Washington Legislature Reinstates Property Tax Cap in Special Session

Published February 1, 2008

A tax earthquake with the potential to reshape the 2008 general election has shaken Washington State.

The state supreme court on November 8 overturned a ballot measure (I-747) adopted by 58 percent of the voters in 2001 that limited property tax increases to 1 percent per year.

Within hours of the ruling, demands for a special legislative session arose. Dino Rossi, a Republican challenging Gov. Christine Gregoire (D) in 2008, called on her to call a special session immediately to restore the 1 percent property tax cap.

“If Christine Gregoire is serious about providing property tax relief and reinstating the will of the people, then she will act now to cap property tax increases at 1 percent,” said Rossi in a statement. “This cannot wait until January. Homeowners are threatened with a huge tax hike, and local governments and tax districts now have the ability to retroactively tax up to the 6 percent limit. … It is time for Gregoire to turn her words into action and call a one-day session to protect the will of the taxpayers.”

Gregoire eventually did call the special session, and lawmakers overwhelmingly reinstated the tax cap.

Governor Wanted to Wait

The governor initially wanted to wait until January, when the legislature would be in regular session, to address the court ruling, provided local governments didn’t rush to raise taxes.

“I plan to push for legislation that establishes a 1 percent cap on annual property tax increases. I am already in discussions with legislative leaders on the best next steps to make sure we can implement this correctly,” Gregoire said. “I am urging local leaders and taxing districts to not increase their tax levies, based on the court decision, to give the legislature time to act. The voters approved Initiative 747, it has been in place for five years, and I think we need to leave it in place.”

Cities Rush Tax Hikes

Despite the governor’s request, some cities rushed to raise property taxes before the legislature could meet. That resulted in a one-day special session on November 29 to reinstate the provisions of I-747 and the 1 percent property tax cap.

Despite the objections of some Democrats that the legislature should not adopt such a “draconian” property tax cap, the proposal was overwhelmingly approved, 86-8 in the House and 39-9 in the Senate.

“I have traveled the state and heard from citizens worried about losing their homes because their property taxes are high due to skyrocketing property values. It is a very real concern for people who have worked their entire lives to pay for their home and now fear losing it,” said Gregoire. “That’s why I am pleased that the Legislature acted so decisively today to reinstate the 1 percent cap.”

Challenger Wants More Cuts

Rossi, however, was among those disappointed that more property tax relief wasn’t provided.

“I commend Christine Gregoire and the Legislature for restoring I-747. But unfortunately this only solves half of the problem,” said Rossi. “By choosing not to address banked capacity, Christine Gregoire is allowing local governments to raise property taxes higher than 1 percent without local citizens voting on it themselves. This is against the will of the people.”

Banked capacity is the practice of allowing local governments to raise taxes higher than 1 percent in the future by the amount they are under the limit in previous years. Republicans were hoping any bill re-approving I-747 would repeal banked capacity so that future property tax increases without voter approval would be limited to 1 percent.

Payment Deferral Passes

The governor also requested a second bill to be considered during the special session. The proposal, a property tax deferral, would allow low-income homeowners to defer some of the property tax owed until they sold their home, granting the state a lien on the property until the taxes were paid with interest.

The bill passed on a nearly party line vote, with a few Democrats joining minority Republicans in voting no. The bill passed 27-21 in the Senate and 55-39 in the House.

Serious constitutional questions were raised, with almost universal opposition expressed by those testifying at the House and Senate hearings. The closeness of the vote illustrates the unease some lawmakers had in moving forward with such a controversial bill after less than a day’s time to review the details.

Rep. Kathy Haigh (D-Shelton) told The Olympian newspaper, “I admit I don’t really know all the implications. I’m going to try to keep my head down and I’m going to vote as my caucus needs me to. On the surface it sounds good.”

More Proposals to Come

With the demand for property tax reform even stronger after the special session, lawmakers will consider multiple proposals for additional relief when they convene for the 2008 regular session that begins in January.

The Seattle-based Washington Policy Center is encouraging state officials to either phase out the state portion of the property tax over the next five years or permanently reduce the levy rate.

“Imagine a world in which your property taxes actually went down,” said Paul Guppy, vice president for research at the Washington Policy Center. “Limiting tax increases and cutting taxes serve the public interest by freeing up money for investment and job creation, helping elderly people on fixed incomes, and increasing take-home pay by allowing working families to keep more of what they earn.”

Jason Mercier ([email protected]) is director of the Center for Government Reform at the Washington Policy Center.