I note in the reports on "Son of I-695" that there is a component which freezes assessed values on some people's real property. Tim Eyman is reported to have said that is to provide tax relief from some assessor jacking up property values 37% to make up for I-695 losses in revenues.

Something is wrong with Tim's analysis and understanding of the property tax. Under I-695, the overall property tax collected after the year 2000 in each taxing district cannot be increased without voter approval. While the assessor is charged by law with valuing property for tax purposes, the total value of all property is divided into the tax to be paid to work out a dollar per $1000 of assessed value number. Increasing the overall value of property in the district will not change the amount of taxes to be paid, but merely reduce the tax dollar rate per $1000 of assessed value in the district.

For example, if a Water District had a $100,000 property tax levy in the year 2000 and the overall assessed value of the property in the district in the year 2000 is $100,000,000 (1 hundred million), the tax rate for that district for 2000 is $1.00 per each $1,000 of assessed value. Assume that a residence in the district has an assessed value of $200,000 for 2000 and that values of all the properties in the district, including that residence, go up 37%. Then the assessed value of the residence will be $274,000 and the value of all the property in the district for 2001 will be 1.37 times $100,000,000 which is $137,000,000. Unless the voters of that district approve an increase in the property tax, it will still total $100,000 in 2001. However, the tax rate will go down to 72.9 cents per $1000 of assessed value. The tax on that residence now assessed at $274,000 will still be $200 in 2001.

The problem with analyzing property tax matters is that it is somewhat complicated. Knee jerk reactions like "If the assessed value of my property is increased then my actual taxes to be paid must increase also" are incorrect. Overall total property values in a district are divided into the overall tax to be collected. If values of property are not equally changed it just changes the way the property tax "pie" is divided among the taxpayers but does not increase the overall taxes paid.

-- David (unified@whidbey.net), November 24, 1999

Answers

David:

I believe you understand property taxes better than Tim Eyman does. Restricting AV adjustments has a lot of effects, but preventing assessor generated income to local government is not one of them. The assessor function is not a policy making function. It is an accountng function, that values property by existing valuation methods and market analysis, and applies the taxes to that value according to the limits established by state law. With the passage of 695, in 1/1/2000 that will be the primary limit on local government revenue unless it is held up in the courts. We had an assessor running on a "reduce your taxes" platform in King County; which just indicated he didn't know what the job is.

What a freeze of some values would do, is transfer some of their tax load to those with values that are not frozen. It would also reduce the total AV of the taxing district; so that when voters are asked for a levy increase, the revenue generated if it were approved would be less. Over time, that would effectively freeze the revenue available to those services that rely on the property tax as their sole or primary revenue source even if voters approved the tax increase requests. If the value is frozen, the rate would stay at the statutory maximum, and the local voters would be prevented from approving the revenue increases needed to maintain or improve the servise level. Examples are fire districts, the Emergency Medical Services levy, library districts, and school districts.

The biggest problem with this idea, is that it needs to deal with the constitutional requirement that taxes be uniformly applied. That means the same tax rate (of the district) must apply to all property in the taxing district, and the same basis of valuation must be used to determine the AV of that class of property. If this proposal changes that for some property, it is no longer uniformly applied, and no longer equitable.

This idea has been taylored after Prop 13 in California. That required a state constitutional amendment to deal with these same issues. The Washington constitution can not be changed by the initiative process in this state.

I have suggested before that the authors get better advice than was obtained by the authors of 695. The MVET issue has enough unintended consequences. The property tax structure is much more complicated, and impacts nearly every local government in several ways. Be careful.

-- dbvz (dbvz@wa.freei.net), November 24, 1999.

Here is the intent of "son of 695"

It will not take any more money away from local government than they now have.

It will limit the amount of tax increase that can be taken to the voter for approval. Remember the maximum amount of tax increase is 1% of the county's property valuation. Thus if property valuations are increased, more tax dollars can be asked for.

