Tax burden hits homes

With exploding home prices and a stagnant manufacturing base, the tax burden in Spokane County is falling on homeowners more heavily than anyone else.

Homeowners will pay 62.5 percent of all 2006 property taxes due in Spokane County, according to the state Department of Revenue. That’s up from 57.2 percent in 2001. They’re expected to pay an even higher percentage next year because home values used for 2007 taxes have continued to rise faster than commercial properties, officials say.

The shift is concerning to Spokane’s chief financial officer, Gavin Cooley.

“You want the portion of taxes paid by residents as low as possible,” Cooley said. “A healthy housing market is a positive thing. At the same time, you want your commercial side to keep up with it.”

The shifting burden onto residential properties mirrors a statewide trend that’s even more pronounced. Homeowners across Washington will pay 67.2 percent of all property taxes this year, up from 58.6 percent in 2001.

The reason is a matter of supply and demand, experts say. High demand for homes is causing double-digit value increases of existing houses and the construction of many new residences. At the same time, values of commercial properties, while still increasing, have been steadier. In Spokane County, the shift has been sharpened by a decline in prices for manufacturing properties.

The trend has been tracked since it was first noticed in King County, said Don Gutmann, revenue analysis program manager for the state Department of Revenue. It is now noticeable across the state.

“This has been an issue off and on for the past 15 years,” he said.

The total amount of taxes collected in Washington doesn’t change based on property prices. However, values are used by county assessors to divide the taxes owed. Under state law, taxes on a property will stay relatively stable unless voters approve higher taxes or property values shift, redistributing the tax burden.

Terry Konrad, Spokane County’s commercial appraisal supervisor, stressed that businesses aren’t catching any breaks just because their values aren’t going up as fast. He noted that unlike homeowners, they also have to pay taxes on the value of their equipment.

“The equity is still there,” Konrad said. “They are still taxed under the same law and the same millage.”

The shifting could easily reverse itself as the housing market cools, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

Crellin expects commercial values to begin to catch up with residential prices in the next three years. Values of businesses and homes don’t run on the same cycle, he said.

Values of commercial spaces are based in large part on the income they could generate through rent. Because the vacancy rate has been running relatively high, values haven’t jumped as quickly. But with more residents and potential customers increasing, vacancies likely will decline and rents and property values will rise with it.

“We’ll start running back the other direction,” Crellin said.

Cooley said that building that’s happening downtown and plans for significant construction in the West Central neighborhood point to a possible resurgence of business property values.

“You’ve got a lot of commercial development teed up,” Cooley said. “There are a lot of indicators that this is a short-term development and that commercial values will pick up.”