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Implicit Price Deflator

This page provides information on the implicit price deflator (IPD) index for personal consumption expenditures and how it affects property tax rate setting for local governments in Washington State. It includes current and historical IPD data, as well as sample resolutions and ordinances of substantial need in case the IPD falls below 1 percent.

Overview

The implicit price deflator for personal consumption expenditures is a figure used to measure inflation, and it can impact how much property tax revenue a jurisdiction can collect in any year.

The definition of "inflation" for setting a property tax levy (RCW 84.55.005) is:

"Inflation" means the percentage change in the implicit price deflator for personal consumption expenditures for the United States as published for the most recent twelve-month period by the bureau of economic analysis of the federal department of commerce by September 25th of the year before the taxes are payable.

Under state law, no local government may increase its property tax levy more than 1% in a given year, and local governments with a population of 10,000 or more are limited to the lesser of 1% or the rate of inflation (RCW 84.55.005 - .010).

Current Inflation Rate

The inflation rate for 2015-2016 (as of September 25, 2016) is 0.953%, which means local governments with a population of 10,000 or more may not increase their property tax levies more than 0.953% in 2017 without adopting a resolution or ordinance of substantial need.

For details, see our blog post Implicit Price Deflator Falls Slightly Below 1%.

How is the IPD Calculated?

The state Department of Revenue (DOR) calculates the IPD using the most recent quarterly numbers reported by the federal Bureau of Economic Analysis (BEA). BEA discontinued publication of monthly IPD numbers in 2014.

Every month BEA publishes an estimate of the quarterly IPD numbers. These quarterly numbers are seasonally adjusted each year in July, and these seasonal numbers form the basis for the prior year IPD personal consumption expenditure number that is used by DOR to calculate inflation. The most recent publication available on September 25 is typically the August publication.

Note that BEA uses anywhere from one to three decimal places.

Resolution or Ordinance of Substantial Need

If the IPD falls below one percent, local governments with a population of 10,000 or more may not increase their property tax levies above the rate of inflation (or bank the excess capacity) unless they adopt a resolution or ordinance of substantial need (RCW 84.55.0101).

If the local legislative body has five or more members, the resolution must be approved by a "majority plus one" supermajority for passage. If the legislative body has four members or less, it must be approved by a simple majority.

There is no clear definition of "substantial need," and it depends on the needs and requirements of each individual jurisdiction.

Local governments with a population under 10,000 may increase their property tax levies up to 1% regardless of the latest inflation data, so they do not need to adopt a resolution or ordinance of substantial need.

Examples

Below are examples of resolutions and ordinances of substantial need from a variety of local governments in Washington.

General Template

Cities

Counties - General Fund/Current Expense

Counties - Road District/Fund

Counties - Flood Control

Counties - Conservation Futures Fund

Special Purpose Districts

Current Quarterly IPD Data (Base Year 2009)

The top row of data in the following table represents the preliminary and revised implicit price deflator for personal consumption expenditures published by BEA. The second row represents the cumulative percentage change in the preliminary or revised index from the second quarter. The third row represents the actual percentage change of the IPD over the preceding 12 months.

Quarterly Index and Cumulative Percentage Change
Year 2015 2016
Quarter I II III IV I II III IV
Index 108.976 109.470 109.782 109.890 109.967 110.517 110.918 111.475
Cum. % Change -0.141 0.312 0.597 0.098 0.169 0.670 0.363 0.502
Prev 12 Mo. % Change 1.00330 1.00312 1.00330 1.00430 1.00909 1.00956 1.01035 1.01442

Source: Table 1.1.9. Implicit Price Deflator for Personal Consumption Expenditures. Last Revised on: March 30, 2017. Next Release Date:April 28, 2017.

Historical IPD Increases

Below are the historical annual increases in the implicit price deflator for personal consumption expenditures dating back to 2000.

Dates Percent
Qtr. 2 2015 to Qtr. 2 2016 0.956
June 2014 to June 2015 0.251
June 2013 to June 2014 1.591
July 2012 to July 2013 1.314
July 2011 to July 2012 1.295
July 2010 to July 2011 2.755
July 2009 to July 2010 1.539
July 2008 to July 2009 -0.848
July 2007 to July 2008 4.527
July 2006 to July 2007 2.084
July 2005 to July 2006 3.419
July 2004 to July 2005 2.541
July 2003 to July 2004 2.387
July 2002 to July 2003 1.84
July 2001 to July 2002 1.16
July 2000 to July 2001 1.89

Source: Table B-1 for years 2001-2013 and NIPA Table 1.1.9. for 2014 and beyond published by the Bureau of Economic Analysis.


Last Modified: March 30, 2017