Mud flood last happened in 2011, 2013, and 2015 within a few miles of the house.2.

A bunch of cities in western WA have been very undesirable and have some of the worst crime stats around, but they are also the fastest rising home values/rents in the country right now. 

Why is it undesirable?

I've checked gutters and there does not seem to be any leaks or puddling in this area (although I've noticed very soggy mud when it rains a lot)For the time being I am going to dig it down a little, put a plastic liner type down, then add soil and grade it away from the house.

You never know who can bring the undesirable element to your property.

Also, you are correct that I haven't had it tested so truth be told, I do not know (also when I bought it there hadn't been testing done for the seller to disclose to me).By disclosing the POSSIBILITY, which we all must do, plus covering it with drywall mud, primer, and paint does that sound like responsible action to take from your perspective?

If you find an area with no MUD tax, you can usually reduce your tax rate by about 1%.  

If they regarded it as outdated or undesirable anything is possible.

They build custom shower pans out of deck mud, PVC liner, and waterproofing compound on the East Coast, but out of hot asphalt way out West, that sort of thing.

I would also do the drywall/ mudding tapping as well as paint work yourself.