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MRSC has joined with Toni Nelson, Small Cities Specialist, State Auditor's Office, Tracey Dunlap, Director of Finance & Administration at the City of Kirkland, Mike Bailey, Finance Director, City of Redmond, and Glenn Olson, Deputy County Administrator, Clark County, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*
Property Taxes in Washington
April 2009
By Glenn Olson, Deputy County Administrator, Clark County
You may have heard comments like, “My assessment went up a hundred thousand dollars. Now my taxes will go way up!” You may know this isn’t entirely correct, yet be a little hazy on why not. This article explains why that may not be the case.
Basics
In Washington property tax increases are not based on the increasing value of properties. They are based on last year’s property tax levy, which is simply the amount of the property taxes that were assessed in the prior year. Each year’s levy may be increased by no more than 1 percent, unless the public votes for a greater increase.
So how is it that someone’s tax bill ever increases by more than 1 percent?
The Math
Imagine a county that has only one parcel and one house that is brand new. This property is worth $100,000. As its only property, its value is also the entire Assessed Value (AV) of the county. Suppose further that the Millage rate (literally ‘rate per thousand’) in that county is $2.00. That means this property owner must pay $2.00 for each one-thousand dollars that his or her property is worth. In the first year after its construction, the taxes on that home would be calculated by multiplying the:
| AV of the property (and in this case the county) in thousands: | 100 |
| Times the Millage rate: | x 2.00 |
| For a tax bill (and a Year 1 levy) of: | $200.00 |
The only time taxes are calculated this way is in the first year after a home is built – i.e. for new construction. In every following year it works differently. In Year 2 the county may only increase its levy by one percent. So following our example:
| Last year’s levy is: | $200.00 |
| Plus an additional one percent: | + $2.00 |
| For a tax bill (and a Year 2 levy) of: | $202.00 |
Even if the value of this county’s one home had increased by $100,000, to $200,000, its tax bill would still be $202.00. No matter how much the AV in the county increase, its levy may increase only 1 percent. So the county adjusts the Millage rate to make it fit the new AV:
| New levy amount: | $202.00 | = 1.01, new Millage rate |
| Divided by the new AV in thousands: | 200 |
Any new homes that might be built in year 2 would be taxed at this new Millage rate.
To see how increases can be greater than one percent, suppose our imaginary county had started with two new homes, but that each one was worth only $50,000. The AV of the county would still total $100,000 in Year 1.
With the same $2.00 Millage rate, the levy in the first year would still be $200. But instead of one home paying the entire levy, the two equal-value homes would split the levy equally and pay $100 each. In Year 2 the levy would still increase by only one percent to $202. And if the value of both homes together increased to $200,000, the Millage rate would still drop to 1.01.
But suppose to get to that $200,000 value, one home tripled in value to $150,000 and the other stayed the same at $50,000. Then their respective tax bills would look like this:
| Home 1 | Home 2 | Total County | ||
| Home AV in thousands: | $150 | $50 | $200 | (Total County AV) |
| Times the Millage rate: | x 1.01 | x 1.01 | x 1.01 | |
| For a new tax bill of: | $151.50 | $50.50 | $202.00 | (New Year 2 levy) |
The total levy is still $202, but more of it is borne by the home that increased in value and less of it by the home that did not increase. Assessed value only determines a home’s share of the levy. If all home values were to change by the same percentage, then each home’s share of the levy would stay the same and everyone’s taxes would increase by exactly one percent.
Voted Increases
The above example is the only way in which property taxes can increase by more than one percent without a public vote.
Examples of publicly voted and approved increases are school or fire district levies. These often are ‘replacement levies’ where a district asks voters to approve an amount that works out to a Millage rate that is similar to one they approved several years ago. Since home prices generally have increased since the last levy vote, however, the amount that voters are being asked to approve can be much greater. Usually, these voted increases far outweigh any other source of increase in property tax bills.
Complexity
The above examples are extremely simple. In the reality one home is usually in several taxing districts that overlap. Voted levies, levy shifts or levy lid lifts may be in effect, or a jurisdiction may be tapping “banked” capacity. And finally fees for numerous things from improvement districts to utilities may show up on a tax bill. These all affect what looks like our property tax bill. But at the core of our property tax system it is true that taxes may only increase by one percent per year unless voters say otherwise.
Toni Nelson is the "Small Cities Specialist" for
the Washington State Auditor's Office, providing both on and off site
financial training and assistance to smaller cities and towns
throughout the state. Ms. Nelson has been working with the Auditors
office for 6 years and prior to that was the Clerk/Treasurer for a
small town for 9 years. She has co-authored the "Small Cities
Manual" a detailed reference guide for new clerk/treasurers on
governmental accounting procedures and presents numerous training
workshops throughout the state for AWC, WFOA, WMTA, WMCA and
local/regional organizations such as EWFOA and SCWMCA. Ms. Nelson is
also a member of and conference track coordinator for the WFOA
Education Committee.
Toni can be reached at 509.228.9346 or at nelson@sao.wa.gov. For more information, see the Small Cities Assistance Program page on the State Auditor's Web site.
Mike Bailey is currently the Finance Director for the city of Redmond. Previously he worked as Administrator of Finance and Information Services for the city of Renton and as the Director of Finance for the city of Lynnwood. Mr. Bailey also served as president of the Washington Finance Officers Association and is the Vice Chair of the GFOA Budget Committee. An experienced CPA and GFOA budget reviewer, Mr. Bailey co-founded the annual Budget and Fiscal Management Workshops held each summer. Mr. Bailey conducts numerous workshops and has authored various articles on local government finance, including Effective Budgeting in Washington State Cities published by the Association of Washington Cities.
Tracey Dunlap, P.E. is the Director of Finance & Administration at the City of Kirkland. Prior to joining Kirkland in 2006, she was a principal and shareholder in FCS Group, a regional financial and management consulting firm (14 years). An industrial engineer registered in the state of Washington, she has worked with jurisdictions throughout the Northwest to develop and implement cost recovery and fee strategies, set utility rates, and improve organizational efficiency and effectiveness. Tracey's experience also includes working for a large defense contractor (5 years) and a major financial institution (3 years). She has presented on a wide array of topics for organizations including WFOA, APWA, APA, WABO, and AWC.
Glenn Olson is the Deputy County Administrator for Clark County. He has been in Clark County since 1997, serving in various leadership positions during his tenure there. Previously Mr. Olson served 15 years in the Governors Office of Financial Management overseeing budget forecasts. Mr. Olson chaired the Washington State Public Works Board for Governor Locke. Currently he is the gubernatorial appointee representing local governments on the Select Committee for Pension Policy and on the Law Enforcement Officers and Fire Fighters Plan 2 (LEOFF2) Board, and he is the president of the Washington County Administrators Association.
*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.