[See also the correction to this piece, with additional clarifying information about the reserve.]

Although Initiative 118 has ceased signature gathering, some fans of progressive tax sources still support amending the Murray plan to include property tax. The initial criticism of I-118 was that there wasn’t sufficient authority to pay for both buses and various other policy priorities, later refined into a reluctance to have two property tax measures (along with Pre-K) on the ballot simultaneously.

We can’t examine the facts of the competition critique, but we can look at the authority issue. Two weeks ago (before this issue blew up) I asked City budget expert Ben Noble, City Budget Director Council Central Staff, how I-118 would affect those priorities. Note the larger size of Mayor Murray’s proposal ($45m annually) compared to I-118 ($25m).

RCW 84.52.043 gives Seattle the authority to levy $3.375 annually per $1,000 of assessed value. RCW 41.16.060 provides a further $0.225 for firefighter pensions, currently in use, for a total rate of $3.60. In 2014 Seattle is levying $2.90 of that, leaving 70 cents.

Given the current state of the housing market, staff now believes the reserve should be at least 12%, or 42 cents, meaning there is only 28 cents remaining. Staffers are currently drafting the formal policy recommendation, based on the fact that “During last downturn, we saw a single-year drop in property values of this magnitude (~12%) (and actually the cumulative decrease over the three years of the recession was even larger).”  Property tax levies are enabled as dollar amounts, and the rate fluctuates with the size of the tax base. Therefore, a plunge in property values increases rates, possibly exceeding the limit and forcing cuts.

The Pike Place levy (6 cents) and Parks Levy (19 cents) expire at the end of 2014. If the Metropolitan Parks District passes, that doesn’t apply to the cap and removes the need for parks funding that currently does apply. As a result, the effective available rate is currently 28 cents and it could go up to as much as 53 cents at the end of the year.

Note also that if the tax base increases by more than 1% rates will go down, rather than increasing gross revenue. Thanks to action of the legislature and Governor Gregoire (in response to Tim Eyman’s unconstitutional I-747), total collected revenue cannot grow by more than 1% per year, except for newly voter-approved levies.

The Pre-K proposal is $14.5m per year, or about 11 cents, with the intent to increase four years later as the program scales up. Bridging the Gap, a collection of worthy transportation projects, taxes at a rate of 36 cents through 2015; Seattle will certainly seek a renewal, although the rate of that renewal is not yet determined. Merely keeping up with CPI inflation since 2006 would require roughly a 7 cent increase. Beyond that, there are certainly enough transportation needs to consume any politically plausible renewal rate.

Each cent of property tax generates about $1.3m annually at current property values, according to Mr. Noble. I-118 asked for 22 cents, but to reach the Mayor’s higher annual funding level of $45m would require 35 cents. To fund the plan entirely with property tax, pass Pre-K, and adjust Bridging the Gap for inflation would consume the entire reserve – before any follow-on phase of Pre-K, expansion of BtG, a parks renewal if the district vote fails, or any other conceivable need.

While it would certainly be plausible to fund a small slice of Metro operating hours through property tax, the bulk of the package will have to come from other sources if the city is going to meet its other goals through property tax, including transportation ones that directly benefit transit.

37 Replies to “Seattle’s Property Tax Limit”

  1. Full list of plausible methods the city has that shouldn’t require any outside authority/begging at Olympia’s feet:

    * Property tax
    * Sales tax
    * Car tabs
    * Local option gas tax
    * Commercial parking tax
    * Entertainment/restaurant tax
    * B&O tax
    * Employee hours/head tax

    1. And that’s just existing sources, before getting into the theoretical well of other stuff like impact fees and such.

      1. Thanks for the list Joe. It’s a well with no bottom in sight, but, there’s still the unused King County Transportation District to tap if all else fails.
        They lost the election, but technically are still on the hook for the all the costs when they do find a funding source.
        https://seattletransitblog.com/wp-content/uploads/2014/02/TD_meeting_packet_2-24-14.pdf
        How about $100 tabs per vehicle and 1/10 for just Seattle city voters, and max out the left over property taxes too? Non Seattle voters could be taxed at a much lower rate, commensurate with needs in the suburbs to soften bus service cuts.
        Two areas, Two needs, Two rates.
        ‘Something for Everyone’

