Property tax ‘grace period’ would cut property tax payments

OLYMPIA – Restore, but do more. That’s how Senate Democrats will approach tomorrow’s 1 day special session. Lawmakers will look to restore the 1 percent property tax limit invalidated by the Supreme Court’s ruling earlier this month to overturn Initiative 747, while also seeking to provide working Washington families a real remedy for their already-high property taxes.

“We’re going to restore the one-percent limit,” said Sen. Claudia Kauffman, D-Kent. “It’s necessary, but it’s not sufficient. We recognize that property taxes were responsible for significant economic hardship even while the I-747 limit was in place, so we’re going to give middle-class homeowners the opportunity to pay a lot less on their property tax bill.”

Kauffman said the Democrats’ bill offers a property tax “grace period.”

Based on the property tax deferral program now in place for seniors and people with disabilities, the bill would allow those households with mid-level incomes ($57,000 per year, the state Office of Financial Management’s 2006 projection for the state median household income level) to defer 50 percent of their property taxes until their property is sold or transferred. The total deferred amount could not exceed 40 percent of the homeowners’ equity in their home. The deferral would be available to homeowners after they’ve owned their home for at least 5 years.

“Families with mid-level incomes deserve a grace period on paying their property taxes,” Kauffman said. “The grace period allows qualified families to defer payment on half their property tax bill until they sell or transfer their property. Here’s how it works: Qualified families pay their property taxes in April, and the state pays them in October. It’s one step we can take to help ensure that families in crisis aren’t taxed out of their homes.”

The grace period applies to a household’s total property tax bill, both state and local. Deferred taxes due to local governments are backfilled from the state general fund, estimated to be about $9 million per year. Kauffman said these funds will be appropriated in the supplemental budget during the regular legislative session.

Kauffman emphasized the grace period is a deferral, not an exemption. The deferred taxes are remitted to the state when the home is sold or transferred, and a lien for the deferred amount is placed on the home and held by the state in the meantime. The taxes accrue interest in deferment at the same rate used in calculating the state excise tax (federal short-term rate plus 2 percentage points), now at 7 percent. But the program does provide important relief, said Kauffman.

“Increasing home prices have increased many families’ net worth, but their greater net worth is all tied up in their homes,” she said. “They have to pay a larger tax bill because their assets are worth more, but they don’t have the extra cash to reflect it. A grace period will protect families from bigger taxes until their assets are liquidated and they actually have the cash to pay the bill.”

According to Kauffman, the deferral model is used elsewhere in statute.

“The state frequently provides deferrals from sales and use tax for economic development reasons, or to help out struggling industries,” Kauffman said. “We think it’s a great idea to use the same concept to provide economic assistance to our struggling families.”

In addition to the existing property tax deferral for seniors and people with disabilities, state sales and use tax deferral programs include:

• rural investments in manufacturing projects;
• fresh and dairy manufacturing, and seafood product manufacturing and cold-storage warehousing; and
• biotechnology and medical device manufacturing projects.

Kauffman said the property tax grace period is a provisional solution for families under economic pressure, and is the first step on the path toward addressing the pocketbook issues facing Washington families.

“Property taxes are just one example of the many economic stress families are facing,” Kauffman said. “This is a preview of the family-friendly agenda we’ll be launching in the 2008 legislative session. We understand there’s a real sense of insecurity around affordable housing. We understand that the resetting of adjustable rate mortgages is driving mortgage payments through the roof and leading to foreclosures. We understand that health-care costs’ upward spiral has too many people worried that they’re one medical problem away from bankruptcy. We want Washington families to know there are actions their Legislature can do to address these realities.”

The special session is scheduled to begin Thursday, Nov. 29.

The 2008 legislative session is scheduled to begin Monday, Jan. 14.

A joint House and Senate press availability is set for 8:30 a.m. on Thursday, Nov. 29, on the two bills under consideration during the special session. Participating legislators will include Sen. Majority Leader Lisa Brown, D-Spokane, Sen. Derek Kilmer, D-Gig Harbor, and Sen. Claudia Kauffman, D-Kent, as well as Speaker of the House Frank Chopp, D-Seattle, Rep. Larry Seaquist, D- Gig Harbor and Rep. Chris Hurst, D-Enumclaw. Location to be determined and announced later today.

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