Tax Reform That Works
Referendum 47 Cuts the State Property Tax
1999-10
On November 4, 1997, Washington voters approved Referendum 47, a measure to enact a permanent 4.7% cut in the state property tax and limit annual increases in the property tax collections to the rate of inflation. The new law passed by a popular vote of 64% to 36%, garnering a majority in every county in the state.
The overwhelming vote clearly showed that many taxpayers had had enough, and that they expected the state to begin scaling back the annual growth in the state property tax burden.
To assess how well the new reform is actually working, the Washington Institute Foundation conducted a study of property tax increases at the state level, in the 39 counties and in 21 major cities around the state. The full results are available in the Washington Institute’s 30-page Policy Brief “Property Tax Relief in Washington: Referendum 47’s Second Year.” In a shorter format, this Policy Note examines what impact the 4.7% tax cut and the inflation limit have had in easing the rise of state property taxes.
The movement to pass Referendum 47 was a response to sharply rising property taxes, which often increased many times faster than the annual rate of inflation. Voters also signaled their desire to control the burgeoning size of state government by establishing a policy that the cost of government should not expand faster than the growth of the general economy.
With the passage of Referendum 47, voters made permanent an existing 4.7% reduction in the state’s portion of property tax collections that had been in place since 1996. Unlike the law’s tax limitation procedure for counties, cities and other taxing districts, this provision did not require additional action by the state’s legislative body to be put into force. The provision went into effect immediately and saved property owners across the state $63.6 million in 1998.[1]
The same tax cut will save taxpayers another $68.7 million in 1999, and $74.3 million in 2000. Over the next three years, this provision alone will trim a further $164 million from what the state would have collected in property taxes if the reform had not been enacted.
In addition, the state is applying Referendum 47’s inflation limit to its yearly increases in property tax collections. This means the amount the state collects from one year to the next will not grow more than the rate of inflation in the general economy.
The inflation limit in 1998 was just 1.9%. Referendum 47’s inflation provision saved taxpayers a further $48.7 million in 1998, for combined tax savings that year of $112.3 million.
In 1999, the inflation limit is even lower, just .85%, meaning the provision is saving taxpayers another $116.9 million this year. When added to the 4.7% tax cut already in place, both provisions result in combined tax savings of $185.6 million in 1999.
These tax reform provisions will save taxpayers a further $251.6 million in combined savings in 2000. Altogether, Referendum 47’s state property tax cut will result in almost $2.6 billion in savings to taxpayers over its first eight years. The estimated year-by-year savings are shown in bar graph below.
Taken together, these two elements of Referendum 47 have delivered at the state level just what the original measure promised: millions of dollars in direct relief to taxpayers.
And because the 4.7% tax cut is permanent and the state is holding property tax increases to inflation, these two reforms will continue to benefit taxpayers this year and in the years ahead. A proposal has now been offered by Senator Dan McDonald to phase out the state portion of the property tax altogether. His bill will be debated in the next session of the legislature.
Our full survey shows that the effectiveness of Referendum 47 property tax limitation at the county and city levels is mixed. Some cities and counties have followed the state’s example and implemented the full reform, while others continue to impose annual tax increases as if Referendum 47 didn’t exist. At the state level, however, Referendum 47 has been an unqualified success.
[1] The source for tax savings estimates is Washington State Department of Revenue, Research Division, Olympia, Washington, Referendum 47 reductions in state property tax collections, 1998 to 2005, per phone interview, May 19, 1999.