[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.