The Washington Constitution does allow the legislature (or the people through initiative) to provide tax credits as long as they are done on a uniform basis. I quote Article 7, section 1. "Such property as the legislature may by general laws provide shall be exempt from taxation. Property of the United States and of the state, counties, school districts and other municipal corportations, AND CREDITS SECURIED BY PROPERTY ACTUALLY TAXED IN THE STATE, not exceeding in value the value of such property, SHALL BE EXEMPT FROM TAXATION.

In addition article I, sec 2 of the Washington Constitution states: "The Constitution of the United States is the supreme law of the land."

California's prop 13 was upheld based on the Equal Protection Clause of the Fourteenth Amendment.

The "son of 695 provides a rational basis for the difference in treatment of property and provides a uniform method of implementing it. Our legal team tells us it is constitutional. Those dependent on government taxes will try to scare the people just as with I-695. It did not work then and it will not work with the "son of 695."

-- RD (Monte) Benham (rmonteb@aol.com), November 25, 1999.

Monte Benham:

I am no lawyer, and you may be right, but it does not look constitutional to me. You quoted part of the section, but here is the rest:

"ARTICLE VII, REVENUE AND TAXATION

SECTION 1 TAXATION.

The power of taxation shall never be suspended, surrendered or contracted away. All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. All real estate shall constitute one class: Provided, That the legislature may tax mines and mineral resources and lands devoted to reforestation by either a yield tax or an ad valorem tax at such rate as it may fix, or by both. Such property as the legislature may by general laws provide shall be exempt from taxation. Property of the United States and of the state, counties, school districts and other municipal corporations, and credits secured by property actually taxed in this state, not exceeding in value the value of such property, shall be exempt from taxation. The legislature shall have power, by appropriate legislation, to exempt personal property to the amount of three thousand ($3,000.00) dollars for each head of a family liable to assessment and taxation under the provisions of the laws of this state of which the individual is the actual bona fide owner. [AMENDMENT 81, 1988 House Joint Resolution No. 4222, p 1551. Approved November 8, 1988.]"

http://www.wa.gov:80/courts/educate/wacon/art7.htm

1. The above states that taxes must be uniform for one class of property.

2. It states that all real estate shall be one class.

3. The legislature may exempt property from taxation. It does not say anything about a freeze of value, partial exemption, or that the people may do it by initiative.

I also note you made the comment, "It will limit the amount of tax increase that can be taken to the voter for approval. Remember the maximum amount of tax increase is 1% of the county's property valuation. Thus if property valuations are increased, more tax dollars can be asked for." What is that about? You want to intentionally limit the right of the people to equitably tax themselves? Over time, this will severely reduce the revenue of fire districts, library districts, Emergency Medical Services levies, and school districts.

-- dbvz (dbvz@wa.freei.net), November 25, 1999.

PS:

I don't know what the portion you put in CAPS was supposed to mean. That does not relate to the issue, as far as I can see. If the legal team that beleives Son of 695 is constitutional is the same legal team that helped write 695, I am not impressed.

-- dbvz (dbvz@wa.freei.net), November 25, 1999.

Monte:

Are you not responding to me again? No reaction? Can you get your "legal team" to address this directly?

-- dbvz (dbvz@wa.freei.net), November 30, 1999.

d'

Son of 695 does not freeze valuations.

It does not limit what can be asked for from EXCESS levies such as voter approved school levies.

It does not take anymore money away from government than it already has.

It limits how much can be taken from the "automatic" 1% levy.

In the long run it will provide more opportunity for junior taxing districts to get more money. Right now the senior districts get first crack at it. When they are done taking the money, the junior districts are left holding the empty bag. We plan to change the 6% levy to 2% or inflation. Revaluation due to change in ownership will allow more money in the available from the 1% levy than the senior taxing districts can take. So it will provide the junior taxing districts more opportunity.

Son of I-695 will stop the ability of local governments from "catchin up" taxes from valuation increases that greatly exceed the rate of inflation. I am sure this is bad news to you but it is good news to the taxpayers.

