County Tax Increases Could Cost Island Tax Districts Everything

Spurred by the Vashon Park District, a bill has been revived to potentially shake up state tax law.

The commissioners of Vashon’s various local taxing districts have been looking ahead with some concern about the prospect of larger, so-called “senior” taxing districts in King County asking residents to accept new tax increases.

If those measures were to pass now, a key source of revenue for some of the most important public services on the island would be gutted.

At the Dec. 16 meeting of the Health Care District, Commissioner Eric Pryne outlined what could happen if two of those senior districts, the King County Library System, and for unincorporated areas, King County Roads, had been voter-approved in 2020 to raise their property tax levies to the statutory maximums allowed.

In short, this year, it would have implemented “prorationing” on Vashon to such an extent that local, or “junior” taxing districts, would see massive reductions of their tax revenue, fully eliminating the Vashon Park District and also dramatically reducing the tax revenues of the Cemetery and Health Care Districts.

“We need to make those organizations aware of the possible implications for us and see if there are workarounds,” he told the board, adding that commissioners seriously considered what the issue could mean for the district’s budget before they approved their levy rate in November.

Taxing districts have the independent authority to set levy rates and collect tax revenue. The island’s junior taxing districts, such as the Park and Cemetery Districts, share a limited amount of money with senior districts, such as state, city and road districts. They all collect tax revenue in a certain order provided it doesn’t exceed the minimum headroom left under the state-imposed combined local levy limit of $5.90 per $1,000 assessed value.

If senior taxing districts enact new or raised levies as well, junior districts may have their levies reduced to a lower rate to stay within $5.90, and therefore collect less revenue.

There is no easy solution available to fix this, although an attempt has been made to find a small one on Vashon. After speaking to Parks commissioners, Rep. Joe Fitzgibbon, D-Burien, drafted legislation last year to rewrite state tax law and allow park and recreation districts in Washington to collect tax revenue outside of the chokehold of the local district levy limit required by state law. The bill quickly stalled, but with the legislative session starting this week, House Bill 1034 will soon be introduced by Fitzgibbon and sponsored by Rep. Eileen Cody, D-West Seattle.

Now that the Health Care and Fire Districts, two of the largest local taxing districts on the island and ranked higher in the pecking order, have set their respective tax rates, and the island’s combined local taxing districts can’t collect more tax revenue beyond the capacity left in the $5.90, Parks will be the first to see a reduction in tax revenue this year in order to keep the limit in check.

That’s where things are now, though after receiving input from members of the public, the health district is planning an informal gathering between commissioners of the island’s taxing districts so that those participating can learn more about each other’s priorities and challenges.

However, Vashon may be facing a greater threat than Parks’ losses alone. Casting a shadow over attempts to build on community partnership, any tax raises from larger players in the county will supersede Vashon’s much smaller local districts and inadvertently take the lion’s share of tax revenue on which they depend, wiping some out entirely in the process.

“The county, which in this case would be the road district and the library system, very much believe they still need the money,” Pryne said at the meeting.

For now, the COVID-19 pandemic has forced the King County Library System to abandon a plan first proposed last February to raise its levy rate, and the board will not consider a tax increase in 2021. Executive Director Lisa Rosenblum advised the board that KCLS will need a levy lid lift to sustain library operations. But by April, it was clear that it was not the right time politically to put a measure on the ballot. She noted that there was little chance that the costly initiative would succeed given the financial hardship that many face as a result of COVID-19.

But a tax raise to finance King County Roads, which was also delayed because of the pandemic, is not out of the question and could appear on the ballot this year.

“Road Services is in the early stages of mapping out a plan to address falling revenues and ever-increasing demands to our county road system and supporting networks,” a county spokesperson said.

“Best-case Scenario”

The complicated Washington State property tax system dates back to the 1970s when voters amended the Constitution to restrict the annual amount of property taxes that could be levied on property to 1% of its value.

Junior and senior taxing districts are subject to a 1% annual increase of their levy unless a higher amount is approved by the voters, though some do not require the voters’ approval to increase their taxes. In November, for example, conditions allowed KCLS to unanimously adopt a resolution of “substantial need,” putting a tax levy on property to generate about $500,000 of additional revenue to help stave off a growing budget deficit. Public hospital districts, meanwhile, can levy up to $.75 per $1,000 value assessed without a public vote per state law.

The $5.90 per $1,000 assessed value cap on local levies belongs to what is referred to as Washington’s $10 constitutional limit, or the maximum annual rate of property taxes that can be imposed on property owners. The $10 constitutional limit is broken down into three categories: “State,” or the state school fund, limited to $3.60 per $1,000 of assessed property value; “local districts,” limited to $5.90 per $1,000 of assessed property value; and “Other,” leaving $0.50 per $1,000 of assessed property value.

This number, referred to as the ‘$.50 cent gap,’ comprises a pool of funds available for different needs, such as the protection of open spaces, or providing for emergency medical services or affordable housing programs, as well as the support of metropolitan parks and ferry services.

Some would say that it is a good thing that municipal governments, such as Parks and Health Care, cannot tax property owners endlessly. While it may have kept a reasonable leash on any frivolous taxation in years past, this model has put particular pressure on the Vashon Park District, which starts the new year on a difficult path, anticipating a minimum of $130,000 less to fund recreation services, maintain facilities, repair assets, and more.

