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IPD Set to Exceed 1% for Setting 2020 Property Taxes


September 10, 2019 by Toni Nelson
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IPD Set to Exceed 1% for Setting 2020 Property Taxes

Each year, towards the end of September we typically release a blog post providing the implicit price deflator (IPD) inflation factor, a figure that is to be used when setting a local government’s property tax levy. In the past we have waited until the Washington State Department of Revenue (DOR) releases its notice on September 25th, in keeping with the statute; However, it occurred to us that for the past few years the actual IPD rate that will be used to calculate the inflation rate will be the rate released in August, due to the fact that the next release of the IPD will fall after September 25th (the statutory date for determining the rate of inflation on personal expenditures).

The BEA released its August IPD rates on August 29th. The September release will not be made until September 26th, so we can actually calculate the IPD rate of inflation that will be used for the setting of the 2020 property tax levies now.

As of August 29, 2019, the rate of inflation on the IPD for personal consumption expenditures over the past 12 months is 1.396%, which means that local governments, regardless of whether they have populations greater than or less than 10,000, may levy the full 1% increase as allowed by statute (RCW 84.55.005) or bank this capacity for future use.

This is the first year since 2016 that the IPD inflation factor has declined; However, it is still above the 1% inflation mark, which means that local government entities that levy property taxes do not have to be concerned about adopting a separate ordinance and/or resolution for substantial need. From a historical perspective, during the past 10 years, the IPD has fallen below the 1% inflation mark three times in 2009, 2015 and 2016; and before 2009, the inflation factor had not fallen below 1% since 1998. Whether this is a foreshadowing of things to come for 2021 remains to be seen, but there does seem to be signs of a general slowdown in the economy both nationally and in Washington State.

The Economic Outlook

The current economic indicators from the Bureau of Economic Analysis (BEA), the Washington State Economic and Revenue Forecast Council (ERFC), and others suggest a continued but slowing expansion of the economy. The BEA recently released GDP numbers for the 2nd quarter 2019 of 2.0%, which is 1.1% less than the 1st quarter. Washington State’s real GDP grew at a rate of 2.4%, and a personal income growth rate of 4.9% is forecast for 2020 through 2023.

How Is the IPD Calculated?

The DOR calculates the IPD using the most recent numbers reported by the Bureau of Economic Analysis (BEA). BEA publishes an estimate of the quarterly IPD numbers on a monthly basis. These quarterly numbers are then seasonally adjusted each year in July. These seasonal numbers form the basis for the prior year’s IPD personal consumption expenditure number that is used by the DOR for the calculation of inflation.

This year, like most years, the September release falls after September 25th. Why should we care about the date? According to RCW 84.55.005, the definition of inflation for setting property tax levies:

...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

The rate of inflation is calculated by dividing the Quarter 2, 2019 IPD for personal consumption expenditure (seasonally adjusted) by the Quarter 2, 2018 IPD number, subtracting 1.00 and multiplying by 100. Since the BEA’s next release will not be until September 26, the August 29, 2019 release is used in this year’s calculation. The numbers are as follows:

Quarter %  
Quarter 2, 2018   107.984 (seasonally adjusted)
Quarter 2, 2019 109.491   (second estimate, August 2019)
Percentage Change for IPD (Inflation) = 1.396%

What Does It Mean for Local Governments?

The only limitation that local government must concern itself with is the 1% levy increase limit set in RCW 84.55.005 (2) (a-c). With the IPD inflation rate in excess of 1%, the limit factor as defined by statute is applicable to all taxing districts.

Local government entities must still adopt a property tax levy ordinance stating the increase over last year’s levy in terms of a dollar amount and percentage. The maximum that you can increase the levy is 1% percent; however, there is another option a jurisdiction may want to consider. 

RCW 84.55.092 allows you to bank capacity for the future if the full 1% is not needed for the next fiscal period. During the levy setting process a local government has the ability to use all, some, or none of this 1% increase over last year’s levy. If your jurisdiction does not need the full 1% for the next budget period than banking your capacity for the future may be an alternate fiscal tool that will provide a future benefit. These decisions are all part of the budget process and will be unique to each jurisdiction.

In the event that you wish to bank capacity for the future, your property tax levy ordinance or resolution must simply state that you are increasing by a percentage less than allowed (for example, 0.5% rather than 1.0%). This will automatically bank your remaining, lawfully allowed capacity for the future.

If you have any questions about the levy setting process, visit our Property Tax in Washington State webpage, our recently updated Revenue Guides for Cities/Towns and Counties or send me an email at tnelson@mrsc.org.


MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Toni Nelson

Toni has over 24 years of experience with Local Government finance and budgeting. Toni's area of expertise include "Cash Basis" accounting and reporting, budgeting, audit prep and the financial issues impacting small local government.

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