As I've considered whether or not to vote for Seattle's $516 million six-year school levies, I posed a simple and obvious question: How will this affect my own property taxes?
I finally managed to come up with a reasonable estimate (If both levies pass the total cost over the life of both levies will be roughly $4,400 more than if neither levy passes), but it was extremely difficult to find all of the information I needed to reach this answer. Unfortunately, all of the readily available public information about the levy has been either incomplete, unclear, inaccurate and in some cases even false and misleading. This includes the official ballot pamphlet, official levy campaign materials, public statements from School District officials, and news reports in both the Seattle Times and the Seattle Post-Intelligencer. The most inaccurate information of all came from the highly-regarded non-partisan ballot measure analysts at the Municipal League.
The most commonly repeated and incorrect claims were along the lines that the levies were (I paraphrase) "not a new tax, but renewal of an expiring levy and property taxes will not change"; and that the cost to property tax owners would be $1.54 per thousand dollars of assessed value in 2005, which rate would decline to $1.46 in 2007.
What does it really cost?
I now calculate that the actual cost of the two levies in 2005 alone is up to $1.64 (per thousand) of 2004 assessed value (the most recent assessment); that the total 2005 school tax would, in all likelihood, represent an increase over the 2004 school tax both to the taxpayers at large and to individual property owners; that the total amount of tax raised would continue to grow through 2007, and individual taxpayers would most likely face not a declining tax rate, but increasing taxes through 2007.
My analysis suggests that the official text of ballot measure is both incomplete and misleading and that School District officials have misstated the financial impact of the levies to the taxpayers.
How do the levies impact property owners?
There are two parts to understanding how the levies affect taxpaying property owners:
(a) how the total tax revenue is calculated
(b) how the revenue burden is apportioned to individual property owners
The Washington property tax levies are different from more familiar taxes (e.g. sales tax) where the tax rate is fixed by law and the generated revenue is unknown until the time of collection. With a levy, the total revenue is fixed by law and the tax rate is unknown until the time of collection.
In Seattle's case, there are several distinct school levies that need to be understood.
1) "BEX II", capital levy approved in 2001 for a total of $398 million, which collects $66.33 million per year from 2002-2007. This is unaffected by this year's ballot proposals.
2) "BTA I", capital levy approved in 1998 for a total of $150 million, collects $25 million per year from 1999-2004
3) "BTA II", capital levy on the 2004 ballot for $178 million, would collect $29.66 million per year from 2005-2010
4) "EP&O (2001)", operating levy approved in 2001 and expires in 2004. Authorized a maximum of $101 million, $114 million and $123 million in 2002-2004 respectively. The actual revenue collected each year was subject to overriding state maximums ("levy authority"), and was approximately $93.1 million, $99.3 million, and $104.8 million respectively.
5) "EP&O (2004)", operating levy on the 2004 ballot to authorize a maximum of $108.5 million, $112.5 million and $117 million for 2005-2007 respectively. The actual revenue to be collected is a function of both enrollment and a combination of state and federal budgeting and is as yet unknowable. This amount has historically increased each year. An official at the state's Office of the Superintendent of Public Instruction, which oversees the levy authority limits, told me he has no information to suggest that Seattle's levy authority won't continue to increase. [Shortly after I posted this article, a Seattle School District official e-mailed to tell me that the District actually expects the levy authority to decline from 2004 to 2005, although the levy still authorizes the higher amounts. See the UPDATE below for more]
Putting these various numbers together, we get the following levy revenues:
2003: (BEX II + BTA I + EP&O 2001) = $190.7 million
2004: (BEX II + BTA I + EP&O 2001) = $196.2 million, of which $129.8 million is attributable to the expiring levies.
If neither proposed levy passes, the school tax for 2005-2007 would be limited to BEX II, or $66.33 million.
If BTA II passes, it would not merely "replace" BTA I, as the School District asserts, but raise it by $4.66 million a year.
If EP&O 2004 passes, the most reasonable estimate is that it would at least maintain and probably increase the 2004 annual operating revenue of $104.8 million. i.e. if both levies pass (focusing only on the proposed levies and leaving BEX II out of further discussion),
2005: (BTA II +EP&O 2004) = $134.5 - $138.2 million
2006: (BTA II +EP&O 2004) = $134.5 - $142.2 million
2007: (BTA II +EP&O 2004) = $134.5 - $146.7 million
How is this tax burden apportioned?
The levy tax is shared proportionally by all non-exempt property owners within the boundaries of the school district. There are two types of property: "Real Property" (real estate), and "Personal Property" (not exactly what most people think of as "personal", but certain capital assets owned by businesses). Some Real Property is exempt from school taxes -- tax-exempt institutions along with some individuals, e.g. low-income senior citizens. [These seniors still get to vote to raise everybody else's property taxes. That's quite an improvement over "Taxation without Representation" -- it's "Representation without Taxation"!]
For example, in 2003, the last year for which published data is available, Seattle's Total Real Property was assessed at $76.0 billion and Total Personal Property at $4.8 billion. Net of exemptions, the total assessed value of taxable property was $79.6 billion [the latter number is unpublished, and was explained to me by an official at the King County Assessor's Office]. Combined with the 2003 school tax revenue of $190.7 million above, this produces an ad valorem levy rate of $2.39 per thousand. [This is the $2.39 number that has been bandied about without proper context in various published articles about the levy]. For example, a house with a 2003 assessed value of $324,000 would have paid $774.36 in school levy taxes in 2003.
The 2004 aggregate assessed valuation is $84.4 billion, of which $83.16 billion is non-exempt. [These as yet unpublished numbers also courtesy of the county assessor's office].