I had a long talk with Sen. Loveland of Pasco who is committed to providing a long term fix for the smaller towns and counties. So have a little faith in the government it will adjust.

The taxpayer can no longer allow the government to grow at the alarming rates of the past. (Gov. Locke has added over 10,000 employees since 1997).

I do not have a lot of time to scan the discussion page. I would encourage you to read my previous post. Please do not try to continue to "wage a war of fear and terror" on the people of the state of Washington because we want those of you in government to be more efficient.

-- RD (Monte) Benham (rmonteb@aol.com), November 30, 1999.

FYI Sen. Tim Sheldon, D-Potlach, said he's already written Loveland a letter vowing to fight the proposal because it would divert local- option sales taxes earmarked by a 1999 law for economic development in rural counties.

Send your him your emails! sheldon_ti@leg.wa.gov

-- Marsha (acorn_nut@hotmail.com), November 30, 1999.

Monte:

Lets address your points one at a time:

"Son of 695 does not freeze valuations." What does it do to property values? I note that in your prior post you wrote "It will limit the amount of tax increase that can be taken to the voter for approval. Remember the maximum amount of tax increase is 1% of the county's property valuation. Thus if property valuations are increased, more tax dollars can be asked for." If your objective is to limit the amount of money that can be generated by the property tax, under the constitutional 1% limit, how can that be done without limiting value increases? Do you have the initiative language anywhere for review, so we can see what the draft initiative actually states? "It does not limit what can be asked for from EXCESS levies such as voter approved school levies." OK. That is true in one sense. If property values are restricted to less than market value, over time they may be 50% of true assessed value, and at that point schools are still legally able to ask for voter approval of an excess levy of $6.00/$1000 instead of $3.00/$1000 (to generate the same amount of money.) The problem is with the state levy for schools. It is not an excess levy, and it is set at $3.60/$1000 of the true assessed value. If that value is reduced over time to 50% of the market value, the state levy would generate only 50% of what it should collect under the present system. Many people believe the state is not providing enough funding to assure that basic education is being paid for for all children of the state. Your proposal seems to make that situation worse, and will make the poor districts that are unable to make up the losses with excess levies of $8 - $9/$1000 fall farther behind.

PS: You did not really address the issue of those local governments that are limited to a specific share of the the constitutional 1% limit. If values are not allowed to increase, their revenue can not increase even with a vote of the people, within the regular levy that is intended to be the funding for that service. Fire districts are allowed up to $1/50/$1000; but if the value is reduced over time to 50% of the market value, the revenue from that levy rate is 50% what it should be. That can be requested as an excess levy, of an additional amount; but that is unworkable as a reliable revenue source to hire staff and provide a service delivery system. An excess levy can be collected for one year only, and requires 60% voter approval. On both counts, it makes that a poor substitute for the stable funding needed to provide a critical and necessary public service. The same problem exists for library districts, EMS levies, and others that depend on the property tax for their basic operating revenue.

"It does not take anymore money away from government than it already has." No this is just avoiding the question. What it does is prevent voter approval of increases in the operation revenue of governments, necessary to keep up with the increasing cost of doing business. In dollars, that may be true. In buying power, or constant-value dollars, it is not true. When the value of money is being reduced by inflation every year, getting the same amount every year is not stable funding. It is a budget that will support fewer and fewer people and supplies and services, and a lower and lower level of service to the public.

"It limits how much can be taken from the "automatic" 1% levy." How? The only way I see that working is by a restriction on property values. Tell me where I am wrong.

"In the long run it will provide more opportunity for junior taxing districts to get more money. Right now the senior districts get first crack at it. When they are done taking the money, the junior districts are left holding the empty bag. We plan to change the 6% levy to 2% or inflation." Here you show you just don't understand how the property tax system works. 695 already replaced the 6% inflation factor with a 0% inflation factor, unless approved by the voters. The 6% inflation factor WAS the limit on the amount of the property tax revenue that could be collected by a local government, without voter approval. What your proposal would do is set a limit on property value increases, and that is a different thing entirely.

