Referendum 47 Tax Limitation:
Tax Increase Trends of Washington Ports
September 2001
The people of our state continue to be concerned about the steadily rising property tax burden. Each time a tax limitation measure has appeared on the ballot in recent years it has passed. In November voters will be asked to consider Initiative 747, a measure sponsored by Tim Eyman to strengthen current limits on annual property tax increases.[1]
As our state prepares to pass judgment on a pending tax limitation measure, it is important to gain a clear idea of how past reforms have fared. In November 1997, 64% of Washington voters passed Referendum 47, thus sending a clear message to both local and state leaders: Do not raise property taxes by more than the rate of inflation.
Referendum 47 says that elected officials should not increase property tax collections by more than inflation (2.61% this year), unless they can identify a “substantial need” to raise taxes higher. Using this exception, officials can increase the regular property tax burden by as much as 6% in one year. They are also allowed to tap unused taxing authority from past years to impose even larger increases.
In each of the last four years the Washington Policy Center has assessed whether the state’s 39 counties and major cities have followed the Referendum 47 inflation limit, as voters desired, or have instead imposed a different increase or no increase. In general, we have found a rising level of compliance with the annual inflation limit on the part of county and city officials. The results of our most recent survey of counties and major cities were released in August.[2]
Counties and major cities, however, comprise only some of the 1,747 taxing jurisdictions in the state.[3] While counties and major cities impose the highest tax burden, many property owners must also make payments to so-called “junior” taxing districts. These include districts responsible for fire fighting, schools, water supplies and other public services. It is typical for a property to fall into ten or more districts, so citizens can be impacted by the tax decisions of many local governing boards.
While it would be impractical to compile and analyze the annual tax increases imposed by all the jurisdictions in the state, we wished to examine at least some of the smaller districts that impact property owners. This study looks at annual tax increases imposed by Washington’s ports. To parallel the data in our past studies, we included the level of increase imposed by each of the largest 18 port districts around the state each year since Referendum 47 passed.
The research questions we asked were the same as those we used for our county and city studies. Have the elected officials running our port districts limited themselves to the inflation limit, as voters directed? Or have they chosen to use the “substantial need” clause to extract as much revenue from taxpayers as legally possible? We also wished to identify the ports that imposed lower increases, or that had lightened the tax burden by keeping collections constant from one year to the next.
Over the four years since 1997, only two ports kept property taxes at the rate of inflation or below each year, the ports of Seattle and Chelan. The majority of port districts ignored the wishes of the voters and continued to increase property tax collections by more than the inflation rate. The full results of our survey are presented in the following sections. We briefly summarize our findings for 1998, 1999 and 2000, then present a more detailed view of increases imposed in 2001. We also look at general tax trends over the four-year period.
In 1998, immediately after the passage of Referendum 47 in November 1997, ten (55%) of the eighteen ports studied did not comply with the intentions of voters, increasing property taxes beyond the rate of inflation. Disregarding the message of Washington citizens, a handful of ports raised property taxes slightly above inflation, and three ports, Camas, Friday Harbor and Walla Walla, increased levies to the 6% limit.
The Port of Benton and the Port of Bremerton, taking advantage of unused tax authority from past years, imposed massive increases in property taxes of 22.8% and 13% respectively. Benton’s increase was more than ten times the rate of inflation that year of 1.9%.[4]
Only eight of the ports studied limited their property tax hike to inflation or less. Four port districts, Seattle, Kennewick, Longview and Olympia, did not increase property taxes at all. In fact, the Port of Longview reduced its property tax collection by 1.4%. The ports of Centralia and Whitman levied tax increases well below the price deflator. The Port of Chelan alone approved a property tax increase at the rate of inflation.
