Q&A | Restoring tax cap at heart of today's special session

OLYMPIA — It's a near certainty Washington will have a 1 percent cap on property-tax increases reinstated before the day is over.

Gov. Christine Gregoire called a special session for today to do just that. And both Democratic and Republican leaders vowed to make the fix after the tax cap was tossed out by the state Supreme Court earlier this month.

State lawmakers are in a rush because some local governments are moving to take advantage of the court ruling to sharply increase taxes.

Plus, the 2008 elections are looming. Democrats, who control large majorities in the state House and Senate, don't want to hand Republicans ammunition for the upcoming campaigns.

"We have to step up," Gregoire said this week. "I think the people of Washington state made it clear when they passed the initiative what they wanted, and they wanted the cap."

Voters in 2001 overwhelmingly approved Initiative 747, a Tim Eyman-sponsored measure that limited increases in property-tax collections to 1 percent a year. The state estimates the cap has saved taxpayers more than $1.6 billion since it was put in place.

Earlier this month, the state Supreme Court overturned I-747. In its 5-4 decision, the court said the tax cap is invalid because people were not fully informed about what they were voting on.

Without a new cap, local governments could begin increasing their property-tax collections by as much as 6 percent a year — the amount the law allowed before I-747.

To understand what's at stake in today's special session, here are some key questions and answers.

Q: How does the 1 percent cap work?

A: I-747 limited increases in regular property-tax collections on existing properties to 1 percent a year. The cap excludes voter-approved levies, new construction and building improvements. Also, the limit is on total tax collections by each taxing district.

Individual homeowners may see their tax bills go up more than 1 percent, depending on a variety of factors. If the value of your property grows faster than the average for a particular taxing district, for example, your tax bill will grow faster than the average.

Q: What would happen if the Legislature does not reinstate the 1 percent cap?

A: When the state Supreme Court threw out I-747, state law reverted back to Referendum 47, which was approved by voters in 1997. That law allowed property-tax increases of up to 6 percent, if approved by the taxing district's governing board.

Q: Are property taxes higher here than in other states?

A: When measured against personal incomes, we pay a little below the average, according to data from the U.S. Census Bureau. In fiscal year 2005, Washington residents on average paid $30.60 per $1,000 of income — the 28th-highest rate in the nation. The national average was $34.55.

Q: What do property taxes pay for in Washington?

A: The taxes help pay for a variety of government services, including public schools, city and county government, emergency medical services and fire departments. In 2007, taxpayers paid a total of $7.7 billion in property taxes to local governments, state government and school districts. About $4.2 billion, or more than 54 percent of all state and local property-tax revenues, support public schools.

Q: How fast have property taxes been growing?

A: This may get confusing. Property-tax rates have declined, but total collections have increased.

Here's why: Property values have rapidly increased in recent years. To comply with I-747's cap, taxing districts have had to reduce their tax rates. Otherwise the increased value of homes would result in total tax collections growing faster than 1 percent a year.

Still, the rising value of homes and new construction have increased the amount of revenue that taxing districts collect. Tax collections on new construction are excluded from the cap.

Statewide, the average property-tax rate per $1,000 in property value has declined steadily since I-747 passed — from $12.52 in 2002 to $10.48 last year. The average rate fell in every county except one, Grays Harbor.

But during that same period, total assessed property values statewide grew an average of 9 percent a year.

Overall, property-tax collections, including both state and local levies, have more than doubled in the past 15 years — from about $3.5 billion in fiscal year 1993 to $7.7 billion in 2007. During the most recent five years, total property-tax collections statewide grew on average more than 5 percent per year.

Q: Wait a minute. I thought there was a 1 percent cap. What gives?

A: Remember, I-747's 1 percent cap does not apply to voter-approved increases or to taxes collected on new construction. So if your tax bill goes up, it is often because voters gave the OK. In fact, more than a third of the total property-tax collections statewide last year were voter-approved.

Q: So, did we save any money by passing I-747?

A: Yes. Based on rate increases that taxing districts were imposing before I-747, the state Department of Revenue has estimated that, under the 1 percent cap, taxpayers statewide saved about $1.6 billion from 2002 to 2007. Nearly $740 million of that estimated savings came in King County alone.

Q: What's all this talk about "banked capacity"?

A: Cities, counties and other local taxing districts are allowed to stockpile taxing authority over time. In other words, under state law, if a local taxing district does not increase property taxes by the full amount allowed in a given year, it can "bank" that leftover taxing authority. In the six years that I-747 was in place, 1 percent was the most that a taxing district could bank per year.

In many cases, however, local taxing districts had built up years worth of taxing authority before I-747 became law. Even if I-747 is reinstated, some taxing districts could increase tax collections by more than 1 percent — and in a few cases, more than 30 percent — using their banked capacity.

While I-747 did not address banked capacity, Eyman and many Republicans are urging Gregoire and the Legislature to eliminate or sharply limit districts' authority to use banked capacity.

Q: Are school districts subject to the 1 percent cap?

A: No. They have their own cap. Most local school districts, with voter approval, can increase levies to an amount equal to 24 percent of revenues received from state and federal sources.

Q: Are some local governments more dependent on property taxes than others?

A: Absolutely. For instance, King County gets a little more than 45 percent of its revenue through property taxes. Most rural counties, on the other hand, rely on property taxes for more than 60 percent — and in a few cases more than 80 percent — of their revenue. Likewise, some cities are far more dependent on property taxes than others.

Q: What's this property-tax deferral the governor is talking about?

A: Gregoire outlined a proposal earlier this week that would let homeowners earning up to $57,000 a year defer a portion of their annual property-tax bill, with some restrictions. However, homeowners would have to repay the deferred tax when they sell their home, with interest. Gregoire estimated the current interest rate would be 7 percent. The legislation will be considered during today's special session.

Andrew Garber: agarber@seattletimes.com or 360-236-8268. Ralph Thomas: rthomas@seattletimes.com or 360-236-8266.