July 24 - Frequently Asked Questions: Understanding the Cost of the PSM Facility Bond Measure

Q. What is the cost of the bond measure to property owners per $1,000 of the assessed value of their home?

If the measure is approved, the levy rate is estimated to be $.32/$1,000 of assessed property value in 2026. The levy rate is the tax rate applied to the assessed value of your property.

To calculate the rate, take the estimated average annual debt service of $6.937 million and divide it by the City’s projected assessed value in 2026 (assuming a 3% increase from 2025) of $21.732 billion, then multiply it by 1,000. Assumptions for the PSM Facility include a $103,160,000 cost of the bond, a 4.54% estimated interest rate, and a 25-year term.

This is an estimate because market conditions at the time of the bond sale and the actual assessed value in 2026 will determine the average annual debt service and the overall amount property owners will pay.

These bonds will be structured as “level debt service,” which refers to a specific repayment schedule where the combined annual amount of principal and interest payments (AKA debt service) remains relatively constant over the life of the bond issue. This ensures revenue from the excess levy is adequate to pay the debt service each year over the life of the Unlimited Tax General Obligation (UTGO) bonds. This debt is considered “level” because the City’s debt service amount is held constant throughout the life of the levy, even as assessed property values and levy rates change over time.

Level debt service is advantageous because it provides stability and predictability for both taxpayers and the City for the duration of the levy.

Due to the length of the project, the City will not issue the bonds at once but at staggered intervals to ensure resources on hand for different phases on the PSM Facility’s design and construction.

Q. What happens if my property value goes up in future years? Will I pay more as time goes on?

A. As property value increases, the levy rate will decrease so the annual payment for Mercer Island residents will remain relatively stable year-to-year. This is one of the advantages of structuring the UTGO Bonds as level debt to fund this project. However, given assessed values and the number of properties on the island change over time, the expected tax rate will likely shift slightly producing small variations in what property owners will pay each year.

Q. Will all of the bonds be sold at once?

A. The City will issue bonds at staggered intervals to align with the overall project schedule.

Q. Why will the rate per $1,000 of assessed value change over the term of the bonds?

A. The most significant factor affecting the tax rate is the change in the total assessed value of all properties within the taxing district. The tax rate is calculated by dividing the estimated average annual debt service by the total assessed value of the district, then multiplying it by 1,000. If the total assessed value of all properties in the district increases, the tax rate (dollars per $1,000 of value) decreases. This is because the same total levy amount is being spread across a larger tax base.

For example, if the City issued all $103.16 million bonds in 2026, the levy rate would be $.31 per $1,000 of assessed value in 2027. In 2028, the levy rate would decrease to $.30 per $1,000, assuming the assessed property value on Mercer Island increases 3% during that time. If the assessed value continues to increase 3% per year, by 2050 the levy rate would be $.16 per $1,000 of assessed value, however the amount paid by each household would remain relatively stable.

Q. What is the length of the bond measure?

A. Once the $103.16 million proceeds from the bonds are fully issued to pay for the Public Safety and Maintenance Facility, the resulting debt service will be paid over 25 years.

Q. In the parks levy renewal in 2022, we were asked to approve a levy rate. How is this ballot measure different?

A. The parks levy was a “Levy Lid Lift,” which allows a taxing jurisdiction (in this case the City of Mercer Island) to increase the City’s regular property tax rate for a specific purpose. The parks levy increased property taxes to a maximum of $0.862 per $1,000 for 15 years to help fund operations and maintenance of parks and open spaces, including Luther Burbank Park, and fund playground replacements and forest restoration in Pioneer Park and Engstrom Open Space.

The ballot measure for the proposed Public Safety and Maintenance Facility is an “Excess Levy,” which is an additional property tax over and above the regular property tax rate. Voters are asked to approve a total not-to-exceed amount for the project, and if approved, the amount is repaid over a 25-year period.