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Municipal Research News - Nuts and Bolts of Levy Lid Lifts
Nuts and Bolts of Levy Lid Lifts
By Judy Cox, Finance Consultant, Municipal Research and Services Center
The passage of Initiative 747 in 2001 limited taxing jurisdictions with a population of less than 10,000 to an increase of one percent in their levy, plus taxes on new construction and increases in state-assessed utility valuation. Levy increases for municipalities with a population of 10,000 or more are limited to the lesser of one percent or the increase in the July implicit price deflator for personal consumption expenditures as published in the September issue of the Survey of Current Business.
One exception to the one percent rule is the levy lid lift. Taxing jurisdictions with a tax rate that is less than their statutory maximum rate may ask the voters to "lift" the levy lid by increasing the tax rate to some amount equal to or less than their statutory maximum rate. (If you do not know your statutory maximum rate, ask your county assessor.) A simple majority vote is required.
There are two different approaches to, or options for, a levy lid lift, with each having different provisions and advantages.
Option 1: "Original flavor" lid lift (or "single-year" lift or "one-year" lift or "basic" lift)
In 2003, when the legislation (2ESSB 5659, Ch. 24, 1st spec. sess., Laws of 2003) establishing the multi-year lid lift was passed, MRSC nicknamed the "old" version the "original flavor" lid lift. Others used the term "basic" lift. Recently, we have seen the terms "single-year" and "one-year" lift used, those terms being synonymous with "multi-year" lift. We have discovered, however, that some people think this means that the lift ends or goes away after one year. As we discuss below, the lift generally lasts for a number of years, perhaps permanently. A better way to describe it may be to call it the "one-bump" lid lift compared to the multi-year lift, which "bumps up" for up to six years. In our discussion, we will continue to refer to it as the "original flavor" lift.
1. Purpose. It may be done for any purpose, and the purpose may be included in the ballot title, but need not be. You could say it would be for hiring more firefighters or for additional money for general government purposes, or you could say nothing at all. In the latter case, by default, it would be for general government purposes. Stating a particular purpose may improve your chances of getting the voters to approve it.
2. Length of time of lid lift. It can be for any amount of time, unless the proceeds will be used for debt service on bonds, in which case the maximum time period is nine years. Setting a specific time period may make the ballot measure more attractive to the voters. But, making it permanent means you can use the funds for ongoing operating expenditures without having to be concerned that you will have to go back to the voters for another lid lift. To make the lift permanent requires language in the ballot title expressly stating that future levies will increase as allowed by chapter 84.55 RCW.
If the lift is not made permanent, the base for future levies will, at the end of the time period specified in the ballot title, revert to what the dollar amount of the levy would have been if no lift had ever been done. Note that the assessor will assume that the governing body would have increased its levy by the maximum amount allowed each year if there had been no lid lift.
3. Subsequent levies. After the initial "lift" in the first year, the jurisdiction’s levy in future years is subject to the 101 percent lid in chapter 84.55 RCW. This is the maximum amount it can increase without returning to the voters for another lid lift.
4. Election date. The election may take place on any election date listed in RCW 29A.04.321.
Option 2: Multiple/multi-year lid lift.
1. Purpose. It may be done for any purpose, but the purpose(s) must be stated in the title of the ballot measure, and the new funds raised may not supplant existing funds used for that purpose.
Existing funds mean the actual operating expenditures for the calendar year in which the ballot measure is approved by voters. Actual operating expenditures excludes lost federal funds, lost or expired state grants or loans, extraordinary events not likely to reoccur, changes in contract provisions beyond the control of the taxing district receiving the services, and major nonrecurring capital expenditures.
2. Length of time of lid lift. The lid may be "bumped up" each year for up to six years. At the end of the specified period, the levy in the final period may be designated as the base amount for the calculation of all future levy increases (made permanent) if expressly stated in the ballot title. The levy in future years will then be subject to the 101 percent lid in chapter 84.55 RCW.
If the lift is not made permanent, at the end of the time period specified in the ballot title, the base for future levies will revert to what the dollar amount of the levy would have been if no lift had ever been done. Note that the assessor will assume that the governing body would have increased its levy by the maximum amount allowed each year if there had been no lid lift.
3. Subsequent levies. The lift for the first year must state the new tax rate for that year. For the ensuing years, the lift may be a dollar amount, a percentage increase amount tied to an index such as the CPI, or a percentage amount set by some other method. The amounts do not need to be the same for each year. However the ballot title may only have 75 words, so one does not have much space to get too fancy or creative.
(Note that one cannot specify that the lift be to a specific tax rate for each year. A tax rate must be specified for the first year, like "…increase the rate to $3.10." For ensuing years, however, the ballot measure cannot say something like "…and raise the rate to $3.10 in each of the next five years.")
If the amount of the increase for a particular year would require a tax rate that is above the maximum tax rate, the assessor will levy only the maximum amount allowed by law.
4. Election date. The election date must be the August primary or the November general election.
So, which is the better option?
As usual, of course, it depends. The requirement that a purpose must be stated in the ballot title for a multi-year lid lift makes it appear to be less flexible than the "original flavor" or single-year version. This may be true more in theory than practice, however, because we know of only one city that has successfully passed a ballot measure where they did not specify the use of the funds.
The requirement that there be no supplanting in expenditures in the multi-year lift is more restrictive. It certainly is attractive to have the opportunity to do a levy lid lift for a popular program, such as public safety, and then use part of the money that would have been spent on that program for, say, a new computer system. One presumes, however, that citizens believe there will be no supplanting even when the statutes do not prohibit it, and that they will require some accounting from government officials.
What election date should you choose?
If you are doing a multi-year lid lift, you are limited to either the August primary or the November general election. For the "original flavor" (single-year) increase you may also choose one of the special election dates listed in RCW 29A.04.321.
There are a number of considerations here. Your election date will determine (assuming the ballot measure is passed) when you will get your first tax receipts. Taxes levied in November are first due on April 30 of the following year. Therefore, to receive taxes next year from a levy you are discussing during the current year, your election can be no later than November. We know some legislative bodies first begin thinking of a levy lid lift in September or October, during budget discussions for the coming year. By that time it is too late to get any measure on the November ballot. Your county auditor must receive your ordinance or resolution 52 days before a special election and 84 days before the primary or general election. It pays to plan ahead.
Councils and commissions should ask around to find out what other elections will be coming up during the coming year. You may not want to go head-to-head with a school levy election or a voted bond issue.
What are the rules for what can and cannot be done to support or oppose ballot propositions?
See our MRSC web page on "Levy Lid Lift" at http://www.mrsc.org/subjects/finance/levylidlift.aspx#Articles for a list of articles on this subject.
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