Compliance with the tax limit law declined in 1999 compared with 1998. This is the same pattern that emerged in our survey of counties and cities for that year.[5] Our 1999 survey found that 13 port districts did not comply with the intended inflation limits of Referendum 47. Property tax increases in almost three-quarters (72%) of port districts studied surpassed the rate of inflation. Six of these ports increased their tax burden by exactly 6%. While four port districts – Centralia, Olympia, Everett and Whitman – increased property taxes by more than the 6% limit. The Port of Olympia imposed the highest increase: 19.5%.[6] Although inflation was very low in 1999, just .85%, only two ports, Port Townsend and Bellingham, were in a range between the inflation rate and the 6% limit.
Five port districts held property tax increases at or below the inflation level. The ports of Chelan, Grays Harbor and Tacoma kept the increase right at inflation and again, as in 1998, the Port of Seattle kept property tax collections constant with a zero increase. The Port of Longview approved a decrease in collections. Only three of the port districts that complied with the Referendum 47 inflation limit in 1998 did so in 1999.
Three years following the passage of Referendum 47, a total of 14 of the 18 ports (77%) failed to limit their property tax increases to inflation. Since 1997 then, compliance with the inflation limit had actually decreased each year. At a time when counties and cities were beginning to follow the full intent of Referendum 47, an increasing number of port districts were moving in the other direction, continuing to boost taxes by more than the rate of inflation. In 2000 inflation was 1.42%.
In 1998, eight ports complied with the inflation limit, in 1999 that number dropped to five and by 2000, the number of ports complying with Referendum 47 had fallen to four, Chelan, Everett, Grays Harbor and Seattle.
Six port districts – Port Townsend, Centralia, Pasco, Camas, Friday Harbor and Walla Walla – imposed 6% increases. Five ports – Bremerton, Kennewick, Tacoma, Whitman and Olympia – each tapped unused taxing authority and increased taxes by more than 6%. Kennewick imposed the highest increase: 12.17%.[7] Of the four ports that limited property tax increases to inflation or below, only two – Seattle and Chelan – followed the limit in both 1998 and 1999.
Whether it was the result of a higher inflation rate or because port districts were finally beginning to get the message behind Referendum 47, only nine ports (compared with 14 in 2000) approved property tax increases greater than the inflation limit of 2.61%. This represents the highest level of compliance, 50%, among major port districts since Referendum 47 passed. Complete results for our 2001 survey are illustrated in the bar graph in figure 1.
Although more ports are complying with the inflationary limit, half of the ports studied still had not approved increases in property taxes less than or equal to the price deflator, and some – Olympia, Walla Walla and Kennewick – raised taxes by more than the 6% maximum. As in 1999, the Port of Olympia imposed the highest one-year increase on taxpayers: 34.4%.[8]
All four ports that held to the inflation limit in 2000 also honored it in 2001. The Port of Everett for the second consecutive year decreased its regular property tax collections slightly, reducing them by .76%. Two ports, Bremerton and Whitman, which in 2000 had imposed property taxes boosts well above the 6% maximum, reversed this policy in 2001 and each adopted below-inflation increases.
When Washington voters approved Referendum 47 by a wide margin they signaled that they want local officials to hold yearly increases in property tax collections to the inflation limit or less. The law states that any increase above the rate of inflation must be separately approved by the port commission after a public hearing. In doing so, port commissioners are required to be upfront with citizens and explain in the tax-increase resolution the reasons for raising property taxes so drastically. Of all the ports studied, most that boosted taxes by more than inflation met the minimum requirement of the law by including the “substantial need” phrasing in their tax-increase resolutions.
Figure 1.
