HOUSE BILL REPORT

ESHB 1420

BYHouse Committee on Local Government (originally sponsored by Representatives Haugen, Ferguson, Cooper, Appelwick, Sayan, Brough and H. Sommers) 

Revising provisions on property taxes.

House Committe on Local Government

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (13)

      Signed by Representatives Haugen, Chair; Cooper, Vice Chair; Beck, Bumgarner, Butterfield, Ferguson, Hine, Jones, Nealey, Nelson, Nutley, Rayburn and Zellinsky.

House Staff:Steve Lundin (786-7127)

Rereferred House Committee on Ways & Means/Revenue

Majority Report:  The substitute bill by Committee on Local Government be substituted therefor and the substitute bill do pass.  (9)

      Signed by Representatives Appelwick, Chair; Basich, Dellwo, Holland, Rust, Schoon, Taylor, Valle and Winsley.

House Staff:      Rick Wickman (786-7136)

AS PASSED HOUSE FEBRUARY 15, 1988

BACKGROUND:

The Constitution and statutes place several restrictions on property taxes.

Statutes establish the maximum tax rate that each taxing district may impose.  These rate limitations are expressed in terms of a dollar value per $1000 of assessed valuation, except that the state's rate is a dollar value per $1000 of assessed valuation adjusted to an equalized value.

Statutes place a cumulative rate limitation on most of the regular property tax levies of most taxing districts at $9.15 per $1000 of assessed valuation that may be imposed on any property. The relative status of the various taxing districts has been established so that the senior taxing districts (counties, road districts, cities and towns, and the state for educational purposes) are permitted to impose their tax levies before the remaining taxing districts (referred to as junior taxing districts) impose their tax levies.  Different status levels have been established for the regular property tax levies of various junior taxing districts.  If the requested rates of tax levy exceed this $9.15 limit on any property, levy rates of the lowest status tax levies of the junior taxing districts are reduced or eliminated to remain within this cumulative ceiling rate.  The reduction or elimination occurs on the lowest status levies and districts before the next highest are affected.  Provision has been made for voters to authorize temporarily an increase in this $9.15 limit up to an amount not to exceed $9.50 per $1000 of assessed valuation.

Taxing districts other than the state have been authorized to transfer money to other taxing districts, in return for the recipient district reducing its tax levy, and to enter into contracts where a service is supplied, in return for the recipient district reducing its tax levy.

Fifth class and smaller counties are authorized to increase their county-wide property rate from a maximum of $1.80 per $1000 of assessed valuation up to $2.47 1/2 per $1000 of assessed valuation, and reduce the road district levy rate by an equivalent amount so that the sum of both rates does not exceed $4.05 per $1000 of assessed valuation.  Fourth class and ninth class counties are authorized to increase their county-wide tax rate from a maximum of $1.80 per $1000 of assessed valuation up to $2.25 per $1000 of assessed valuation if no other taxing district's tax rate is affected. 

SUMMARY:

Property tax laws are altered as follows:

(1)  The sunset provisions are deleted on:  (a) the ability of a taxing district to transfer money to another taxing district, in return for the district that receives the money reducing its property tax rate, and thereby allow the district that transfers the money to impose a higher regular property tax rate; and (b) contracts between taxing districts where one district supplies a service to another district, in return for the district that receives the service reducing its regular property tax rate, thereby allowing the district that provides the service to impose a higher regular property tax rate.

(2)  The ability of smaller counties to increase their county- wide tax rate above $1.80 per $1000 of assessed valuation is eliminated, but any county is authorized to increase its countywide tax levy, and decrease its road district tax levy, if the sum of both levies does not exceed $4.05 per $1000 of assessed valuation, and if the tax rate of no other taxing district is affected.

(3)  Laws establishing the "$9.15 limitation" are clarified that this limitation actually includes two limitations as follows: (a) a cumulative limitation of $5.55 per $1000 of assessed valuation for all taxing districts, other than the state, port districts, and public utility districts (PUD's); and (b) a limitation of $3.60 per $1000 of assessed valuation adjusted to an equalized value for the state for education purposes.

(4)  The provisions of law detailing how pro-rationing of junior taxing district levies are altered so that the highest status junior taxing district tax levies are protected somewhat.  After pro-rationing of the lower status junior taxing district levies, the levy of the taxing district with the smallest assessed valuation is reduced, and the taxing districts with levies that otherwise would have been pro-rated but for this reduction pay to the district that had its levy reduced an amount equal to the amount that this district lost due to a reduction in its levy.  The amount paid by each of these districts is proportional to the amount that each would have lost to pro-rationing if the levy of the smaller district were reduced.  A city or town that has been annexed by a fire district or library district would forgo a portion of this payment under rules to be adopted by the department of revenue.

EFFECT OF SENATE AMENDMENT(S):  1) All affected junior taxing districts must be parties to an agreement by which one taxing district transfers money to another taxing district, in return for the recipient district reducing its tax levy, instead of all affected taxing districts being notified about such an agreement.

2) A different method is used to eliminate the possibility of the state's property tax levy being reduced due to a pro- rationing arising from a 5th through 9th class class county exercising its option to increase its county-wide tax levy above the normal rate limitation.  The authority of such counties to increase their county-wide tax levies is retained.  A state "buy- down" program is created where a city's tax rate is reduced to avoid pro-rationing the state tax levy, due to such counties increasing their county-wide tax levy.  Then the state pays the city an amount of money equal to the city's lost tax receipts arising from the reduction of the city's tax rate.  The municipal buy-down account is created and $50,000 is appropriated to that account for such purposes.  One-half of the interest earnings in the local sales and use tax account is placed into this account commencing in July 1, 1989.  If these moneys are not sufficient, the county, that so increases its county-wide tax levy, pays to the city any insufficiency.

3) Language was removed clarifying that the $9.15 limitation actually is composed of a $3.60 limitation, at the state equalized value, for the state tax levy, and a $5.55 limitation for the remaining taxing districts other than port districts and public utility districts.

4) A precise formula is provided to calculate the amount that a city forgoes, if it has been annexed by a library district or fire district, under the scheme to protect the highest status junior taxing district tax levies from pro-rationing.

Fiscal Note:      Requested February 1, 1988.

House Committee ‑ Testified For:    (Local Government)  Marilyn Showalter, Foster, Pepper and Shefelman; and Mark Allen, Washington Library Association.

(Ways & Means/Revenue)  None Presented.

House Committee - Testified Against:      (Local Government)  Stan Finkelstein, Association of Washington Cities; David Dow, City of Tacoma; Rob Higgins, City of Spokane; Jim Metcalf, Washington State Association of Counties; and Bob Vogler, City of Seattle.

(Ways & Means/Revenue)  None Presented.

House Committee - Testimony For:    (Local Government)  The state levy could be pro-rated if small counties use their authority to increase their countywide levy above $1.80.  This would have happened this year, except that Pacific and Klickitat Counties "bought-down" the tax levies of two cities.

Local governments need the flexibility to contract and transfer funds between themselves to avoid pro-rationing.

(Ways & Means/Revenue)  None Presented.

House Committee - Testimony Against:      (Local Government)  Fire districts can impose higher rates of taxes if the districts are located in a library district that has its tax levy pro-rated.  The ability to contract and transfer funds lessens the likelihood of a library district tax levy being pro- rated.

(Ways & Means/Revenue)  None Presented.

VOTE ON FINAL PASSAGE:

      Yeas 94; Absent 3; Excused 1

Absent:     Representatives Schmidt, Williams J, Wilson K

Excused:    Representative Smith C