State property tax relief for Western Washington homeowners has become a major topic in this year’s legislative session after lawmakers passed EHB 2242 to pay for increased education spending.
According to the Seattle Times, the average single-family home in King County will pay $5,660 this year in property taxes – an increase of more than $400 from last year.
The problem is, an expensive house doesn’t mean the owner makes a fortune. Thanks to an exploding real estate market in Seattle metro, many low-income or fixed-income residents have found themselves in high-priced homes, but now struggle to pay the new state taxes.
It’s a nuance that was highlighted by lawmakers during a Feb. 22 brief public hearing of the House Finance Committee concerning a proposal to take almost $1 billion from the state’s budget stabilization account, a.k.a. the rainy day fund, to allow for a gradual property tax rate reduction of $.40 over the next two years.
If passed, HB 2993 would withdraw a total of $996 million from the rainy day fund to lower the property tax rate from $2.70 per $1,000 of assessed value (AV) to $2.365 in 2019 and to $2.30 in 2020. The transfers would be done in two separate phases and amounts ($232 million and $764 million, respectively), each occurring six months before the reduction in the property tax rate. During the Feb. 22 hearing, only one person testified. The bill is sponsored by House Majority Leader Pat Sullivan (D-47), with three Democrats cosponsoring.
The Senate- and House-proposed supplemental budgets both call for reduced state property taxes, though they rely on different methods of achieving the goal. Aided by $1.3 billion in unexpected state revenue, the Senate budget uses $400 million from the rainy day fund to pay for a $.30 tax rate reduction. The House proposal assumes that the passage of a capital gains income tax will bring in $1 billion in new revenue to pay for the tax cuts.
All but two states have rainy day funds, which are intended for use only when revenue is unexpectedly low. As of Feb. 22, Washington’s budget stabilization account had a book balance of roughly $1.7 billion according to the State Treasurer’s Office. The fund is replenished in part by “extraordinary revenue growth” thanks to a 2011 voter-approved constitutional amendment.
That is a recommendation made by the Pew Trust in a 2017 Fact Sheet. “Deposit rules tied to volatility allow states to save more in high-growth years when funds are available, and to set aside less in leaner years. Withdrawal conditions that are tied to economic or revenue fluctuations give policymakers a clear signal on whether the time is right to use reserves. And regular analyses of revenue volatility can be used to determine the maximum size of a rainy day fund. Since the Great Recession, when states found that their rainy day funds and other reserves were insufficient given the scale of the downturn, many have moved to embrace these best practices.”
However, some panel members expressed reservations about withdrawing such a large amount from the account. During the public hearing, Rep. Ed Orcutt (R-20) inquired whether the first phase could be offset by existing money in the state’s general fund account.
It’s also not entirely clear how much the transfer would leave in the rainy day fund when all is said and done. That’s according to Clay Hill, director of governmental affairs on tax and fiscal policy for the Association of Washington Business. The only person testifying at the hearing, he noted the “lack of available information to really assess this policy.”
Also seemingly reluctant about the bill was Ranking Minority Member Rep. Terry Nealey (R-16). “I’m curious as to who this large transfer to reduce tax property taxes is going to affect. We’re concerned about for example elderly people owning their own property on a fixed income. (This) sounds to me like this would affect wealthier people more than maybe low-income people. They would get more of a tax break than the poor people would,” Nealey said.
Committee staff explained that the larger tax reduction in terms of the dollar amount is tied to the higher-valued homes. Vice Chair Rep. Noel Frame (D-36) added that in her district “there are people who own $1 million homes but are low income.”
Last year the legislature dipped into the rainy-day fund to pay for public pension liabilities. Unless declared an emergency by the governor, a withdrawal of money requires a supermajority vote in both chambers.
No further action is yet scheduled for HB 2993.