A controversial “levy swap” plan has turned politics on its head in Olympia, with anti-tax activist Tim Eyman calling on Democratic Gov. Jay Inslee to save taxpayers from the GOP.

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Legislative quiz: What problem has Republican lawmakers proposing a big spike in the state property tax, Democrats balking at a proposal to make school levies more equitable, and initiative slinger Tim Eyman begging Gov. Jay Inslee to save taxpayers from the GOP?

It’s the mind-bending debate over how to reform Washington’s school-funding system to halt the overreliance on local property-tax levies — a subplot of the Legislature’s effort to comply with the state Supreme Court’s McCleary decision.

Clouding the issue further is Inslee’s 2012 gubernatorial campaign, in which the Democrat ridiculed a so-called “levy swap” proposal lawmakers of both parties have eyed as a part of the solution.

“We’re in this weird place,” said Frank Ordway, chief lobbyist for the League of Education Voters, who nevertheless sees the possibility of a “grand bargain” that could lead to a historic shift in financing for K-12 schools.

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In its 2012 McCleary ruling, a unanimous state Supreme Court found the state has failed for decades in its paramount constitutional duty to amply fund K-12 schools. Legislators are laboring under a contempt order demanding they fix the problem in the ongoing special session.

A controversial “levy swap” proposed by some Republican lawmakers would raise property-rich school districts while lowering them elsewhere. These figures show the projected increase or decrease in the tax rate per $1,000 in assessed value by 2021 in five local districts. Source: Washington state Senate (Mark Nowlin / The Seattle Times)
A controversial “levy swap” proposed by some Republican lawmakers would raise property-rich school districts while lowering them elsewhere. These figures show the projected increase or decrease in the tax rate per $1,000 in assessed value by 2021 in five local districts. Source: Washington state Senate (Mark Nowlin / The Seattle Times)

But pumping more cash into schools may be the easy part. Aided by higher tax collections from the rebounding economy, Republican and Democratic budget negotiators have agreed to boost school funding by about $1.3 billion over the next two years.

What’s proving much more difficult is unwinding decades of local property-tax levies that districts have leaned on to make up for the state’s underfunding of teacher salaries and other basic school costs.

In 1977, those local levies were limited to 10 percent of what districts received from the state and federal government, but they have been allowed to creep up to 28 percent in most districts.

The McCleary ruling said that’s not an acceptable way to fund basic-education costs at K-12 schools and leaves property-rich school districts able to easily raise money while poorer districts struggle even while imposing higher tax rates.

Education advocates, including state Superintendent of Public Instruction Randy Dorn, say legislators cannot comply with the McCleary ruling without addressing the levy disparity issue. Legislators of both parties have been meeting in recent weeks to try to come up with a plan.

One controversial solution is some form of levy swap, which would raise the state‘s property tax, while lowering local property-tax levies. That would address the Supreme Court’s criticisms that the local levies are not dependable or equitable.

“The situation we have allowed to develop is horribly unfair to our citizens and our students,” said Sen. Bruce Dammeier, R-Puyallup, who is the lead sponsor of a Republican levy-swap plan as part of Senate Bill 6109.

But such a swap by itself would not bring in more money for schools — it would merely slosh taxes around, raising taxes for homeowners in some parts of the state while lowering them in others.

That’s why Inslee attacked the idea in 2012, when the concept was embraced by his Republican rival Rob McKenna. Inslee used it to flip the usual partisan script on taxes, accusing McKenna of wanting to raise taxes on thousands of Puget Sound-area homeowners.

This year, Inslee has continued to dismiss levy reform as a “second step,” arguing lawmakers first must concentrate on finishing a budget that puts more money into schools. “We can’t do this on gimmicks and hopes,” he said during a news conference last month.

Inslee spokesman David Postman said Friday the governor is willing to listen, but remains skeptical of levy-swap proposals that raise taxes for some homeowners without pumping more money into their children’s schools.

