Sound Transit case leaves bad tax rule

Last week, the Washington Supreme Court ruled that Sound Transit could continue to collect its car-tabs tax, which had been repealed by a statewide vote of the people. Legally, the court was probably correct, but it was not fair to taxpayers.

The case was about Initiative 776, sponsored by Tim Eyman. This page did not support I-776, but in 2002, Washington's voters did, and it became law. All car-tabs taxes in excess of $30 per year, including Sound Transit's 0.3-percent motor-vehicle excise tax, were repealed. How can government collect a tax that has been repealed? Because it had pledged the tax to back its bonds. In 1999, investors bought $350 million of Sound Transit bonds, some of them30-year obligations, relying on that promise. To break that promise would be "impairing the obligations of contracts," which is forbidden in the state constitution.

So said the court last week. Attorney General Rob McKenna, representing the people of Washington, had agreed with that part. But McKenna had gone further and argued that Sound Transit should use the revenue from a repealed tax only to retire bonds to which it had been promised, and not for anything else. When enough revenue had been set aside to pay the bonds, the tax should come off.

The court said it didn't have the authority to order that. The question had never come up, and there was no law about it.

There should be one. Until there is, any public agency funded by its own tax can inoculate that tax from repeal merely by pledging it to pay a bond. For every dollar's worth of tax, the bond might require only15 cents, or a nickel, or even a penny. No matter; the pledge would insure the whole tax against repeal.

The Seattle Monorail Authority almost did this — and what a mess that would have been. Whether by accident or intention, Sound Transit has done it.

McKenna had the right idea: If a tax is repealed, and it has been pledged to a bond, its revenues should go only to the bond-repayment fund. The Legislature needs to make that the law.