State's voters get another cut at tax initiative

This time around, say supporters of the Nov. 6 ballot measure, politicians will be forced to listen and to substantially change how governments do business, how much Washingtonians pay in taxes and the shape of future elections. I-747 would limit the growth of most property taxes to the lesser of 1 percent a year or the rate of inflation -- unless voters approve more.

It aims to close what some consider a loophole in a 1997 voter-approved Referendum 47, which limited tax growth in tax collections to the rate of inflation except in times of "substantial need," when elected officials could raise taxes by as much as 6 percent. Last year, the average increase was 3 percent.

Opponents of I-747 argue the loophole is there for a reason -- and that local governments will need those occasional boosts to cover basic services in the future. They also note that taxing districts have slowed tax growth in recent years -- cognizant of the anti-tax sentiment that helped I-747's sponsor, Tim Eyman, pass two earlier tax-cutting measures in as many years. For example, King County increased collections by only 1.5 percent last year.

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So who loses money and who gains if I-747 passes?

"It depends on whether or not you believe a limit on increases is actually a reduction in taxes," Eyman said. "Under 747, they're still going to continue rising."

In a way, no one gains or loses. Tax bills will continue to grow each year and taxing districts will continue to collect more revenue.

But opponents don't see it that way. Passage of I-747 would cripple the local services taxpayers depend on, say officials of both political parties and public employee unions. They contend a 1 percent annual bump won't be enough to keep up with inflation, effectively cutting their budgets over time.

"The folks lining up on the 'no' side represent some of the front line service providers who will be most impacted," said Christian Sinderman, spokesman for the no camp. "After what we've seen this year... now is not the time to cut back on emergency services. This would cut directly at those services."

A figure of a firefighter dominates the latest campaign flier against I-747. Since the Sept. 11 attacks, the tax limitation measure's opponents are increasingly looking to firefighters -- and their heroic aura -- for help in an uphill political fight.

Early on, the opposition campaign presented a collage of government services that could be hurt -- including firefighting, libraries and road maintenance. Since Sept. 11, when hundreds of firefighters died in the collapse of the World Trade Center, the message has sharpened, focusing almost exclusively on firefighters and other emergency services.

Sinderman says a television campaign using firefighters for the final push up to the Nov. 6 election is in the works now.

Eyman views the use of firefighters as a sign of desperation.

"What else do they have?" Eyman asks. "They have no new arguments against the measure so they're shooting for the Hail Mary pass."

Eyman concedes firefighters are among the best-loved of public servants, but he doubts their popularity can carry the baggage of government as a whole.

"Fire districts can justify their spending," Eyman says. "Can that be said about the state, the counties, the cities and the ports -- the guys that constitute the largest portion of these property tax increases?"

The measure's 1 percent cap would mean considerably slower growth in overall revenue collection for taxing districts such as cities, counties, ports and fire, hospital and library districts. It would mean state and local jurisdictions would lose both potential revenue from future increases, and the compounding factor of those increases. Like R-47, Eyman's measure also excludes new construction.

Last year, the average Washington tax bill -- on a house assessed at $150,000 -- grew 3 percent, to $2,069. Adding in new construction, tax districts increased collections another 2.5 percent, for a total of 5.5 percent

In its analysis of the measure, the state Department of Revenue assumed government officials want to stick with that pattern -- an average 3 percent growth on existing property -- over the next six years. If I-747 passes, they lose that opportunity.

If voters approve no increases beyond I-747's cap, the state would see $8.6 million less in potential collections next year and nearly $130 million less in 2007, according to the Department of Revenue. For local governments, which depend more heavily on property taxes, I-747 would be a $29 million loss in 2002; $364 million in 2007.

Under the same assumptions, I-747 would save the average homeowner $23 next year and $126 in 2007.

Recent history, at least, appears to bear Eyman's contention that such revenue covers the inflation gap.

New construction allowed Washington taxing districts to increase revenue - on average - by 2.5 percent in 2001, 2.8 percent in 2000 and 2.1 percent in 1999, according to the state Revenue Department.

Inflation for next year is set at 1.89 percent. In recent years, it's hovered from below 0.9 percent to more than 2 percent.

But there's no telling how much the economic slowdown might slow construction. And new growth means new demand on public services. In short, there's no guarantee construction will produce enough to keep up with inflation.

If that happens, Eyman says, officials can ask voters for permission to exceed the cap.

About one third of property taxes collected are the result of voter-approved levies, according to the Washington Research Council.

Last year, voters approved nearly $3.2 billion in new levies, the Department of Revenue said.

Still, opponents worry about having to go to voters every time they need a cash infusion to cover a basic need -- especially jurisdictions, such as largely residential towns, that rely most heavily on property taxes for overall income. Slow-growing districts with fewer businesses to tax face the toughest budget blow.

That "substantial need" loophole was created to prevent officials from having to go begging to voters every time a fire district needs new trucks, a county needs more jail space or a sewer district needs to upgrade its treatment plant. Asking voters to increase their own taxes is a costly and uphill battle, and many voters don't want to be asked each election.

Eyman last took a run at the state's property tax structure with last year's Initiative 722. While comparable in many ways to the current initiative, I-722 would have rolled back taxes to 1999 levels and limited annual tax growth to 2 percent.

I-722 won easy approval with no real opposition, largely because opponents didn't believe it would survive a court challenge. They were right -- the state Supreme Court ruled it unconstitutional.

But I-747 is a tightly written proposal and it is being taken seriously by opposition forces that have so far raised just under $200,000 for their campaign, most of it from labor unions. Eyman, meanwhile, has a war chest of more than $500,000, much of it coming from donors who have supported Eyman's anti-tax initiations in the past.

So far, Eyman's forces appear to have the upper hand with public opinion. In a poll conducted Sept. 18-20, 55 percent of voters surveyed supported the initiative, with 30 percent opposed and 15 percent undecided, says Stuart Elway, publisher of The Elway Poll. That's about the same basic level of support Eyman enjoyed in August, Elway says.

The poll of 400 registered voters had a sampling error of 5 percent.