I-695 cuts licence tabs to $30 - passed in 1999

Keeping tabs on reality
There's no such thing as a free lunch: feel good tax cut would gore all our oxes

Sunday, October 10, 1999
By THOMAS SHAPLEY
P-I EDITORIAL BOARD

Almost every workday morning brings transportation headaches on I-5 and I-405. But November could deliver a transportation migraine called I-695.

Just last November, with Referendum 49, Washington voters elected to dedicate a big chunk of their license tab tax money to fund a long-term, multi-billion dollar program for highway construction, rail, freight mobility and ferry construction. This November, Washington voters are being asked to approve Initiative 695, which would essentially toss out the license tab money altogether.

Shifting hundreds of millions of dollars in Motor Vehicle Excise Tax out of the state general fund and into the state transportation fund with Referendum 49 last year and then slashing the MVET through I-695 this year is like taking out a car loan and then quitting your job before you make the first payment.

Then, in a strange non sequitur, the initiative would also have us put to a public referendum every increase in tax or fee our duly elected officials deem necessary.

An anti-tax, less-is-more mythology has grown up around this ill-conceived proposal. The only antidote to this self-inflicted misery is a dose of reality before Election Day on Nov. 2.

Here, then, are some of the myths -- and attendant realities -- of Initiative 695.

The role of the Motor Vehicle Excise Tax

Myth: The MVET isn't doing the job it was created to do in the first place, which was to build and maintain the road system.

Reality: The MVET was first imposed in 1937, in lieu of a property tax on automobiles. Its revenues were not initially intended to be used for transportation. The MVET was no more established to pay for the roads that carried the vehicles it taxed than the property tax on real estate is confined to paying for the sidewalks in front of the property upon which it is assessed.

Over the years, however, more and more MVET money has been transferred out of the state general fund and into the state transportation fund. The most recent such transfer came with voter approval of Referendum 49 last year.

R-49 moved roughly $469 million out of the two-year general fund budget and into the separate state transportation budget. The R-49 money tapped the general fund budget surplus, in large measure, to float billions of dollars worth of bonds to finance long-overdue transportation improvements around the state.

I-695 would gut that effort. Those tempted to support I-695 on the argument that it is wrong to not spend all the vehicle license tax on transportation might ask themselves how it can now suddenly be right to spend almost none of it on transportation.

Who benefits

Myth: Dropping the MVET to a flat $30 per vehicle will help the "little guy," the average, working-hard-to-make-ends-meet person.

Reality: This is a boon to the big guys with newer, more expensive cars and motor homes. The progressiveness of the existing formula -- the more you have the more you pay, and, just as important, the less you have the less you pay -- is overturned in favor of a flat price for everyone.

The MVET is already applied at a flat rate of 2.2 percent on all vehicles. Dropping to a flat amount of $30 per vehicle gives a hugely disproportionate break to the owners of expensive vehicles.

Under current law, the yearly tax on a $40,000 Mercedes is $880. At a flat assessment of $30, that Mercedes would be taxed the same amount as an old Chevy worth $1,360. The Mercedes owner chocks up an $850 tax cut. The owner of the old Chevy, meanwhile, gets no break at all.

Another example: The owner of a middle-aged Ford valued at $4,000 now pays $88 a year for her tabs. Her big I-695 tax break? Fifty-eight dollars. Whoopeee!

The serious partying will take place in the $100,000 motor home, whose owner gets a $2,170 cut.

But even the license tab tax break I-695 would give the "big guys" would be diluted on April 15. The MVET is a federal income tax deduction, and as such reduces the owners' federal tax obligation. No state MVET; no tax deduction. Vehicle owner's will end up sending less money to Washington state and more to Washington, D.C.

Saved by the "surpluses"

Myth: We've got plenty of money, at both the state and local level, to make up for this lost revenue. I-695 proponents cite the nearly $1 billion state budget "surplus" and the $3 billion local government investment pool as evidence that government can do without the MVET money.

Surplus Reality Part 1: The state Department of Transportation estimates it will take a huge hit if I-695 passes. It will lose about $558 million in direct tax revenue in the next two years. (Beyond that, the transportation department would lose out on another $686 million in borrowed money secured by R-49 bonds.)

That represents a cut of about one-third of the departments $3.3 billion in transportation expenditures planned over the next two years. Over the next six years -- the period in which we are supposed to do all those R-49 projects --

I-695 would cost the state transportation budget $7 billion.

Surplus Reality Part 2: The lion's share of the state budget "surplus" is really a reserve, designed to guard the state against unforseen problems, including a downturn in the economy.

This "surplus" is very hard to spend -- thanks to voters' approval of Initiative 601. That law sets strict limits on how much the state can spend each year out of the general fund budget. The current two-year general fund budget is just $78 million under that limit. Going over that spending limit requires -- guess what? -- approval by the voters.

So, under I-601, using any more than $78 million of the "surplus" to replace the MVET revenue loss would require a majority of voters agreeing to raid the state's savings account.

Surplus Reality Part 3: The $3 billion local government investment pool is a short-term holding place for various government funds moving through the system at any given time. These are committed funds. Saying we could tap this fund is like saying you've got money for a Caribbean cruise because the check for the house payment hasnt yet cleared the bank.

The extent of the damage

Myth: I-695 affects only state transportation funding.

Reality: While the transportation budget and the proposed R-49 projects take a big hit, there would also be substantial losses to local government, cutting funding for criminal justice and public health.

