Tax deferral plan in works

OLYMPIA – Pay now or pay later.

That’s the choice that homeowners are about to be offered by state lawmakers, who are holding a rare special session Thursday to pass two property-tax-relief bills. One would reinstate a recently invalidated property tax limit. The other bill – still being drafted Tuesday – is something new.

It would allow households earning less than about $57,000 a year to postpone for years paying up to 25 percent of their property tax. When the house is eventually sold, those back taxes – plus interest – would be due.

“We wanted to allow taxpayers to get some immediate relief,” said Gov. Chris Gregoire.

But is it a smart move? For many people, probably not, several local financial experts said Tuesday.

People trying to save their home from foreclosure will do anything they can, said Dean Marshall, a Spokane accountant.

But if the situation’s less dire, he said, avoid deferring taxes.

Here’s why:

“For many homeowners, the savings are small. In Spokane last month, the median sales price for a home was $186,000. Spokane property tax – city, county, schools, emergency services, everything – totals $13.08 per thousand dollars of assessed value. For that median-price home, that’s $2,433 a year.

The maximum reduction for such a home under the program Gregoire is proposing would be $608 a year, or about $50 a month.

“It’s overly complicated for a trivial benefit,” said Whitworth University economics professor Richard Schatz. “People are not losing their houses because they can’t pay a quarter of their property taxes. They’re losing their homes because their mortgage payment went from $900 to $1,300.”

“Property taxes are deductible from federal taxes for people who itemize, Marshall points out. If the taxes are postponed, so is that federal tax savings.

“Interest under this program – unlike mortgage and home-equity interest – likely wouldn’t be tax-deductible.

If the state’s trying to help struggling families, Schatz said, there are more efficient ways to do it. After all, he said, most poor families rent.

It would be smarter, he said, for the state to spend its money on food banks, early childhood education and food stamp programs.

“It just seems needlessly complicated and foolish,” he said.

Spokane County Assessor Ralph Baker called it “folly” to base the benefit on income, because of the complexity of administering such a program.

Far better, Baker says, to simply exempt the first $50,000, say, of a home from taxes. Everyone would still pay the same tax rate per thousand, but on a percentage basis, the owner of a $150,000 home would get a much bigger break than someone sitting in a $2 million mansion.

Many states have “homestead exemptions” like Baker describes. Idaho’s covers half the value of a home and 1 acre, up to $89,325. (Idaho also offers a “circuit breaker” exemption of up to $1,320 a year, as well as a tax-deferral program that charges 6 percent interest.)

Such ideas are likely to be on the table in January, when the regular legislative session begins in Olympia. Gregoire, Senate Majority Leader Lisa Brown and other lawmakers have said that legislators plan to consider other tax reforms.

And some financial experts echo Marshall’s point that for families truly on the cusp of losing their homes, the tax-deferral plan could provide some critical relief.

“It might make sense,” said Marilyn Rider, a Spokane financial advisor with Smith Barney. Low-income families may have few options for cheaper credit, she said, and “7 percent is probably a pretty reasonable rate of interest.”

At Washington State University’s Washington Center for Real Estate Research, director Glenn Crellin noted that the state has long offered a similar deferral program to low-income senior citizens. As people struggle with adjustable rate mortgages, he said, “this becomes a vehicle to help make it a little bit easier for them to remain in their homes.”