The reasons why the tunnel won’t help Seattle’s tax base go back to what I wrote here a little while back in long drawn out piece on Tax Increment Financing. Even if the tunnel gets built, Washington’s budget based tax system doesn’t create additional tax revenue for the City no matter how much the project increases property values. In Washington State, annual property taxes are collected based on a city’s previous annual budget plus 1 percent, regardless of how high or low property values go.
The “Uniformity Clause” in the state constitution means Washington has a peculiar property tax system that doesn’t set a rate of taxation on property. In most places, like Oregon for example, where there is a set rate of taxation on property, infrastructure improvements can incrementally increase tax collections without raising rates by increasing the value of the property. A increase in property value with a 1 percent rate of taxation means more tax revenue.
But Washington doesn’t have a rate based property tax. So it is a false statement to say that the tunnel will help Seattle’s property tax base. Tax collections can only go up 1 percent. The tunnel won’t boost revenue from property taxes and neither will any other project that might improve property values. This is why TIF doesn’t work in Washington without a constitutional amendment.
Which takes us back to the point of the seminar. We agree on a lot of things. Amending the constitution to allow a rate based system for Tax Increment Financing is an idea both business and environmentalists can embrace. It would make a lot of sense to turn our energies and influence toward that end where there is pending legislation to make just such a change. Once we put the tunnel fight to rest, business and sustainability advocates need to turn our fire away from each other and toward Olympia.