12/20/07

Editorial

Property tax relief could turn out to be a burden

In a one-day emergency session on November 29, the legislature acted quickly to pass SB 6175, reinstating a 1 percent levy limit after the voter-approved Initiative 747 was struck down by the state’s Supreme Court. Maintaining a cap on property tax increases provides homeowners a modicum of security in this uneasy housing climate.

A companion bill intended to offer property tax relief was also passed that day, but the legislation may be a wolf in sheep’s clothing.

SB 6178 allows homeowners with incomes of less than the state’s median income, $57,000 annually, to defer up to 50 percent of their property tax bill. Folks struggling with rising mortgage costs may jump on this bandwagon, much to their detriment down the road.

As State Rep. Dan Kristiansen (R-Snohomish) explained, “The deferral comes with adjustable interest that is the federal rate plus 2 percent (currently 7 percent), which accrues annually. If the federal rate increases, so does the program's interest rate. Homeowners may defer half of their property tax bill, but when the home is sold all of those taxes are due immediately along with the accrued interest.”

According to the state’s financial analysts, a homeowner who deferred half the property taxes for 10 years on a $295,000 home could owe the state more than $30,000 upon its sale.

Since the state takes a lead position as a lienholder on properties with deferred taxes, that $30,000 would be paid even before the underlying mortgage is settled, and certainly before the homeowner receives any equity.

The state’s lien might make it difficult to acquire financing for leaky roofs or failing heating systems before putting a house on the market. Refinancing to take advantage of lower interest rates would likely be more difficult as well.

The tax deferral program may lure those most vulnerable into gambling with their future equity. Once they begin participating, the state essentially owns their home, and they won’t be able to escape the financial burden until the taxes, interest and fees are paid.

As Kristiansen stated, “True property tax relief is when you pay less to the government, not more.”

Let’s urge our legislators to consider other, less predatory programs to help struggling citizens stay in their homes and better manage rising tax bills.