      2. The local B&O/City Business License tax rates are fairly low and certain categories of businesses could pay more. For instance, restaurants that offer delivery could be charged more than restaurants that don’t offer delivery. Also, businesses that have huge parking lots could be charged a higher rate than businesses that have smaller/no parking lots.

        There’s also the possibility of balancing some tax increases with other tax decreases that promote beneficial behavior. If a local gas tax option were implemented, it could be balanced with a decrease in the local sales tax rate at grocery stores. By charging more for driving and less for buying groceries, even if the net tax revenue generated is neutral, the city will benefit from fewer cars on the roads and more people shopping locally.

      3. Sorry, GuyOnBeaconHill, but I completely disagree. The B & O tax is regressive, and way too high. It should cover the regulatory costs, and nothing more. Then we should have an income tax, as well as a capital gains tax, and a property tax. We only have one of those, and it is too small. Actually, the B & O tax functions just like an income tax, except it doesn’t apply to wage earners, only small businesses. Let me give you an example. Let’s say I am a private contractor, and work at Microsoft. I would love to get a full time job, but they won’t hire me. So, I form a sole proprietorship, and pay my B & O tax, based on the money I earn. To me, that is an income tax. If I make more money, I pay more B & O tax, just as I would with an income tax. It isn’t huge, but the guy across the hall who is actually a Microsoft employee pays none of that, even though he makes twice as much, and gets a free ride to work every day on a company bus. How fair is that?

        It is probably worse for the average small restaurant or bar in town. I am not certain, but I think they tax on the gross (or allow limited deductions). Either way, an individual who runs a business like this gets hammered. Many are barely making ends meet, working for less than minimum wage (initially) so that they can maybe someday have a successful business. Or maybe they feel like it is the only way to make in this town. For many, the employment options are very limited (this is especially true for those that just came to this country and don’t have special skills other than the ability to make really good food and run a business).

        A property tax is by far the fairest tax we have available. It taxes wealth, in the form of property. The guy who owns a million dollar house with a view pays more than the gal with a condo worth a quarter of that. Businesses that own prime property downtown pay a lot more. But if we have to choose between the taxes Joe mentioned, I would pick the gas tax first. It is regressive, but it is a sin tax.

      4. Here’s an example of how the City’s Business License tax could be modified to promote “socially beneficial consumption” patterns. A coffee shop that sells $100,000 in coffee currently owes $215 in BL Tax revenue to the City. But there are some coffee shops in dense, urban environments that have no parking available and most of their customers arrive by walking, biking or via transit. There also are some coffee shops that are strictly drive-up coffee shops that don’t cater to non-motorized customers and promote auto traffic, increase pollution and traffic congestion. Instead of charging both coffee shops the same BL tax rate, the shop without parking could pay a lower rate ($200), while the drive-up shop would pay a higher rate ($300).

      5. Ross, notice in the link I provided that the rate for “Services”, like software developers, is almost 2x as high as the tax on retail businesses, which may be unfair. As I said before, the City should look at tweaking the BL tax to favor occupations that have smaller environmental impacts. Currently, an independent software developer that works at home pays the same BL tax rate as the owner of a freight delivery business that pounds the City’s pavement with a large delivery truck all day long. Fair? Not really.

      6. I would eliminate all business taxes and cut the sales tax in half.

        The correct funding mechanism is a property tax of fairly assessed assets.

        And yes, the Washington State Constitution specifically includes intangible assets as property:

        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…

        http://www.leg.wa.gov/LAWSANDAGENCYRULES/Pages/constitution.aspx

        Note, I believe this state is already in violation of this statute because it by no means taxes the class of real estate “uniformly” as a quick inspection of Redfin will soon reveal.

