On Nov. 6, the Federal Way City Council held a first reading of an ordinance to increase the regular property tax in Federal Way via levy. The ordinance will be finalized at the Nov. 19 council meeting and will apply to 2025 taxes.

The city has consistently raised property taxes as needed in alignment with a state statute that limits property tax levy increases to 1%.

The city’s budgetary documents explain that the reason for the increase is that the city’s population and service needs are outpacing the city’s ability to increase property taxes. Assessed property values in Federal Way went up 6% last year, much more than the 1% that the tax levy will increase by, according to city finance director Steve Groom.

City funding from other sources like sales tax remittances and real estate excise tax income have seen a bit of a slowdown in the past year or so, adding to the need to support the city’s budget with the increase in property tax, according to Groom.

According to city budget documents: “Beginning in December 2023 and continuing into 2024, Sales Tax remittances from the State have been down about 4% compared to same months prior year, indicative of the slowdown in the national / regional retail economy. Real Estate Excise Tax has been down 30% to 40%, year over year, beginning around April of 2023 through all of 2024, due to the inflationary effect on mortgage rates, slowing real estate transactions.”

During the Nov. 6 council meeting, finance director Groom shared that in a review he did, “most cities have a higher tax rate than us.”

Groom added that “raising our tax levy by 1% does not come anywhere near keeping up with inflation and when you look at the average taxpayer’s tax bill, the school district, the state, the fire district and King County all have higher portions on the tax bill than our. Ours is 7% of the average taxpayer.”

To determine how much individuals will pay for property taxes next year, this tax levy is just the first step. After the city decides the dollar amount they need (up to a 1% increase from last year), this number is given to the King County Assessor. Property values are then determined by the assessor’s office, which then calculates what Federal Way property owners will need to pay to add up to a total of that requested dollar amount from the city.

Some nearby cities use other taxes to make up their budget — for example, finding revenue from a Business and Occupation Tax or even from cannabis businesses, which Federal Way does not allow to operate within city limits.

Mayor Jim Ferrell told the Mirror that at this time, the city has no interest in adding a Business and Occupation Tax because that would detract from the draw of Federal Way for small businesses.

Other cities in Washington are also expressing the challenge of the property tax increase limit, with many even finding it a challenge to balance their budgets.

“The Washington State Auditor’s Office has identified ‘concerning’ or ‘cautionary’ issues with the budgets of 29 of Washington’s 39 counties, and in more than 200 cities or towns,” InvestigateWest shared in an article going over the challenge of the property tax limitation.

The 2025-2026 budget for the city of Federal Way will be finalized at the Nov. 19 council meeting and can be viewed at www.federalwaywa.gov/page/city-budget.