OLYMPIA – Gov. Chris Gregoire on Thursday called on cities, counties and other government entities to resist the temptation to raise 2008 taxes now that a voter-approved property tax limit has been thrown out by the state Supreme Court.
She said she’ll also ask lawmakers to “thoughtfully reinstate a property tax cap” when the legislative session begins in Olympia in January.
“We heard loud and clear on Tuesday evening that voters are concerned about their tax burden,” Gregoire said shortly after the court’s ruling Thursday.
In a 5-4 decision, the high court said the property tax cap approved by voters in 2001 was unconstitutional.
“The text of the initiative misled voters about the substantive impact of the initiative on existing law,” Justice Bobbe Bridge wrote.
In a dissent, state Supreme Court Justice Charles Johnson wrote that voters clearly understood what they were doing.
“The majority seems to suggest that the voters are unable to think or read for themselves, when in fact our democratic process is based on the assumption that voters do in fact read and understand the impact of their votes,” he wrote.
Initiative 747, approved with 58 percent of the vote, generally capped total property tax increases at 1 percent a year, unless voters approve more.
Thursday’s ruling means the tax limit reverts to 1997 levels: 6 percent more per year for small taxing districts. For most cities, counties and other large taxing districts, increases are typically limited to the rate of inflation, unless a supermajority – two of three county commissioners, for example – votes to collect more, up to 6 percent. New construction doesn’t count toward the limit.
Suggestions by I-747 proponent Tim Eyman and others that total property taxes could immediately spike by 30 percent are not true, state Department of Revenue spokesman Mike Gowrylow said. The vast majority of local property taxes are from large districts that – barring a supermajority vote by the officials in charge – are limited to increasing at the rate of inflation. Their total extra taxing capacity in the wake of Thursday’s ruling is about 8 percent, he said.
Also, he said more than a third of the average property tax bill is for voter-approved tax levies, like schools and some fire districts, which are unaffected by Thursday’s ruling.
“Yeah, property taxes can go up more than they have in the past,” Gowrylow said. “But in no way are your local property taxes going to go up 30 percent. It just can’t happen.”
The Department of Revenue estimates that the 1 percent limit saved taxpayers about $1.6 billion since 2002, and kept 2007 property taxes 6.6 percent lower than they would have been.
Eyman, not surprisingly, was indignant. What happens next, he said, will be a crucial test for the governor and legislative leaders.
“The liberal justices did (House Speaker) Frank Chopp, (Senate Majority Leader) Lisa Brown and Christine Gregoire no favors by dropping this powder keg in their laps right now,” Eyman said.
If the Legislature and governor reinstate a cap that’s higher than 1 percent, Eyman said, “all the people who are just dying to have their property taxes lower are going to storm the castle in Olympia.”
The ruling is a golden opportunity to make property taxes fairer, said Christy Margelli, head of the Washington Tax Fairness Coalition. Under I-747, she said, tax levies for fire districts, libraries, hospitals, parks and other services were being eroded by inflation year after year.
Republican lawmakers said Thursday they will try to reinstate the 1 percent cap. They tried that this spring but couldn’t get enough votes. Gregoire, a Democrat, said earlier this year that she thinks she and lawmakers can find a middle ground somewhere between 1 percent and 6 percent.
If the Legislature does not reinstate I-747, the Department of Revenue estimates property taxes will rise at least $58.5 million next year.
The initiative was challenged by three nonprofit groups and Whitman County. The central issue in the court case was whether voters understood what they were voting on. The initiative said they were lowering the limit from 2 percent to 1 percent. But a court threw out that 2 percent limit midway through Eyman’s campaign. As a result, what voters really did was lower it from 6 percent to 1 percent – a much sharper drop.
“Simply put, a voter reading the text of the initiative would have perceived a much smaller impact on government coffers than would actually occur under I-747, a fact the dissent ignores,” Justice Bridge wrote.
Johnson countered that voters knew the limit was higher and wanted to shrink it.
“Whether the former tax cap was six percent or two percent, the voters understood the effect of this law was to reduce the tax, and this is what they voted to approve,” he wrote.
Voting to throw out the cap were Justices Bridge, Barbara Madsen, Susan Owens and Justices pro tem Stephen Brown and Teresa Kulik. Brown and Kulik were sitting in for Justices Mary Fairhurst and Jim Johnson, who recused themselves.
Voting to uphold I-747 were Justices Johnson, Richard Sanders, Tom Chambers and Chief Justice Gerry Alexander.