SENATE 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

Rereferred House Committee on Ways & Means/Revenue

Senate Committee on Ways & Means

Senate Hearing Date(s):February 25, 1988; February 26, 1988

Majority Report:  Do pass as amended.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bauer, Bluechel, Cantu, Deccio, Fleming, Gaspard, Johnson, Newhouse, Saling, Smith, Talmadge, Vognild, Williams, Wojahn, Zimmerman.

Senate Staff:William Bafus (786-7715)

                  February 29, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 26, 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 $2.475 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 $2.025 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 pay to the district that had its levy reduced an amount equal to that lost.  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 not reduced.  A city or town that has been annexed by a fire district or library district can forgo a portion of this payment under rules to be adopted by the Department of Revenue.

SUMMARY OF PROPOSED SENATE AMENDMENT:

The authority for taxing districts other than the state to contract with each other for services contingent upon property tax levy rates and to transfer funds among themselves to avoid reduction or elimination of levies is extended indefinitely.  A provision of existing law that protects the taxing base under the 106 percent limit of jurisdictions which forego or reduce levies under buy-down agreements is also extended.  An inconsistency in statutory language related to the status of property tax levies for conservation futures under the $9.15 per $1,000 of assessed value and the 1 percent of true and fair market value limits is eliminated.  The state school levy is, by explicit language, designated as superior to all other levies and not subject to proration. 

The "municipal buy-down account" is created in the state treasury.  It is initially funded by a $50,000 appropriation from the state general fund for the remainder of the current biennium.  It will also be funded via deposit of one half of the interest earnings from undistributed city and county sales and use tax collections.  Monies in this account will be used to buy down city/town property tax levies in situations where a breach of the overall property tax levy limit of $9.15 would otherwise occur, as described below.  Any monies in this account which are not required for this purpose will revert to the state general fund on May 1 and November 1 of each year.

In the event that a threatened breach in the $9.15 aggregate levy limit occurs in any city or town within a fifth through ninth class county, the following adjustment process is required:

      1.If the sum of the state school levy, the county general expense levy and the municipal levy exceeds $9.15, the municipal levy must be reduced by whatever amount is necessary to bring this sum within that limit.

      2.The State Treasurer will, upon direction of the Department of Revenue, pay to that municipality out of the municipal buy-down account the amount needed to replace the city/town property tax revenue lost because of the above.  If there are insufficient monies in that account to make such payments, the county in which the city or town is located must make up the difference.

      3.If, after the above, the sum of all taxing districts' regular levies exceed $9.15, junior district levies up through but not including the first priority levies of fire protection, hospital, library and metropolitan park districts are reduced or eliminated as provided for in current law.

      4.If, after all of the above, a breach of the $9.15 limit still exists, then the remaining levy of the taxing district (including affected cities or towns) with the smallest assessed value will be reduced or eliminated as needed to correct the problem.  If necessary, this process continues through taxing districts, in ascending order of assessed value, until the sum of all regular levies does not exceed $9.15.

      5.Those taxing districts not having their levies reduced will, on a prorated basis, pay to those districts whose levies have been reduced or eliminated the amount(s) of money required to cover their lost revenue.  A city or town annexed to a fire district or a library district or coterminous with a hospital district will forego a portion of this payment under a formula and rules to be adopted by the Department of Revenue.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: Mark Allen, Washington Library Association; Barbara Showalter, Hospital Association of Washington; Tom Dickerson, Timberland Regional Library; Peter Spiller, Washington Fire Commissioners' Association; Jim Metcalf, Washington Association of Counties