Taxable Assets in the Two Counties Have Outpaced Eastern Washington

by Dr. Patrick Jones

As a society, we devote considerable energy to report on income, whether its level or, especially now, its distribution. Chelan Douglas Trends, in fact, covers three dimensions of income – per capita, median household and its distribution by quintiles by household, indicators 2.1.1, 2.1.2, and 2.1.5, respectively. Yet coverage of wealth at the local level is largely invisible.

This absence is due to the dearth of data. The only somewhat detailed measure for households comes from a tri-annual survey from the Federal Reserve Board (Fed), the Survey of Consumer Finances. It is based on a national sample, however, without any tables for states, let along metro areas. The Fed does publish a quarterly accounting of the U.S. private sector “balance sheet”, however, that holds some indirect, local insights. The latest report, for the last quarter of 2020, puts total U.S. assets at $147.4 trillion. That gigantic total can be divided into two asset classes:  financial and non-financial. They amounted to $104.7 trillion and $42.7 trillion, respectively.

The bulk of non-financial assets in this country lie in real estate. The Fed’s tally for last year’s final quarter put that number at $32 trillion, or about 75% of the non-financial total. Overall then, real estate contributed about 22% to the value of all assets in the U.S. in that quarter.

It is this asset class that is largely captured in Trends indicator 2.4.2, Assessed Value of Taxable Property. Hovering over the most recent value on the graph shows the amount to be $18.8 billion in the two counties in 2019. To put that number into some context, total personal income, the basis for the per capita measure in Trends indicator 2.1.1, was approximately $6.2 billion that year. This shouldn’t surprise, since assets will nearly always be larger than annual income for households. The Fed ratio for of all non-financial assets to disposable (post-tax) income was about 2.5 in late 2020, not too far off from the local one, even if the denominators are somewhat different.   

Of course, assessed value of all taxable property is not the same as the assessed value of all property. Carve outs loom large in property taxes in all states; Washington is no exception. Government physical assets, be they federal, state or local, are not counted. In the two counties, that would importantly include the assets of the public utility districts. School districts’ assets are exempt. Many non-profits, such as hospitals, are not on the tax rolls, as churches, social service agencies, nursing homes, museums, performing arts facilities, among others, are not. And in the state of Washington, certain classes of homeowners –in particular the disabled, enjoy exemptions.

Consequently, the assets counted in this indicator really capture values in the private sector and in residential real estate. These assets are known as “real” property. Another class, “personal” covers appliances, cars and longer-lived equipment. But since Washington state law excludes individually owned personal property from its tax rolls, the assessment falls only on businesses and makes up a very small percentage of total property counted by assessors’ offices. Notably for Chelan and Douglas Counties, agricultural equipment is exempt. For the two counties in 2019, personal property amounted to 2% and 5.5% of the total assessed value in Chelan and Douglas Counties, respectively.

As we can observe in the Trends graph, in the past few years, the two counties have experienced quite a run-up in the value of taxable property. Since 2012, valuations of these assets have climbed from $12.1 billion to the $18.8 billion figure noted earlier. That’s about 56% in seven years, a rate exceeding all metro areas in eastern Washington. The state as a whole, however, generated an 81% increase in assessed value over the same period, likely driven by the boom in the central Puget Sound area.  But clearly, the two counties have strongly expanded their asset base.

Generally, such an expansion occurs via two routes:  an increased valuation of existing property or the entrance of new construction on the property tax rolls, and to a much lesser degree, of business equipment purchases. In the case of Chelan and Douglas counties, not surprisingly, both factors are at work. In 2019, for example, new real property added about $392 million to the asset base. Some quick arithmetic of indicator 2.4.2 reveals that that total assets went up by nearly $1.6 billion between 2018 and 2019, or about four times as much. Another way of expressing this is that new assets of 2019 made up 2% of the total assessed value of the two counties.

Consequently, revaluation of existing properties is largely behind the rise in private property assets in the two counties. Undoubtedly, climbing prices of residential real estate propelled this rise. Consider the upward movement in the median price of residential homes for resale, tracked in in Trends indicator 6.3.1. Over the period 2012-2019, its value rose 83%.

And what about property assessments beyond housing? Without access to detailed data from the assessors’ offices of the two counties, we can’t comment much. Undoubtedly, they have risen, since the largest private sectors of the local economy – agriculture, retail and hospitality – have all enjoyed expanded sales in the intervening years. Yet, it is this writer’s hunch that the expansion of their assessed values has not run up at the same pace as housing has.

As long as prices of residential real estate don’t outpace the other parts of the local economy by too much, a strong increase in the tax base is a good problem to have. It signifies growing wealth in north central Washington. And if the two counties mirror to a large degree the national make up of wealth, the $18.8 billion of assessed value recorded in 2019 is still a fraction of overall wealth here.