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But most of these ports failed to honor the spirit of the law by including detailed reasons for why they were raising taxes so high. Many ports provided no explanation at all and some used vague language that provided little real justification for imposing large increases in the local tax burden. For example, the Port of Walla Walla cited “economic development projects” as its reason for increasing the levy by 6% in 1998.[9] Commissioners at the Port of Bremerton offered the need to “discharge expected expenses” as their reason for claiming higher tax revenues.[10] The Port of Olympia described an “Environmental Remediation” project as the reason for increasing levies, but it was only after following up with a phone interview did we find adequate explanation for an increase in the levy amount.[11]
Only two ports – Port Townsend and the Port of Whitman – sufficiently explained to voters the reasons for increasing the tax burden by more than the inflation limit. In the case of Whitman, commissioners presented the planned expansion of the industrial park in Pullman and improvements to Colfax Airport as reasons for increasing taxes beyond the 6% maximum. The Port of Port Townsend described a joint project with Jefferson County in the Tri-Area/Glen Cove Study in 1998 and the performance of a marina feasibility study in 1999. In both years, however, Port Townsend still held increases in property tax collections to less than the 6% limit.[12]
Referendum 47 was not passed in order to prevent ports from raising property tax collections at all; it was passed with the intention that all taxing districts, including ports, cities and counties, would only routinely raise taxes at the same rate as inflation. The Referendum 47 law permits higher-than-inflation increases, but the law’s intent is that elected officials would use this authority only in specific, carefully explained circumstances to address true public emergencies. The great majority of ports have failed to meet this standard.
Port of Seattle
The Port of Seattle, impressively, has not increased property tax collections since 1992. Seattle’s port district provides a clear example of how a modern port can be intelligently managed so that increasing subsidies through property taxes are not needed. Revenues from the Port’s facilities at Seaport on Elliot Bay and SeaTac Airport are allocated in a way that allows port commissioners to avoid further burdening taxpayers. In 2000 alone, the airport realized $296 million in revenues, and an additional $99.3 million was earned through the Seaport.[13]
Total estimated revenues to the Port of Seattle in 2001 are $1.7 billion, of which just $35.6 million will come from property taxes.[14] Since only 2% of the budget comes from mandatory taxes, it would not be difficult for the Port to reduce this public subsidy to zero. The Port also carries a large cash balance and revenue expected from taxes in 2001 will roughly equal the amount the Port plans to add to this surplus.
Since operations at the Port of Seattle are virtually self-sustaining, the question arises over whether it properly should continue as a function of government. There would be considerable public benefit in privatizing the port and operating it as a free-standing business. In that case, the port could generate tax revenues, rather than consuming them. Seattle could also point the way for other ports in the state and around the nation to adopt efficiencies that would reduce, if not eliminate, their own tax subsidies.
Of all the port districts studied, only two, the Port of Chelan and the Port of Seattle, have kept property tax increases below the rate of inflation each year since 1997. The Port of Longview only exceeded the inflation limit in 2000, passing a 3% boost. In other years it passed negative or very low increases, giving Longview’s port district an overall reduction for the four year period of -.66%. The four-year increases adopted by port districts are shown in figure 2.
The table in the appendix shows the amount of tax increase adopted by each port in each of the four years covered in our study. Over the four-year period six, or one third, of the 18 major port districts never complied the tax-limitation wishes expressed by voters in 1997. As the last column in the table demonstrates, the cumulative effect of large yearly tax hikes can be enormous. Each year these six ports increased the burden they placed on taxpayers by more than inflation. The Port of Benton has increased taxes 35.6% since 1997. Bremerton’s port imposed a total increase of 30.7% over four years, while Friday Harbor imposed a 26% boost. Inflation over the same period was under 7%.
Figure 2.
View here.
The six ports that consistently raised taxes by more than inflation each year since Referendum 47 passed are listed in figure 3.
Figure 3.
The Six Port Districts that Have Increased Property Taxes
By More thank Inflation Each Year since 1997
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The Port of Olympia adopted a zero increase in tax collections in 1998, but imposed large increases each year thereafter. In all, Olympia’s port commissioners have raised local property taxes by 75.9% over the last three years.
