SEATTLE — A King County judge last week ordered the city to refund tax payments to seven downtown Seattle property owners that have been made under a hyperlocal tax, passed in 2019, potentially opening up a funding gap for the multimillion-dollar waterfront project.
King County Superior Court Judge Matthew Williams ruled that “the City’s method of assessment was fundamentally flawed and that the process followed by the City was arbitrary and capricious.”
Williams found that the city did not comply with professional appraising standards, that it hypothesized property values far in advance, and that it failed to factor in the effects of a global pandemic on property values.
The city attorney’s office said the judgment requires the city to repay only the taxes paid by the plaintiffs in the case, not all the taxes paid under the 2019 law.
Marina Udokik, a spokesperson for City Attorney Ann Davison, said they were reviewing the decision and evaluating options for an appeal.
“Mayor Harrell continues to see the transformation of Seattle’s waterfront as a cornerstone of a revitalized and re-imagined Downtown,” Jamie Housen, a spokesperson for Mayor Bruce Harrell, wrote in an email. “We are evaluating how this ruling may impact City finances going forward.”
The seven plaintiffs in the case collectively owed about $16 million in tax on 20 properties. It is unclear how much money the city has collected from these property owners and how much it will have to pay back.
2019 law
The City Council unanimously passed the Local Improvement District tax in 2019 and Mayor Jenny Durkan signed it into law.
Local Improvement Districts allow cities to generate money for infrastructure projects by assessing nearby property owners whose property values stand to increase as a result.
The property owners in a LID pay a percentage of their anticipated “special benefits,” with those closer to the project paying more, based on their greater anticipated benefits.
Seattle has used LIDs to build the Aurora Bridge, regrade Denny Hill and to launch South Lake Union’s streetcar line.
But property owners within the district protested, arguing that the revamped waterfront — with a new park, tree-lined promenade and pedestrian ramp up to Pike Place Market — would draw visitors from across the city and region, if not the country and the world.
Seven property owners within the district — including the United Way, Hyatt Hotels, the Four Seasons and Marriott — sued in 2021, contesting the city’s method for assigning tax bills. An additional 430 or so property owners filed appeals with the city after receiving their tax bills.
The tax district is made up of more than 6,000 parcels and covers downtown waterfront, roughly bordered by Denny Way to the north, the stadiums to the south and Interstate 5 to the east.
Flawed process
To determine the tax bill, the city relied on a 2019 study that concluded the work on the waterfront would bring a “special benefit” to the property owners of about $447 million.
Historically, LIDs have charged property owners 50 to 70 percent of the benefits associated with a project. Seattle, in this instance, aimed to charge property owners about 40 percent of the estimated benefits.
The city then assigned estimated “before” and “after” values to each property in the district and assigned tax assessments based on the increase in estimated value.
But the estimates were made nearly two years before the City Council gave them final approval and nearly six years before the anticipated 2024 completion of the waterfront rebuild.
Assumptions from the 2019 study were already false by the time the City Council approved the final assessments in 2021, Williams wrote.
“The City failed to discount the special benefits for the risks and uncertainties associated with the LID improvements and the impact of COVID-19,” Williams wrote. “Rejecting evidence of the impact of the Global Pandemic and refusing to consider its effect on valuations was arbitrary and capricious.”
