Washington State Tax Tsunami – Updated October 29th

Hold onto your hats…and checkbooks and get ready to raid your savings account! The Washington State taxman cometh….

One revision to this article. The Clark County Assessors Office has revised their estimate of the new State School Property Tax Rate. They had told us it would likely be $2.84/$1000. The latest information is that it will be around $2.90/$1000. So, when you review the original report below the actual taxes will likely be HIGHER than noted. 

The story we are about to tell is complicated and has a few twists so it’s going to be hard to make it simple…but we’re going to give it a try.

In January 2014 the Washington State Supreme Court found that the State of Washington had “failed” in its paramount duty to fully fund K-12 education. The Legislature started increasing funding. The Washington Policy Center does a good job of providing the details in this link: https://www.washingtonpolicy.org/publications/detail/overview-of-the-mccleary-decision-on-public-education-funding-and-reform 

Fast forward to 2017. After deciding to increase funding the Legislature chose to reduce the local funds that can be raised in Levy’s and shift that fund-raising to the State.  To do that they voted to increase the State school property tax from it’s $1.98 per $1000 of assessed value to a target of $2.70 per $1000 of assessed value. Unfortunately that target may differ depending on a formula used by county assessors. In the case of Clark County that $2.70 is likely going to be $2.84.

Why $2.84? The State Department of Revenue (DOR) has a formula to equalize taxes across the state for those counties where the assessment ratio is lower. Clark County has an Assessed Value to Sales Price ratio of .95. That means that we must take the $2.70 and divide by .95 = $2.84.

Going from $1.98 to $2.84 = an increase of $.86 per $1000 or 43.4%. Later in this article we’ll provide specific details for all school districts in Southwest Washington.

Part of the change is a limitation on local school levy’s that won’t take full effect until 2019. At that point the maximum local levy will be $1.50 per $1000. In every school district that will be lower than the current levy rate.

To be clear we are ONLY looking at the State and local levy property taxes…all other taxes are on TOP of these!

Property value in Clark County have increased by ~10% per year for the last 2 years and appear to be on track for another 10% increase in the next year. What does that mean? If your home was valued at $250,000 in 2016 it will be assessed at $275,000 in 2017. In 2018 that becomes $302,500. If it continues into 2019 your home would be assessed at $332,750. Let’s translate that to JUST the State school property tax going from $1.98/$1000 to $2.84/$1000:

$250,000 at $1.98 = $495  $250,000 at $2.84 = $710

$275,000 at $1.98 = $545  $275,000 at $2.84 = $781

$302,500 at $1.98 = $599  $302,500 at $2.84 = $859

$332,750 at $1.98 = $659  $332,750 at $2.84 = $945

What if your home starts out at a higher value? Let’s take a step up the value curve at $500,000 with 10% annual assessment increases like we did with the $250k property:

$500,000 at $1.98 = $990    $500,000 at $2.84 = $1420

$550,000 at $1.98 = $1089  $550,000 at $2.84 = $1562

$605,000 at $1.98 = $1198  $605,000 at $2.84 = $1718

$665,500 at $1.98 = $1318  $665,500 at $2.84 = $1890

You may be wondering what the price/value distribution of homes in Clark County was in 2016. Click the link to open the Multiple Listing Service Sales Report Clark County pricerange 2016

On the surface you are probably not liking this but there is another twist…local levy’s are currently in place. Every 3 or 4 years your local school board comes to you, the voters, and asks for money to pay for Maintenance and Operations (M&O). Most of this money is currently used to pay for extra people (teachers and support staff) that the State does NOT pay for. The current local levy rates will stay in place until the 2019/2020 time period. What does that mean? It means that you will pay MORE taxes for the next ~2 years until the levy rate drops to a maximum of $1.50/$1000. At the end of this article we’ll show you the school districts in Southwest Washington so you can see the near and longer term impacts…but wait…

So the local levy dropping to $1.50/$1000 is good…right? We’ll the first implication is concerning. The $1.50 can ONLY be used for “enrichment” programs. What’s an “enrichment” you ask? Here is an excerpt from an analysis of the legislation that changed the funding formula:

Enrichment Limitations. Beginning with the 2019-20 school year, districts may spend enrichment levies (including transportation vehicle enrichment levies), LEA, and other local revenues only for documented and demonstrated enrichment of the state’s program of basic education. To constitute enrichment, a school district expenditure must supplement state minimum instructional offerings, staffing ratios, program components, or professional learning allocations. Permitted forms of enrichment consist of extracurricular activities, extended school days or school years, additional course offerings, early learning, administration of enrichment activities, and additional activities approved by the SPI through the pre-ballot review process.

