Washington State Initiative 1366 to cut sales taxes or make tax hikes harder is now under review by the Supreme Court, and some business leaders are worried. If the voter-approved measure is upheld, they see a $1.4 billion hit to next year’s 2017-19 state budget. They particularly fear the impact on higher education funding. The court ruling is likely to occur within three weeks.
Democratic lawmakers filed suit to block the initiative shortly after its approval. They and larger business organizations criticized its peculiar wording and threat to state revenue. But some policy analysts and smaller business owners differ. They say the oddly-crafted initiative represents frustration on the part of voters whose tax control efforts have been repeatedly stymied.
Voters approved I-1366 last November by 51.5 percent. It would reduce the state’s portion of the sales tax by one percent – from 6.5 to 5.5. That’s unless by April 15 lawmakers pass a constitutional amendment. The amendment would require a two-thirds supermajority in the House and Senate to raise taxes or reverse enacted tax incentives.
Not The First Time
It’s not the first time the courts and lawmakers have reversed the will of the voters on a tax hike supermajority. Since 1993, voters have approved five such initiatives, I-1366 included. Three of them the legislature either reversed or changed. The most recent one was overturned by the Supreme Court.
The court’s decision process is being watched closely. Organizations representing major Washington employers are concerned that a reduced sales tax would deal a heavy blow to the state when it needs revenue the most.
The Washington Roundtable opposed the initiative last year because the sales tax cut would hurt higher education funding.
The state already faces major budget pressures next year. State forecasters say they’re now expecting $400 million less in revenues than expected. Additionally, lawmakers will have to find as much as $3-4 billion more to better fund K-12 basic education. This results from the high court’s 2012 McCleary case ruling.
Higher Ed ‘Most Exposed’ If Initiative Is Allowed To Stand
Roundtable President Steve Mullin said “Cutting a billion out of the budget is a difficult exercise, and the most exposed is higher education.”
The Association of Washington Business remained neutral on the initiative over concerns “that the budget hole would be filled with new taxes on employers.”
Initiative critics were quick to sue in King County Superior Court weeks after the election vote. A King County judge struck down the initiative in January.
The coalition opposing I-1366 includes two Democratic lawmakers, Sen. David Frockt, (D-46), and Sen. Reuven Carlyle, (D-36).
Past Supreme Court decisions offer a less than hopeful outlook for I-1366. In 1999, voter-approved I-695 would have cut the state motor vehicle excise tax while also requiring voter approval for all tax increases. It was declared unconstitutional.
Initiative defenders like Deputy Solicitor General Callie Castillo argue I-1366 meets the single subject clause because it only does one thing: reduce the sales taxes rate. The legislature can stop it if they choose but no action is required on their part, he argued.
Others believe the unique wording sends the same message to Olympia they’ve been sending for years: No new taxes.
Voters approved I-601 in 1993 and I-960 in 2007. Both called for a two-thirds majority vote for tax increases.
The legislature repealed the supermajority requirement set by I-601 in 2005 and repealed I-960 initiative in 2010.
Voters responded in 2010 by approving I-1053. The initiative put back the two-thirds majority vote. It too was repealed by the legislature.
In 2012, I-1185 garnered nearly 64 percent of the vote and once more reinstated the supermajority requirement.
Finally, in 2013 the state’s high court ruled I-1053 unconstitutional. Although the state Constitution requires only a simple majority for a bill to become law, requiring a supermajority for new taxes necessitates a constitutional amendment, the court found.
On I-1366, 34 out of 49 legislative districts voted in favor.
Jason Mercier, director of the Center for Government Reform at Washington Policy Center (WPC) said these “creative fights” over things such as I-1366’s contingency clauses and the one-subject rule occur because the legislature keeps “ignoring the clear will of the voters, of the people.”
One of the groups to support I-1366 last year was the Washington state chapter of the National Federation of Independent Businesses (NFIB). A small business association, the Washington chapter has around 8,000 members.
Washington NFIB Leadership Council Chairman Mark Peterson owns H&H Furniture, headquartered in Yakima.
While others think I-1366 inappropriately pressures legislators to adopt the supermajority requirement, it’s “the only outlet that citizens seem to have left,” he said.
Another Ballot Measure Could Ensue
If the Court tosses I-1366, voters still want the final say in the matter, according to the results of a WPC-commissioned poll.
Conducted by Elway Research, INC. between December 28-30, the poll found 65 percent of voters want the legislature to send them a constitutional amendment to vote on if the Supreme Court strikes down the initiative.
The WPC-commissioned poll also found 60 percent wanted a supermajority requirement for new tax increases.
Two such constitutional amendments have failed to get out of the Senate. SJR 8211 would have required a two-thirds supermajority vote for tax increase. It failed to clear the Senate on a 26-23 vote last month.
SJR 8215 would require voter approval for all tax increases but includes certain exemptions.
If recent election history is any indication, it’s unlikely I-1366 to be the last initiative of its kind Washington voters approve.
“We’re going to continue to have this conflict until the lawmakers allow voters to end this debate,” Mercier said.