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Home / Legislative Action Center / Issues - Budget & Taxes / Policy and Politics: Property tax reform takes more than a day |
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Policy and Politics: Property tax reform takes more than a day |
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Written On: January/February 2008 |
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Written By: Richard S. Davis, VP Communications |
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When lawmakers met last November to put the lid on property taxes, they uncorked plenty of bottled-up property tax reforms. The legislative blitz following the state Supreme Court’s jettisoning of I-747 launched more debate than it stopped.
While it may be difficult for legislators to line up behind a comprehensive tax package in a 60-day election-year session, the pressure to act will be intense.
Here's what may be ahead.
Unfinished business
After replacing the I-747 tax cap, lawmakers set up a new tax deferral program. As it turns out, these two quick fixes were more "quick" than "fix."
Restoring I-747 came with a wrinkle called "banked capacity," the difference between a government's maximum taxing authority and what it actually levies. Governments can tap into this banked capacity to raise revenues above the limit without a public vote. Lawmakers took away the capacity created when the justices jettisoned I-747, but did nothing to eliminate capacity built up before voters adopted the initiative.
Many conservatives want all banked capacity repealed. They'll make another run at it in 2008.
If that's not enough tax arcana, the tax deferral program induces its own peculiar policy hangover.
The program allows homeowners earning up to $57,000 to defer half their annual property tax bill until their homes are sold. The state makes up the money lost by local governments and collects interest on the deferred taxes. Republicans opposed the measure, citing a high initial interest rate of 7 percent. And many Democrats wonder whether the program will ultimately do anyone much good. It's slated for reconsideration in 2008, as well.
Watch out for the split roll
With taxes back on the agenda, some perennial ideas for a classified — or split-roll — property tax system may gain new life in January. Any split-roll system ultimately shifts a disproportionate share of the property tax burden onto business.
In a February 2007 analysis, the Washington Research Council said, "When homeowner relief takes the form of new or expanded exemptions for residential property … the end result is higher property taxes for business." Business taxes here are among the highest in the nation, while the overall property tax burden, according to the WRC, ranks 22nd in taxes per person and 29th when taxes are measured as a share of the state economy.
Moreover, Washington's constitutional requirement for uniformity protects all taxpayers by treating all property owners equally. It's fundamentally fair and economically neutral. It doesn't skew tax burdens to favor or punish any group of taxpayers. For businesses looking for long-term tax stability, property tax uniformity represents one of our state's major competitiveness strengths.
The tax-deferral program enacted in the special session sends a strong message that state lawmakers want to direct tax benefits to homeowners. Next session, we may see a more direct effort to create a split roll. Legislators have already drafted proposals for property tax "circuit breakers" and "homestead credits." Such plans violate uniformity and would require a constitutional amendment.
AWB has better ideas
Within our fundamentally sound property tax system, lawmakers can deliver meaningful relief. AWB and other business groups endorse several simple reforms that would provide immediate benefits.
Legislators should require annual assessments of real property, which would better reflect the constitutional requirement that all property be assessed at fair market value. As important, a system of annual appraisals would assure that the tax burden is distributed fairly within a jurisdiction and avoid the sharp tax increases that often occur when property adjustments occur less frequently.
Continuing the appraisal theme, AWB supports legislation giving taxpayers a fair shake when they challenge their property assessments. Currently, Washington law presumes the value assigned by the assessor is correct and requires taxpayers to present "clear, cogent, and convincing evidence" to the contrary, one of the highest burden-of-proof standards in the country. AWB proposes that the state adopt the more common "preponderance-of-evidence" standard.
To control the tax burden, lawmakers should correct a glitch in legislation passed last session and specify that levy lifts — increases in the regular levy approved by voters — should always be temporary. Requests to the voters should clearly set out how long the lift will be in effect and for what purpose.
Bottom line
We have a good property tax system. Legislation that splits the tax roll to provide benefits to one class of taxpayers at the expense of another undermines basic principles of equity and transparency. AWB will continue to support uniformity. We will also support efforts to control the rising property tax burden, help taxpayers resolve their assessment hassles, and provide better information to voters.
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