This measure would limit growth in state revenues deposited in funds subject to the state expenditure limit, and limit growth in county and city revenues deposited into the county and city current expense funds. The limit would be adjusted based on annual growth in inflation and population. The limit also would apply to revenues transferred out of these funds. The limit would exclude voter-approved revenue increases. Revenues above the limit would reduce property tax levies.

The Law as it Presently Exists

State and local governments receive revenue through taxes and fees. Some of the rates for these taxes and fees are set by elected representatives in the state Legislature, or in the case of certain local taxes, by local city councils, county councils, or boards of county commissioners. Local taxes may be imposed only if they are authorized by state law. The rates for taxes paid to the State of Washington are set in statute by the Legislature. The voters may also enact laws regarding taxes by initiative or, if applicable, by referendum. Some local taxes can only be imposed if the local voters approve them. State law also permits the assessment of certain fees by state or local agencies, as authorized by the Legislature.

The State deposits much of the revenue that it receives from taxes and fees into the state general fund and into accounts referred to by the law as "related funds." Cities and counties place much of the revenue that they receive from taxes and fees into local "current expense funds." These funds are similar in nature to the State's general fund. State law limits spending from the State general fund and "related funds" to the prior year's expenditures from those funds, increased by the average growth in state personal income for the prior ten years. The spending limit does not apply to city and county expenditures.

The state constitution and state statutes limit the maximum amount of revenue that state and local governments may collect from property taxes in a given year, and the amount that property taxes may be increased each year. The state constitution generally limits the total of all annual property tax levies on a particular property to no more than 1% of its true and fair value, unless voters approve higher property taxes. In addition, by statute, the total amount of money that any state or local jurisdiction receives from property taxes may only increase by 1% per year, or the rate of inflation. Total property tax revenue for each jurisdiction can only go up by more than this amount if the voters of that jurisdiction approve the increase by a majority vote. Property taxes for particular parcels may increase or decrease by more or less than that amount, depending on changes in assessed valuation or new construction. Property taxes are levied by both state and local governments. Local property taxes are levied by cities, counties, and special districts, either by the elected representatives or through voter approval of specific property tax levies.

The Effect of the Proposed Measure if Approved

This measure would limit the growth of revenue to the State's general fund and "related funds," and to cities' and counties' local "current expense funds," based on an annual rate of inflation and population growth. If the State or any city or county receives revenue in a given year above the revenue limit established by the measure, then it must deposit the revenues above the limit into a separate account, and reduce the amount that it otherwise would be authorized to levy in property taxes in the following year by that amount.

The limit on revenue growth would not apply to revenue increases approved by the voters at an election, and money received from the federal government would not be included in the State's revenue limit. The inflation rate used to calculate the revenue growth limit would be based on the implicit price deflator for the United States. The limit on state general fund revenue also would be based on changes in statewide population, while for cities and counties it would be based on changes in population for each city and county. The revenue limit would be adjusted if the costs of any program or service are shifted to or from the state general fund or local current expense fund to another fund, or if revenue is transferred from the state general fund or local current expense fund to another fund.