Legislature Running Scared Toward Tax Cuts Fearing Grass-Roots Initiatives, Officials Push Their Own Plans

This may be the year the Legislature gets serious about cutting property taxes. Otherwise, voters may do it for them.

A slew of property tax cut and deferral plans already are in the works. Even local governments, which depend in part on property tax for revenues, are giving them a close look.

“There is a such a growing unrest among the populace that we are afraid of something more drastic like an initiative if the Legislature does not act,” said Fred Saeger, director of the Washington Association of Counties.

In counties like Spokane, where assessment rate increases have been in the double digits, people want action.

Larry Hartley, Spokane coordinator of last year’s tax cutting Initiative 650, says volunteers are ready to hit the streets again in 1996 to gather signatures.

An initiative nearly identical to last year’s will be filed Jan. 5, Hartley said, no matter what the Legislature does.

The initiative goes further than anything lawmakers have proposed. It would knock assessment rates back down to 1992 levels, limit future assessment increases to no more than 2 percent a year, and offer homeowners a tax exemption on their primary residence of $4.50 per $1,000 of assessed value.

“Assessments are the key,” Hartley said. “If all you do is go after rates, government just keeps raising the assessments. It’s human nature.”

Property taxes are calculated by multiplying the tax rate, made up of both local and state levies, by the assessed value of property.

Hartley needs at least 181,000 valid signatures of registered voters by July to qualify the measure for the November 1996 ballot.

Lawmakers are proposing more demure solutions to the tax problem.

Both the House and Senate want to reduce the state’s share of property taxes by 5 percent, at a cost of $32 million to state coffers.

About $1.2 billion in local property taxes is collected by the state every year from all jurisdictions.

The money is dumped into the general fund, and used for public schools. But most of the money for running the school system comes from other sources, including the state sales tax and the business and occupation tax.

Some lawmakers think reducing the state share of property taxes doesn’t go far enough. They want to eliminate the state share altogether, or permanently freeze it at 1995 levels.

Others want to clamp down on the ability of local governments to raise property tax levies.

“Republicans favor local control. But in this case, we want to restrict it, for the greater good of reducing property taxes,” said Rep. Dale Foreman, R-Wenatchee, House Majority leader. “Local governments will just have to learn to live within smaller means.”

By law, local governments may raise total property tax collections in any given year 6 percent higher than the previous year. That doesn’t count the added revenue from new construction.

Rep. Mike Carrell, R-Tacoma, will introduce legislation this session to permanently limit local government increases to the rate of inflation.

In Spokane County, that would make a big difference.

Of the 54 local taxing districts, all are planning increases for this tax year above the rate of inflation.

Most want to tax to the max, pushing increases to the 6 percent legal limit. The actual rate of inflation is about half that.

In Spokane, lowering the levy lid would cost the county $500,000 and the road fund $300,000 in 1996, said Marshall Farnell, budget director. “That’s a lot of money.”

In the city, lowering the levy lid would save taxpayers $460,000, said Pete Fortin, city finance director. The city’s revenue limit is at 5 percent now.

Property taxes account for about 20 percent of the city’s general government revenue.

Further budget reductions would come on top of recent city program cuts of $6 million and staff cuts totaling 40 people, Fortin said. “This would reduce services, no doubt about it.”

But the Washington Association of Counties is surprisingly supportive of the tax cut ideas. It backs the 5 percent reduction of the state share of the property tax, as well as freezing the state share.

And even chopping levy lids down to the rate of inflation may have merit in their eyes. “We’re looking at it,” said the association’s Saeger.

Gov. Mike Lowry supports a different approach, intended to protect taxpayers from being pushed out of their homes when assessments sky-rocket.

Under his proposal, taxpayers with an income of $50,000 a year or below could defer any amount of their property taxes owed beyond 5 percent of their income until their home is sold.

Then they would pay the back taxes with interest.

“This is a targeted approach, that helps people that are truly in need,” Lowry said last week.

Other proposals cost too much, and would shower benefits on businesses that already don’t pay as much in property taxes as homeowners, Lowry said.

Rich homeowners also would benefit the most from across-the-board property tax reductions, Lowry said.

One thing’s already clear: Hartley’s initiative will be effective even if all he does is file it.

“It causes a great deal of pressure,” Carrell said. “We know we have to act, or the alternative may be more extreme.”

, DataTimes ILLUSTRATION: 2 Graphics: 1. Where your property taxes go 2. Dueling property tax proposals for 1996