2018 Franklin County Levy Audit

Overview

Purpose

The primary purpose of this review by the Department of Revenue (Department) is to assist the Franklin County Assessor (Assessor) in their processes and procedures to ensure compliance with state statutes and regulations.

Method of Calculation

The Department calculated the levy limitations and levy rate for several of the taxing districts for the 2018 tax year. To determine whether an error occurred, the Department compared the amount levied for the district with the lesser of 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

The Department reviewed the following information:

• Resolutions/Ordinances adopted by the districts
• Levy certification from the county legislative authority (RCW 84.52.070)
• Tax roll certification to the county treasurer and abstract of the tax roll to the county auditor
• Ballot measures
• Levy limit worksheets
• $5.90 aggregate and 1 percent constitutional limits

We do not review every taxing district’s levy. We audited approximately 40 percent of the taxing districts. The scope of the audit did not include the review of earmarked funds.

Taxing Districts Selected

The Department reviewed the following taxing district levies:

• City/Towns: Mesa and Kahlotus
• Fire Districts: No. 1, No. 3, and No. 5
• Hospital Districts: No. 1
• Cemetery Districts: No. 1
• Library Districts: Mid-Columbia Regional Library
• School Districts: Washtucna No. 43 and North Franklin No. 51

Executive Summary

Introduction

The primary purpose of a levy audit by the Department is to assist the county assessor in successfully performing the duties associated with levying property 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.

Categories of Results

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

• Requirements: Of the greatest urgency for effective administration by the assessor. A change is required to adhere to the law.
• Recommendations: Requires the attention of the assessor. The Department believes the assessor could improve their performance and service to the public by making voluntary changes in procedures.

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

Results

The Department identified five requirements and zero recommendations directed toward improving the accuracy of the levy process.

We have listed a summary of these items in the Requirements and Recommendation sections.

Requirements

Overview of Requirements

For the items listed as “Requirements,” the Assessor must make changes in procedure to comply with law. This section contains the requirements we identified.

1. The Assessor is required to determine each taxing district’s levy limit based on the district’s highest lawful levy since 1985 for collection in 1986. The Assessor is required to use the district’s total levy rate, including the non-voted bond levy rate, when calculating the district’s levy limit. The Assessor is required to calculate the statutory maximum rate limit in two parts when the fire district has non-voted bond debt and has had territory annexed away from their district.
2. The Assessor is required to determine each taxing district’s levy limit based on the district’s highest lawful levy since 1985 for collection in 1986.
3. The Assessor is required to use the levy amount certified by a taxing district when determining the lesser of the regular levy limitations to be used in the levy rate calculation.
4. The Assessor is required to certify both locally and state assessed utility values to the taxing districts prior to calculating the levy limitations.
5. The Assessor is required to calculate the statutory maximum rate limit for each regular levy. To do this for cities or towns annexed to a fire and or library district, the Assessor must deduct the actual rate levied by the fire and or library district from $3.60. If the city or town has a fire fighters pension fund, an additional $0.225 is added to the previous calculation.

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1. Fire District No. 3

Requirement

The Assessor is required to determine each taxing district’s levy limit based on the district’s highest lawful levy since 1985 for collection in 1986. The Assessor is required to use the district’s total levy rate, including the non-voted bond levy rate, when calculating the district’s levy limit. The Assessor is required to calculate the statutory maximum rate limit in two parts when the fire district has non-voted bond debt and has had territory annexed away from their district.

What the law says

• The highest lawful levy since 1985 can be increased by the district’s levy limit factor and additional funds for increases due to new construction, increases in assessed value due to construction of wind turbines, biomass, and geothermal facilities, increases in state assessed utility values, and improvements to property. (RCW 84.55.010 and 84.55.092)
• When calculating the district’s levy limit, multiply the district’s preceding year’s levy rate by the increase in assessed value in that district resulting from new construction, increases in assessed value due to construction of wind turbine, solar, biomass, and geothermal facilities. (RCW 84.55.010)
• All outstanding indebtedness, bonded or otherwise, remains an obligation of the taxable property annexed or incorporated as if the annexation had not occurred. (RCWs 35A.14.500 and 35.13.249)

What we found

An underlevy of $128,388.40 occurred due to the following errors:

• The highest lawful levy does not include the amount levied for the district’s non-voted bond debt; they used $1,438,373 instead of $1,562,008.55.
• The rate used did not include the levy rate necessary to levy the non-voted bond debt. A levy rate of $1.302212300 was used instead of $1.359720740.
• The limit did not include a separate levy amount for the non-voted bond debt within their regular levy, which incorrectly calculated the statutory maximum limit amount at $1,854,695.43 instead of $1,872,980.56.

