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MRSC FOCUS › The Increase in the Implicit Price Deflator
 
The Increase in the Implicit Price Deflator (IPD) from July 2002 to July 2003 Is 1.84 Percent

The Increase in the Implicit Price Deflator (IPD) from July 2002 to July 2003 Is 1.84 Percent

MRSC, September 3, 2003

This means, for most jurisdictions, the maximum allowable levy increase for 2004 is 1 percent of the 2003 levy (plus taxes on new construction and the change in the value of state-assessed utility property).

The Bureau of Economic Analysis of the Department of Commerce has released the July 2003 index number for the implicit price deflator for personal consumption expenditures. It is 113.16. This represents a 1.84 percent increase over the revised July 2002 index number of 111.12.

Here is the math. Divide the July 2003 index (113.16) by the July 2002 index (111.12). Subtract 1 and multiply by 100. The result is 1.84 percent. The Department of Revenue assumes that this number is not official until it is confirmed in the September 2003 issue of the Survey of Current Business. The publication will be available on the BEA Web site around the middle of the month.

RCW 84.55.010 allows a taxing district to levy an amount equal to its highest allowable levy in the most recent three years times a "limit factor." (WAC 458-19-020 says the base year is the highest amount that could have been lawfully levied since 1985 for 1986 collection.) For most taxing jurisdictions, this will be the 2003 levy.

The "limit factor" is set out in RCW 84.55.005. For taxing jurisdictions with a population of under 10,000, Initiative 747 sets the limit factor at 101 percent. For those with a population of 10,000 or more, the limit factor is the lesser of 101 percent or 100 percent plus "inflation." "Inflation" is measured by the increase in the implicit price deflator for personal consumption expenditures for the most recent twelve months, ending in July. Since, for this year, the latter measure produces a figure of 101.84 and that is greater than 101 percent, the limit factor for the 2004 levy is 101 percent. To put it a different way, the maximum allowable increase is 1 percent of the highest allowable levy that could have been levied in 1985 for 1986 collections.

Exceptions:

  • Some jurisdictions have "banked" capacity. If they choose to use it, their levy increase will be more than 1 percent.
  • Some jurisdictions are at their maximum statutory tax rate. They cannot increase their levy at all except for taxes on new construction and changes in the value of state-assessed utility property.
  • Some jurisdictions are so close to their maximum statutory tax rate that they will be able to raise their levy by only a portion of 1 percent.