The overall analysis found that the tax increase policies of many port districts were sporadic. It was typical for a port to comply with the intent of Referendum 47 one year, and the next year to ignore it completely. There was no consistent pattern by many ports. Kennewick held tax collections flat in 1998, then swung to a 6% increase in 1999, doubled that to 12% in 2001, before returning to a 6% rise in 2001. Whitman’s tax increases rose to a high of 9.1% by 2000, then the next year the port more than complied with the Referendum 47 limit by adopted a 2% increase in 2001. Better performance by port commissioners in giving the public reasons for tax increases would help citizens understand the unpredictable swings in the rate of tax increases.
Nine ports increased tax collection by more than 6% at least once in the last four years. These ports are listed in figure 4, which gives the amount and year of each increase.
Figure 4.
Port Districts that Raised Tax Collections by More than 6% Limit,
Showing Amount and Year of Increase
Benton |
22% (1998) |
Bremerton |
13% (1998) and 7% (2000) |
Centralia |
12.15% (1999) |
Everett |
8.93% (1999( |
Kennewick |
12.17% (2000) and 6.22% (2001) |
Olympia |
19.5% (1999), 10.8% (2000) and 34.4% (2001) |
Tacoma |
7.84% (2000) |
Whitman |
8.15% (1999) and 9.14% (2000) |
Walla Walla |
10.3% (2001) |
The number of port districts that fall into each tax increase category for the four years studied is shown in figure 5. As the table indicates, compliance with the inflation limit is only one port more today than it was in 1998, while there was a significant increase, then a decline, in the number of ports imposing increases of 6% or greater. Taken together, the figures indicate little change in the ports’ tax-increase policies as a result of the passage of Referendum 47.
Figure 5.
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Number of Ports in Each Tax Increase Category, 1998 – 2001 |
|||||
|
Year |
0% or less |
Between IPD and 0% |
Between IPD and 6% |
6% |
Greater than 6% |
1998 |
4 |
4 |
5 |
3 |
2 |
1999 |
2 |
3 |
3 |
6 |
4 |
2000 |
2 |
2 |
3 |
6 |
5 |
2001 |
2 |
7 |
3 |
3 |
3 |
Our yearly surveys of property tax increases imposed by counties and major cities found a growing level of compliance with the inflation limit, indicating that elected officials in these large jurisdictions are increasingly respecting the will of the voters as expressed by passage of Referendum 47.
Among major port districts, however, the effectiveness of the same tax limitation measure has been disappointing. At no time have a majority of the port districts restricted their increases in property tax collections to the inflation limit. Referendum 47 must be judged a failure in consistently holding annual tax increases by ports to the rate of inflation.
Nor does the data indicate any trend to justify an expectation of greater adherence to the Referendum 47 limit in the future. Four years after the measure became law the total number of major port districts holding to the limit is only one more than did so in 1998, the first year it was in effect. The results of this study demonstrate that most elected port commissioners do not take the Referendum 47 limit under serious consideration when approving property tax increases. By extension it would not be surprising if the governing board members of the state’s other 1,700-plus “junior” taxing districts don’t either.
Given the compounding effect of year-by-year tax increases imposed by multiple jurisdictions, the smaller taxing districts as a group will continue to exercise a major financial impact on Washington’s citizens. Yet local elected officials are generally unaware of the tax increases imposed by their fellow commissioners in other districts, even when these added burdens are being levied on the same properties. The cumulative effect for property owners, however, is substantial.
The steady rise in cumulative property tax costs, while unnoticed or unrecognized by many elected officials, goes a long way in explaining the easy passage of Initiative 722 tax limitation last year (later stuck down by the courts) and the ongoing support for pending ballot measure Initiative 747. If passed, Initiative 747 would end the discretion local officials now have to choose inflation, 6% or higher-level tax increases by replacing these options with a single 1% limit. Whether Washington adopts new and stricter property tax limitation, or continues under the present flexible system, will be up to voters to decide.