Included in the $1.2 billion that would be lost throughout the state over the next two years is $345 million in local transit funding, $62.8 million in local criminal justice money and $215.5 million in other local government funding, including more than $52 million in public health money.

Adams County, for instance, stands to lose more than a half-million dollars next year alone, including $33,400 for public health, $83,800 for city police and fire protection and $302,700 for criminal justice. Ritzville, hometown of Republican state Sen. Larry Sheahan, would take a $20,500 hit, including $18,000 in city police and fire protection and $1,877 in criminal justice.

Garfield County stands to lose as much as 40 percent of its operating budget.

Jurisdictions within King County, meanwhile, face losses of $139.5 million, including $9.5 million in public health, $13.5 million in city police and fire protection, $7.4 million in criminal justice funds and more than $100 million in public transit support.

Opponents, including Mike Patrick, executive director of the Washington State Council of Police and Sheriffs, say the passage of I-695 could result in the loss of 1,000 police officers and firefighters.

While it's difficult, if not impossible, to predict just what budget-cutting measures local jurisdictions might take, it's certain that criminal justice costs soak up large portions of county budgets, especially in rural areas. Local tax bases are not equipped to fill the void.

Holding the line on taxes

Myth: Tax increases are out of control and subjecting all tax and fee increases to public votes will bring taxes under control.

Reality: There are already several mechanisms in state law that restrict tax increases. Two of those are the recently approved limitations contained in I-601 and Referendum 47.

Under I-601, raising taxes requires approval by a super majority (two-thirds) of the Legislature. And as a guard against profligate tax increases, I-601 limits the amount legislators can spend, no matter how much they take in.

State law had long limited taxing jurisdictions to no more than a 6 percent increase in annual expenditures without a vote of the people. Referendum 47, approved by the voters in 1997, limited the automatic increase to the rate of inflation (in no case to exceed 6 percent) without approval of two-thirds of the members of the governing body.

For those opposed to excessive government spending, it shouldn't make much sense to require that every increase in taxes or fees be subject to the public expense of a referendum.

Is it wise policy to hold an election every time the public library needs to raise the cost of a library card or parks and recreation needs to increase the admission price to the public pool?

The only alternative to multiple elections allowed by I-695 would be annual plebiscites covering a gaggle of money issues for the already under-informed public to bone up on.

The reality is that Washington is run by a representative democracy, in which we elect people to make informed decisions on a myriad of matters, including taxes.

I-695 backers have made no convincing case for overthrowing our traditional form of government.

Origins of I-695

Myth: Initiative 695 was crafted by a group of concerned, committed citizens to express a broad grassroots ideology.

Reality: I-695 founder Tim Eyman seems more off on a lark than a crusade. A mail-order salesman, Eyman decided to try pedaling public policy like he does watches. He had been a co-sponsor of Washington's Initiative 200, which effectively ended affirmative action here, but little thanks to Eyman. His effort fizzled and I-200 was rescued by talk-show host John Carlson. Eyman first tried to get the $30 license tab measure on the ballot last year but came up short on signatures.

Eyman apparently doesn't claim to be one of the "little guys" for whom he says he's doing all this -- unless he defines the "little guy" as one who, like himself, recently bought a $433,000 home and pays $900 a year in car tabs on his '98 Saab.

Taxpayers will get just what they deserve from billions less in taxes -- billions less in government services. And who usually gets the short end of the stick with fewer government services? Ah, yes, the little guy.

For one thing, there are more little guys out there, so they're more likely to feel the effect of cuts in police, fire, public health, public transit and road improvements. The little guys often live in little places, such as the rural counties whose budgets are in for such a beating from I-695.

Delivering on the promise

Myth: The passage of I-695 will be a victory for the downtrodden taxpayer over the free-spending politicians by not only shutting down billions of tax-funded transportation projects but by hog-tying local elected officials who won't dare take the political risk of putting tax and fee increases up for a vote.

Reality: The grim reality for the no-taxniks is that it's just bad public policy to allow basic services to go unfunded.

Responsible elected officials will find a way to fund them. The logical solution to the suddenly unfunded transportation need would be obvious if ironic: a gas tax increase.

Republican legislators generated R-49 last year as an alternative to Gov. Gary Locke's proposal to raise the gas tax and index future increases to inflation.

The gas tax is the truly intuitive way to fund transportation. Indeed, the 18th Amendment to the Washington State Constitution mandates that gas tax money only be used for "highway purposes," including ferries, State Patrol and the Department of Licensing.

Initiative 695 may not even result in removing hefty taxes from vehicles.

At the 1937 inception of the MVET, the Legislature tempered the tax by exempting vehicles from city and county property taxes.

Initiative 695 would eliminate that exemption. So it's quite possible that, with the passage of I-695, and without even the necessity of a vote of the Legislature (let alone a public vote), county assessors would have no choice but to assess vehicles as personal property.

Because automobiles were subject to personal property tax before the 1937 exemption and because I-695 would toss out that exemption, says King County Assessor Scott Noble, it would not be a new tax and therefore would not require I-695's voter approval. Assessors are obligated to assess and collect taxes in accordance with the law.

And then there is the income tax. The passage of this initiative might be what it takes to finally force serious consideration of an income tax.

Perhaps the biggest myth of all is that we can get something for nothing, or that government is something that somebody else should pay for, or that it's always right for someone else to get less so that we can get more.

Reality bites. But a myth can swallow you whole.