Democratic majorities in the Washington state House and Senate are proposing new taxes, including a law that would allow larger increases in property taxes than currently allowed.
The proposals come as Washington lawmakers attempt to navigate a projected budget deficit of $15 billion or more over the next four years.
Democrats insist that an approach balancing cuts and new revenue is the only way to address the shortfall without seriously cutting programs. To that end, the House and Senate have put forward new tax proposals in both houses, many of which will target wealthy individuals and companies.
But among them is legislation that would lift the 1% cap to property tax revenue increases and replace it with a 3% cap or a cap determined based on population increases and inflation rates.
State Republican legislators say the funding gap can be addressed without increased taxes and stress that any increase to property taxes will work against efforts at making home ownership more affordable.
“For property tax it’s just a housing cost people, particularly in rural areas, just cannot afford, and eventually we're gonna make it impossible for them to stay here in our great state,” Sen. John Braun, R-Centralia, said in a news conference earlier this week.
The proposed limits would apply to local taxing districts and to the state education levy, and while local governments and taxing districts are not required to increase their revenue — Lewis County often forgoes increases — the House operations budget proposal incorporates the property tax changes into their revenue predictions.
A big portion of the money would go to local taxing districts such as school districts, fire districts and library districts. Each of them imposes a property tax on homes within a certain area. The 1% cap to revenue increase means that, hypothetically, a school district, assuming it has met any other criteria for increase, could increase from collecting $100,000 last year to $101,000 this year. Increasing the cap to 3% would mean the revenue increase in the same time period would be from $100,000 to $103,000.
Those districts each account for a portion of a property owner's total property taxes. This means that if a bill passed that increased the current revenue increase cap from 1% to 3%, individual property tax rates would increase, but it's unlikely residents will be paying triple.
The Lewis County Assessor's Office says that, right now, it's difficult to know for sure how the session will affect property taxes next year.
“The hard part with what they’re proposing at the Legislature is we don't know what it will end up being,” Lewis County Assessor Ross Nielson said. “It's all speculative.”
Other factors that might change property tax rates are population growth in the area or an increase in a home's value. Since a district can only increase their budget so much, more people in the district means residents pay less and taxing districts collect a smaller percentage of overall home values. Paired with rising home values, that percentage can get even smaller.
That phenomenon is why the Association of Washington Cities, an organization that claims 100% participation from Washington's 281 cities and towns, has been a consistent supporter of raising the cap. Cities that are seeing intense growth claim the revenue increase cap is limiting their ability to collect enough taxes to provide necessary services.
“The outdated 1% cap has created a structural deficit for cities and towns that makes it difficult to provide essential services like public safety and maintain streets and roads,” Amy Ockerlander, mayor of Duvall and president of the Association of Washington Cities, said. “We are close to reaching our fiscal cliff despite extraordinary efforts by many of our jurisdictions to manage our expenses.”
Unfortunately, that same trend can be a cause for concern in rural districts that are slower to grow or not growing at all. While growth and property value increases might help offset overall tax rate increases in urban and fast growing areas, rural communities will face that increase outright.
“This is a regressive tax that is a bigger impact to folks who are middle income or living close to poverty or in poverty than it is for the wealthier,” Braun said. “It's just hard on people and it is hard, harder, on rural communities. Because we have lower assessed value than some other places in the state we tend to have higher levies.”
Opponents to raising the cap have often pointed out that the 1% is not a hard cap, but a cap on how much revenue can be increased without a vote by a district's constituents.
“If there's a compelling need for additional tax dollars above the 1% that jurisdiction can go ask the voters,” Rep. Ed Orcutt said. “My concern is for the taxpayer. Even with the 1% limit, I've seen some 20 and 30 increases in people's property tax.”
There have been continued efforts to do away with the 1% property tax revenue increase for many years, which has frequently met with stiff resistance. This year, more than 43,000 Washingtonians signed off as being against Senate Bill 5798, which would change the limit to a variable cap calculated by adding the inflation rate to an area's population growth. No action has been taken on that bill since the public hearing.
