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Facts about Initiative 695 and is consequences
Facts about Initiative 695 and its consequences
Monday, October 4, 1999
By ROBERT GAVIN
SEATTLE POST-INTELLIGENCER
CAPITOL CORRESPONDENT
OLYMPIA -- The debate over Initiative 695, which would eliminate the state's
motor vehicle excise tax, has sparked a flurry of claims, charges and countercharges
from both sides of the issue.
Here's a look at some of the facts.
What is the motor vehicle excise tax and how does it work?
The Legislature approved the motor vehicle excise tax (MVET) in 1937
to replace a property tax on automobiles. It applies to cars, motorcycles sport-utility
vehicles, recreational vehicles, motor homes and campers.
In most of the state, the tax is 2.2 percent of the vehicle's value. People
who live in the Puget Sound Regional Transit District pay 2.5 percent, because
voters approved a three-tenths of a percent surcharge to help pay for public
transit.
The vehicle's value is calculated by taking the manufacturer's suggested retail
price and discounting it for age. A new car is assessed at the MSRP. The value
falls to 95 percent of MSRP the next year, and continues until the car is 13
years old, when the owner pays a tax based on 10 percent of the original MSRP.
No one pays MSRP, so why base the tax on it?
Department of Licensing officials say the MSRP was chosen for consistency.
Sale prices and so-called blue book values vary widely, and trying to track
them would create an administrative nightmare. The Legislature sets the depreciation
schedule.
How much does the state collect in motor vehicle excise taxes, and where
does the money go?
The state expects to collect about $1.5 billion in motor vehicle excise taxes
over the next two years. Motor vehicle taxes represent a little more than 2
percent of the state's total revenue, according to an analysis by the National
Conference of State Legislatures.
About half the excise tax goes to state transportation projects, 30 percent
to public transit, the rest to local governments for criminal justice, roads,
public health and other programs.
What would Initiative 695 do?
I-695 has two major pieces. First, it would replace the motor vehicle excise
tax with a flat $30 fee. Second, it would require voter approval of all future
tax and fee increases. It would go into effect Jan. 1. It does not apply to
boats.
Would I-695 eliminate the Regional Transit Authority surcharge?
The three-tenths of a percent tax would remain in place. But how that tax
would be collected remains unclear. Sound Transit officials say it could require
them to set up a miniature version of the Department of Licensing.
How much would I save under I-695?
It depends on your vehicle. Since everyone would pay $30, those with
the most expensive cars would save the most. The owner of a 1999 Jeep Grand
Cherokee Limited would save more than $700, while the owner of 1992 Ford Escort
hatchback would save less than $50. The Office of Financial Management estimates
the average savings at about $143 per vehicle.
What would the state lose?
The Office of Financial Management estimates the state would lose about $1.1
billion over the next two years, and $1.7 billion in the following two.
What would that mean?
I-695 supporters say the state, riding one of the hottest economies in the
country, can afford the modest tax cut without major disruption of services.
Opponents and government officials say it would damage state transportation
projects, public transit and local governments
Money that goes to local government is directed to criminal justice, public
safety, public health and economic development.
Here are numbers:
State transportation would lose about $543 million over the next two years,
including money to finance the Referendum 49 highway construction program. The
motor vehicle excise tax also provides about a third of the money the ferry
system uses to maintain, operate and upgrade service.
Local transit districts would lose nearly $350 million. MVET money accounts
for as much as a quarter of local transit budgets.
Local governments would lose nearly $280 million, with smaller communities
feeling the impact. The state uses a distribution formula that sends a greater
proportion of money to communities without large commercial tax bases. Des Moines
relies on MVET for nearly one-fourth of its municipal budget. Garfield County,
in southeastern Washington, depends on it for nearly half its budget, according
to the Washington State Association of Counties.
Seattle would lose about $8 million in the first year of I-695 and about
$11 million in the next, according to the Office of Financial Management.
The City Council is considering a budget for next year of nearly $550 million.
How does I-695 affect the highway construction program approved last
year as Referendum 49?
Referendum 49 called for the state to spend $2.4 billion over the next six
years to relieve traffic congestion; borrow nearly $2 billion to pay for construction;
and pay the debt over 25 years with a portion of the vehicle excise tax.
If voters eliminate the tax, they also would eliminate the revenue to retire
the debt. State Treasurer Michael Murphy says he can't float bonds without
a way to pay for them.
The Legislature could tap another revenue source -- such as the gas tax
or the sales tax -- for annual debt payments. But that would mean taking money
from other programs.
Doesn't the state have a huge surplus, and can't that be used to offset
the excise tax losses?
The state Office of Financial Management says the state has a $1 billion
surplus. Nearly $600 million sits in an emergency reserve, or "rainy day"
fund set up by Initiative 601, which imposed spending limits on state government.
