Multi-Year Levy Lid Lifts: A Tool for Coping with Inflation?
For the last two years or so, local governments as well as consumers have been dealing with inflation levels not seen since the early 1980s. Since the beginning of 2021, the national Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has risen by 15%, while the Seattle regional CPI-W has increased more than 16%. Some sectors have seen greater increases. (Don’t even get me started on grocery bills for a family of four!)
Meanwhile, local property tax revenues — the main revenue source for many local governments — are generally restricted to a 1% increase each year plus new construction and certain “add-ons.” This is known as the 101% levy limit, or the “levy lid.”
This limitation, combined with years of rapidly increasing property values in many parts of the state, means that the levy rate per $1,000 assessed value (AV) has fallen significantly in many jurisdictions.
What’s a local taxing district to do? Well, the main option available to most jurisdictions is to submit a levy lid lift to voters for their approval — but there are several choices to make before placing a levy lid lift on the ballot. This blog focuses on single-year versus multi-year lid lifts, with a particular emphasis on how multi-year lid lifts have performed on the ballot compared to their single-year peers.
Benefits of a Multi-Year Levy Lid Lift
Levy lid lifts are a complicated subject and I encourage you to review our page on Levy Lid Lifts for the details. Basically — if voters approve — a levy lid lift resets the district’s property tax levy rate per $1,000 AV, allowing the district to temporarily exceed the 101% levy limit and resulting in a jump in property tax revenues.
There are two basic options for a levy lid lift: single-year and multi-year. (Levy lid lifts are also either temporary or permanent, as discussed on our Levy Lid Lifts webpage, but I won’t be talking about that here.) A single-year levy lid lift allows a taxing district to establish a new levy rate per $1,000 AV and to exceed the 101% limit for one year only. After that, the jurisdiction is subject to the 101% limit once again.
A multi-year lid lift, on the other hand, allows a jurisdiction to exceed the 101% limit for up to six years, provided that the tax increase is used for a “limited” purpose stated in the ballot measure. The jurisdiction establishes a new levy rate per $1,000 AV for the first year. Then, for up to five years after that, the jurisdiction chooses a “limit factor” to replace the 101% limit. This limit factor can be a fixed number, such as 103% or 106%, or it can be tied to an inflationary index, such as the Consumer Price Index (CPI). A fixed rate of 106% seems to be the most popular — which, incidentally, used to be the annual property tax limit before Referendum 47 and Initiative 747 established the current 101% limit a couple of decades ago.
If you’re using an inflationary index, your ballot resolution should clearly state which index you are using (such as the Seattle-Tacoma-Bellevue CPI-U or the U.S. City Average CPI-W), and when it will be calculated. Many jurisdictions also include language to the effect of “the percent change in the [inflationary index] or 101%, whichever is greater.” That way if the index falls below 1% in a given year, you can still take the normal 101% increase. A few jurisdictions have also put a cap on the inflationary index — for instance, not to exceed a 6% increase per year.
Examining the Data
To research this article, I did a deep dive into MRSC’s Local Ballot Measure Database, where we have been tracking the results of all local ballot measures across Washington State (except school districts) since November 2011.
Specifically, I wanted to know how multi-year levy lid lifts fared compared to single-year lid lifts and whether the limit factor made an appreciable difference.
First, the number of multi-year lid lift attempts appears to be trending upward. The numbers fluctuate each year, but over the last two years almost half of all levy lid lifts on the ballot have been the multi-year variety.
Second, focusing just on the last four years (a lot has happened in that time!), there has not been any significant difference in the success rates of single-year versus multi-year lid lifts. There have been 110 single-year attempts, of which 78% have passed and the median “yes” vote has been about 63%. Meanwhile, there have been 74 multi-year attempts, of which 85% have passed and the median “yes” vote has been just under 60%. (A levy lid lift requires a simple majority of “50% plus one.”)
Third, the limit factor for multi-year lid lifts — such as 103%, 106%, or the annual rate of inflation — does not seem to have a significant impact on the outcome. It’s possible that lid lifts tied to the inflation rate might perform slightly better than a fixed rate, such as 106%, both in terms of median “yes” vote and percent of successful ballot measures, but the sample size is small so it’s hard to draw a firm conclusion. Regardless of the limit factor, a significant majority of multi-year lid lifts have passed.
There are many factors that contribute to the success or failure of a ballot measure, including the composition of the local electorate, what the revenues will be used for, local leadership, outreach to key stakeholders, media coverage, and even, potentially, election timing. Some jurisdictions can easily pass ballot measures while others consistently struggle.
What the data suggests to me is this: Voters probably don’t care that much whether you are proposing a single-year or multi-year levy lid lift, as long as they see the value in the services that would be provided and are willing to pay more property taxes to fund them. So, if you think you can make a strong enough case to convince a majority of your voters to support a property tax increase, a multi-year levy lid lift has some advantages you should consider. If you do opt for a multi-year lid lift, you will need to choose the right limit factor for your agency’s needs.
I should also note that there is an ongoing attempt this year to make some modest changes to the 101% levy limit — HB 1670 — but its prospect at this time is unclear having missed a key legislative cutoff. MRSC will keep you updated if there are any changes to this law.
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.