SENATE BILL REPORT

SSB 6430

BYSenate Committee on Ways and Means (originally sponsored by Senators McDonald, Gaspard and Patterson)

Revising provisions on property taxes.

Senate Committee on Ways & Means

Senate Hearing Date(s):February 1, 1988

Majority Report:  That Substitute Senate Bill No. 6430 be substituted therefor, and the substitute bill do pass.

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

Senate Staff:William Bafus (786-7437)

                  February 17, 1988

AS PASSED SENATE, FEBRUARY 16, 1988

BACKGROUND:

Law generally limits the sum of the regular property tax levies of all taxing districts to $9.15 per $1,000 of assessed value.  Within this overall limit, counties are generally limited to levying up to $1.80 per $1,000 of assessed value for general operation purposes and up to $2.25 of assessed value for road construction, enhancement and maintenance, and traffic safety law enforcement.  General expense levies are collected in both the incorporated and unincorporated areas of a county.  Road levies are imposed only in unincorporated areas.  Counties of the fifth class and below (those with populations less than 18,000) are authorized to increase their general expense levies up to a maximum of $2.475 per $1,000 of assessed value (subject to the 106 percent annual and 1 percent constitutional limits) if they reduce their road levies by whatever amount may be needed to insure that the sum of the two does not exceed $4.05.

The exercise of this special authority by a county of the fifth class or below can lead to a situation in cities and towns within such counties where the sum of all regular levies (state school, county general expense, city and junior taxing districts) exceeds $9.15 per $1,000 of assessed value.  The first result of this would be reduction or elimination of junior taxing district (libraries, fire districts, hospital districts, etc.) levies as provided for in current law.  If this is not sufficient to reduce the sum of all remaining levies to $9.15, then -- presumably -- the levies of the state for common schools, the county and the city would have to be ratably reduced.  In view of the requirements for equal application of a tax to all taxpayers of the same class, this means that the state school levy would have to be reduced statewide by the same amount that it is reduced within the particular city or town in which this proration occurs.

Current law also authorizes taxing districts other than the state to transfer funds among themselves for the purpose of reducing or eliminating levies that the receiving districts would otherwise impose in order to reduce or avoid proration of the levies of the paying districts.  This authority has been used in two instances in the recent past in order to avoid statewide reduction of the state school levy.  However, the authority for such intergovernmental fund transfers is due to expire on December 31, 1988.

SUMMARY:

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 reduce or forego 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 with 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 of 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 the state school levy, the county general expense levy, the municipal levy as adjusted by the preceding buydown, and the first- priority levies of fire protection districts, hospital districts, library districts and metropolitan park districts coexistent with that city or town exceeds $9.15, the municipal levy will be further reduced by the amount necessary to bring the combination of these levies within the $9.15 limit.

      4.These junior taxing districts will pay, on a prorated basis, to the city or town the amount of money needed to compensate for this further loss of municipal property tax revenue.

      5.If the sum of all applicable taxing district levies still exceeds $9.15 per $1,000 of assessed value, the levies of junior taxing districts will be reduced or eliminated as required in existing law.

Appropriation:    $50,000

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: Jim Metcalf, Washington Association of Counties; Mark Allen, Washington Library Association; Stan Finkelstein, Association of Washington Cities