Politics & Government

Levy swap plan would boost taxes for some, reduce taxes for others in Washington school districts

Republicans who control the state Senate may oppose a capital gains tax on the wealthy — but when it comes to property taxes, they’re OK with making the rich pay a little more.

A Republican plan to reduce school districts’ use of local levies to pay for basic education would raise property taxes in more than 40 percent of Washington’s school districts, including in high property value areas such as Seattle and Bellevue, according to nonpartisan legislative staff.

As currently written, the property tax swap proposed by Sen. Bruce Dammeier, R-Puyallup, would create higher property taxes in 123 of the state’s 295 school districts starting in 2020, the first year the plan would be fully implemented, Senate committee staff estimated.

About 100 additional school districts would see a temporary spike in their property taxes in 2019, a transitional year built into the plan, according to staff estimates.

Yet at the same time, the Republican plan would ultimately reduce property taxes for those living in many areas of the state. Under Senate Bill 6109, about 171 school districts would see lower property tax rates starting in 2020, including small districts in Pierce and Thurston counties such as Carbonado, Dieringer, Yelm, Rainier and Rochester.

Many larger South Sound districts, including Tacoma, Bethel, Franklin Pierce, Olympia and North Thurston, also would see their property taxes decline over time under Dammeier’s plan.

Dammeier described his bill as a way to reduce inequity in how school districts are able to raise money to cover their basic operating expenses and pay staff.

Under the measure, “The school districts that are property wealthy are going to pay more — the property poor districts will pay less,” Dammeier said.

Dammeier’s proposal aims to solve a problem identified by the state Supreme Court: Too much money from local school district levies is being used to fund basic education costs, such as school supplies and teacher salaries, that the court says are the state’s responsibility.

To address that issue, Dammeier’s plan would reduce local levies to no more than $1.25 per $1,000 in assessed value by 2020. Meanwhile, the state would increase the statewide common schools levy to about $3.30 per $1,000 in property value — an increase of about $1.11 per $1,000 — to allow the state to take on some of the basic education expenses now paid for through local levies.

While Republicans have touted the measure as one that would restore fairness to the state’s school system, minority Senate Democrats have attacked the Republican plan as a widespread tax increase on property owners.

Under Dammeier’s bill, the money generated by the state property tax increase is intended to be used, dollar for dollar, to replace local levy money that is now going toward paying basic education expenditures such as teacher salaries.

However, as currently written, Dammeier’s proposal going forward will raise roughly $700 million in property taxes annually above what will be offset by decreases to local levy rates.

“What that means is there will be big winners and big losers across the state,” said Sen. Kevin Ranker, D-Orcas Island. “We will have a situation where some areas are going to see big increases, and others are going to see big decreases.”

Ranker and other Senate Democrats have proposed their own levy reform solution that also would reduce local levies but in exchange for imposing a capital gains tax — rather than an increase in the state property tax. Their proposal is for a 7 percent tax on capital gains above $250,000 per individual or $500,000 per couple.

Ranker said his plan would affect only 7,500 people, while Dammeier’s property-tax swap would raise taxes for millions of Washingtonians.

But Ranker’s capital gains tax wouldn’t bring in enough money to solve the school-funding problem, Dammeier said. Republicans have also criticized the capital gains tax as too volatile a revenue source to pay for schools, which the state constitution defines as the state’s paramount duty.

Dammeier said he is tweaking his bill to try to limit how many people would see property tax increases, while still bringing in enough money for the state to cover the basic education costs being borne by local districts.

In general, two types of school districts would see their property taxes go up under the Republican plan: small rural districts that have low or nonexistent local levies, and wealthier districts with high property values — such as those in Seattle, the San Juan Islands and Bellevue — that are able to raise large amounts of money with low local levy rates under the current system.

Those districts won’t benefit much from how Dammeier’s plan reduces local levy rates down to $1.25 per $1,000 in assessed value, as their local levies may be close to or below the capped rate already. Instead, they’ll be hit mainly with the increase in the state property tax, with little or no decrease in their local levies to offset that tax hike.

According to staff estimates, only two districts in Pierce and Thurston Counties would have higher property taxes in 2020 and afterward under Dammeier’s plan: the Peninsula School District, where property taxes would rise by 24 cents per $1,000 in assessed value, and the Griffin School District, where property taxes would increase by 6 cents per $1,000 in assessed value. Peninsula currently has the lowest maintenance and operations levy rate in Pierce County.

Democrats who control the state House have also released a plan that would set a 2018 deadline for the state to reduce the use of local levies to pay for basic education.

However, the House plan doesn’t specify a level for capping local levies, nor does it establish a means for shifting those costs to the state budget. Instead, it would set deadlines for lawmakers to make decisions about school employee compensation and tax reform leading up to the 2018 implementation deadline.

Lawmakers are under a court order to fully fund basic education by 2018. Last year, the Supreme Court held the state in contempt for lawmakers’ failure to present a long-term plan to meet that deadline.

Rep. Ross Hunter, D-Medina, said he thinks lawmakers will eventually decide on a levy reform package that is stronger than the House proposal he sponsored, but less specific than what Dammeier has proposed.

Hunter called Dammeier’s bill “a thoughtful piece of work,” but said that other lawmakers may not embrace it because many of its key aspects were decided in private meetings, rather than through a public process that the entire Legislature could observe and understand.

“Until people understand how you got there, you’re not going to adopt the thing,” said Hunter, who chairs the House Appropriations Committee. “Working with property taxes makes people very nervous. We should be thoughtful as we make changes to that system.”

Republicans, though, were quick to criticize the House proposal as not going far enough to fix the state’s broken system of funding schools.

“Sen. Dammeier actually put out a plan, the other body put out a study,” said Senate Majority Leader Mark Schoesler, R-Ritzville. “We need to be proactive.”