2013 Franklin County Levy Audit

Overview

Purpose

The primary purpose of a levy audit by the Department of Revenue (Department) is to assist the county assessor in successfully performing the duties associated with levying taxes for the districts within the county.

An effective audit of levy calculations consists of gathering information from the assessor’s office to determine the level of compliance with laws and rules, the accuracy of levy calculations, and the effectiveness of record keeping.

Method of Calculation

The Department calculated the levy limits and levy rate for several of the taxing districts for the 2013 tax year. To determine whether an error occurred, the Department compared the amount levied for the district with the levy limit, the statutory rate limit, the amount authorized by each district’s resolution, and the levy amount certified by the district.

Information Reviewed

Below is the information that the Department reviewed for the 2013 tax year.

• Resolutions adopted by the districts
• Levy certificates (budgets)
• Administrative and adjudicated refunds
• Ballot measures
• Levy limit worksheets
• The State levy letter

The scope of the audit did not include the review of earmarked funds.

Taxing Districts Selected

Below are the taxing districts that the Department reviewed for the 2013 tax year:

• Franklin County General Fund and Road
• Cities: Pasco and Connell
• Fire Districts: 1, 3, and 5 (including excess levies)
• Port of Pasco
• Franklin County Public Hospital District No. 1
• Cemetery Districts: 1 and 2
• School Districts: Pasco, North Franklin, and Othello

Executive Summary

Introduction

This report contains the results of the Department’s audit of Franklin County’s Assessor (Assessor) levy calculations for the 2013 tax year.

Objectives

The objectives of the audit are to assist the Assessor in the levy process, to ensure that taxing districts levy the correct amount of property tax revenues, and to ensure that limits have not been exceeded.

Audit Results

The following items were discovered in the Department’s audit:

• The tax roll was not certified to the Franklin County Treasurer (Treasurer) on or before January 15, as required by RCW 84.52.080.
• Fire Protection District No. 3 overlevied $82,060. A levy correction is required in the subsequent tax year.
• The county legislative authority did not certify the budget amounts of each taxing district within the county to the Assessor according to RCW 84.52.070.
• The excess levies were within the limitations governing property taxes. The Assessor uses the Department’s levy computation form for calculating the levies. By using the Department’s form, the Assessor is effectively calculating all the levy limitations.
• The Assessor’s levy paperwork was both organized and detailed..

Categories of Results

The Department has completed its review and grouped the results into two categories:

• The first category, Requirements, is of the greatest urgency for effective administration by the Assessor, taxing districts and or the county legislative authority. A change is required to adhere to the law.
• For the items listed as Recommendations, the Department believes the Assessor could improve their current process by making voluntary changes in procedure.

The Department based the requirements and recommendations contained in this report on our review of the administrative procedures employed, existing state statutes and regulations, and areas we saw opportunities to improve processes, procedures, and communication.

Audit Results

In this section

The Department identified three requirements and one recommendation directed towards improving the Assessor’s methods.

The items identified may be specific to the Assessor’s duties, the taxing district duties, county legislative authority duties, or they may have shared components of responsibility. We have listed a summary of these items below.

Requirements

The Department identified three procedures that the Assessor, taxing district, or county legislative authority must change to comply with the law.

• The Assessor is required to certify the completed tax roll to the Treasurer on or before January 15. (RCW 84.52.080 (4))
• The Assessor is required to correct Fire Protection District No. 3’s levy error in the succeeding year by reducing the taxing district’s 2013 levy for the 2014 tax year. (RCW 84.52.085)
• The county legislative authority is required to certify to the Assessor the amount to be levied for each of the taxing districts. (RCW 84.52.070)

Recommendation

The Department identified one recommendation to improve the accuracy of the levy process.

• The Department recommends that the Assessor truncate the levy rate for regular levies, rather than round levy rates.

Tax Roll Certification

Requirement

The Assessor is required to certify the completed tax roll to the Treasurer on or before January 15. (RCW 84.52.080 (4))

What the law says

The county assessor must deliver the tax rolls to the county treasurer, on or before the fifteenth day of January, taking a receipt from the treasurer. At the same time, the county assessor must provide the county auditor with an abstract of the tax rolls showing the total amount of taxes collectible in each of the taxing districts.

The tax roll prepared by the assessor’s office contains both real and personal property values, the amount of taxes levied, and the levy rates.

What we found

The Assessor certified the tax roll to the Treasurer on January 28, 2013. The tax roll was certified to the Treasurer after the statutory due date.

During the levy review, the Assessor explained that he could not certify the tax roll by the statutory deadline due to delays in receiving final levy rates from two joint taxing districts.

Action Needed to Meet the Requirement

The Assessor must take the following actions:

• Certify the completed tax roll to the Treasurer on or before January 15.

