Seattle property owners may notice some good news in their recently received 2015 tax rate: overall, it is $9.27 per $1,000 of assessed value, a 10% decrease from the 2014 rate. And if you look only at the City’s portion of the tax bill, the rate dropped 14%.
This is good news for property owners right? Yes, with some caveats.
Let me take a step back and explain briefly how property tax is calculated.
A property owner’s tax is determined by multiplying two inputs: the property’s assessed value and the tax rate. The King County Assessor determines the assessed value of all property in King County. The tax rate is calculated by dividing the total assessed value of property in the City by the total property tax amount to be collected in the City, which is predetermined every year. Since the two have an inverse relationship, higher total assessed values mean lower tax rates and vice versa. A lower tax rate may translate to lower taxes, but it depends on the change in the other variable: individual property value.[Total property tax revenue to be collected] / [Total assessed value] = Tax rate
[Tax rate] x [Individual property value] = Property tax
The lower rate for 2015 means that if your property’s assessed value remained relatively stable, your overall property tax bill will go down. You are benefiting from the rising property values in other parts of the City through lower taxes.
However, we know that property values, commercial and residential, are rising across most of the City. (In fact, the increase in total assessed value – 12.72% citywide including new development – is one reason why the rate has gone down.) Your property value would have to rise by more than 11% for you to see an increase in your taxes for 2015. Many areas of the City have seen an increase of this magnitude; those property owners now have a more valuable asset but also higher taxes, a mixed blessing depending on one’s financial situation.
For those on fixed incomes with little cash on hand, this situation increases the pressure to sell one’s home and move to a less expensive area. That is one reason why seniors and low-income individuals may apply through the State to defer or get reduced property taxes. How many low-income families own a home? According to calculations based on American Community Survey (ACS) estimates for Seattle, 24.4% of households under $50,000 in income live in owner-occupied housing, or about 27,700 households. Looking at another ACS table, 19.7% of families living under the poverty line live in owner-occupied housing. These are not insignificant percentages.
The graph below shows the interaction between property taxes and assessed value in Seattle over time. The City doesn't automatically collect more taxes when assessed values increase, but this graph shows some correlation between taxes and assessed values.
One final note –the growth of property taxes has been capped since 2002, so the City has had to turn more frequently to voter-approved levies (the dash line above). These levies account for about a third of the City’s share of the property tax bill. The chart below shows the City’s voter-approved levies over time; the Parks Levy (to be replaced by the Parks District in 2016) and the Pike Place Market Levy both expired at the end of last year. The wider the colored stripe, the larger the levy.
Our property tax structure relies increasingly on voter-approved levies, not a particularly steady funding source. For this reason, and many others, I believe a state income tax would better serve our community.