House of Representatives
Office of Program Research
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.
Brief Description: Limiting property tax increases to one percent by reenacting the provisions of Initiative Measure No. 747.
Sponsors: Representatives Hurst, Roach, VanDeWege, Orcutt, McCoy, Ahern, Takko, McCune, Barlow, Ericksen, Kelley, Warnick, Rolfes, Hailey, Seaquist, Armstrong, Ericks, Kretz, Eddy, Rodne, Hunter, Strow, Quall, Haler, Sump, Chandler, Anderson, McDonald, Alexander, Bailey, Pearson, Newhouse, Kristiansen, Kessler, Morrell, Campbell, Blake, P. Sullivan, Hinkle and Lantz.
Brief Summary of Bill
Hearing Date: 2/20/07
Staff: Mark Matteson (786-7145).
Property Taxes - General Requirements and Limitations. The property tax is the oldest of taxes in Washington and is subject to a number of constitutional and statutory requirements. The State Constitution (Constitution) requires all property taxes to be applied "uniformly;" this has been interpreted to mean that within any given taxing district, the district rate applied to each parcel of taxable property must be the same.
The Constitution limits the sum of property tax rates to a maximum of 1 percent of true and fair value, or $10 per $1,000 of market value. Levies that are subject to the 1 percent rate limitation are known as "regular" levies, and there is no constitutional voting requirement for regular levies. The Constitution does provide a procedure for voter approval for tax rates that exceed the 1 percent limit. These taxes are called "excess" levies. The most common excess levies are maintenance and operation levies for school districts and bond retirement levies. The Constitution provides that excess levies must obtain a 60 percent majority vote plus meet a minimum voter turnout requirement.
A district's regular property tax levy is limited by a statutory maximum growth rate in the amount of tax revenue that may be collected from year to year. Most recently, this limit was modified by voter initiative in 2002 with the passage of Initiative 747 (I-747; see below). Generally, the limit requires a reduction of property tax rates as necessary to limit the growth in the total amount of property tax revenue received to the lesser of 1 percent or inflation. The revenue limitation does not apply to new value placed on tax rolls attributable to new construction, to improvements to existing property, to changes in state-assessed valuation, or to construction of certain wind turbines. In areas where property values have grown more rapidly than 1 percent per year the 101 percent revenue limit has caused district tax rates to decline below the maximum rate.
The revenue limit for regular property taxes may be superseded by voter approval; this process is known as a "lid lift." Lid lifts require approval by a majority of the voters in a taxing district, and allow the district to set its levy in an amount that exceeds 101 percent of the previous year's tax, as long as the resulting tax rate is within the statutory rate limit.
Constitutional requirements with respect to legislation. The Washington Constitution requires that, regarding legislation, bills contain only one subject, and that subject be contained in the title. The court has interpreted this requirement to mean that there must be rational unity between the subject matter within the measure and that the title adequately reflect the subject matter. The constitution also requires that current law may not be amended by reference, but rather legislation amending current law must set forth in full the provisions being amended. The primary purpose of this requirement is to inform the public and the legislature of the nature and effect of proposed changes and to avoid confusion from having disconnected sections scattered throughout the legal code.
Initiative 747 - events leading up to passage - recent court rulings. The provision of law that limits the amount of growth in regular property tax revenue has been modified several times in the last 10 years as a result of measures put to a public vote. In 1997, voters adopted Referendum 47 (R-47), establishing three limit factors. For districts with a population of less than 10,000, regular levy growth was limited to 106 percent. For districts adopting a limit based on a finding of substantial need, growth was limited to the lesser of 106 percent or the limit factor adopted. For all other districts, growth was limited to the lesser of 106 percent or inflation.
In November 2000, state voters approved initiative 722 (I-722), which among other things modified the property tax revenue limit factors established under R-47. The changes meant that, for districts with a population of less than 10,000, the limit factor was 102 percent; for districts adopting a limit based on a finding of substantial need: the lesser of 102 percent or the limit factor adopted; for all other districts: the lesser of 102 percent or inflation. That same month, however, the Thurston County Superior Court enjoined implementation of I-722. In February 2001, the Pierce County Superior Court invalidated the initiative under the title/subject rule. The state Supreme Court affirmed the superior court ruling in September 2001.
In January 2001, I-747 was filed. Under the initiative, the statutory changes under I-722 with respect to the 102 percent limitation were modified, providing instead a 101 percent limitation, unless approved otherwise by a public vote. In November 2001, I-747 was enacted by the voters.
In June 2006, the King County Superior Court invalidated I-747. The court ruled that the initiative violated constitutional requirements concerning amendment by reference. The court held that the persons voting on I-747 were led incorrectly to believe that they were voting to amend I-722 when, in fact, because I-722 had been struck down by the court, the voters were voting to amend R-47.
Summary of Bill:
The amendments to the limitation on regular property tax growth that were adopted by voters under I-747 are reenacted.
Fiscal Note: Available.
Effective Date: The bill contains an emergency clause and takes effect immediately.