Washington’s cities and counties say they’re expecting to run low on the money needed to keep pace with growing costs such as health care and paying benefits for more retirees, so their associations went before the House Finance Committee Wednesday to lobby for new revenue sources.

Their preferred solutions? Lifting the 1 percent cap on property tax growth and tying it to population and inflation growth, giving local governments more flexibility in how to use real estate excise taxes, carving out a slice of the state’s expected revenue from recreational marijuana sales, and possibly levying a utility tax in unincorporated areas, just as cities do.

Lifting the cap on property taxes to 2013 inflation and population levels would provide an extra $280 million for county governments, according to the Washington State Association of Counties. A 6 percent county utility tax levied on public and private power utilities in the unincorporated areas would net an estimated $154 million, according to the association.

The state’s Economic and Revenue Forecast Council estimates $637 million available in revenue from taxing recreational marijuana sales through 2019, but there’s a number of interests competing for those dollars.

The local government associations’ pitch received a mixed reaction among skeptical Republicans and some supportive Democrats on the House Finance Committee, surely a prelude to how it would go over in the 2015 session if the Legislature’s chambers remain split following next week’s election.

But WSAC Executive Director Eric Johnson said county governments’ financial predicaments are not based on fluctuations in the state’s economy, but rather a deeper, more systemic problem of not bringing enough money to keep up with increased employee costs and population growth.

County governments are looking seeing 3 to 5 percent annual growth in costs of providing state- and federal-mandated services, as well as jumps in retiree benefit costs and health care expenses for employees. That is expected to increase 4.8 percent next year, a pleasant surprise compared to steeper increases in recent years, Johnson said. Following passage of a ballot measure in 2001, however, property tax growth is capped at 1 percent, except for new construction.

“The revenues aren’t increasing at the same rate,” said Helen Price-Johnson, an Island County Commissioner and WSAC President. “We aren’t talking about adding new services.”

Wednesday’s committee hearing didn’t focus on the other side of the equation – how to lower costs – but Price-Johnson said that strayed beyond the scope of the Finance Committee. Strategies such as containing health care costs, insurance liability issues, and others will require subsequent hearings with other committees, she said.

“It will be an important effort by our legislative steering effort in the coming year,” Price-Johnson said. “You have to work on both sides of the ledger.”

The cities are faring in similar fashion, reported Paul Roberts, an Everett City Councilman.

“Trends are going in the wrong direction and they’re compounding,” Roberts said. “We see no other options other than to reduce the workforce or reduce the services.”

Some counties – but not all – are hitting up against the 1 percent cap on property tax growth, Johnson said, but lifting it won’t automatically mean all 39 counties will utilize that. He said the key is to give flexibility for local governments to decide the best way of managing their budgets.

He cited Skamania County, with its wide swaths of publicly owned lands, as an example of where that wouldn’t mean as much for local tax coffers as it would in King County, with much higher property values. Border counties are loath to the sales tax increase, but it’s more palatable in other areas of the state, Johnson said.

Rep. Ed Orcutt, R-Kalama, asked Johnson if local governments were willing to accept a cap on spending tied to inflation and population growth in exchange for lifting the limit. Johnson said he would have to discuss it with his membership.

Rep. Larry Springer, D-Kirkland, was more sympathetic in his questioning, asking Johnson if many counties were completely out of options before they decided to come to the state asking for new revenue.

Price-Johnson said Island County was now in a position where it would have to consider closing county-run parks if the state didn’t loosen the restrictions on using real-estate excise tax revenue, which counties want to go toward maintenance and operations. Voters in that county rejected a tax measure that would have given the county the money it needs, she said.

“We can ask our voters,” Price-Johnson said. “We can’t guarantee that would pass.”

Kevin Bouchey, a Yakima County Commissioner, said his county had already done deep cuts in staffing, including in 62 positions in public safety, due to the recession, but can’t bring back the positions due to the heightened costs the county’s now grappling with.

Orcutt was skeptical here, too, asking how Yakima did in the economic boom of the mid-2000s, when property values were spiking and the state was flush with revenue.

“What did you do with that revenue?” Orcutt said. “Where did that money go?”

Bouchey responded that Yakima wasn’t as privy to those good times as other counties, and was also hamstrung because it has limited sales- and commercial-tax bases outside of the urban growth areas. “We never hit that big boom,” he said.

Price-Johnson said that spoke to a larger issues counties confront. Once areas bordering cities do begin to generate that kind of revenue, they tend to be swallowed up by annexations, which is what the state’s Growth Management Act intends.

“Most of the sales tax is generated within the cities,” Price-Johnson said. “When rural areas are economic generators they are annexed.”

Rep. Terry Nealey, R-Dayton, said he understood the local governments’ issues, but warned of how a lifting of the property tax cap and tying it to population growth and inflation would go over with taxpayers.

“It would be scary for them,” Nealey said.

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