Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Finance Committee

HB 1432

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Background:

Property Tax Limits.

The state Constitution limits regular property tax levies to a maximum of 1 percent of the property's value ($10 per $1,000 of assessed value). The Legislature has established individual district rate maximums and aggregate rate maximums to keep the total tax rate for regular property taxes within the constitutional limit. In addition to the 1 percent levy limit, there is a 1 percent cap on the revenues a taxing district can receive each year based on the highest amount levied in the past three years. An individual taxing district with a regular property tax levy must adhere to both the statutory rate limits and the revenue limit.

Banked Capacity.

While the limit factor constrains regular property tax growth over time, a regular property tax district that chooses to levy an amount that is less than the highest lawful amount allowed under the full limit factor may retain the unused levy capacity for future use. This is known as "banked levy capacity." As the result of banked levy capacity, the amount of tax that a district levies in any one year may be more or less than the amount that would otherwise be expected to be imposed by a district. The levy growth depends on whether the district is banking capacity for future use, tapping previously banked capacity, or neither. The amount of banked levy capacity retained by a district is calculated by reference to the maximum tax levy that the district could have imposed in preceding years minus the actual levies imposed by the district during that same period.

The purpose of authorizing a taxing district to maintain banked levy capacity is to remove the incentive for a taxing district to maintain its tax levy at the maximum level permitted under state law. Allowing the use of banked levy capacity also protects the future levy capacity of a taxing district that reduces its tax levy below the maximum level that it could otherwise impose under state law.

Veteran's Assistance and County Mental Health.

State law requires a portion of the county general levy to be used for community services for people with developmental disabilities and for mental health services (Developmental Disability and Mental Health Levy). State law also requires a portion of the general county levy to be used for veterans' assistance programs and other veteran related purposes (Veterans' Assistance Levy). For the Developmental Disability and Mental Health Levy, the county legislative authority must levy a sum equal to the amount that would be raised by a 2.5 cents per $1,000 of assessed value. For the Veterans' Assistance Levy, the county legislative authority must levy a sum equal to the amount that would be raised by a levy of not less than one and one-eighth cents and not more than 27 cents per $1,000 of assessed value levy. Both of these levies are considered earmarked funds within the county general levy. If the county general levy rate is reduced by the 1 percent levy limit, the amount of the county general levy allocated to these purposes may be reduced in the same proportion. In 2011, the Department of Revenue issued an audit recommendation to the Snohomish County Assessor to continue educating the governing authority regarding the statutory requirements for the allocation of revenues to the Mental Health Fund and the Veterans' Assistance Fund.