OLYMPIA – The state Supreme Court on Wednesday upheld a package of “sin tax” increases used to balance the state budget in 2005, ruling that lawmakers were allowed to bump up voter-approved spending limits with a series of money transfers.

The ruling overturns a lower-court decision and avoids the messy possibility of millions in tax refunds. But the high court didn’t find 1993’s Initiative 601 unconstitutional, and didn’t deliver clearer rules about executive and legislative privileges that allow some government records to remain secret.

The lawsuit, filed by a coalition of conservative groups, claimed the Legislature and Gov. Chris Gregoire circumvented I-601’s spending limits by adopting a package of taxes without voter approval, including a big jump in the liquor tax.

The initiative’s spending cap limits budget increases to no more than the growth in population plus inflation, often around 6 percent a year. Lawmakers can affect the level by shifting funds around.

The court’s controlling opinion, written by Justice Mary Fairhurst, said one state law – in this case, I-601 – can’t bind the Legislature from changing laws in the future. Those powers are left to the constitutions.

“To reason otherwise would elevate enactments of prior legislatures to constitutional status and reduce the current Legislature to a second-class representative of the people,” the opinion said.

The case was the first major legal test of the state’s main spending-limit law. Critics of the Democrat-controlled Legislature’s budget maneuvers argued it could have led to a tax rebate of $69 million and new ground rules for the Legislature.

Last year, Snohomish County Superior Court Judge James Allendoerfer agreed with critics that the Legislature artificially inflated the state’s spending limit by moving $250 million among various state accounts, and the following tax vote violated I-601’s spending limits because the taxes weren’t referred to voters.

That tax package included a 60-cent-per-pack increase in cigarette taxes, raising $175 million; a $1.33-per-liter tax on hard liquor, generating about $50 million; and a sales tax on extended warranties on consumer products, raising about $37 million.

Allendoerfer later excluded the cigarette tax increase from his ruling. An estate tax also was not included in the ruling.

The court challenge was brought by the Washington Farm Bureau, Washington State Grange, state chapter of the National Federation of Independent Business, the Building Industry Association of Washington and the Evergreen Freedom Foundation.

Open-government watchdogs had hoped the Supreme Court also would rule on executive and legislative privilege, a pair of constitutional principles that can limit public scrutiny of some government decision-making processes.

Those principles have been established on the federal level and in other states, but Washington appellate courts have never upheld them for this state.

Allendoerfer laid out specific rules for the privileges in his 2006 ruling, but the Supreme Court said it didn’t need to visit that issue because its overall ruling was in favor of the state.