By Washington State law, the City is allowed to increase the annual property tax revenue received by the City by 1% per year plus an increase for the value of new construction added to the tax rolls from the previous year. If the City received $2,500,000 from property taxes one year, the City can raise an additional $25,000 (1%) in the next year. The calculation for the annual property tax revenue equals the total assessed property value of all properties in the City divided by $1,000 x the tax rate.

Therefore, based on the assessed value of all property set by the King County Assessor's Office, the City adjusts the annual tax rate so the City receives last year's property tax revenue plus 1%. If the assessed value increases by more than 1%, then the tax rate is lowered and if the assessed value decreases by more than 1%, then the tax rate is increased.

Perhaps the best way to explain Washington’s property tax system is with some simple illustrations.

Imagine that Lake Forest Park consists of four homes, each appraised by the King County Assessor at $100,000. Let’s also say that the property tax revenue raised last year plus 1% for Lake Forest Park is $1,000. The amount needed to run the City. To raise that amount of revenue, each home owner pays $250. Four homes each paying $250 raises $1,000.

Let’s say next year’s property tax revenues remain at $1,000, but the assessed value of the homes increases to $200,000 each. Do the taxes on each of the homes change? No. To raise the $1,000 needed to run the City, each must still pay $250. The assessed value of each home doubled, but the tax didn’t change.

Usually the values of homes change differently. Suppose one home goes from $100,000 to $150,000. Two homes double in value to $200,000 and the last home jumps up to $250,000. Now what happens to the taxes? The average value of the four homes is still $200,000. So the taxes on the two homes that go to $200,000 are unchanged. They are at the average and they each still pay $250. The lowest valued home sees its tax go down to $187.50, even though the assessed value goes up 50%. The home that jumped 150% to $250,000 in value sees its property tax go up to $312.50, a 25% increase. In the end, the City still only receives $1,000 in total property tax revenue.

Normally budgets adjust from year-to-year due to inflation or with new statewide initiatives. In 2000, Washington State voters approved Initiative 747. This initiative limited annual property tax revenue increases to 1% unless voters approve a greater increase. In Lake Forest Park, the $1,000 in property tax revenues can only increase 1% to $1,010 the following year unless the voters who live in the City approve a higher increase.

In addition to the City property taxes, City residents pay taxes to other taxing districts including the State, King County, the King County Library District, the Northshore Fire District, the King County Flood Control District, Emergency Medical Services, enhanced 911, the Port of Seattle, and the Shoreline School District. Each tax district levies their own property tax revenue. Most taxpayers think there is a limit on increases to assessed values. Not so. The limit is on the annual growth of property tax revenue of the tax districts.

Did you see Municipal Finance: Property Taxes 101: How Your Property Tax Rates are Determined

Visit the City‘s Finance Department