Higher taxes? Court clears way

OLYMPIA — Homeowners in some parts of the state could see larger local property-tax increases as the result of a state Supreme Court ruling on Thursday.

In a 5-4 decision, the court tossed out Initiative 747, which limited increases in property-tax collections — not to be confused with tax rates — to 1 percent a year unless voters approved more.

Republicans warned that huge tax increases are in the offing. Democrats, who control the state Legislature and the governor's office, vowed to pass legislation early next year to protect taxpayers.

How the ruling will affect individual homeowners is impossible to predict, because so many factors go into tallying a property-tax bill.

The decision lets many local governments and taxing districts revert to a 6 percent annual limit in place before voters approved I-747 in 2001. State officials say many communities have already finished their budgets for 2008, so it likely would be 2009 before additional property-tax increases are considered.

Officials in Seattle, Bellevue and Redmond said they have no plans to increase taxes beyond what they've done while I-747 has been in place.

The King County Council is in the midst of 2008 budget deliberations and is expected to adopt next year's tax rate Nov. 19 — but the council could adjust the rate as late as early January, county Budget Director Bob Cowan said.

"We don't know what the next steps are. I think some people are presuming we can automatically go to 6 percent. I don't know that that's the case," Cowan said.

The Supreme Court upheld a June 2006 ruling by King County Superior Court Judge Mary Roberts that found voters were deceived by the initiative, sponsored by anti-tax activist Tim Eyman. The initiative remained in effect while the case was on appeal.

Those justices joining Bridge on the majority opinion were Justice Susan Owens, Justice Barbara A. Madsen, Justice Pro Tem Stephen M. Brown, Justice Pro Tem. Teresa C. Kulik. Justice Charles W. Johnson wrote the dissent. Concurring were Chief Justice Gerry L. Alexander, Justice Tom Chambers, Justice Richard B. Sanders.

"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," Justice Bobbe Bridge wrote in the majority opinion. "The text of the initiative misled voters about the substantive impact of the initiative on existing law."

Eyman quickly lashed out at the decision, saying in an e-mail that local governments "will be like pigs at the trough."

"Taxpayers now face the nightmare scenario," he said. "We're in for absolute chaos."

While Eyman bashed the ruling, he said it came at an ideal time. Two days earlier, voters showed they were in a cranky mood about taxes by passing another Eyman initiative that clamps down on the Legislature's taxing authority and by rejecting numerous local tax measures statewide.

And, with the 2008 election looming, Eyman said it's a political "no-brainer" that Democrats will have to move fast to reinstate the 1 percent cap.

Republicans were quick to join the outcry on Thursday.

"This ruling is an unfortunate one for taxpayers, especially for homeowners who are already facing skyrocketing property tax bills," state Senate Republican Leader Mike Hewitt said in a statement. "Now every homeowner in Washington is threatened with a massive property-tax hike."

State Democratic leaders vowed to protect people from rapid tax increases, but didn't say whether they favor reinstating I-747, passing a higher tax cap or approving some other form of tax relief.

"As governor, I am asking the state, counties, cities and all other taxing districts to assure me that they will not increase property-tax levies for their upcoming budgets as a result of the court decision," Gov. Christine Gregoire said in a statement. "In addition, I will be asking the Legislature, in January, to work with me to thoughtfully reinstate a property-tax cap."

Gregoire has said that she thought the 1 percent limit was too low but a 6 percent cap would be too high.

"I think there will be huge momentum to make sure we accomplish property-tax relief this session," said Senate Majority Leader Lisa Brown, D-Spokane, who added that a 1 percent cap on tax increases is one of several options.

House Majority Leader Lynn Kessler, D-Hoquiam, called for reinstating I-747.

"Based on what we saw in the polls on Tuesday, we should think very seriously about reinstating it," Kessler said, referring to voters' defeat of several tax-increase proposals across the state.

"They're in a no-tax mood," she said.

The practical effects of Thursday's ruling are unclear.

Rep. Chris Hurst, who earlier this year pushed for legislation to reinstate the 1 percent cap, pointed out that many local taxing districts could pass massive increases by using their so-called "banked capacity," or untapped taxing authority that has built up over time.

"My concern is what will happen if just one of those jurisdictions decides to exercise that capacity tomorrow, we have an almost incomprehensible problem on our hands," said Hurst, D-Enumclaw.

Bellevue has enough banked capacity that, coupled with the 6 percent allowable increase, it could raise property-tax collections by nearly 50 percent, said King County Assessor Scott Noble.

Seattle could increase tax collections by nearly 28 percent, while King County could bring in 13 percent more tax revenue, Noble said.

Mike Gowrylow, spokesman for the state Department of Revenue, said some taxing districts will be able to tap banked capacity. But he pointed out that all local taxing districts are bound by dozens of different statutory rate limits.

"We just think it would be very rare for any district to be able to use their maximum banked capacity without running up against their rate limits," Gowrylow said.

Besides, he pointed out, if some politicians tried to do that, "they'd probably get voted out of office the next day."

Bellevue shouldn't expect a massive increase, Mayor Grant Degginger said: "It wouldn't be prudent, and for us, it's just not necessary."

The Supreme Court ruling also isn't expected to have any immediate effect in Seattle. Dwight Dively, the city's budget director, said Mayor Greg Nickels' proposed budget would be sustainable for the next three years as long as there is not a recession.

Counties might feel more pressure to act, though, because they depend on property taxes more than cities do.

Budget director Cowan said I-747 has been "devastating" to King County because the cost of maintaining service levels has risen faster than the rate at which property taxes could rise without voter approval.

Earlier this year, the state said that I-747 had blocked an estimated $1.6 billion in property-tax increases since it was approved.

When Judge Roberts ruled that I-747 was unconstitutional, she found that voters in 2001 were told the initiative would reduce the tax-increase cap to 1 percent from 2 percent, although the initiative actually reduced the cap to 1 percent from 6 percent.

An earlier Eyman initiative, I-722, had put a 2 percent limit on property-tax increases, but it was found unconstitutional months before voters approved I-747.

Roberts ruled that in 2001, voters were incorrectly told I-722 was being amended, but it was no longer law, so voters were asked to amend a non-existent law.

The majority of the state Supreme Court agreed.

In a dissent signed by four justices, author Justice Charles Johnson wrote, "There is no confusion, ambiguity or uncertainty in this initiative. The ballot title and text clearly disclose the effect of the new legislation to reduce taxes and amend current legislation allowing higher yearly tax increases.

"If a voter were to simply read the text of the initiative, the voter would have understood that I-747 reduced the property tax levy limit to one percent. This is not misleading."

Andrew Garber: 360-943-9882 or agarber@seattletimes.com. Seattle Times reporters Susan Gilmore, Sharon Pian Chan, Ashley Bach and Keith Ervin contributed to this story.