Holding the Line
Most Major Cities Now Limiting Tax Increases to Inflation
2001-11
When the people of Washington passed Referendum 47 by a robust 64% vote three years ago, they did so with the bright and hopeful expectation that local leaders would limit annual increases in property taxes to inflation.
Once the excitement of the election was over, however, many assumed that Referendum 47 would be quickly forgotten by the same fast-spending officials it was meant to control. That’s because the law contains an exception that lets local officials cite a “substantial need” to raise taxes higher than Referendum 47’s inflation limit.
To find out whether voters’ hopes have been fulfilled or dashed, the Washington Institute has completed a three-year statewide survey to see which major cities have stuck with the inflation limit.
We were mildly surprised to find that in 2000 almost two-thirds of the state’s 21 major cities actually held to the inflation limit. In addition, seven of these cities imposed no property tax increase at all in 2000. That is a significant improvement to the first two years of tax limitation reform, when in each case less than half of the major cities complied with the limit.
Of the eight cities that ignored Referendum 47 in 2000, Renton, Seattle, Tacoma and Yakima each adopted a 6% rise in property tax collections, and Kent was close with a 5.95% boost. That means in these cities the property tax burden is rising four times faster than inflation. The remaining three cities in our survey, Spokane, Federal Way and Wenatchee, also went above the inflation limit but held their own increases well below 6%.
So what’s the big deal? It is often said that for most people the rise in yearly tax payments only equals the cost of a Big Mac a week. But repeated, high-end tax increases year after year add up fast. The power of compounding turns small annual increases into a budget-busting burden for many taxpayers. Tax hikes of 6% year after year will double a property tax bill in only 12 years. By holding taxes to inflation, which is just 1.42% this year, it would take more than 50 years for the same tax bill to double. For cash-strapped home owners, that’s a big difference.
The point is dramatically illustrated by the bar graph. In the three years since Referendum 47 passed, people living in Seattle have been hit with a 21% increase in the property taxes, while inflation over the same period has been only about 4%.
In contrast, leaders in Bellevue and Ellensburg deserve gold stars for holding their tax increases to zero for all three years. These cities did not even take the amount allowed for inflation. That means Bellevue and Ellensburg residents might even see individual tax bills go down, as the limited tax burden is more widely shared in an expanding economy.
A major purpose of the Referendum 47 reform is to create more openness in the property tax process in a bid to foster greater trust between ordinary citizens and their elected representatives. Many cities are doing just that, and family pocketbooks are feeling the benefit, but leaders in many Washington cities still have a long way to go.
The three-year pattern of compliance among major cities with the Referendum 47 limit is similar to the one we have seen with counties. As with the counties cities show a higher level of compliance with the inflation limit the longer it is in effect. In 1998 eight cities imposed property tax increases of 6% or more; in 1999 seven did so, and in 2000 only four cities were at the 6% level. The three-year compounded property tax increases for Washington cities are shown in Figure 11 on the next page.
In the first two years of our survey we found that fewer than half (8) of major cities implemented the inflation limit. But in 2000, 13 of the major cities -- the most ever -- adopted Referendum 47’s limit or less. Significantly, only two cities, Seattle and Yakima, have ignored the Referendum 47 limit completely and continued “taxation as usual.” The number of cities that fall into each tax increase category over the three years is shown in Figure 10.
A growing tendency among some jurisdictions to be disingenuous with the voters is illustrated by the ordinance adopted by Kent for property taxes in 2000.
In its ordinance setting the amount of property tax to be collected in 2000 the Kent city council says they have decided “to reduce the City’s property tax levy rate approximately 1.1% by establishing no property tax rate increase for inflation...” The same ordinance says Kent has determined “...a zero percent increase for inflation.”[1] For overburdened taxpayers these statements sound pretty good. But a more careful reading shows that the choice of words obscures their actual meaning.
In fact, Kent is increasing its property tax collection this year by more than a million dollars (5.95%) over its 1999 property tax revenues of $17,175,994. Kent officials call this a “zero percent increase” only by measuring it against the taxes they could have levied in 1999 if they had ignored Referendum 47 and increased taxes the full 6%, not against the taxes they actually levied that year. The claim that “the levy rate” has been reduced is equally disingenuous. Even when cities increase property taxes by much more than inflation, levy rates will decline if the assessed value of property goes up even faster. To the average taxpayer, the reduction in the levy rate is meaningless when his actual tax bill is increasing.
[1] Both quotes are from Ordinance No. 3493, City of Kent, Washington, November, 1999.