In fact, if property values are not increasing, and the property tax revenue that can be collected by a local government can not increase without a vote, the tax rates of both the senior and junior districts would not be changing; and the same "pecking order" of senior and junior districts would be essentially unchanged. Whatever change did occur would happen to both, and is unlikely to change the relative revenue available to junior districts. If anything, the restrictions on value increases are likely to cause the senior districts to ask the voters to tax at the statutory maximum, and the voters will be more likely to approve that increase. In that case, the junior districts would be cut back to make room for the senior levies. In particular, fire districts would be rolled back to about half the levy rate they are authorized. Simple math. If half the levy rate is collected on property valued at half the market rate, the revenue for the fire district is a QUARTER of what is should be.

"Revaluation due to change in ownership will allow more money in the available from the 1% levy than the senior taxing districts can take. So it will provide the junior taxing districts more opportunity." Here you get to the unconstitutional part of the proposal. As I understand it, when property is sold it goes to the market value until sold again. That means one house that is not sold could be paying say $2,000/year in property tax, and one next door of the same market value could be paying $4,000/year in property tax. They get the same services, but one gets these services for half price. That is not tax equity. That is not what Article 7, section 1 requires.

In addition, the additional value would effect junior and senior districts in the same way. Neither would benefit, unless they get voter approval for the increase; or both could benefit if they get voter approval. Junior disrticts are still junior, and with much reduced revenue in constant value dollars.

"Son of I-695 will stop the ability of local governments from "catchin up" taxes from valuation increases that greatly exceed the rate of inflation. I am sure this is bad news to you but it is good news to the taxpayers." On this one, you lose me. The only way local governments can "catch-up" is by voter approval of the tax increase, under the requirements of 695. What you are telling us is that you want to prevent local communitites from making the decision to tax themselves to improve the service they want. What is wrong with local voters doing that? I thought that is the kind of control 695 was supposed to give you. Voter control of the level of taxes and service. Now you want to take away that control, and require local governments to provide less and less service to more and more people, without even the option to correct that problem and restore the service they want. Will you only be satisfied if everyone is required to live in a Washington with service levels no better than a third world country?

"I had a long talk with Sen. Loveland of Pasco who is committed to providing a long term fix for the smaller towns and counties." This isn't the fix they need, and with a very little analysis that should be clear even to a state Senator.

"So have a little faith in the government it will adjust." Not all adjustments are good, or reasonable, or prudent, or wise, or necessary. They will adjuct, if this were made law. I just don't believe that would be good, or reasonable, or prudent, or wise.

"The taxpayer can no longer allow the government to grow at the alarming rates of the past. (Gov. Locke has added over 10,000 employees since 1997)." I am not really all that concerned about the state. They have funding options not available to local governments. If you are referring to government growing faster than the rate of inflation, that is necessary to maintain the same level of service in a growing community. I covered that in a prior post, but the short explanation is simple: Budget growth at the rate of inflation is necessary just to keep the same staff and supplies to do what you were doing last year. An additional increase is necessary to provide the additional services to the new buildings, people and businesses that are added in the community every year.

"I do not have a lot of time to scan the discussion page. I would encourage you to read my previous post. Please do not try to continue to "wage a war of fear and terror" on the people of the state of Washington because we want those of you in government to be more efficient." I am not dealing in fear and terror. You are dealing in half truths and distortions. I just want the information to be complete, on what this new proposal will do. When I read you want government to be more efficient; from what I have seen that means you want government to be much smaller, and capable of doing much less. I don't, and I don't believe most of the population will agree with you.

-- dbvz (dbvz@wa.freei.net), December 01, 1999.

Craig: I noted the errors. Didn't proof read, don't use a spell check, and I was a little tense about some of it.

-- dbvz (dbvz@wa.freei.net), December 01, 1999.