The state’s tax system is once again the subject of an initiative. In an independent policy review, the Economic Opportunity Institute, a nonpartisan, nonprofit public policy institute, conducted a fiscal analysis of the components of Initiative 747, a property tax initiative that caps increases to 1%, well below the rate of inflation. Statewide Initiative 747 will be before the voters in November 2001.
Currently, property taxes in Washington represent one-third of total state and local tax revenue, the second largest source of revenue behind the sales tax. Expenditures are used for schools (57%), cities and towns (13.4%), counties (18.5%) and special purpose districts, mainly hospital, library, emergency medical services, and fire districts (11.1%).
In its analysis, “Potential Impacts of Proposed Initiative 747,” EOI finds that over a six-year period, a 1% cap on the property tax would result in lost revenue approaching $2 billion. Cities, schools, counties, and fire districts would be the hardest hit, taking over 75% of the cuts.
Currently, the State School Levy, a component of the property tax, contributes $2.6 billion biannually into the state’s General Fund which allocates more than 50% of its budget to schools: 45% of the General Fund goes to K-12 schools and 12% goes for higher education, including public universities, colleges, community colleges, and technical schools. A 1% cap on expenditures would complicate recent efforts to improve education; in 2000 the voters passed statewide initiatives to increase education funding by mandating cost-of-living increases to all public school employees, reduced class sizes, teacher training, and extended learning programs.
“In cities, property taxes cover basic services,” said Steve Idemoto, Economic Security Policy Analyst at EOI. “These include fire and police protection, human services, street maintenance, libraries, and parks and recreation. In counties, property tax revenues pay for regional basic services, including jails, courts, district attorneys, 911 dispatch, garbage and recycling, police, and elections.”
“With inflation averaging 4.1% since 1960 and estimated at 2.6% from 2002 to 2007, a 1% cap on the property tax means taxing districts will be unable to maintain their current levels of service,” Mr. Idemoto added. Giving examples for the 2002-2005 period, Mr. Idemoto found that the Woodinville Fire and Safety District would lose $2.4 million, the Pierce County Library District would lose $1.4 million, and the city of Grandview would lose $0.5 million. For Snohomish County, one of the most populated and rapidly growing counties in the state, direct losses would reach more than $67 million; however, when federal and state matching grants for roads are included, the total reaches $114 million.
Mr. Idemoto pointed out that the proposed initiative does allow for communities to lift the cap if the voters approve. A levy lift lid election is expensive for small or special districts, and results are far from certain. If a levy lift passes, it must be renewed each year. For the 2002-2005 period, four consecutive Pierce County Library District special elections would cost $1 million to raise $1.48 million, a net gain of $480,000. If the district is unsuccessful in each election, in addition to loses of $480,000 generated by the property tax cut, the district would lose another $1 million.