Why it is important

State law gives dates by which the assessor’s office is expected to complete different tasks. If they are missed by a substantial amount of time, it adversely affects the property tax process and the other departments and entities that rely on the Assessor’s work.

Fire Protection District No. 3 Levy Correction

Requirement

The Assessor is required to correct Fire Protection District No. 3’s levy error in the succeeding year by reducing the taxing district’s 2013 levy for the 2014 tax year. (RCW 84.52.085)

What the law says

When a levy error is discovered that affects all taxpayers within a taxing district, RCW 84.52.085 requires the assessor to correct the error in the following year. If the amount of the adjustment causes a hardship for the taxing district or taxpayers within the district, the adjustment may be made on a proportional basis.

What we found

The Assessor levied more than was lawfully allowed for this district.

Prior to the levy audit, the Assessor discovered they had levied an additional $82,000 for non-voted bond debt when the district had already included these funds in their levy request of $1,100,000.

Series of events:

• On December 7, 2012, the Franklin County Fire Protection District No. 3 purchased Limited Tax General Obligation bonds. The note states that interest on the Bonds will be paid on June 1, 2013.
• On December 26, 2012, the Board of Commissioners of Franklin County Fire Protection District No. 3 certified an amended budget certification for $1,100,000.
• On January 7, 2013, the Treasurer certified to the Franklin County Board of Commissioners a request for $82,000, for the fire district’s non-voter bond debt obligation. The Assessor was not aware at the time that the fire district had non-voted bond debt.
• On January 28, 2013, the Assessor calculated and certified to the Treasurer two separate levies for Fire Protection District No. 3:

Assessed Value	Levy Amount	Levy Rate
$1,017,079,659	$1,047,405	$1.029816
$1,017,079,659	$82,000	$0.080623
Total	$1,129,405	$1.110439

Listed below are the Department’s levy limit calculations for Fire Protection District No. 3:

• Levy Limit: $1,047,345
• Statutory Maximum Rate: $1,525,619
• Certified Budget: $1,100,000
• Amount Authorized by Resolution: $1,047,345

The fire district’s levy should have been $1,047,345, rather than $1,129,405, a difference of $82,060.

In addition, during the levy process we discovered that the Assessor used an incorrect levy rate to increase the regular property tax levy limit. The Assessor’s levy computation worksheet lists $1.03809 as last year’s levy, rather than 1.035809, resulting in an additional overlevy of $60.

Action Needed to Meet the Requirement

The Assessor must take the following actions:

• A levy correction is required in the succeeding year by reducing the taxing district’s 2014 tax year levy.
• Contact the fire district and inform them of the amount overlevied in the 2013 tax year. If the governing body determines the correction amount causes a hardship for the taxing district or taxpayers, the adjustment may be made on a proportional basis over a period of not more than three consecutive years.
• Begin using $1,047,345 as the highest lawful levy for the 2014 tax year.
• The levy rate for the 2014 tax year to be applied to new construction, improvements to property, newly constructed wind turbines, and the increase in value of state assessed property is $1.029757.
• Encourage the fire district to use the Department’s current version of the Resolution/Ordinance form REV 64 0101e.
• Encourage the fire district to use the Department’s current version of the Levy Certification form REV 64 0100.

Why it is important

To ensure that the taxpayers pay the correct amount of property taxes so that the taxpayers and taxing district are not harmed.

Budget and Levy Certifications

Requirement

The county legislative authority is required to certify to the Assessor the amount to be levied for each of the taxing districts. (RCW 84.52.070)

Most taxing districts that intend to levy a property tax are required to certify an amount to levy to the county legislative authority. (RCW 84.52.020)

What the law says

RCW 84.52.020 requires most taxing districts to certify a budget or a budget estimate to the county legislative authority on or before November 30 for levying taxes.

RCW 84.52.070 requires that the county legislative authority certify the amount to be levied for each of the taxing districts, including the county, to the county assessor on or before November 30 of each year. Unless the assessor failed to certify assessed values to taxing districts at least twelve working days prior to November 30.

According to RCW 36.40.071, the county legislative authority may meet on the first Monday in December for a budget hearing.

What we found

The Assessor receives a copy of each district’s budget from either the taxing district, Franklin County Auditor, or Treasurer. These budgets were made available to the Department for the audit.

The county legislative authority did not certify the amounts levied by the board of each taxing district within Franklin County to the Assessor.

In addition, on January 7, 2013, the Franklin County Treasurer certified the total obligation bond payment $82,000, for the Franklin County Fire Protection District No. 3. This amount was already included in the fire district’s levy certification, thus a levy error occurred which requires a correction.

