Reassessing the reassessments

Since I reported last month that Seattle’s tax rate is going up by 13.4% this year, I’ve been asked by readers to explain why such a huge increase is necessary. With inflation running at only 2.7% last year, how does local government justify a tax hike that’s almost five times higher? Also, how exactly does the 12.3% downward assessment of residential property in our area of Seattle impact what we end up paying in taxes to the City? And since Madison Park’s property values declined less than the property values in the rest of Seattle, does this mean that we will now have to pay a greater share of the City’s total property taxes this year?

Thanks to the assistance of the King County Assessor’s Office, I have the answers to all of these questions.

But first of all, a word about the relation between property taxes and property assessments. You probably received a King County property tax assessment last year stating that the value of your residence had declined by 12.3%. I warned everyone at the time (or at least everyone who was reading this blog) that they should not expect their tax bill for 2010 to decline by the same 12.3%. The reason for this is that the total property tax obligation of the citizens of Seattle is determined by the multiple taxing districts (e.g. city, library, sewer, school, state, county, EMS, ferry, flood) that have the legal right to tax Seattle property. In other words, the annual need for property tax revenue is determined totally independently of the process by which our property values are determined. Or as the Assessor effectively puts it: don’t hold me responsible for the taxes you have to pay; I’m only responsible for figuring out how the property-tax obligation is distributed.

The following chart shows how much Seattle’s property owners are expected to pay in total taxes this year as compared to last:

That actually amounts to only a 1.6% increase in the property tax obligation for all Seattle properties, both residential and commercial in 2010. Not too bad.

And here’s how our area of the City (Madison Park/Madrona/Leschi) fared in terms of overall property value decline, year over year:

That represents a 10.6% decline in the total value of properties (residential and commercial) in our three contiguous communities. Seattle’s total property value, meanwhile, was $131.7 billion in 2009, declining by 10.3% to $118.1 billion for 2010. So what this means is that Madison Park/Madrona/Leschi actually had a greater decline in overall value than the City did (10.6% versus 10.3%).

So how is it possible for both things to be true: our total property value declined more than the City’s, while at the same time individual residential property owners here, on average, had less of a decline in value of their homes than those in all other areas of the City? The answer is that the rest of the Seattle had a lot of new construction and redevelopment, and a significant level of new property value was created in the process. Without this added property available to tax, the City would have had to tax previously-existing property at an even higher rate to make up the difference. Even so, just to stay about even with last year's tax revenues, the tax rate this year had to go up by 13.4%.

For Madison Park, then, this is the outcome of the whole process of tax setting and property reassessment for this year: we lucked out. With our below-average decline in individual property values, we could have faced paying a bigger portion of the City’s total tax obligation in 2010. Instead, because a lot of new property was created in other areas of town that can be taxed this year, we are actually paying a smaller portion of the City’s total property taxes in 2010 than we did in 2009:

And that’s the rest of the story.

["Our share" in the above chart refers to the proportion of total City taxes paid by Area 14, which consists of Madison Park, Denny-Blaine, Madrona, and Leschi (as detailed on the map above).]