This gives us a total school levy ad valorem rate for 2004 of $2.36, with the expiring levies contributing:
$104.8 + $25 million = $129.8 million/$83.16 billion = $1.56 per thousand.
Given the uncertainty in both future revenues and future assessed valuations, it is impossible to know precisely how much school tax would be owed on a given property in a future year, although there are a few ways to estimate the future tax. The official texts of the ballot propositions claim to provide "approximate" ad valorem rates. However, these are not really approximations, but projections that are based on unstated assumptions. These projections are further misleading in that they imply that a voter's future tax will decline, when in fact the tax is most likely to increase.
The ballot statement does the following without explanation: It starts with a 2004 aggregate assessed value of $84.6 billion, and assumes that this value will increase by 6% to $89.7 billion in 2005. (I gather that the $84.6 billion number is a preliminary estimate of the $84.4 figure given above, as such it is suspect, because it is not adjusted for exemptions). Thus the proposed amounts of $108.5 million and $29.66 million lead to the stated ad valorem rates of $1.21 and $0.33 respectively. Similarly, the aggregate assessed property value is projected to increase by 6% a year through 2010, which produces, for example, the stated rates of $1.16 and $0.30 for 2007. But since none of these assumptions or the methodology is explained, how can any reasonable voter be expected to interpret this for their own situation, and figure out what they're actually going to have to pay? In my view, this is inadequate disclosure for a $516 million tax increase.
A more meaningful and realistic way to explain the cost of the tax to an individual is in terms of the most recent assessed home values (i.e. for 2004), which have already been calculated and are available from the county. Independent of the growth in the aggregate assessed valuation, the share of an average property relative to the whole should be relatively predictable over short periods of time. The change in the aggregate value is a function of: (1) change in the value of Personal Property, (2) change in values of existing Real Property, (3) addition of New Construction (remodels, new building and newly developed land) into the tax base. Looking at recent years, the value of Personal Property has been slowing falling to about 5% of the aggregate, while New Construction represents about 1.5% growth in real property each year. In other words, regardless of changes in assessed values, the average existing property should roughly maintain its share of the pie from one year to the next, shrinking only by at most about 1.5% a year to accommodate New Construction.
Getting an answer (finally)
Recall from above that in 2004 a property pays $1.56 per thousand for the two expiring levies. An average mid-sized property with a 2004 assessed value of $350,000 would thus pay $546.25 for the expiring levies. Let's see what this property would pay in 2005, and assuming average appreciation and that the sum of all New Construction added about 1.5% to the aggregate taxable base. If 2005's levy revenue were the same as 2004, the property's 2005 tax would then be about $546.00/1.015 or $537.9. But the collected revenue from the "replacement levies" is expected to increase by a minimum of $4.66 million to $134.5 million (a 3.6% increase), or a maximum of $8.4 million to $138.2 million (a 6.4% increase). i.e. the "replacement" levy tax in 2005 should from a low of $557.53 ($546.25*1.036/1.015) or $1.59 (per thousand of 2004 assessed value), a 2% increase over the 2004 tax, to a high of ($546.25*1.064/1.015) = $572.87, or $1.64 (per thousand of 2004 assessed value), a 5% increase over the 2004 tax.
Contrary to the school district illustrations that show the tax rate declining, as long as Seattle's state levy authority continues to rise (as it is expected to), the levy will permit the school district to collect an increasing amount of revenue from the taxpayers. As long as the levy authority continues to rise faster than the growth in the tax base from new construction f(as it has done historically), an existing homeowner will continue to face a rising tax from this levy.
This is very different from what the School District and levy promoters have been telling us. If they can't be trusted to explain the tax correctly before it is approved, why should they be trusted to be any more straightforward with the voters after the tax is approved?
How did I figure all this out?
It wasn't easy. I had to spend several hours poring over documents, running spreadsheets and speaking with various officials at the King County Assessor's Office, the Seattle School District, and the state's Office of the Superintendent of Public Instruction. If that's what it takes to understand a ballot measure, then something in this process is obviously broken.
UPDATE: At the time I posted the article, I hadn't yet received an answer from the School District about their projections for future levy authority. A School District official e-mailed shortly after I posted this article, and indicated that they are in fact expecting the collected revenue to fall dramatically from $104.8 million in 2004 to $97.6 million in 2005, then increasing to $99.6 in 2006 and $101.6 in 2007. If this is indeed what happens, then total revenues and individual taxes would, in fact, be smaller under the new levies than under the expiring levies. On the other hand, this is not consistent with what the OSPI official told me and I haven't seen this seemingly important issue mentioned elsewhere. So, if true -- why hasn't this been reported? This begs for further investigation. And in any event, the levy would still authorize the collection of the higher amounts should state conditions permit.
The Muni League Lays an Egg
The Municipal League of King County ("The Muni League") is a venerated local institution, a non-partisan civic organization which rates candidates and evaluates ballot measures. It describes its role as follows:
Each year, the Municipal League's ballot issues committee interviews experts and delves deeply into the intricacies of statewide and local ballot issues to assess the likely impacts of each measure.This is how the Muni League explained the levies before recommending a "yes" vote on both:
"Together, the levies will cost $2.39 per thousand of assessed property value. For a median-priced home valued at $350,000, a homeowner would pay $833 per year. The levies replace existing operating and capital levies which were approved in 2001 and 1998 respectively."All they did was regurgitate (incorrectly) a School District campaign brochure. They reported that the annual cost of the proposed levies as much higher than it actually is, but also failed to notice that it is a rising tax and an increase over the expiring levies. Some deep delving. I'm forwarding this note to the Muni League's leadership and I hope they will revise their analysis. Posted by Stefan Sharkansky at January 29, 2004 07:00 AM