SOUTH BEND — Timber tax revenues in Pacific County in 2005 were $1,067,000. They were $950,000 in 2008 after the violent windstorms in 2007 blew down so many trees. However, during the recent recession in the housing market in 2009, the timber tax plunged to $539,000. In 2010 it dropped even further to $280,000, according to the county budget for 2010. 

“In 1995, our timber tax revenues were at $2.2 million and they accounted for about 30 percent of our county’s revenue. Last year, timber tax revenue amounted to about 5 percent of our budget,” County Commissioner Jon Kaino said.

  Timber tax revenue is used to pay off bonds for school and hospital building projects (priority one) and to help defray school maintenance and operations expenses (priority two). Then, what remains is used to help fund operations at hospitals, fire districts and city, and county government agencies (priority three). 

“We have never faced a situation where we couldn’t meet priorities one and two and have money for priority three operations until the past two years,” Assistant County Treasurer Shelly Flemetis said. 

The way the current law is written, revenue from the excise tax on harvested timber is calculated quarterly. Money from the first two quarters is used to retire bonds as priority one and to pay a percentage of maintenance and operational expenses for the school districts as priority two. 

The third quarter revenue is set aside for the other entities such as hospitals, fire districts, city and county government agencies as priority three. Fourth quarter revenue is again used for bond payments and for school district M&O expenses and for a reserve fund.

“In the past, the schools have always gotten their money and the bonds have been paid and priority three people have often received large windfall payments because timber tax revenue has been flush with cash. That may not be the case in the future,” Flemetis said.

 

Paying as it’s cut

One of the cornerstones of the American taxation system is the “ability to pay” premise. People and corporate entities that owned property with harvestable timber were paying higher property taxes on their land and argued successfully in 1984 that they should only have to pay tax when their timber was harvested.

A state law was passed that allowed land with timber to be assessed at the same rate as other property, but an excise tax would be assessed when the timber was harvested. The original percentage was 6.5 percent and now the excise tax is 4 percent of the timber sale in Washington. Timber logged on private land produces 3 percent excise tax for the county in which it is logged and 1 percent for the state. Timber sales from lands managed by the Department of Natural Resources result in 2.2 percent of the tax going to the state and 1.8 percent going to the various counties. Timber tax revenue significantly lowers the amount of property tax paid by landowners in Pacific County. 

 

Values stuck in 1983

A flaw in the current law is that the estimates of the excise tax are based upon land values as “assessed in 1983.” Assessor Bruce Walker still calculates the estimated timber tax distributions and excess levies each year based on values set in 1983, but feels using the previous year to make the estimates would help prevent shortfalls, as do the Washington State Associations of County Assessors and of County Officials.

They support state Reps. Sam Hunt and Dean Takko’s proposed House Bill 1427 to change the law to update values to how the land was assessed the previous year, which is likely what the original lawmakers had in mind. The main reason the law was never challenged is that timber sales in the state have always been sufficient to fund the three priorities. 

“We are hoping the proposed House Bill 1427 will help make sure that the schools will always get their money and the bonds will always be paid off on time,” Walker said. One problem is that school districts are on a July to June fiscal year and the state and counties are on a calendar fiscal year. The first timber tax payment each year is in February and the second in May, which fall close to the end of the fiscal year for schools.

 

Impacts on schools

Naselle Schools Business Manager Jon Tienhaara said, “Any shortfall of revenues normally generated through timber taxes could have a negative impact on our school district. When our voters approve an M&O levy, a significant amount of that levy is paid through timber taxes, as are our bond payments. Without the timber tax revenue, the school district cannot fully collect the total approved levy amount.”

In 2010 the Naselle-Grays River Valley School District received a total of almost $230,000 in timber tax revenue for bond payments and to help support M&O levies. Of that total, about $31,000 came from Timber Tract Trust Land on state-owned DNR lands and over $87,000 came from private timber sales in Wahkiakum County that is within the school district boundary. The remaining $102,000 was from excise tax on private timber sales in Pacific County. 

Ocean Beach School District received about $60,000 last year and Raymond, South Bend, and Willapa Valley schools also share in timber tax revenue. In 2005, Naselle schools also received $230,000 from excise tax on timber sales. 

School districts, hospitals, fire districts and other local government entities are hopeful that Flemetis’ timber tax spreadsheets will always be in the black. Walker and Reps. Hunt and Takko are working to change a law that could help them better survive the recession. 

However, a sign of the economic times is that the largest recent transaction of timberland in the county was a $126 million sale by Weyerhaeuser to a subsidiary of John Hancock, an investment company. That timber, when not harvested, generates no excise tax for the county’s needs.

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