King County property-tax idea hits snag

King County officials, responding to a warning that some local tax rates could exceed legal limits next year, are backing away from a possible property-tax increase to help pay for sheriff's deputies and courts.

The officials also are examining whether the limit on property-tax rates could cost a countywide flood-control district millions of dollars used to improve river levees.

Because of the tax-rate limit, if the Metropolitan King County Council decides to ask voters to approve a tax increase in November, it most likely will be for a sales-tax hike, two key members said Thursday.

The new revenue problems are caused by a state law — rarely triggered in King County — that limits the combined property-tax rates of most local taxing districts.

Because assessed real-estate values are expected to plummet for the second year in a row, the rate cap may be exceeded as taxing districts raise rates to keep revenues from dropping.

That means tax rates might have to be reduced for some so-called junior taxing districts, such as the King County Flood Control District, to keep the total rate within the limit. The flood district, according to a preliminary analysis, could lose $8 million to $12 million of its $35 million in annual tax dollars next year.

The 2-year-old flood district has redirected money to repair levees damaged by 2008-09 winter storms and to improve levees on the Green River below the federal government's weakened Howard Hanson Dam.

"Now we have two major governments that are in trouble" — the county and the flood-control district, said council member Julia Patterson, who chairs the flood-district board of supervisors and the County Council's budget committee.

The flood district's potential loss of revenue also may dim the prospects for Seattle's request for $30 million of district funds to help pay for the replacement of its central waterfront sea wall.

County Council Chairman Bob Ferguson said protecting the flood district will be a priority, but he also said he's now focused on "a more immediate problem" — getting the council to agree to put a tax on the November ballot to help close a projected $60 million shortfall in the general fund. The money would help fund sheriff's deputies, courts and other programs.

"I feel the sales-tax proposal, as imperfect as it is, is the best revenue option we have at this time," Ferguson said.

"It looks like we're back to the sales tax," Patterson said.

The nine-member County Council last month couldn't muster the six votes needed to put a sales-tax increase or a property-tax increase on the August primary ballot.

Ferguson and Patterson said they are now backing away from putting a property tax on the November ballot because, if passed, it could end up taking money away from the flood district and some other jurisdictions.

Budget Director Dwight Dively said it will be months before the magnitude of the flood district's revenue problem is known. The assessor's office is still appraising properties for next year's taxes and no one knows how much the various districts will raise their rates to maintain tax collections.

Taxing districts may raise their tax rates, within limits, but can't — without voter approval — increase total collections by more than 1 percent above the previous year, plus any collections on the value of new construction.

In addition, a separate law says that for most local taxing districts, the combined total of the districts' regular levies approved without a public vote cannot exceed $5.90 per $1,000 of assessed value. That's a total of $2,360 on a $400,000 house.

It's that $5.90 per $1,000 limit that could affect the flood-control district.

Levies collected by the state, school districts, ports and ferry districts, and those for emergency medical services, affordable housing, conservation futures and county transit are exempt from the rate limit.

County budget analysts have found four areas near North Bend, Kent, Redmond and Renton where it appears likely the tax rate would top the cap next year.

State law directs county officials to get taxes back under the limit by reducing or eliminating levies of lower-ranked junior taxing districts — such as park, flood, recreation, hospital and cemetery districts — before cutting more senior districts, such as fire districts, counties and cities.

If taxes exceed the cap anywhere in the county, the flood district's tax rate could be rolled back countywide, putting millions of dollars at risk. That's because the rate must be the same for all taxpayers throughout the county.

Dively said the flood district can keep its tax rate intact and reduce its losses by paying one or more smaller districts to lower their rates instead.

Budget officials don't yet know how much the district could save through such "buy-offs."

Keith Ervin: 206-464-2105 or kervin@seattletimes.com