Washoe County Commissioners voted today (with Commissioner Larkin voting via phone) to direct staff to prepare documents allowing for the use of up to $17 million from the county’s risk management fund to finance court-ordered property tax refunds on 8,700 parcels in the Incline Village/Crystal Bay area. In a separate motion, the Board also directed staff (with Commissioners Larkin and Humke dissenting) to bring forward a full staff report, an analysis of funding options and impacts, and the option of a draft ordinance allowing for the imposition of a one cent vehicle excise tax to replenish the risk management fund with a sunset provision once that fund has been repaid.

If a one cent vehicle excise tax were imposed, the increase would increase the registration fees on a 3-year old car originally purchased for $20,000 by $52.50, for example, according to information obtained from the Nevada Department of Motor Vehicles. The tax is progressive so higher value, newer vehicles (including recreational vehicles) will incur a greater impact.

Refunds Ordered. The Nevada Supreme Court issued a ruling on July 7, 2011 which upheld an earlier District Court order directing the Washoe County Treasurer to issue refunds of overpaid property taxes with interest to affected taxpayers in the Lake Tahoe area. The Supreme Court’s decision came two years after the County had appealed the District Court’s decision.

Funding Options. County staff recommended the loan and vehicle excise tax actions from a list of identified options in their staff report presented at today’s meeting. In making these recommendations, it was noted that borrowing from a fund with reserves retained for identified property and liabilities claims and for employee compensation coverage (some of which is required by state law) may put the county at risk. However, staff also noted that there are no other revenue sources currently available to pay the $17 million court-ordered property tax refunds to Incline Village property owners. Since the County has already cut spending by $154 million and 769 positions or 20% of its workforce, further budget and subsequent staff reductions would continue to erode the County’s ability to provide essential core public services since 74% of the County’s expenditures are for core services such as public safety. The Board directed staff to return with a resolution to make the refunds and to allocate proportionate shares of the refunds to the other taxing entities which received the taxes: the Washoe County School District, the State of Nevada, the North Lake Tahoe Fire Protection District, and the Incline Village GID, by reducing their respective distributions. Further, the Board directed that the refunds be made from the Risk Management Fund, and asked that staff come back with further analysis of all possible funding sources and impacts, as well as a draft ordinance allowing for the imposition of a one cent vehicle excise tax to be sunsetted when the refunds are repaid.

The County has been ordered by the Nevada Supreme Court to issue refunds, as opposed to applying the refunds as a credit to current or future tax obligations, unless the taxpayer specifically requests the credit in writing to the county Treasurer.

When asked by the County Commission if there are any other available revenue generating resources available to the County, Finance Director John Sherman responded that there was not. He noted that even though the County Commission has legal authority to raise the property tax rate, the rate is currently at the cap of $3.64 per $100 of assessed value due to overlapping increases imposed by other jurisdictions (the county has not raised its property tax rate for many years). Sherman also noted that local governments do not have the ability to increase sales tax rates without authorization from the State Legislature, which we do not have. There are no other revenue sources that could raise the amount of revenue required to make the court-ordered refunds at this time.

Enabling Legislation. The 2009 Nevada Legislature authorized the Washoe County Commission to enact a one cent vehicle excise tax, called the Governmental Services Tax (GST) which would raise approximately $8 million in additional revenues. The intent of the Legislation at the time was to partially compensate for local revenue diverted to the State. Enactment of the tax would make Washoe County consistent with Clark County for the fee paid on the depreciated value of registered vehicles including cars, boats, and trailers. The Washoe County Commission had not enacted this tax in recognition of the current economic recession, and instead cut county spending by $154 million and eliminated 769 county jobs.

Reason for Court Decision. At the heart of the issue is the fact that the former Washoe County Assessor used four methodologies to calculate the taxable value of properties in Incline Village/Crystal Bay with features such as views of Lake Tahoe or beachfront locations based on common appraisal practices, but not ratified by the Nevada Tax Commission as required by law (although they had been ratified by the Nevada Department of Taxation). The Nevada State Supreme Court upheld the lower court’s decision that the County’s methodology was unconstitutional because it had not been ultimately adopted at the State level. Previous rulings found the Nevada Tax Commission “derelict” in its duties since it had not defined assessment methodology as required by law at the time the Assessor applied those methods.

The County has already made refunds to 1,090 property owners in the Incline Village/Crystal Bay area that had had one of those four methodologies applied to their assessment and had properly filed an appeal of their taxes; those refunds totaled $6.1 million. This latest Supreme Court decision extends the refund benefit to all Incline Village/Crystal Bay property taxpayers in order to enforce a decision by the County’s Board of Equalization that ordered the refunds to all taxpayers in Incline Village/Crystal Bay because some had received refunds, on that Board’s assertion that these refunds had put that entire geographic area out of equalization. The Supreme Court ruling is specific to equalization of values in Incline Village/Crystal Bay only.

Washoe County Treasurer Tammi Davis addressed the Commissioners in the refund process already underway. Attached is a Q&A document prepared by her office.