      7. @Ross,

        “then we should have an income tax”

        Do you have any other immensely unpopular projects to propose?

      8. “The power of taxation shall never be suspended, surrendered or contracted away. ”

        Sadly, I assume that only applies to the state government, since it has clearly suspended, surrendered, or contracted away the powers of taxation *for the municipalities*.

      9. Worth getting a lawyer to check out whether that clause does apply to municipalities (I bet it doesn’t), because if it does apply, there’s no property tax cap.

    2. Do car tab taxes have to be flat? I think a car tab tax that went up with the value of the vehicle would be way more popular than the car tab tax that was proposed by the county (and is being proposed by the city). There should be a minimum fee for every car, just to cover the licensing and other management of vehicles. But if you are raising additional money to pay for anything else, then a graduated car tab tax makes a lot more sense. The guy who lives in the boonies who has four cars on his lawn and only drives the one that is working at the moment shouldn’t have to pay more than a guy like me, who has two nice cars. Throw in a gas tax, which means that whoever pollutes more pays more, and you have a pretty fair system.

      1. That is the system we used to have and yet another thing Tim Eyman helped put a stop to. Apparently progressive taxes are easy to attack by initative.

      2. Well that tax wasn’t especially fair. For example, it used a staight line depreciation. So, say you bought a formerly high priced car that had come way down in value (Jaguar, Saab). You’d still be paying as if it had gradually decreased.

        However, I do think that Real Estate Taxes should be progressive. For example, while I would want the property tax on a primary residence low, so that people are not thrown out of their homes, I would have no compunction about taxing heavily either second homes (not used as rentals) or extra large homes. My Real Estate Tax would go up after a reasonable sq. footage for an average family had been exceeded.

      3. Some states do property taxes on all vehicles and property pegged to their listed value.

        So homes for appraised value.
        Cars for blue book type averages.
        Same for motorcycles.
        Same for boats.

  2. What I don’t like today’s property tax is how many exemptions there are, so the responsibility to support various government programs and departments falls on the backs of the few. For example, it’s my understanding certain non-profits don’t have to pay property taxes, no matter how well-funed the organization. Same with for-profit nursing homes and day cares. Wealthy senior citizens living in mansions get a big break on their property tax bill. And on and on. Let’s spread the pain around. That’s all I’m saying.

      1. Yeah, so it’s not that bad, though I’d kind of like to see it oriented more toward wealth than income, or some combination of the two. I don’t really think we need to be exempting seniors with homes worth $500,000+ just so they can pass on all of their wealth to their children, if that makes sense. If they need to downsize, reverse mortgage, whatever, I don’t think that’s such a terrible thing. Maybe, at the very least, the exemption should be less for seniors with more assets. Pretty sure this wouldn’t be politically palatable though.

    1. Sam is already exempt from Seattle property tax, by virtue of not owning property in Seattle, unless you are talking about the other Sam (the one without the wicked sense of humor) in Ballard.

  3. Thanks for this analysis, Martin. But behind it all, having spent some years in a very poor country, I really think that when all’s said and done, the people of Seattle and the rest of Washington State can afford anything in transportation they agree to build.

    However, there’s something about this matter I’d like to get out of the way once and for all. A good friend of mine for Seattle’s first time in recent memory reacted swiftly, strongly, and correctly in the face of a serious defeat. A perfect confirmation of my belief that the generation entering politics will indeed remedy the damage they’ve been left.

    In return, as his debut to local politics, the Mayor of Seattle reportedly thanked him with a serious personal insult. “Reportedly” is key here. Over three decades around public transportation I’ve repeatedly watched the news media pick needless fights to gain readership.

    However, over the same years around Seattle, I’ve seen unsettled nastiness have the same effect as unhealed wounds bandaged over.
    Result: what people don’t want to look at, they can’t help smelling for years.