The law requires a two-thirds vote of the Legislature to tap into that money.
The balance of the surplus, nearly $400 million, was primarily generated
before I-601, making it possible for the Legislature to dip into it by majority
vote. But lawmakers would be able to spend only about $70 million of the surplus
over the next two years without busting the I-601 cap, according to the Office
of Financial Management.
If the Legislature chooses, by a two-thirds majority, to break the cap and
spend everything to offset I-695, the surplus would be drained in two years.
What about local governments? Aren't they sitting on big surpluses?
No one knows the total local government surplus, but it probably tops $1
billion. The Association of Washington Cities estimates that municipal governments
have reserve funds of $600 million. Reserve funds are basically savings accounts
for money set aside for a specific future use, but the government is not obligated
to use it for that purpose.
Transit districts reported reserves -- including money for bus purchases
and capital improvements -- of as much as $400 million, according to the state
Transportation Department.
The Washington State Association of Counties said it has no estimate of
county surpluses, although a survey of a dozen counties showed reserves ranging
from as low as 1 percent of budgets to as high as 30 percent.
King County law requires the council to build a reserve, now at more than
$20 million. Benton County last year added about $2 million to a reserve fund
set up to help pay for a $30 million jail and court expansion. That fund stands
at about $12 million.
But what about the taxpayers? Isn't Washington's tax burden among the
highest in the nation?
When you look at just state taxes, Washington's tax burden, as a percentage
of personal income, ranks 18th highest in the nation, according to an analysis
of data collected by the federal government.
But if you consider all state and local taxes, Washington's relative tax
burden is much higher. The Taxpayers Foundation ranks Washington's state and
local tax burden eighth in the nation, while the Washington Research Council
and the Federation of Tax Administrators places Washington 13th.
All three analyses estimate that Washington residents, on a per capita basis,
spend about 12 percent of their income on state and local taxes, less than
1 percent above the national average.
What would be the effect of the I-695 provision requiring referendum
votes on all future tax and fee increases?
Public officials and I-695 opponents say it would hamstring government,
requiring costly and time-consuming elections for routine decisions such as
raising library fines and copying fees. Opponents say it would merely make
officials think hard before raising taxes.
King County estimates it can cost about $800,000 to run a special election.
The Secretary of State's Office estimates the cost of a statewide election
at about $3.5 million.
Washington limits the number of regular or special election days possible
in any one year to six. I-695 wouldn't change that.
Doesn't Colorado have a law that requires voter approval of tax increases,
and isn't that working?
Colorado voters passed an initiative in 1992 requiring voter approval to
raise state and local taxes as part of broader law imposing tax and spending
caps. Local governments have held about 3,000 referendums since then, with
about 90 percent success. The state tried once to raise the sales tax, once
to exceed the revenue cap, and failed both times.
Colorado officials say the law has proved workable, but note a big difference
with Washington's I-695: the Colorado law does not require voter approval
of fee increases. Taxes tend to be broad-based levies, such as property and
income taxes, to support general government. Fees are charged to the specific
user of service to cover the costs of services like water, sewer, trash pickup,
and park maintenance.
Colorado voters, in fact, rejected two earlier versions of the 1992 initiative
because they required voter approval of fee increases, said Larry Kallenberger,
executive director of Colorado Counties.
Only when initiative sponsors dropped the fee provision -- attacked as too
onerous -- did the measure pass, Kallenberger said.
Isn't there a constitutional question about this provision of I-695?
Some legal experts say requiring voter approval of tax and fee increases
usurps the Legislature's constitutional power to make laws. Such a change,
they say, would require a constitutional amendment, which in turn requires
approval of two-thirds of the Legislature and ratification by voters.
The state Supreme Court has held that the Constitution can't be amended
through the initiative process.
I-695 supporters say the measure doesn't encroach on the Legislature's power.
Lawmakers would still be able to pass bills raising fees and taxes. They would
just have to ask voters for final approval.
Are there any more legal questions surrounding I-695?
Government lawyers and other legal experts say if voters repeal the motor
vehicle excise tax, the personal property tax on vehicles would go back into
effect.
When the Legislature passed the MVET, it exempted vehicles from property
taxes. Repealing the tax would repeal that exemption.
I-695 supporters say the initiative would prevent the state from imposing
this property tax without voter approval.
Even if government lawyers are right, it appears unlikely the state would
reimpose the property tax. The Legislature would find it politically difficult
-- if not impossible -- to allow a car tax to go into effect after voters
repealed it, said Senate Majority Leader Sid Snyder, D-Long Beach.
And County assessors recently called on the state not to reimpose a property
tax on cars.
P-I reporter Robert Gavin can be reached at 360-943-8311 or robertgavin@seattle-pi.com
