I can't tell you how much I don't want to have to write about the proposed "Property Tax Swap," but since it's become such a contentious issue in the governor's race, and since no other media outlet has bothered to fully explain it, I feel obligated to go into semi-wonky detail about what this could mean for Seattle-area voters.
Republican Rob McKenna is right when he says that statewide, a Property Tax Swap would be largely revenue neutral, though that also means that the swap would raise no additional revenue for K-12 schools statewide. But due to the uneven impact of the proposal, Democrat Jay Inslee is also correct when he says that the swap would substantially raise property taxes on hundreds of thousands of homeowners—particular those in Seattle, Bellevue and other "property rich" school districts—while providing zero increase in total K-12 spending. In fact, the swap would actually erode K-12 funding over time for districts like Seattle.
The Property Tax Swap (or "State & Local Property Tax Shift" as it is more technically known) is also the only one of four levy reform options to be dismissed as "Not Recommended" in the final 2011 report of the state's Levy and Local Effort Assistance Technical Working Group.
The idea is simple, though the execution is not. The state would increase the state property tax levy (which is technically a school levy) while reducing the cap on what school districts can raise via their local levy. Statewide, these two shifts would offset each other, meaning no net change in either total revenue raised or K-12 dollars spent. It is essentially an effort to achieve greater equity between rich and poor districts by shifting funding from local levies to the state.
But due to wildly different property values between districts (for example, Bellevue has $2.7 million in assessed property value per student compared to only $0.3 million per student in Yakima), this shift would impact different taxpayers differently. Homeowners in property rich districts like ours would see their total school levy bill rise (for example, by 22 percent in Bellevue), as would those in districts that currently raise little or no local school levy. But homeowners in some property poor districts could see their school levy rates slashed—by 31 percent, for example, in Pasco.
The Property Tax Swap would end up substantially raising property taxes in districts like Seattle, Bellevue, Mercer Island, even Renton, but would not bring us an additional dime of state or local school funding. And thanks to Tim Eyman's Initiative 747, total school funding would grow more slowly for many Seattle area school districts than it would have under the current regime.
The state school levy is a regular levy, and thus subject to I-747's 1 percent limit on annual revenue growth. But the state Caseload Forecast Council projects basic education and transportation costs to rise 1.6 percent annually over the next decade. Local school levies, however, are voter-approved excess levies, and thus not subject to I-747's limits. So by shifting funding from local to state levies, a greater portion of this funding is subjected I-747's limits. According to the Levy and Local Effort Assistance Technical Working Group:
While a hold harmless protects districts from losing total funding, typically the growth rates of hold harmless funding have been flat, compared to the historical growth allowed under the M&O levy authority calculation.
Several urban and suburban districts would experience lower revenue growth rates and a property tax increase. This would likely increase the tension among districts regarding differences in total per-pupil funding.
That's us: Lower revenue growth rates and a property tax increase. In other words: We pay more and get less. Hard to see how a Property Tax Swap on its own is in the best interests of urban and suburban King County.
Don't get me wrong—equity is a lofty goal, and one which I could wholeheartedly support as part of a broader education funding package. I don't mind paying higher taxes to help educate children in poorer districts, as long as we get adequate funding in the Seattle schools as well. But this Property Tax Swap proposal does nothing to address the issue at the heart of the McCleary decision—our woefully inadequate funding of K-12 education. In fact, on its own the swap mostly functions as a clever bit of legerdemain to get around the court's mandate that the state increase K-12 spending.
The Property Tax Swap does indeed increase state K-12 spending without increasing combined state and local taxes, but only by commensurately slashing local K-12 spending in the process. As a funding solution it is smoke and mirrors, nothing more, and leads to slower K-12 revenue growth over time.
Quite simply, this would be a bad deal for many Seattle-area school districts that would increase property taxes, diminish local control, slow revenue growth, and limit our ability to maintain services and meet current contractual obligations. It is also stupid politics that disincentivizes broad based support for higher taxes to increase school funding. To give rural Republicans the levy equalization they need without extracting support for higher taxes in exchange, is to assure that we will never build the political support necessary to find a longterm K-12 funding solution.
On its own, this proposal is a sham that Seattle-area voters would be smart to reject.