The SPI may report to the Legislature on expanding the list of specifically permitted enrichment activities. Beginning with enrichment levies for collection in calendar year 2020, a district must receive approval by the SPI of an enrichment expenditure plan before it may submit an enrichment levy proposition to the voters. Processes are established for the SPI pre-ballot review of proposed enrichment expenditures, including limitations on changes to pre-approved uses.

If you ask what “enrichment” really means…it’s not clear. What is clear is that the State Superintendent of Instruction (Chris Reykdahl) will have the authority to approve or deny the proposed use of these funds by all school districts. If he doesn’t like the plan he can say no. That means that what little local control that was left…is gone!

On top of this increase in property taxes you will of course pay for local school levy’s; fire districts and other taxes. School taxes have averaged around 60% of all property taxes in the past.

What are the implications of the property tax increase?

1. In the 2017/2018 tax year ALL property owners will see MAJOR tax increases – to the extent that your escrow account may NOT have enough money in it to pay your taxes in April 2018. That could mean that your mortgage company may come to you and ask for a check to pay your property taxes. Do you have money set aside?
2. Starting in the 2019/2020 time frame there is a planned reduction in your property taxes for schools (if it happens) – but – your escrow account will have been increased to pay for the new higher taxes so your house payment will NOT go down for at least another year…at which point you may have extra money in your escrow account.
3. By shifting from local levy funding to State funding very rich areas (Seattle area as one example) will pay DRAMATICALLY HIGHER taxes with some of that money being shifted to lower valued areas (Southwest Washington)
4. Loss of local levy funding means less local control with the State telling districts what to do…or else
5. OSPI (State Superintendent) will have the approval/denial of your $1.50/$1000 fund usage
6. Because local school districts have been using levy money to pay extra personnel…that changes with the new structure. It’s possible that districts may need to let people go because they will not longer be able to pay them

Now it’s time to lay out the impact on school taxes (remember you pay lots of other taxes on top of this) for 2017; 2018 and 2019 based on data from the Clark County Assessor’s Office. These are only estimates but they are a close to accurate as is possible at this time.

First document: Clark County Assessor’s Impact Flyer: Clark_County_Assessor_Tax_Impact_Flyer_2017

Second document: 2016/2017 Maintenance and Operations (M&O) rate table from the Assessors Office: 2016_M&O_Rates_ClarkCounty_WA

Third document: School District tax projections for 2017; 2018 and 2019: ClarkCounty_SchoolDistrict_SchoolTaxProjections_2017-2019

Takeaways:

• Taxpayers in the Battle Ground SD are going to be especially hard hit by increased taxes. The most recent levy has a 16% increase in the first year. Couple this with the higher State school tax rate and it’s going to hit some families VERY hard
• Some districts will see relief after 2 years while some will not
• Capital Bond requests may be viewed with a more critical eye. Battle Ground may ask for a series of three (3) $80 million bonds (which failed in November 2016). Evergreen is reported to be going to ask for a new $600 million bond. [Note: Feb 13, 2018 will have a ballot measure asking for ~$225 million for new schools and updates]
• As assessed values continue to increase the taxes will rise
• When the real estate market turns down (it always goes in cycles) the dependency on property taxes for schools means funding will drop and the Legislature will need to find new ways to tax…so don’t expect any relief in the future.

If you don’t like what you see contact your local House or Senate Rep. The County Assessor has NO control…they only collect the taxes the Legislature demands. Ask your rep what’s going on and why County Assessor’s were never consulted.