How our local taxes really work


It’s property assessment time and reading some of the comments people make show that the property tax system is not well understood.  I know I didn’t understand it until I needed to for my time on the city council, and it took a concerted effort to find out how it actually works.  After recently reading up on it I’m still not completely sure I’ve got everything right about every taxing district as each has a different, and sometimes confusing, way of explaining what they are doing. 

One thing that is clear, though, is that there is one major misunderstanding; people believe that when the assessments go up the cities get more money.  That truly isn’t how it works; the amount of money the municipalities collect isn’t a function of the assessments, they don’t collect more simply because values go up.   The cities tell the assessor in dollars how much money to collect; they don’t set the rates (dollars collected per $1,000 assessed value). The assessor takes the amount of money they are told to collect, divides the city’s total assessed value by that amount to come up with the rate.  When the new valuations come out and increase significantly like this year, the rate goes down because the amount collected is a fixed amount.  Thus all the assessments do is divide up the pie, they don’t increase the amount that gets collected. See chart, above.

The one percent limit

There are some other pieces to this puzzle as well.  Washington passed an initiative limiting the annual increase in property taxes to 1% (it was 6% before the initiative) although there is an option for larger increases if the voters are asked and approve.  Thus the municipalities can only collect 1% more from the properties taxed in the previous tax year.  This 1% limit applies to libraries and the port as well.  Again, that limit is in dollars, not the tax rate.  Every year new construction is initially taxed at the current rate. These properties are then added into the mix increasing the overall assessed value, increasing the size of the tax base. Plus there are additional rules on precisely how they are added and taxed. 

The school levies are done the same way.  The school district will request a dollar amount to be collected and then the rate is set based upon assessed values.   There are state-mandated limits to the rate that the schools can use for the operations levy, as well as separate limits for the other taxing districts like the library, plus we also vote for separate construction and technology levies.  These amounts can be in addition to the operations money. 

It is admittedly a confusing system.  There are other items the taxing districts, including the port and library, have to consider as well.  For instance, the allowable 1% increase can be reduced if the national “Implicit Price Deflator”, a measure of inflation, is less than one percent.  Conversely, if a municipality doesn’t increase their collections by the allowed one percent then they can “bank” or save that taxing capacity for future use. 

The question still comes down to what we want as citizens from our government. 

Demands are greater than ever

There are greater demands on local governments than ever.  Just consider the homeless crisis.  Olympia has spent millions of dollars to address everything from sanitation to mental health, from public safety to housing, and is limited by any number of laws for what their options are.  The same goes for the county.  These budget expenses previously didn’t even exist.  And if we want the jurisdictions to spend less, what do we ask them to stop doing?   Fewer parks?  Less road maintenance?  Larger class sizes? Fewer social services?  Less public safety and police?  Fewer library books and hours? 

Admittedly the way we fund government is complicated and certainly can be confusing.   There are limits, multiple constituencies, an onslaught of demands, and no simple solutions. It’s safe to say any one of us would make different budget decisions in some cases, but such is the nature of the system.  I remember thinking while on the council that no one will agree with me on all my votes, and looking back in hindsight I’ve had my own doubts at times about what was the right thing to do.

Bottom line:  This is the funding system we’ve all developed over time.  And if we want to change anything, from how we collect to how we spend, the first step is understanding the system so we have a starting point to discuss what should be done. 

P.S.  If you think any of this information is incorrect please let me know. I’d certainly like to know, and accuracy is what good writing is all about.

Pat Cole  - - is a former member of Olympia's city council. As a private citizen, he seeks to set a positive tone and lead informed discussion about local civic issues. 


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