Commissioners were the first on the island to feel the squeeze from prorationing in recent times, but they were also among the first to discuss options for a reprieve. Predicting a situation such as this could come to pass, they requested assistance from the legislature following the creation of the island’s health district in 2019.

Now they have placed their hopes on the chance of the passage of Fitzgibbon’s bill, which would enable Parks to collect levy revenue from the $.50 cent gap and to continue operating as it does now.

Executive Director Elaine Ott-Rocheford called Fitzgibbon’s bill the “best-case scenario” that will keep the district on track to achieve its goals, such as the completion of deferred maintenance projects and increasing recreation programming.

There is enough room in the $.50 cent gap today to sustain Parks’ activities, and there are no ramifications for other parks and recreation districts in the state if the bill were passed. Nowhere else in Washington is there currently a park and recreation district where the gap is close to being entirely utilized. The bill would simply give them access to another pool of funds.

Crucially, moving Vashon Parks out of the $5.90 cap is not the cure for the island’s senior taxing district dilemma, because if it comes to it, the Health Care and Cemetery Districts are next in line and could be open to prorationing.

If the bill were passed, there would be no change to Parks’ current voter-approved $.45 cent levy rate, and its levy would still need 60% approval to be renewed or increased in a future election.

In a recent interview, Fitzgibbon said that communities in unincorporated King County are more vulnerable to prorationing. Administrators of senior taxing districts, he said, frequently do not understand what the effects of a tax increase could have on municipalities served by numerous taxing districts at the local level, as opposed to those serving the county at large.

The next step is to send the bill to the House Finance Committee, and then schedule a public hearing for it. But the bill is likely to be confronted by a multitude of other pressing issues for lawmakers to concentrate on arising from the pandemic. Commissioners are likely to have an answer one way or another by spring.

“In order to make the sort of sweeping changes to the property tax, we probably have to amend the Constitution, and that’s fairly challenging,” Fitzgibbon said.

In the meantime, all Parks commissioners can do is wait.

Bill or Bust

Ott-Rocheford believes that, based on the current tax rates for local taxing districts, if the bill does not pass, trouble will begin immediately for Parks.

“We will have to lay off staff and reduce services by mid-2021,” she said, adding that even with the library system off the ballot, a roads levy lift would slash the district’s budget.

“We would be cut in half,” Ott-Rocheford said.

Except for completing the most vital capital projects this year that cannot be delayed, the district’s reserves would likely be drawn down by as much as $200,000 by the end of 2022, Ott-Rocheford said, primarily to maintain cash flow, and leave the district with few other choices than to borrow on a line of credit to sustain operations, an option that the board will likely be reluctant to accept.

“So we have to cut $200,000 a year out of our budget in order to just stay afloat, and that would mean reduction of services,” she said. “What that looks like, I don’t know. We haven’t decided that yet.”

Vashon Parks could explore a few alternatives with the county that would reduce the burden it faces due to prorationing, including asking King County for what is known as a buy-down, where the county would essentially reimburse Parks for the amount it was prorationed, plus accounting for other factors that would further affect Parks.

The King County Council has experience dealing with junior taxing districts pushed over the threshold of the $5.90, including two affected by the countywide Best Start for Kids levy in 2016 (BSK). The Si View Metropolitan Park District in North Bend was slated to lose $316,000 of tax revenue because of prorationing, followed by another round amounting to $114,000 from the Fall City Metropolitan Park District.

To compensate for Si View’s losses, the county used a portion of the levy to effectively subsidize programs in the Si View Metropolitan Park District related to youth development and culture, although the Fall City Park District did not have any programs or services that met the eligibility requirements for BSK funding.

“We have gone through some effort, when enacting a countywide levy that was going to impact a junior taxing district, to find ways to support the work of that junior taxing district,” Vice-Chair Joe McDermott, who represents Vashon, said.

The county has also modeled estimated prorationing that could befall other taxing districts over the lifetime of the BSK levy and will collaborate with affected park and recreation districts to address the issue in the years to come.

Another option is for Vashon Parks to run what is called an excess levy.

Taxes levied under the $10 limit are classified as “regular” levies, while those above the limit are “excess” or “special” levies that require the approval of the voters. Parks could present an excess levy to island residents every year and ask them to accept a $.45 cent rate once again in order to make up for the district’s shortfall. But the cost for Parks to run a levy can be as high as $20,000, and this approach makes staff retention and long-term planning almost impossible.

Ott-Rocheford said that she thought it was inevitable that senior districts will try to enact levy lid lifts in the near future that will propel Parks into oblivion without some intervention. She said that the commissioners will pursue all the options on the table to maintain the programs and services that the islanders want and expect. But to her, right now it’s Fitzgibbon’s bill or bust.

“If this state bill passes, we’re completely safe, no matter what happens. Even if the hospital district went all the way to $.75 cents, we’re still safe,” she said. “There is that much room in the $10 [constitutional limit]. Which is why we’re going for this option.”

This version of the article corrects which taxing districts would be affected if the county roads and library levy lid lifts are approved. The King County Flood Control District will not be impacted. The state Legislature amended the law to allow flood control districts to protect up to $.25 cents from prorationing. The King County Flood Control District’s 2021 levy rate is less than $.9 cents.

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