Annual Increases in Regular Tax Collections Imposed by
Washington>’s Major Port Districts
1998 – 2001 and Compound
|
Ports |
1998 |
1999 |
2000 |
2001 |
Compound |
|
Olympia |
0.00% |
19.50% |
10.80% |
34.40% |
75.95% |
|
Benton |
22.80% |
2.99% |
4.36% |
2.79% |
35.67% |
|
Walla Walla |
6.00% |
6.00% |
6.00% |
10.30% |
31.37% |
|
Bremerton |
13.00% |
6.00% |
7.00% |
2.00% |
30.73% |
|
Kennewick |
0.00% |
6.00% |
12.17% |
6.22% |
26.30% |
Camas |
6.00% |
6.00% |
6.00% |
6.00% |
26.25% |
|
Friday Harbor |
6.00% |
6.00% |
6.00% |
6.00% |
26.25% |
|
Pasco |
3.00% |
6.00% |
6.00% |
6.00% |
22.67% |
Whitman |
1.37% |
8.15% |
9.14% |
2.00% |
22.05% |
|
Centralia |
0.21% |
12.15% |
6.00% |
2.44% |
22.04% |
|
Tacoma |
4.70% |
0.85% |
7.84% |
5.20% |
19.79% |
Port Townsend |
4.00% |
4.00% |
6.00% |
2.61% |
17.64% |
|
Bellingham |
2.61% |
4.00% |
2.00% |
5.00% |
14.29% |
|
Grays Harbor |
4.90% |
0.85% |
1.42% |
2.61% |
10.09% |
|
Everett |
1.49% |
8.93% |
-0.18% |
-0.76% |
9.52% |
Inflation |
1.90% |
0.85% |
1.42% |
2.61% |
6.95% |
Chelan |
1.90% |
0.85% |
1.42% |
2.20% |
6.52% |
|
Seattle |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Longview |
-1.40% |
-2.80% |
3.00% |
0.63% |
-0.66% |
About the Author
Click here to read more about the author Paul Guppy.
Jason Smosna is part of the Center’s internship program. He is a senior at the University of Washington studying Political Science and Economics. He will be graduating in June 2002 and going on to law school.
[1] Initiative 747 would limit the amount a taxing jurisdiction could increase regular property tax collections to 1% above the previous year. The Washington Policy Center plans to publish an analysis of the measure in the coming weeks.
[2] See “Hearing the Voters: Growing Compliance with Referendum 47 Tax Limitation,” by Paul Guppy, Washington Policy Center Policy Brief, August 2001, available at www.washingtonpolicy.org.
[3] Tax Reference Manual, Revenue Research Report, Department of Revenue, Olympia, Washington, January 1999, p. 118.
[4] Resolution No. 97-24, Port of Benton , passed November 17, 1997 and Resolution No. 97-50, Port of Bremerton, passed November 10, 1997.
[5] For a comparison with cities and counties see “Property Tax Relief in Washington: Referendum 47’s Increasing Effectiveness,” by Paul Guppy, Washington Policy Center Policy Brief, July 2000.
[6] Interview via e-mail with George Fox, Financial Director, Port of Olympia, August 30, 2001.
[7] Resolution No. 99-18, Port of Kennewick, passed November 23, 1999.
[8] Interview via e-mail with George Fox, Financial Director, Port of Olympia, August 30, 2001.
[9] Resolution No. 12-01-97-A, Port of Walla Walla, passed December 1, 1997.
[10] Resolution No. 2000-42, Port of Bremerton, passed November 14, 2000.
[11] Resolution No. 99-21, Port of Olympia, passed 22 October 1999. George Fox, Finance Director, Port of Olympia, phone and email interview August 30, 2001.
[12] Resolution No. 253-97, Port of Port Townsend, passed November 12, 1997 and Resolution No. 280-98 and 281-98, Port of Port Townsend, passed November 18, 1998.
[13] Interview with Tom Green, Budget Analyst, Finance and Budget Department, Port of Seattle, August 13, 2001.
[14] Table X-2, “Forecasted Cash Flow Summary,” Port of Seattle budget documents, January 4, 2001.