Action Needed to Meet the Requirement

The Assessor must take the following actions:

• Continue educating the taxing districts to certify their budget or budget estimate to the county legislative authority.
• Continue educating the county legislative authority of their requirement to certify the levy requests submitted by each taxing district to the Assessor.

If the taxing districts continue to provide the budget or budget estimate to an entity other than the county legislative authority, the Assessor could provide the county legislative authority with a copy of those documents. The county legislative authority would then have the documentation needed to certify the levy requests to the Assessor as required by statute.

We discussed this requirement with the Assessor and he assured us that they would implement this requirement in the subsequent levy year.

Why it is important

To enhance the transparency in the governmental process of levying property tax.

Truncating Levy Rates for Regular Levies

Recommendation

The Department recommends that the Assessor truncate the levy rate for regular levies, rather than round levy rates.

What we found

The Assessor’s mainframe computer system only allows the levy rate to extend out six digits past the decimal. During the levy review we discovered that some of the taxing district’s levy rates were rounded up at the sixth decimal, rather than truncating.

Recommendation to remedy

The Department recommends the Assessor take the following actions:

• Truncate the levy rate (not round) to ensure the certified levy rate does not result in a levy amount that exceeds the levy limits.

Why is it important

To ensure that the levy rate results in the final levy amount at or below the statutory levy limit for each taxing district.

Regular Levy Limitations

What are the statutory limitations

Regular property tax levies are generally considered those levies that are subject to several statutory limitations. The Assessor must adhere to the following statutory limitations:

• Levy Limit (a.k.a., 101 percent)
• Statutory dollar rate limit
• Amount authorized by resolution/ordinance
• District budget
• $5.90 aggregate limit
• 1-percent constitutional limit.

Levy Limit

The amount of regular property taxes that can be levied by a taxing district, other than the state, is limited to an amount that will not exceed the amount resulting from the following calculation:

• The highest amount that could have been lawfully levied by the taxing district in any year since 1985 for 1986 collection, multiplied by the limit factor; plus
• A dollar component calculated by multiplying the increase in assessed value of the district from the previous year attributable to new construction, improvements to property, wind turbines and any increase in the assessed value of state assessed property, by the actual regular property tax levy rate of that district for the preceding year, or the last year the taxing district levied taxes.

The limit factors used in calculating the levy limit are defined in RCW 84.55.005 and WAC 458-19-005.

If the district's population is...	Then the limit factor is...
less than 10,000	101%
greater than 10,000 - finding of substantial need	lesser of the substantial need factor or 101%
for all other taxing districts	lesser of 101% or 100% plus inflation

Reference:

• RCW 84.55.010
• RCW 84.55.0101
• WAC 458-19-020

Statutory Rate Limit

The statutory rate limit varies by district. These limits are found in the various statutes for each type of district. The Property Tax Levies Operation Manual also provides the statutory maximum rate for each type of district. The levy amount for each district cannot exceed the statutory maximum rate. The statutory dollar rate limits for senior taxing districts can be found in RCW 84.52.043 (1) and in the levy manual, chapter 3.

Reference:

• RCW 84.52.043
• Property Tax Levy Operation Manual (chapter 3)

Resolutions/Ordinances

The amount authorized by a district in its resolution or ordinance is another limitation on taxation.

• The resolution or ordinance must state the increase over the previous year’s levy in terms of percentage and dollars.
• The resolution is separate from the budget certification.
• If a district does not adopt a resolution, the district cannot levy more than it received in the previous year, other than the amount resulting from new construction, improvements to property, newly constructed wind turbines, and increases in state-assessed property.

Reference:

• RCW 84.55.120

Levy Certification (Budget)

Taxing districts that wish to levy must certify a budget or budget estimate to the county legislative authority by November 30 of the assessment year. (Note: this does not apply if the assessor has not certified assessed values to the taxing district at least twelve working days prior to November 30).

The county legislative authority must certify the amount to levy for each of the taxing districts, including the county, to the county assessor on or before November 30 of each year. However, the county legislative authority may elect to conduct its budget hearing on the first Monday in December, as permitted by RCW 36.40.071.

Reference:

• RCW 84.52.020
• RCW 84.52.070

$5.90 Limit

The $5.90 limit applies to the total of most regular levies in each tax code area. The aggregate of the junior and senior taxing districts (excluding the state levy and a few others) cannot exceed $5.90 per $1,000 of assessed value. RCW 84.52.010 provides the order in which taxing districts rates are to be prorated, in the order to bring the aggregate rate down to $5.90. The $5.90 limitation does not apply to levies made by or for:

• The support of common schools (state levy)
• Port Districts
• Public Utility Districts
• Conservation Futures
• Criminal Justice
• Emergency Medical Services
• Affordable Housing
• Metropolitan Parks (if voters protect a portion of the levy from this limit)
• County Ferry Districts
• County Transit purposes

Reference:

• RCW 84.52.043

1 Percent Constitution Limit

The 1 percent Constitutional limit is based on true and fair value, unlike the $5.90 limit, which is based on assessed value. In 1972, a Constitutional limit of 1 percent was adopted by the voters. This limits the amount of property taxes that may be imposed on an individual parcel (real or personal) of property without voter approval of 1 percent of its true and fair value. The 1 percent limit applies to all regular levies (except port and PUD levies). It does not apply to excess levies approved by the voters.

