State Supreme Court upholds car tab tax reduction

By Mike Lindblom and Susan Gilmore
Seattle Times staff reporters

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But when those taxes will be removed, and what that might mean to the affected agencies, wasn't immediately clear.

The initiative, which passed in November, aimed to limit car-tab taxes to $30 a year statewide, repealing Sound Transit's 0.3-percent motor-vehicle excise tax as well as $15 annual vehicle license fees imposed by King, Pierce, Snohomish and Douglas counties.

It did not apply to the new vehicle tax Seattle voters approved in November to build a monorail.

In today's ruling, which split the justices 6-3, the Supreme Court found that the initiative did not violate the state law that require initiatives be restricted to a single subject and that it did not impair King County's contractual relationship with bondholders.

Sound Transit has recently demonstrated that it could afford to build the $2.44 billion initial segment of light rail from Tukwila to downtown Seattle even if it lost the case. Groundbreaking is expected within the next two weeks.

However, the agency's finances were tightly stretched already, and loss of car-tab tax reduces the money left to help extend the line north toward the University District or south to Seattle Tacoma International Airport. There could also be reductions or delays in the construction of some suburban transit centers.

The ruling, on a 6-3 split by the justices, also raises questions about whether Sound Transit can afford a $250 million deal with the Burlington Northern Santa Fe Railroad to add commuter rail service between Everett and Seattle. Sound Transit officials were unavailable for comment this morning, while railroad spokesman Gus Melonas said only that "we're looking into this today."

The disputed taxes were collected while the initiative was under appeal, and the ruling contains no directives about when or how to halt the tax. But the state Department of Licensing isn't sure when it will stop collecting the $15 licensing fees in King and Pierce Counties. It could be weeks, though, before the fees collected since late last year will be refunded to motorists.

Tom Ahearne, attorney who represented the counties in appealing I-776, said today's ruling didn't surprise him. "You win some and you lose some," he said. Ahearne directed the appeals of two other Eyman initiatives that were found unconstitutional.

Jim Pharris, assistant attorney general who defended the initiative, said the decision was "legally correct. We had the better argument."

As for appeals, Pharris said there is none for the constitutional single-subject question because the state Supreme Court has the final say.

Tim Eyman, the author of I-776, said this morning that "the majority of the court moved closer to the voters."

"Voters have twice approved $30 vehicle tabs but have faced years of obstacles imposed by politicians who refused to listen. This time, the weight of public opinion finally crushed that opposition," he said.

After 776 was approved by voters last year, Sound Transit and King and Pierce counties challenged its constitutionality. Snohomish and Douglas counties repealed their license fees independently before the courts could rule and they weren't part of the lawsuit.

King County Superior Court Judge Mary Yu last February found the measure was unconstitutional because it improperly linked two subjects: $30 license tabs and a call for a revote on Sound Transit's controversial light-rail system. Yu also ruled that it impaired contracts with bondholders who invested in local projects.

But the higher court found:

Initiative 776 did not violate the "single-subject rule." Although the preamble to I-776 expressed a wish for a revote on transportation plans, the initiative itself only required that the license-tab fees be cut to $30.

"Because I-776's 'rule of action' was $30 license tabs and because its policy statements were 'no part of the law,' I-776 did not embrace two unrelated laws or enactments," Justice Susan Owens wrote for the majority in the 6-3 opinion. "Policy expressions in a bill or initiative measure do not contribute additional 'subjects' "

The car-tab tax repeal did not illegally violate bond contracts in King County. The county, like Sound Transit, had sold bonds backed by the tax and argued it needed the revenue to keep its contractual obligations.

But the justices said because King County told bondholders that, should I-776 be upheld, it had other sources of revenue to meet its bond obligations it can't conclude that it "substantially impaired" King County's contractual relationship with those holding the bonds.

What the Supreme Court didn't decide, said Pharris, is to what extent the implementation of I-776 will impair Sound Transit's bond holders. That may go back to Yu to decide.

The initiative did not violate "home rule" powers in Pierce County. The county argued that I-776 improperly imposed a tax on local governments by forcing them to find other funding sources for transportation projects. The Supreme Court countered that it is the state that gave local governments the authority to add the car-tab tax, and "the legislature — or the people legislating by initiative — may rescind by general laws the authority previously granted."

The initiative did not violate due process or property rights of Sound Transit. "No authority exists for that proposition," the court said.

In addition to Owens, justices voting to uphold I-776 were Barbara Madsen, Charles Johnson, Gerry Alexander, Richard Sanders, and Mary Fairhurst.

Dissenting were Faith Ireland, Bobbe Bridge, and Tom Chambers.In the dissenting opinion, the three justices found that I-776 did violate the two-subject rule.

"We have no way of determining whether a majority of voters would have voted to limit license tabs without the opportunity to express their displeasure of light rail. Consequently, the entire initiative must be voided " wrote Chambers.

While the initiative did not explicitly order another vote, Eyman argued during the campaign that I-776 would ensure one. Yu ruled that, although another vote on the rail project was not required , the measure violated the state constitution's "single-subject" rule because some voters might have been misled into thinking it did.

Yu's decision marked the third time in four years than a voter-approved initiative sponsored by Eyman had been tossed out on the same grounds: that he tried to put too much in one measure.

The others were Initiative 695 in 1999, which called for $30 car tabs but also tried to require a public vote on every fee and tax increase statewide; and Initiative 722 in 2001, which would have limited the growth of property-tax levies and eliminated a variety of local fees and taxes.

Pharris, who also defended those initiatives, said the single-subject rule was harder to defend in those cases. But in I-776, "this was not a second subject at all, but puffery language."

During the campaign, Eyman argued that voters all over the state were subsidizing Seattle light rail. In fact, almost the entire local share for the project comes from taxpayers in Sound Transit's "North King" subarea of Seattle, Shoreline, and Lake Forest Park.

Nevertheless, ballots from Eastern Washington and other areas outside the Sound Transit district non-paying areas put I-776 over the top. Pierce County Executive John Ladenburg said afterward that it was unfair for the whole state to vote on urban transit transit taxes. case. Seattle voted heavily against the initiative.

"This is not democracy. This is tyranny," said John Healy, spokesman for the environmental group 1000 Friends of Washington. "This is people in Spokane dictating a local (issue)."

He said Sound Transit should start the first light-rail segment. Even with a loss of car-tab tax, Seattle-area voters may well decide to provide money for future segments here, he said.

The court has yet to rule on another pending case in which light-rail opponents challenge the plan head-on, arguing that the state constitution demands a public revote because the line is shorter than promised.

While the initiative was under appeal, the state Department of Licensing held the money it collected from King and Pierce counties' $15 licensing fees in a special account. Since December, the department said, it has collected $14.8 million in King County and $6.2 million in Pierce.

A spokesman estimated it would take eight to 12 weeks to issue refunds.

Susan Gilmore: 206-464-2054 or at sgilmore@seattletimes.com.

Mike Lindblom: 206-515-5631 or mlindblom@seattletimes.com.

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