1. Flow of Funding Through Local Governments PWB Southwest Regional Academy November 28, 2012 Municipal Budgeting and Management August 16,2012

2. Highlights and Objectives How property taxes work How property taxes can increase when property values fall How property taxes increases or declining values can trigger prorationing How prorationing works Jurisdicitonal collaboration to avoid proratioining – Q & A

3. Property Tax Key Terms Assessed Value (AV): value of property determined by the County Assessor or State Department of Revenue, placed on the assessment rolls for property tax purposes. Assessment: charge against a property to defray the cost of a public improvement presumed to benefit that property. Levy: taxes, assessments and charges imposed to support governmental activities. Levy Rate: property taxes to be paid expressed in terms of dollars per $1,000 of assessed value (e.g. $1.80/$1,000 A.V.) Also known as “millage rate.”

4. Property Taxes Cities / counties have two main restrictions on property taxes: Levy rate and amount Levy Rate Restrictions Cities: Maximum regular rate is $3.375 / $1,000. Counties: Maximum regular rate is $1.80 / $1,000 (general use) and $2.25 (roads), not to exceed $4.05 / $1,000. RCW 84.52.043 (The state may impose up to $3.60 / $1,000. )

5. Property Taxes Cities / counties have two main restrictions on property taxes: Levy rate and amount Levy Amount Restrictions Often called the property tax lid, cities and counties may not increase their regular levies by more than one percent over the prior year. RCW 84.55.

6. Property Taxes After the one percent requirement is met, there are other limits on total levies: Other Levy Amount Restrictions The aggregate levies of all local jurisdictions may not exceed $5.90 / $1000. RCW 84.52.43 Property tax imposed on any individual parcel may not exceed one percent of its value.

7. Property Tax “Lid” Property tax levy is a function of the following formula: Assessed valuation/1,000 X tax rate = tax levy Tax levy increases are subject to limitations: 1% for jurisdictions under 10,000 in population 1% or implicit price deflator, whichever is less, for populations greater than 10,000

8. 2. A city, county, or state, also valued at $ 100k 1. One property, valued at $ 100k 3. C URRENT levy RATE : City: $ 3.375 (maximum) County: $1.80 (Maximum) State: $3.60 (Maximum) 4. Levy AMOUNT = $ 3.375 x $ 100k = $ 338 = Levy Amount 1997: Incorporation New levy RATE = $ 3.375 $100 K

9. 1997: Incorporation 9August 2012‹#›

10. 1998: 10% Increase in AV 10August 2012‹#›

11. 1999: New Construction 11August 2012‹#›

12. 2007:Banner Year 12August 2012‹#›

13. 2009: Crash 13August 2012‹#›

14. Over the Limit 14August 2012‹#›

15. Prorationing “Statutory process for reducing local regular property tax levies, other than the state levy for K-12 education, IF the aggregate of those levies exceeds either the aggregate $5.90 limit or the one per cent (1%) constitutional limit in a specific tax code area.”

16. Prorationing Key Terms Junior Taxing District: all taxing districts other than “senior taxing districts,” including: Fire, Hospital, Library and Metropolitan Parks Districts, and Regional Fire Protection Service Authorities. Senior Taxing Districts: S tate Schools, County, County Road District, City and Town. Tax Code Area: A geographical area made up of a unique mix one or more taxing districts established for property calculating and collecting property taxes.

17. Prorationing Pecking Order - $5.90 1 st Park & Rec Districts, Park & Rec Service Areas, Cultural, Arts, Stadiums & Convention Districts, City Transportation Authority 2 nd Flood Control Zone Districts (less $0.25) 3 rd Hospital Districts, MPDs (less $0.25), Cemetery Districts, all other districts not mentioned. 4 th MPDs formed on or after 1/1/2002 5 th Fire Districts (less $0.25), Regional Fire Protection Service Authorities 6 th Fire Districts, Regional Fire Protection Service Authorities, Library Districts, Hospital Districts, MPDs formed on or after 1/1/2002

18. Prorationing Pecking Order - $5.90 Last: County Current Expense, County Road, City Notes: Flood Control & Fire Districts are eligible to protect levies up $.025. Protected capacity is outside the $5.90 limit. There are population and boundary requirements. Levies not subject to the $5.90 limit are: State, Ports, PUD, EMS, Affordable Housing, Con Futures, County Ferry Districts, Criminal Justice, some MPDs, and voter approved levies such as excess property tax levies and local school special levies.

19. Prorationing: Example 1

20. Prorationing: Example 2

21. Prorationing:1% Constitutional Limit A 1972 constitutional amendment that limits regular property taxes on an individual parcel of property without voter approval to 1% of its true and fair market value. Includes all taxing districts subject to the $5.90 limit AND State School levy, EMS, Affordable Housing, Criminal Justice, Ferry Districts, MPDs and Con Futures. Does not apply to voter approved levies. Applies directly to taxes paid by individual property owners.

22. Prorationing:1% Constitutional Limit As with the $5.90 limitation, there is a priority order for prorationing based on the Constitutional Limit of 1%. 17 priorities are established in state law. They are not the same as the $5.90 priorities. See RCW 84.52.010

23. 1% Constitutional Limit: the Math Ask your County Assessor!! Scenarios are dependent upon: Specific properties and property values Taxing District rates within each Tax Code Area $5.90 proration calculations Voter approved levies Statutorily protected levies

24. Take-Aways Property values matter County-wide, District assessments Aggregate levies have limits: $5.90/$1,000 AV – (except protected) 1% true and fair District levies can be reduced as the result of actions taken by other Districts Some levies can be protected by voters Some levies are statutorily protected

25. Thank you! Questions? Discussion