Reference:

• RCW 84.52.050
• RCW 84.52.010
• Washington Constitution Article 7 § 2

Refunds

Types of Refunds

There are two types of refunds:

• Adjudicated
• Administrative

Use this table to decide how to levy for a refund.

If the refund is a...	Then...	And...
adjudicated refund (court ordered)	the district is required to levy the refund	the refund is added to the district’s levy.
administrative refund	the refund levy is optional	the refund may be added to the levy only if the district requests the refund in its levy certification or budget.

Note: When adding a refund to the levy, the statutory rate limit cannot be exceeded.

Reference:

• RCW 84.68.040 (Adjudicated refund)
• WAC 458-19-085 (Adjudicated and administrative)
• RCW 84.69.180 and RCW 84.69.020 (Administrative refund)

Excess Levy

What is an Excess Levy

Excess levies are over and above the regular property tax levies.

• Excess levies require voter approval
• Duration of excess levies are subject to limitations
• Excess levies are not subject to the statutory limitations placed on regular levies

Excess Levies Table

This table lists types of excess levies:

Type of Levy	Taxing District	Duration
Bond	Most districts	Long term debt usually 15 – 20 years
Maintenance & Operation (M&O)	School and Fire Districts	2 – 4 years
General	Most districts except school and fire districts	1 year
Technology	School	2 – 6 years
Transportation Vehicle	School	2 years
Construction/Modernization/Remodeling	School and Fire Districts	2 – 6 years

Reference:

• RCW 84.52.052
• RCW 84.52.053
• RCW 84.52.056
• RCW 84.52.130

Timber Assessed Value (TAV)

What is Timber Assessed Value

Timber assessed value is used both to determine each taxing district’s share of the timber excise tax revenue and in setting property tax levy rates. It serves as a substitute for the value that would be carried on the assessment roll if timber was taxable as real property for all bond and excess levy calculations.

Components of TAV

Based on taxes levied, acreage and assessed value of property in the Designated Forest Land Program (DFL) from the prior tax year, and the estimated public acreage available for timber harvesting (RCW 84.33.089), the Assessor calculates the following values:

• Composite tax rate
• Forest land assessed value (FLAV)
• Average assessed value per acre on privately owned DFL

Once these calculations have been made, the Assessor has all the information necessary to complete the Timber Tax Distribution Priority 1, 2, and 3 worksheets. The priority worksheets list the individual taxing district’s TAV that is to be added to the district’s taxable value for levy calculations.

Tax base

The assessor should ensure that the appropriate amount of TAV is included in the tax base for calculating excess levies.

If the levy type is...	Then use this percentage of TAV in the tax base...
Bond	100%
Capital Project	100%
Transportation Vehicle	100%
School M&O	50% of TAV or 80% of the 1983 timber roll, whichever is greater
All other excess levies	100%

Reference:

• RCW 84.52.080 (2)

Assessor Guidelines

Introduction

According to WAC 458-19-010, the assessor generally calculates the property tax levy rate necessary to collect the amount of taxes levied for each district, within the limitations provided by law. Listed below are some of the guidelines for the Assessor based on the taxing district’s adopted documentation.

Determine the authorized levy amount

Use the table below to determine the authorized levy amount given certain situations.

When the taxing district submits...	Then...
a certified budget but no resolution	the district’s levy is the lesser of the following: Previous year’s levy plus any increase resulting from new construction, improvements to property, newly constructed wind turbines, and the value of state-assessed property, Current year’s certified budget, Levy limit (zero percent increase), Statutory maximum amount.
a resolution, but no budget or levy certificate	the assessor does not have the statutory authority to levy on behalf of the taxing district.
a certified budget and resolution	the district’s levy is the lesser of the following: Previous year’s levy plus the percentage increase authorized by the resolution plus any increase resulting from new construction, improvements to property, newly constructed wind turbines, and the value of state-assessed property values, Current year’s certified budget, Levy limit (up to 1 percent depending on the population of the district), Statutory maximum amount.
neither a certified budget nor a resolution	the assessor does not have the statutory authority to levy on behalf of a taxing district.

Appendices - Levy Calculations Draft Worksheets