The Assessor was aware of this issue prior to the audit.

Action needed to meet requirement

The Assessor is required to take the following action:

• Notify the taxing district of the levy error and determine if they wish to collect the underlevy amount. If the correction in the succeeding year will cause a hardship for either the taxing district or taxpayers, the district may request the correction be made on a proportional basis over a period of one, two, or three years.
• Unless directed otherwise by the district, implement the levy error correction starting with the 2018 levy for 2019 tax year collections.
• Use the corrected levy rate and highest lawful levy, provided in Appendix A, for the 2018 levy for 2019 tax year calculations as if the error had not occurred.
• If the error correction is completed over a multiyear period, recalculate the levy rate as if the correction had not been made and use that rate in the following years levy limit calculation.

The Assessor is required to make the following calculations when a fire district has non-voted bond debt and has had territory annexed away from it:

Example Calculations:

Step 1: Calculate the levy rate necessary to levy the non-voted bond amount by the taxable value of the district before the annexation.

Bond levy amount ($82,743) / Taxable value before annexation ($1,587,218,084) * 1,000 = Levy rate of $0.05213083

Step 2: Deduct the rate necessary to levy for the bond from the fire district’s statutory maximum rate of $1.50.

Total statutory maximum rate ($1.50) - Bond rate ($0.05213083) = Remaining statutory maximum rate of $1.44786917

Step 3: Apply the resulting rate to the taxable value of the district as it existed on August 1 of the assessment year.

Taxable value after annexation ($1,236,463,623) X Remaining statutory maximum rate ($1.44786917) = Remaining statutory maximum amount of $1,790,237.56

Step 4: Add the non-voted bond levy amount to the remaining statutory maximum amount for the district’s total statutory maximum amount.

Bond levy amount ($82,743) + Remaining statutory maximum amount ($1,790,237.56) = Total statutory maximum amount of $1,872,980.56

Step 5: Double check that your rate equals the district’s statutory maximum rate limit.

Bond rate ($0.05213083) + Remaining statutory maximum rate ($1.44786917) = Total statutory maximum rate of $1.50

Why it’s important

To ensure taxing districts do not levy more or less than they are legally entitled to levy.

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2. Highest Lawful Levies

Requirement

The Assessor is required to determine each taxing district’s levy limit based on the district’s highest lawful levy since 1985 for collection in 1986.

What the law says

The highest lawful levy since 1985 can be increased by the district’s levy limit factor and additional funds for increases due to new construction, increases in assessed value due to construction of wind turbines, biomass, and geothermal facilities, increases in state assessed utility values, and improvements to property. (RCW 84.55.010 and 84.55.092)

What we found

The Assessor did not use the correct highest lawful levy to calculate the levy limit for the taxing districts listed below:

Taxing District	Highest Lawful Levy Used By The Assessor	Highest Lawful Levy That Should Have Been Used
City of Mesa	$51,362	$51,363.05
Town of Kahlotus	$12,500	$12,612.50
Fire No. 3	$1,438,373	$1,562,008.55
Hospital	$304,735	$307,487.21
Cemetery 1	$3,932	$4,029.82

With the exception of Fire District No. 3, as previously mentioned in the report, the Assessor incorrectly carried forward the amount the district actually levied for the 2017 tax year as the district’s highest lawful levy. No under or over levy errors occurred due to this error.

Action needed to meet requirement

The Assessor is required to take the following action:

• Use the correct highest lawful levy amounts for the 2018 levy for 2019 taxes as listed in the table below:

Taxing District	Highest Lawful Levy
City of Mesa	$55,047.03
Town of Kahlotus	$12,738.63
Fire No. 3	$1,716,002.85
Hospital	$313,720.54
Cemetery 1	$4,120.99

Why it’s important

The Assessor must determine the levy limit as required by statute to provide fair and equitable taxation for taxing districts and taxpayers.

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3. Budget Certifications – Fire District No. 5

Requirement

The Assessor is required to use the levy amount certified by a taxing district when determining the lesser of the regular levy limitations to be used in the levy rate calculation.

What the law says

All property taxes must be levied or voted in specific dollar amounts and the rate calculated and fixed by the county assessors, with the exception of voter approved levy lid lifts authorized in RCW 84.55.069. (RCW 84.52.010)

What we found

The Assessor calculated the taxing district’s levy rate using the amount $115,368 instead of the amount certified by the district of $115,638. This appears to be a typographical error. This resulted in an underlevy amount of $270.