Inslee isn’t only critic

The governor’s attitude since his 2012 campaign has disappointed Dorn, who said the levy-swap concept should be on the table. “By a high-level political candidate saying ‘well, you don’t need to do that,’ it put a real cooling on even having an open discussion,” he said.

Without some kind of levy reform, current budget proposals to raise teacher pay and lower class sizes would only increase local-levy reliance because the state only covers a portion of the costs, he said.

But Inslee is far from alone at criticizing the levy-swap proposal put forward by Dammeier and other Senate Republicans.

The proposal, which seeks to phase in a property-tax swap over several years, would essentially redistribute tax money to poorer districts, resulting in property-tax decreases in those areas.

In Puyallup, for example, the combined property-tax rate would decline $1.53 per $1,000 of assessed value by 2021 — a decrease of $612 for a $400,000 house.

But in Seattle, combined tax rates would rise by $1.13 over the same period — boosting taxes by $452 for a $400,000 house.

That idea has been blasted by Puget Sound-area Democrats, who point out it would mostly result in raising taxes in their districts, while lowering them in much of Eastern Washington.

“That’s not fair. That’s crap,” said state Sen. Kevin Ranker, D-Orcas Island, one of the areas that would be hit with higher taxes.

Eyman, the state’s perennial anti-tax initiative sponsor, lambasted the Republican proposal in an email blast to supporters and asked whether Inslee would come “riding to the rescue” to quash the proposal. In another email, he called the idea of raising taxes on some and lowering them on others “divisive and sleazy.”

A spokesman for the state teachers union also criticized the levy proposal as a distraction from the main thrust of the Supreme Court’s school-funding mandate.

“Just moving money around does not address the fundamental problem, which is the state is failing to fully fund basic education,” said Rich Wood, spokesman for the Washington Education Association.

Teachers in 40 local school districts have joined one-day walkouts in recent days to protest what they argue are inadequate House and Senate budget proposals on teacher pay, benefits and class-size reduction.

Dammeier acknowledges his plan won’t fly as written. He says he proposed it to show the scale of shift that is needed in the tax system.

If raising taxes in rich districts seems unfair, Dammeier said it only points to how inequitable the system is now — leading to pay disparities that harm low-income students in need of the best teachers. “That correction is hard,” he said.

Session ends in May

Ranker and other Senate Democrats say it wouldn’t be so difficult if Republicans were willing to raise statewide taxes. They’ve proposed a new tax on capital gains targeting 7,500 of the state’s wealthiest residents.

By devoting that money to K-12 schools, the state could gradually lower local levies without drastically boosting the state property tax. Democrats say their plan would result in a tax cut for most Washingtonians.

“We’re trying to thread the needle between what we need to do and what is politically feasible,” Ranker said, pointing to polling showing support for a capital-gains tax.

House Democrats, meanwhile, have proposed largely punting on the levy issue for this year in favor of a study group that would come back with recommendations.

State Rep. Ross Hunter, D-Medina, who chairs the House Appropriations Committee, has been studying the reform concept for years. He acknowledged the study proposal is on the “very small end” of what lawmakers can do on the subject this year.

But Hunter said agreement on complex plans like others have floated may be too much to expect from lawmakers who have so far failed to agree on a two-year operating budget. The Legislature already has blown through its regular 105-day session without an agreement and is now in a 30-day special session that ends in late May.

“I don’t think you can get to the point in any reasonable time period where there will be broad enough consensus to move $3 billion worth of property taxes around and actually pull a trigger on the deal,” he said.

Dorn said he doesn’t think that will be enough to satisfy the Supreme Court, which has grown impatient with lawmakers postponing tough decisions and making promises to do better in future years.

Despite the obstacles, he said key lawmakers of both parties are realizing “that although this is difficult to talk about, the adults are going to have to come together.”

“We can’t gum this thing to death — we’ve got to take action,” Dorn said. “This is really the moment we are going to make a difference for kids in the 21st century.”