Distributional Aspects of Property Taxes in Washington

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Distributional Aspects of Property Taxes in
Washington

• Mark Matteson
• Office of Program Research,
• WA House of Representatives

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Overview

• Angst and property taxes
• Washington state property taxes background
• Recent property tax trends in WA
• Distributional aspects of the recent trends
• Implications for policymakers
• Simulating a valuation growth cap

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Property Tax Angst

• The recent meteoric rise in housing market has
  folks wondering about property tax implications.
• As markets cool, assessors are still trying to
  catch up to the residential peaks.

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WA Property Taxes Background

• Washingtons property tax system is budget-based.
• Budget-based systems
• Regular (non-voted) levy amounts are set through
  the budget development process and are subject to
  statutory controls.
• Property taxing districts may not increase
  regular levies by adjusting the tax rate unless
  they receive voter approval.

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WA Property Taxes Background

• WA property tax mechanics in a nutshell
• County assessors assess the value of property,
  based on the market value of similar properties.
• District authorities determine the levies for the
  next year depending on budgetary needs.
• District rates are determined by dividing the
  levy by the assessed value in the district.
• Tax bill is calculated by multiplying the parcel
  value by the total rates of all districts in
  which a parcel is located (and then sent to
  eagerly awaiting property owners).

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WA Property Taxes Background

• Property taxes are statutorily controlled in
  several ways.
• Rates are required to be uniform.
• Regular property taxing authority rates are
  subject to statutory maxima.
• Regular levy growth is subject to statutory max.
• The max. levy formula reflects these controls
• LevyMax 1.01HPL ((New Const. AV St.
  Assessd Prop Gain)/ 1000)PriorLevyRate
  (AnnexVal/1000)Rate Refund

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WA Property Taxes Background

• Recent trends in the property tax system reflect
  recent real estate market activity.

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WA Property Taxes Background

• Because the WA system is budget based, property
  taxes do not necessarily rise when assessed
  values rise.
• The effect on taxes ( change) depends on the
  relative change in AV.
• Understanding the distributional aspects of WA
  property taxes can be challenging.

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Distributional Aspects of Property Taxes An
Illustration

• Year 1 Scenario
• Total District Assessed Val
• 300k 300k 600k
• District regular levy is 900
• District rate
• 900 / 600k
• 1.50 per thousand AV.
• Each owner owes 450.

A
Yr 1 AV 300,000 Reg. Tax Rate
1.50/kAV Reg. Tax Bill 450
B
Yr 1 AV 300,000 Reg. Tax Rate
1.50/kAV Reg. Tax Bill 450
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Distributional Aspects of Property Taxes An
Illustration, cont.

• Year 2 Scenario
• Total District Assessed Val
• 315k 345k 660k
• District regular levy is
• Last yrs levy 101
• 900 1.01 909
• District rate
• 909 / 660k 1.38 /1000AV.
• Although the AV rose in both cases, the tax did
  not rise as much (and for A dropped).

A
Yr 1 AV 315,000 Reg. Tax Rate
1.38/kAV Reg. Tax Bill 434
B
Yr 1 AV 345,000 Reg. Tax Rate
1.38/kAV Reg. Tax Bill 475
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Distributional Aspects of Recent WA Property Tax
Trends

• Analysis is based on assessment roll,
  parcel-level data from 13 counties from 2002-07.
• Analysis focuses on 5 counties Pierce, Clark,
  Spokane, Okanogan, and Yakima.
• The analysis examines the distribution of AV
  growth and local regular property tax growth
  from 2003-07.
• Differences in land use, improvement,
  geographic characteristics are explored.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• Analysis of the average annual growth of assessed
  value and local regular taxes for the 4 year
  period 2003-07 shows
• Similar distributions within the county for AV
  and tax growth, but with different centers.
• Non-normal distributions that include long tails
  on the right side.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• Analysis of the annual growth of assessed value
  and local regular taxes in each of the years from
  2003 to 2007 shows
• A shift in the AV growth distribution towards
  increasing growth rates over the period.
• A much looser distribution when average AV growth
  rates are higher than normal.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• For cycle counties, the average annual growth
  distribution shape over the 2003-07 period is
  similar to that of annual counties.
• However, the picture for any given year is quite
  a bit different.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• The standard frequency distributions show that
  growth in assessed value does not necessarily
  indicate the same change in tax.
• Another way to illustrate this is by categorizing
  tax growth by AV growth category.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• The data from assessors offices include
  information on land use, on whether the parcel is
  improved or vacant, and on location.
• This information helps us to further understand
  who is affected by AV and tax trends.

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Distributional Aspects of Recent WA Property Tax
Trends, cont.

• Geographical analyses help show where growth in
  AV is occurring, and where relative differences
  in AV growth result in property tax growth
  differential.
• The boundaries utilized for this purpose are
  school district boundaries the tax growth rates
  shown reflect all local regular property taxes
  levied on property owners within the district
  boundaries.

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Policy Implications

• The current property tax system in WA, while
  limited in aggregate, yields regular tax growth
  at the parcel level reflective of the
  distribution in AV growth (but with a different
  center).
• Strong real estate market activity appears to
  yield a more disperse distribution of AV growth
  (at least in some cases).

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Policy Implications, Cont.

• If the distribution of AV growth is less
  concentrated during times of strong real estate
  market activity, it follows that the distribution
  of tax growth will be more dispersed.
• This could create concerns across a broader
  spectrum of taxpayers than normal.

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Simulating a Value Averaging Proposal

• In recent years, legislators have introduced
  several proposals to address the rapid growth in
  assessed values.
• The essence of these proposals is to limit the
  amount of growth in value that a property may
  face in any year.

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Simulating a Value Averaging Proposal, Cont.

• The levy setting process would remain unchanged.
• The object is to smooth the tax effects of rapid
  value growth over time, while allowing districts
  to levy the same amount that would have been
  levied otherwise.
• This, of course, has interesting distributional
  implications.

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Topics for Further Exploration

• Full analysis of 13-county data.
• Modify how proposals such as value averaging or
  homestead exemptions are modeled.

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