Action needed to meet requirement

The Assessor is required to take the following action:

• Notify the taxing district of the levy error and determine if they wish to collect the underlevy amount. If the correction in the succeeding year will cause a hardship for either the taxing district or taxpayers, the district may request the correction be made on a proportional basis over a period of one, two, or three years.
• Unless directed otherwise by the district, implement the levy error correction with the 2018 levy for 2019 tax year collections.
• If the error correction is completed over a multiyear period, recalculate the levy rate as if the correction had not been made and use that rate in the following years levy limit calculation.

Why it’s important

To ensure the taxing districts do not levy more or less than their maximum levy amount allowable by law and the taxpayers pay the correct amount of property tax.

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4. Certification of Assessed Valuations to Taxing Districts

Requirement

The Assessor is required to certify both locally and state assessed utility values to the taxing districts prior to calculating the levy limitations.

What the law says

Assessors must certify the total assessed value, both locally and state assessed, to the taxing districts within their county. (RCW 84.48.130)

The county legislative authority is required to 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. If the certification is made after November 30 and the assessor has certified the assessed values to the taxing districts at least 12 business days before November 30, the assessor may not levy any more than the certified levy amount for the previous year for the taxing district. (RCW 84.52.070)

What we found

The county legislative authority certified the taxing district’s budget requests on January 3, 2018. The Assessor did not certify the locally and state assessed utility values to the taxing districts.

Action needed to meet requirement

The Assessor is required to take the following action:

• Certify the locally and state assessed utility values to the taxing districts.

If...	Then...
the Assessor certifies values at least 12 working days before November 30 and the county legislative authority certifies levy requests on or after December 1st,	the Assessor is limited to levying no more than the districts prior year levy request.
the Assessor certifies the assessed values later than 12 working days before November 30,	the Assessor is not limited to levying no more than the districts prior year levy request.

Why it’s important

Timely certification of assessed values to the taxing districts will enable the assessor and all entities involved to meet the yearly deadlines as required by state law. It will also enhance the transparency in the governmental process of levying property tax.

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5. Statutory Maximum Levy Rate for Cities Annexed to a Fire/Library District

Requirement

The Assessor is required to calculate the statutory maximum rate limit for each regular levy. To do this for cities or towns annexed to a fire and or library district, the Assessor must deduct the actual rate levied by the fire and or library district from $3.60. If the city or town has a fire fighters pension fund, an additional $0.225 is added to the previous calculation.

What the law says

When a city or town is annexed to a fire and or library district, the city or town’s statutory maximum levy rate is $3.60 per thousand dollars assessed value, less the actual levy rate of the fire and or library district for that particular year, plus an additional $0.225 per thousand dollars assessed value if the city or town has a firefighter’s pension fund. (RCW 52.04.081, 41.16.06, and 27.12.390)

What we found

The Assessor did not calculate the statutory maximum levy rate for the Town of Kahlotus correctly. The Town of Kahlotus is annexed to the Mid-Columbia Library, which has a levy rate of $0.36706496. Subtracting this rate from $3.6 results in the correct rate of $3.23293504. There was no levy error as a result of the incorrect statutory maximum rate.

Action needed to meet requirement

The Assessor is required to take the following action:

• Calculate the statutory maximum rate for cities and towns annexed to a library and or fire district, beginning with the statutory maximum base rate allowed of $3.60, then deduct the actual rate of the annexed library or fire district. Add an additional $0.225 if the city has a firefighter’s pension fund.

Why it’s important

The statutory maximum levy rate for cities annexed to a fire or library district must be calculated each year to ensure the city is not levying more or less than the law allows.

Next Steps

Follow-up

The Department is committed to the success of the Assessor by ensuring the levies comply with state statutes and regulations.

The Department will conduct a follow-up review in February 2019. This will give the Assessor an opportunity to implement the required changes, recommended changes, and to provide information to the Department about any issues they encountered during the implementation process.

Appendix - General Information

Introduction

General information provided to assist all assessors and taxing districts.

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Regular Levy Limitations

What are the statutory limitations?

Regular property tax levies are generally considered to be 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

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Levy Limit

The amount of regular property taxes a taxing district can levy, other than the state and port district industrial development levies, 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 compensation calculated by multiplying the district’s levy rate for the preceding year, or the last year the district levied taxes, by the increase in assessed value of the district from the previous year attributable to:
  1. New construction
  2. Increases in assessed value due to wind turbine, solar, biomass, and geothermal facilities (if the facilities generate electricity)
  3. Improvements to property
  4. Any increase in assessed value of state assessed property.

