In other words, the building downturn of 2008 could be the moment anti-tax activists have been waiting for.

Taxes, fees falling off

“Clark County is now facing this put-up-or-shut-up moment,” Eyman said in a phone interview. “Government never reforms itself when it’s fat and happy.”

This year, the county government is anything but happy. Real estate taxes are down 41 percent since 2007, development fees down 37 percent, impact and clean-water fees down 44 percent.

Outside the cities, taxable retail sales are down 1.6 percent; inside the cities, they’re down 1.9 percent.

“Revenues that have been almost universally positive for nine, 10 years — they have been drifting,” county finance director John Ingram said Wednesday.

Property taxes are up 4 percent, including revenue from new development. But the building slowdown hasn’t really hit those figures yet.

It all adds up to a $6.1 million deficit so far in the county’s general fund of $139 million annually. More trouble is on the way if commissioners again use that revenue to bail out their money-losing community development department.

“The actual slowdown and decline that we’re experiencing right now is more profound than statewide, because we grew so fast,” said budget planner Adriana Prata.
The county doesn’t expect revenue to start recovering until sometime in 2010, Prata said.

Budget situation ‘severe’

This month, a parade of county directors and politicians are trooping through the commissioners’ conference room, looking for ways to cut next year’s budgets.

County leaders say they’ll have to cut services next year, though they declined Wednesday to specify where.

County Administrator Bill Barron, a 35-year local government veteran who came to Clark County in 1998, called the situation “the most severe and widespread that I have seen.”

“We’re just seeing the front end of it,” he added.

Morris said some service cuts might be permanent.

“When the growth comes back, we would expect to see our property taxes regenerate,” she said. “But whether they will ever be robust enough to truly generate the service level that we are used to …”

Inflation tightens the county’s pinch. Road-building costs are up sharply in the last few years and cost-of-living raises for unionized employees might come in around 9 percent over two years.

Sales and real estate taxes, two big sources of county revenue, rise with inflation. But due to I-747, property taxes, the biggest source, does not.

Barron, the county’s top unelected official, avoids criticizing I-747, which was favored by an overwhelming 71 percent of Clark County voters.

“We follow the will of the people,” Barron said. “Providing more with less has been our mantra.”

Barron said he wouldn’t speculate on whether government might see structural changes in five years.

“That’s really way too far out for me,” he said.

Housing growth: a trap?

Barron agreed that the property tax cap has tightened the county’s dependence on growth to stay solvent.

“We’ve been living on the wave of new construction, on the ability to garner more than 1 percent,” Barron said. “New construction is healthy for us.”

What isn’t healthy, Morris said, is residential-only development — not, at least, after it’s built.

When new housing goes in, it’s a shot in the arm for local government budgets: new taxes, fees and more pour in.

But over time, she said, residents tend to consume more in services than they pay in taxes.

“Housing doesn’t bring in the revenue,” she said.

In Clark County, which has long been better at attracting housing than business, this can be a trap: under I-747, new subdivisions help governments avoid budget cuts.

But once houses begin demanding services, they may only add to a government’s budget woes.

The solution, Morris said, is that new residents lure new businesses after them. New businesses more than pay for themselves, she said.

She also added that even the hardest budget cuts may be manageable.

When Morris worked as a reporter in the 1970s, covering Clark County government for The Oregonian, she said Washington’s Legislature capped property tax hikes at 6 percent.

At the time, the county administrator was “beside himself about how they would ever be able to cope.”

Today, she said, a 6 percent tax hike would be a huge boon.

“It would translate into so much better court systems, so much better law enforcement,” Morris said. “So you have to keep this kind of in perspective.”