Background: All property is subject to a yearly tax based on the highest and best use, unless a specific exemption is provided by law. The Washington Constitution limits regular property tax levies (regular levies) to a maximum of 1 percent of the property's value—$10 per $1,000 of assessed value. The annual growth of regular levy revenue collected by a taxing district is limited to the lesser of inflation or 1 percent, plus the value of new construction. The inflationary factor currently used to calculate the revenue growth limit is the Implicit Price Deflator for personal consumption (IPD). The IPD looks at the most recent 12 month period before taxes are payable.

Inflation. Inflation is the process of continuously rising prices, or equivalently, of the continuously falling value of currency. Various indexes reflect different aspects of inflation. Two commonly used indexes are the IPD and the Consumer Price Index for all urban consumers (CPI-U).

IPD is calculated by the Bureau of Economic Analysis (BEA) of the United States Department of Commerce. Current personal consumption is measured in today's prices and is compared to current personal consumption at prices from a base year.

CPI-U is calculated by the Bureau of Labor Statistics (BLS) of the United States Department of Labor. The CPI-U compares prices paid by urban consumers for a fixed basket of goods and services over time. Urban consumers are all persons living in densely developed territories with at least 2500 inhabitants.

In addition to the national CPI-U metric, the BLS also publishes indexes by region. The Western Region includes Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

The Economic and Revenue Forecast Council publishes quarterly forecasts for national IPD and CPI-U, which is used to approximate the CPI-U for the Western region. The annual IPD growth rate is projected as follows:

1.8 percent for calendar years 2017 through 2019;
1.9 percent for 2020; and
2 percent for 2021.

The annual CPI-U growth rate is projected to be:

2.4 percent for calendar year 2017;
2.1 percent for 2018;
2.0 percent for 2019;
2.3 percent for 2020; and
2.2 percent for 2021.

Population Change. The Office of Financial Management (OFM) annually determines the population of all counties, cities, towns and the state as of April 1. The OFM forecast for state population growth is:

1.6 percent in calendar year 2017;
1.5 percent in 2018;
1.4 percent in 2019;
1.2 percent in 2020; and
1.0 percent in 2021.

Summary of Bill: The regular levy revenue growth limit is changed to the greater of 101 percent or 100 percent plus population change and inflation, up to 105 percent.

Inflation is defined as the annual percentage increase in the CPI-U in the Western Region.

Population change is defined as the percent increase in population of a taxing district between the two most recent years. Population information is provided by OFM's official population estimates. The annual percent increase in population is calculated to the nearest tenth of 1 percent. If OFM estimates a net decrease in the taxing district's population, the population change will be zero.

The provision that allows taxing districts to impose a levy of 1 percent upon a finding of substantial need when inflation is lower than 1 percent is repealed.

The bill applies to taxes levied for collection in 2018 and thereafter.

Staff Summary of Public Testimony: PRO: If this cap had not been in place and we were back at $3.60, the states would be producing over $3 billion dedicated to schools, and that's by all accounts roughly the amount we're supposed to be providing for teacher compensation. The cap is leading us into a constitutional crisis. Every year that goes by, this problem gets worse because population grows and inflation exceeds the 1 percent cap. There are lots of other levies passed for specialty items—families in education levy, veterans levy, housing levy, seawall levy, while our state property tax has decreased from $3.60 to $1.80. Voters rush in to use property taxes to fund a host of other things that are not our paramount duty. We have less control over making sure that property taxes go to the things that we need. This bill does not call for a vote of the people. The state has acknowledged that the counties have had a budget problem since 1988. This is a structural problem. The rate of county growth exceeds the rate of levy growth. We've seen a reduction in county officers, sheriffs, and correctional officers; bridges crumbling; and counties without 24-hour law enforcement coverage. This is not an automatic increase in taxes. It is expensive to put levy lifts on the ballots; it can exceed the cost of adding firefighters.

CON: This cap is proven and effective. Every argument being made today was made in the campaign against the original cap. Voters rejected the argument then. A democratic Legislature implemented the cap. When voters legislate, we need to respect their will. If governments want more, they just have to ask the voter's permission. If you take away the 1 percent cap, property taxes will skyrocket like they did in the 1990s.

OTHER: This bill reaffirms wisdom of a property tax limit factor, albeit a higher one. Counties do need to be adequately funded. The bill changes the existing formula so today’s maximum of 1 percent becomes tomorrow’s minimum. The obvious concern is that this would raise property taxes and would add to the cumulative load carried by businesses. Businesses currently cover 58 percent of local and state taxes. These include B&O, sales, property, and various employer taxes. We want to make sure that Washington remains competitive. We fully agree that counties should be adequately funded, and we should look at existing priorities, options, and cost drivers as previously discussed.

Persons Testifying: PRO: Senator Jamie Pedersen, Prime Sponsor; Tammie Ownbey, President of WACO; Elected Clerk of Pend Oreille County; Chris Wiese, Spokane County Sheriff's Dept.; Josh Weiss, Washington State Association of Counties; Paul Jewell, Kittitas County Commissioner; Dave Sauter, Klickitat County Commissioner; Scott Hutsell, Lincoln County Commissioner; Rob Gelder, Kitsap County Commissioner; John Gese, Kitsap County Sheriff's Office; Tina Robinson, Kitsap County Prosecutor; Greg Banks, Island County Prosecutor; Mark Howie, Wahkiakum County Sheriff; Laura Inveen, Presiding Judge, King County Superior Court; Scott Johnson, Pacific County Sheriff; Lisa Ayers, Pacific County Commissioner; Chris Roberts, Mayor, City of Shoreline; Toby Nixon, Kirkland City Council; Catherine Stanford, City of Lake Forest Park; Bud Backer, East Pierce County Fire District; Steve Brooks, Lacey Fire District 3; Jerry Phillips, Mayor, Long Beach WA; Jim Heishman, Pierce County; Jenna McDonald, Town of Rosalia; Shelly OQuinn, Spokane County Commissioner. CON: Tim Eyman, citizen. OTHER: Eric Lohnes, Association of Washington Business.