Voter-Approved Limit is Changing City Officials' Taxing Habits
2002-12
A new property tax limit passed by voters in November is changing the way elected officials in Washington's major cities increase property taxes each year.
For years local officials routinely enacted large annual property tax increases, often boosting taxes by more than double the rate of inflation. In response, state voters recently passed Initiative 747, which limits annual increases to 1%, unless voters approve a higher increase.
However, local officials are allowed to exceed the 1% limit by drawing on unused, or "banked," taxing authority from past years.
To learn whether the new reform is having the intended effect, Washington Policy Center completed a statewide survey of all 39 counties and 22 major cities. Our latest Policy Brief, "An Assessment of Initiative 747 Property Tax Limitation," contains the outcome of the 2002 study. The results for the cities studied over five years are summarized in the bar graph on the reverse.
Overall, the findings are encouraging, as more and more cities are complying with the voters' wishes.
The compounded tax increases are still well above inflation over the five-year period because of large tax increases enacted in past years. Officials in six cities, or 29% of those surveyed, have increased taxes by less than inflation.
For high-tax cities like Seattle and Renton, the new law has brought a major change in the budget culture of elected officials. Seattle's leaders habitually imposed property tax increases of 6% year after year, regardless of inflation or swings in the local economy.
Residents became reconciled to a fast-rising tax burden, and the economic costs of this policy became an integral part of every business and real estate transaction in the city. The high-tax policy contributed to rising housing costs and a higher cost of living than residents face elsewhere in the state.
In 2002 however, Seattle for the first time in memory limited its yearly property tax increase to 2.9%. City leaders breached the new 1% limit (by drawing on the small amount of unused taxing authority they had built up), but this level of increase is half what the city traditionally imposed.
Officials in other cities, such as Ellensburg, Lakewood, Kirkland and Bellevue, have imposed little or no increase in property tax collections in recent years. This policy of restraint has made it much easier for these cities to comply with the new voter-approved limit.
Initiative 747 is clearly working as voters intended. The 1% cap is bringing millions in tax savings to the people of Washington. The greatest impact, though, will be seen over time because the new reform is changing the tax habit of local elected officials.
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