If an error occurred or an error correction was made in the previous year, use the levy rate that would have been levied had no error occurred.

The limit factor used in calculating the levy limit is 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 percent.
greater than 10,000 and a finding of substantial need was made	the lesser of the substantial need factor or 101 percent.
for all other taxing districts	the lesser of 101 percent or 100 percent plus inflation.

Reference:

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

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Statutory Rate Limit

The statutory rate limit varies by district. These limits are found in the various statutes for each type of district and in the Property Tax Levies Operations Manual. 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). The statutory dollar rate limits for all taxing districts can be found in the levy manual, chapter 3.

Reference:

• RCW 84.52.043
• Property Tax Levies Operation Manual, Chapter 3

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Truncating Levy Rates

The final certified levy rate cannot result in a levy amount that exceeds the statutory limitations. To ensure that the final levy rate results in a levy amount at or below the statutory levy limit for each taxing district, the assessor must truncate the rate at the last digit (not round).

If truncating the levy rate for a bond levy results in a levy amount less than the amount requested by the district, the levy rate must be rounded up to ensure sufficient funds are levied for the repayment of the debt.

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Resolutions/Ordinances

The amount authorized by a district in its resolution or ordinance is another limitation on taxation. If a district does not adopt a resolution/ordinance compliant with RCW 84.55.120, the district cannot levy more than it received in the previous year, other than the increase amount resulting from the following:

1. New Construction
2. Improvements to property
3. Wind turbines
4. Solar, biomass, and geothermal facilities (if the facilities generate electricity)
5. Increases in state-assessed property

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.

Reference:

• RCW 84.55.120
• Ordinance/Resolution Form

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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: the November 30 deadline 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 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
• Levy Certification Form

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$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 prorated, in 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
• Regional transit authority

Reference:

• RCW 84.52.043

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1 Percent Constitutional 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, the voters adopted a constitutional limit of 1 percent. 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 public utility district levies). It does not apply to excess levies approved by the voters.

Reference:

• RCW 84.52.050
• RCW 84.52.010
• Article 7, Section 2 of Washington Constitution

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Refunds

Types of Refunds

There are two types of refunds: Adjudicated (court ordered) and Administrative.

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

If the refund is an…	Then…	And…
Adjudicated refund	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: the statutory limit cannot be exceeded when adding a refund to the levy.

Reference:

• RCW 84.68.040 (adjudicated refund)
• RCW 84.69.180 and RCW 84.69.020 (administrative refund)
• WAC 458-19-085 (adjudicated and administrative refunds)

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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 is subject to limitations
• Excess levies are not subject to the statutory limitations placed on regular levies

Type of Levy	Taxing District	Duration
Bond	Most districts	Long term debt, usually 15-20 years
Maintenance & Operational (M&O)	School and fire districts	2-4 years
General	Most districts except school and fire districts	1 year
Technology	School	2-6 years
Transport 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
• Ballot Measure Requirements

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Timber Assessed Value (TAV)

What is Timber Assessed Value?

Timber assessed value determines 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 were 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

After making these calculations, 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 must 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 percent
Capital Project	100 percent
Transportation Vehicle	100 percent
School M&O	50 percent of TAV or 80 percent of the 1983 timber roll, whichever is greater
All other excess levies	100 percent

Reference:

• RCW 84.52.080(2)

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Assessor Guidelines

Introduction

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 (WAC 458-19-010). 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 levy request to the county legislative authority, but does not adopt a resolution/ordinance authorizing an increase over the prior year’s levy	the district’s levy is the lesser of the following: Previous year’s levy plus any increase resulting from new construction, improvements to property, wind turbines, solar, biomass, and geothermal facilities (if the facilities generate electricity), and the increased value of state-assessed property. Current year’s certified levy request. Levy limit (with a 100% limit factor). Statutory maximum amount.
a resolution/ordinance authorizing an increase over the prior year’s levy, but no certified levy request to the county legislative authority	the assessor does not have the statutory authority to levy on behalf of the taxing district.
a certified levy request to the county legislative authority and a resolution/ordinance authorizing an increase over the prior year’s levy	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, wind turbines, solar, biomass, and geothermal facilities (if the facilities generate electricity), and the increased value of state-assessed property. Current year’s certified levy request. Levy limit (with a limit factor up to 101% depending on the district’s population). Statutory maximum amount.
neither a certified levy request nor a resolution/ordinance authorizing an increase over the prior year’s levy	the assessor does not have the statutory authority to levy on behalf of a taxing district.

Appendices