    I’ve both read and seen enough history to know that people fighting on the same side often go after each other more fiercely than they do the enemy. It’s part of politics being done by humans. But being human also means you don’t stand by and, as my Route 7 passengers would put it, watch your friends get disrespected.

    The complete absence of negative response is a credit to those I already deeply respect, and really should be my answer on this part of the issue, and return to business at hand.

    If Ben says chill- I will.

    Mark Dublin

  4. Excellent article Martin. I am so impressed with work like this that it is easy to forget that this isn’t a newspaper, but a blog.

    Given the facts as you so eloquently laid out, I can understand Murray’s decision. Saving money so that we can fit under the limit if we pass other property tax measures makes a lot of sense (and a lot more sense than his stated reason for not wanting a property tax).

    I have mixed feelings about this decision, but I am way more likely to support him fully, now that you have described the numbers for me. In general, I think the Mayor is being way too cautious. I really doubt that will see a 12% drop in property values for the area. I think a 12% drop in individual housing is unlikely. But even if it occurs, I think the growth we are experiencing will more than make up for it. All those cranes we see everywhere are adding value at a very fast rate. I personally would be more aggressive. Pass the Pre-K, pass the transit improvements with a property tax and create a parks district. If the parks district fails, so be it (and I love parks). By the time the bridging the gap proposal comes up, we should be OK, even if there is a slight downturn in the market. In other words, if the overall value of property goes up by 10%, then a 12% drop after that would be minor, and not cost us much (in terms of funding authority).

    On the other hand, if Seattle wants to make a substantial improvement in transit, then we will definitely want to have the most popular type of taxation available. Not only are there various “Bridging the Gap” type projects, but imagine if ST3 fails in the suburbs, but passes in the city. What then? The obvious answer is to go ahead and do it ourselves. But that would cost a fair amount of money, and we want to be able to ask for it.

    Overall, though, it is just another example of how the state fails to pay for necessary funding, then turns around and prevents cities or counties from doing so. It has happened with schools, and they have lost court cases (twice). But unlike schools, there is nothing in the state constitution that says we should fund adequate transportation. That is just common sense, which is in short supply in Olympia. We have the worst tax system in the country, and it looks like we will continue down that road for a while.

    1. “Excellent article Martin. I am so impressed with work like this that it is easy to forget that this isn’t a newspaper, but a blog.”

      This piece belongs nowhere near a newspaper. It is fact-checked (as best it can be) and honest.

    2. Since the Selfish Suburbs will already have most of the system that they want and need after ST2 is completed, the smart money in Vegas would be on similar voting on ST3. Your hypothetical is the much more likely result.

  5. Hi!

    Current city reserve policy is 5%, or $0.18, not $0.42. The city council controls that policy, hasn’t changed it, no legislation has been proposed to change it, and from councilmembers I’ve spoken with, they aren’t particularly open to it.

    1. Ben, I don’t know where you got this information, but when I asked Ben Noble of the city budget office about a 5% reserve, he said “I am unaware of such a policy, and have checked with others who also are not aware.”

  6. Restricted property taxes are rent control for long timers.

    You’ve got all sorts of people grandfathered in on big properties, and essentially paying nothing for the premium city that Seattle has become over the last 50 years.

    The issue for Seattle is not super density. The small plot SFHs and existing apartment and condo structures are dense enough. However, the truly large property owners are paying nowhere near fair share for the modern state that Washington has become over the last 50 years.

    The Washington Native is essentially a toll collector who bills the educated, the productive and the hard working to maintain his leisure.

    Fairly assessed property taxes are the only long term solution to Washington’s infrastructure woes.

  7. However, the truly large property owners are paying nowhere near fair share for the modern state that Washington has become over the last 50 years.

    Looks to me like the biggest single property owner is the state. So maybe start charging property tax on I-5 and 99?

  8. This is great – however, I do think taxes and programs are all about priority. Which should the city or county pay for versus what the state should cover. I think that Pre-K should be a state priority – and they should fund it.

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