Title
Briefing on Property Tax Levy History, Current Structure, and Limitations
Recommended Action
Committee Recommendation:
Not referred to a committee.
City Manager Recommendation:
Receive a briefing on Property Tax Levy history, current structure, and limitations.
Report
Issue:
Whether to receive a briefing on Property Tax Levy history, current Structure, and limitations.
Staff Contact:
Joan Lutz, Senior Finance and Budget Manager, 360.753.8760.
Presenter(s):
Michael Githens, Finance Director
Background and Analysis:
The City of Olympia relies on its ad valorem (property tax) levy as a foundational revenue source that supports general government functions, including police, fire, parks, transportation and administrative services. Since property tax is both highly regulated under Washington State law and sensitive to economic changes, it is important to understand how the levy has evolved, how it operates today, and what legal constraints shape future budget planning.
Washington State’s property tax system is based on a budget-driven levy structure rather than a rate-driven system. This means that the City adopts the total property tax amount to be collected each year, subject to state limitations and then calculates back to a rate amount.
Significant legislation occurred with the statewide adoption of the 1% annual levy-increase limit, which caps growth in the City’s regular property tax levy to 1% over the highest levy amount from the previous year, unless voters approve a larger increase. Although additional revenue from new construction, improvements, and state-assessed utility property is allowed, the 1% limitation has historically constrained the City’s ability to keep up with inflation driven costs for personnel, maintenance, equipment and services.
Over time, this structural limitation has prompted the City to increasingly rely on voter-approved levies, bonds, fees, and other revenue sources (such as sales tax as well as business and occupation tax) to maintain public services and invest in infrastructure.
Each year, staff prepare and present levy calculations to the City Council as part of the budget process, ensuring compliance with statutory deadlines and coordination with Thurston County for assessment, certification and distribution of collected revenues.
Property tax remains one of the City’s most stable revenue sources. However, its limited annual growth creates ongoing pressure on the General Fund, which supports many labor-intensive services that rise in cost faster than the levy limits allow. This dynamic is a key driver of the City’s long-term budget forecasting, financial sustainability strategies and consideration of supplemental revenue tools.
Several state-imposed constraints, such as annual 1% levy increase, statutory rate caps, constitutional limits, prorationing and reliance on new construction, requires careful financial planning, especially as community expectations for services increase and cost pressures outpace levy growth. Understanding these constraints enables the Finance Committee to evaluate future budget strategies, revenue options and the potential need for voter-approved funding measures.
Climate Analysis:
This agenda item isn’t expected to have an impact to greenhouse gas emissions.
Equity Analysis:
This agenda item is not expected to further impact known disparities in our community.
Neighborhood/Community Interests (if known):
Members of the community may have an interest in this agenda item as it deals with City finances, transparency, and fiscal governance.
Financial Impact:
There is no financial impact associated with this agenda item.
Options:
1. Receive a briefing on Property Tax Levy history, current structure, and limitations.
2. Do not receive a briefing on Property Tax Levy history, current structure, and limitations.
3. Receive a briefing on Property Tax Levy history, current structure, and limitations at another time.
Attachments:
None