News

Ruling makes tax hikes easier

The Washington state Supreme Court overturned Tim Eyman’s Initiative 747, the so-called “1 percent levy lid,” at a time when most cities and counties are in the midst of budget consideration.

But Oak Harbor residents have little need to worry that Thursday’s ruling will have any impact on their property taxes — at least not in the coming year.

“There is a lot of clarification that needs to come out as far as the legal and financial impact of it,” said Oak Harbor Finance Director Doug Merriman.

He said the city will likely proceed with budget planning for next year as if the initiative wasn’t overturned, though the ultimate decision will be up to members of the City Council. I-747 limits property tax increases to the lower of 1 percent or the rate of inflation, defined as the implicit price deflator.

Depending on how the Attorney General’s office interprets the high court’s ruling, Merriman said there’s a chance that the city may be able do a one-time, large tax increase — conceivably up to 8 percent — in the future.

Any government with property taxing authority is affected, including cities, counties, fire districts and park districts.

The Seattle law firm Foster Pepper sent out a news bulletin hypothesizing that taxing districts may have a “retroactive credit” for the six years that they were limited to a 1 percent levy lid because of the now-invalidated initiative.

Merriman said the city missed out on 5 to 6 percent of additional levy capacity over those years. If the law firm is right, the city could hypothetically increase property taxes next year by the missed 5 or 6 percent, plus the regular tax increase set at the implicit price deflator, which hovers around 1 to 2 percent.

Of course, the City Council would have to have the political will to do such a thing.

Though the impact of the ruling isn’t clear, Merriman said the guidelines for raising taxes may go back to the former rule. Referendum 47, which was passed by voters in 1997, limited tax increases by the lesser of 6 percent or inflation. The implicit price deflator was 2.084 percent for 2007.

While Foster Pepper agrees with Merriman’s interpretation, the Washington Policy Center claims that that the ruling will result in “a 600 percent increase in taxing authority, now allowing percent yearly tax hikes instead of I-747’s 1 percent limit.”

After Referendum 47, anti-tax activist Tim Eyman first put forward Initiative 722, which limited increases to the lesser of 2 percent or the rate of inflation. The voters passed it, but the Supreme Court ruled that it was unconstitutional.

Eyman then introduced I-747, which further cut the limit to 1 percent or inflation.

In the years before Referendum 47, Merriman said city leaders historically increased property taxes each year by the old limit of 6 percent.

You can reach News-Times reporter Jessie Stensland at jstensland@whidbeynewstimes.com or call 675-6611.

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