By Melissa Santos

The News Tribune

County and city governments say they’ve struggled for years under a state law that restricts their property tax collections from growing more than 1 percent annually.

Now, they think might have a shot at lifting that property tax cap — largely because state lawmakers might need to do so for themselves.

To comply with a court order to fix how the state pays for schools, Republicans who lead the state Senate have proposed a new statewide property tax, which would replace property tax levies imposed by local school districts.

The plan aims to satisfy the requirements of the McCleary decision, in which the court ruled it unconstitutional for local school district levies to pay for basic education costs, such as teacher salaries.

But there’s a catch: In order for the proposed statewide tax to keep up with schools’ rising costs over time, it wouldn’t be subject to the same 1 percent limit on property tax growth that applies to cities and counties throughout the state.

“It’s not a big change, but it makes that (tax revenue) a little more stable,” said state Sen. John Braun, R-Centralia, the Senate’s lead budget writer and a chief architect of the tax plan favored by the Senate’s mostly GOP majority, which includes one conservative Democrat.

County officials say that approach isn’t fair, and are asking the Legislature to ease the limit for them as well.

Josh Weiss, lobbyist for the Washington State Association of Counties, said the 1 percent cap on property tax growth has left the state’s 39 counties unable to keep up with the rising costs of maintaining roads, hiring sheriff’s deputies and running county jails, among other responsibilities. About three-fourths of county budgets go toward public safety, according to the county association.

“To acknowledge it is a problem for your education funding plan, but not for public safety? It’s pretty frustrating,” Weiss said of the Senate tax plan.

While state law lets local governments increase their property tax collections by more than 1 percent annually with voter approval, Weiss said requiring local officials to go to the ballot box doesn’t give them the certainty they need to write their budgets.

The county association is supporting a plan in the state House to let local governments increase their property tax collections each year to match rates of inflation and population growth, or up to 5 percent annually, without a public vote.

The bipartisan measure, sponsored by state Rep. Kris Lytton, D-Anacortes, and state Rep. John Koster, R-Arlington, is scheduled for a hearing Friday in the House Finance Committee.

Lytton, the committee chairwoman, said she thinks it would be problematic for state lawmakers to get rid of the property tax cap for their education plan, but not do the same for county and city governments.

In the 1990s, counties and cities were able to increase their property tax collections by up to 6 percent a year without voter approval. Although county budgets also rely on other sources of money — such as government grants and sales taxes — property taxes make up the largest share of their revenues, Weiss said.

“We know that the 1 percent cap is really limiting what we can invest in infrastructure in our state,” Lytton said.

“I think this is the year that we are really going to have a discussion about correcting that, or setting it back right.”

How the cap works (or doesn’t, depending on who you ask)

Local officials say the 1 percent property tax cap is particularly problematic because it applies to the total amount of property tax revenues they can collect, rather than the overall tax rate they are allowed to impose.

That means that as property values rise, government officials have to cut their tax rate to ensure they don’t collect more than 1 percent more in property taxes than they did the previous year.

At the same time, counties estimate their costs automatically rise about 3 to 5 percent each year due to inflation and population growth.

“You’re going backwards — you can’t buy what you did the year before with that money,” said Pacific County Sheriff Scott Johnson. He said he’s looking at having to lay off deputies next year, and may have to start limiting which calls his remaining deputies respond to due to the county’s staffing woes.

While the cap doesn’t apply to taxes that counties and cities can collect on new construction projects, county officials say that revenue is not enough to sustain them long-term.

“It’s one-time money,” Weiss said.

In Lincoln County, the 1 percent cap means officials will be able to collect about $33,500 more in property taxes in 2017 than they did in 2016 — $20,000 from regular property taxes, and about $13,500 from new construction, said Scott Hutsell, one of the county’s commissioners.

But that combined amount isn’t even enough to cover the annual increase in the county’s risk and liability insurance premiums, which rose about $40,000 in 2017, Hutsell said.

With the 1 percent cap in place, Lincoln County’s property tax rate has declined from about $1.80 per 1,000 in assessed value a decade ago to about $1.37 per $1,000 today, he said.

Even in booming King County, the state’s tech-sector capital, officials want to see the cap lifted. King County officials say they’ve had to cut more than 60 positions from the county prosecutor’s office since 2009, mainly because the county’s revenues can’t keep up with rising costs.

Thurston County officials have a similar story: The county prosecutor’s office is still reeling from cutting 10 positions at the start of the economic recession, and hasn’t been able to recover, said Thurston County Prosecutor Jon Tunheim.

As the county’s population has continued to grow, some deputy prosecutors are handling twice as many felony cases as was previously considered manageable, he said — something he attributes largely to the 1 percent property tax cap.

“It’s a fundamental funding flaw that is going to always be there unless it is corrected,” Tunheim said.

Pierce County Council members haven’t taken a position on lifting the cap. Due to revenues from new construction, Pierce County’s property tax revenues have risen more than 2 percent each of the past two years, even with the cap in place, according to the county assessor’s office.

“At this particular juncture, I don’t believe the council thinks we have reached some crisis point where that needs to be done,” said County Council Chairman Doug Richardson, R-Lakewood, of easing the 1 percent cap.

Richardson noted that under current law, county officials can always try to make their case to voters if they think they need more revenue.

Opposition already building

Any attempt to lift the 1 percent property tax cap is bound to face opposition from anti-tax activist Tim Eyman, who sponsored Initiative 747, the 2001 citizen initiative that originally put the cap in place.

“I always say, if you want to succeed at getting rid of the 1 percent limit, we would just come back the next year with an initiative that makes you pine for the days of the 1 percent limit,” Eyman said.

Already this year, Eyman has filed an initiative that would cut property taxes by 25 percent in 2018, except for voter-approved levies such as those for fire districts and schools. The proposal, Initiative 1550, needs nearly 260,000 signatures to get on the ballot in November.

I-747 was Eyman’s attempt to replace one of his previous tax-limiting proposals, Initiative 722, after it was challenged in court. That 2000 ballot measure capped property tax increases at 2 percent a year, but was struck down as unconstitutional in early 2001.

Six years later, the state Supreme Court also threw out I-747, prompting then-Gov. Chris Gregoire to call a November 2007 special session in which lawmakers reinstated the 1 percent property tax cap.

Eyman said he doesn’t take issue with Senate Republicans’ school-funding plan that would avoid applying the 1 percent limit to their new property tax, because that plan would be sent to voters for final approval.

While some Republicans have co-sponsored the House legislation to lift the cap, leaders of the mostly Republican Senate majority have been less enthused.

Braun said recently that the issue wasn’t his top priority, while Senate Majority Leader Mark Schoesler, R-Ritzville, said he is “very reluctant” to approve anything that would raise property taxes.

State Rep. Ed Orcutt, R-Kalama, said with all of the money some local governments are getting in revenue from new construction and sales taxes, “it’s kind of hard to feel sorry for those counties and cities.”

“There are other revenue sources they are getting, and even with the 1 percent limit, they are still seeing 2 to 3 percent growth on a regular basis in their property tax collections,” said Orcutt, who pushed to reinstitute the 1 percent cap a decade ago after the court struck it down.

He said local governments shouldn’t have problems getting voter approval to raise their levy lids if they have a strong case for why they need the extra money.

“They have the option of going to voters, but they need to make the case to the voters,” Orcutt said. “And I don’t see why that is such a hard thing.”