Thursday, March 26, 2009

What is Banked Property Tax Capacity?

Brett Bonner is circulating a Mini-Initiative (No. M1-2009) to force Whatcom County to adopt an ordinance that requires a vote of the people before Whatcom County taxing districts can access "banked capacity."

Local taxing districts have had the ability since 1986 to "bank" any unused taxing authority that they accumulated by taking less than the maximum levies allowed by law. Many taxing districts accumulated this unused capacity prior to the passage of I-747 and did not use it, even though they could have done so under I-747.

Which raises the question: after all these years, what exactly triggered Mr. Bonner's concern regarding banked capacity?

Has one of the local taxing districts proposed to use a portion of it's banked capacity? If so, what is the purpose of the proposal?

Or, is this a some sort of pre-campaign stunt to cast incumbent County Councilmembers as "money grubbing villains" if they refuse to place Bonner's mini-initiative on the ballot?

After all, Whatcom County has a tradition of being fiscally conservative when it comes to raising local taxes. So, out with it Mr. Bonner - what's the impending crisis that is compelling you to circulate this petition?

Why has "banked capacity" suddenly become a ticking financial time bomb?

Why did the state of Washington adopt "banked capacity in 1986?" To encourage taxing districts to levy only what they need rather than the most that they can get.

In other words, Mr. Bonner's initiative may actually force the County and other local taxing districts to implement the maximum levy provided by law; which - could lead to higher increases in property taxes than we would have had without Mr. Bonner's initiative.

What is "Banked Capacity?"

Beginning in 1986, the Legislature allowed local governments to levy less than the maximum increase in property taxes allowed under law without losing the ability to levy higher taxes later if necessary.

This provision encouraged districts to levy only what they needed rather than the maximum allowable. Prior to that, districts that took less than the maximum, at that point 6 percent annually, permanently lost some of their levying capacity. Therefore, districts tended to use it or lose it. The banked capacity concept allowed districts to be more fiscally conservative without being penalized.

How much banked capacity do local taxing districts have?
The amount of banked capacity varies widely by district. Some districts have consistently levied less tax than allowable and have built up substantial banked capacity. Many others have little or no banked capacity.

Not all districts have this capacity, and of those that do, not all of them will choose to use it. Moreover, districts have maximum statutory rate limits, which precludes many of them from using much of the banked capacity they do have.

How did Initiative 747 affect banked capacity?
Initiative 747 did not address banked capacity. The initiative limited taxing districts to 1 percent annual increases in property taxes (not counting any tax revenue from new construction). Taxing districts could continue to accumulate it or use it under I-747, though the maximum amount of banking was reduced to 1 percent from up to 6 percent annually should a district take no increase at all.

How does the invalidation of I-747 by the Washington State Supreme Court affect banked capacity?
The court decision would have allowed local districts to recover some additional banked capacity during the period I-747 was in effect, 2002 through 2007, except the Legislature re-enacted the provisions of I-747 during a Nov. 29, 2007 special session. This means local districts will receive no additional banked capacity.

Do taxing districts need voter approval to use banked capacity?
No. Taxing districts are limited in the amount their levies may increase each year. As long as the district stays within the limit, no voter approval is required. Banked capacity is simply unused levy authority that is within the district’s levy limit.

If a district uses its banked capacity, how will that affect my taxes?
The effect on the tax bill for an individual property depends on a number of factors, including the value of the property. The amount of tax paid to the district using the banked capacity may rise, but there could be corresponding reductions in the levies of other districts. This is because state law limits overall property tax rates applied to individual properties. The amount of property tax that you will pay depends on the value of your property in relationship to the total assessed value of property in the tax district.

Facts courtesy of WA State Department of Revenue

Washington State DOR Banked capacity spreadsheet

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