425-453-6206 / Facsimile 425-453-6224 /
Legislature's Attempt to Increase Taxes Without a Public Vote Held Illegal
On March 17, 2005, attorneys at Groen Stephens & Klinge (GSK) saved Washington State voters the right to vote on increased taxes, totaling more than $130 million in excess taxes for this fiscal year alone.
More than a decade ago, the voters adopted Initiative 601 (I-601), which required the Legislature to exercise fiscal discipline by requiring (1) legislative approval of tax increases by a supermajority vote and (2) voter approval for those bills that raised taxes above the state expenditure limit. That all changed, however, when the Legislature convened for the 2005 session. First, the Legislature defied the will of the voters, as reflected in I-601, by suspending the supermajority voting requirement. Next, the Legislature enacted ESHB 2314, which raised taxes on cigarettes, liquor, and extended warranties, among others. Then, in an apparent move to avoid scrutiny of their overspending, the Legislature attempted to artificially increase the state expenditure limit by manipulating the transfer of funds between state accounts.
Specifically, on June 14, 2005 the Legislature appropriated $250 million from the General Fund to the Violence Reduction and Drug Enforcement Account. The next day, the same $250 million was transferred to the Health Services Account and then back to the General Fund from where it first originated. Remarkably, the State took the position that this transfer of funds, which had no fiscal effect whatsoever, acted to increase the state expenditure limit by $250 million.
On July 19, 2005, attorneys at GSK filed suit against Governor Christine Gregoire, the State Expenditure Limit Committee, and the State of Washington on behalf of the Washington State Farm Bureau Federation, Washington State Grange, National Federation of Independent Business, Building Industry Association of Washington, Evergreen Freedom Foundation, Washington Association of Realtors, and citizen Steve Neighbors. They alleged that ESHB 2314 is not legally in effect because voters should have been given the opportunity to vote on the increase in taxes. The manipulation of the $250 million did not operate to increase the state expenditure limit. On March 17, 2005, Judge James Allendoerfer of Snohomish County Superior Court agreed.
In his much anticipated ruling, Judge Allendoerfer ruled that the actions of the Legislature in manipulating state funds merely gave an "illusion" of new money being available, but this "illusion" did not legally increase the limit. He reasoned that, because the state expenditure limit was $250 million less than claimed by the State, ESHB 2314 raised revenue above the state expenditure limit, which is permissible only with voter approval. Specifically, Judge Allendoerfer stated that the Legislature "exploited a loophole in I-601 to avoid a vote," and had stinging criticism for the state agency that was intended to be the watchdog to look out for the taxpayers' rights in I-601, yet conspired with the Legislature to conceal their overspending.
Attorneys at GSK are understandably pleased with Judge Allendoerfer's ruling and for their clients' dedication to vindicate the rights of the Washington voters. The ruling reaffirms that I-601 continues to meaningfully impose fiscal restraint on the Legislature and that the will of the voters cannot be subverted.
Click to the following news articles to see other accounts of this case.
David Postman, Some of State's Taxes Invalid, Judge Rules, Seattle Times, Mar. 18, 2006.
Curt Woodward, Associated Press, Judge Strikes Down Taxes in Spending-Limit Lawsuit, Seattle Times, Mar. 17, 2006.
Curt Woodward, Associated Press, Tax Increase Package on Liquor, Cigarettes Fails in Court, Tacoma News Tribune, Mar. 18, 2006.
Curt Woodward, Associated Press, Judge Strikes Down New Taxes on Liquor, Cigarettes, Seattle P.I., Mar. 18,2006.
Curt Woodward, Associated Press, Judge Strikes Down Taxes Increases, King County Journal, Mar. 18, 2006.
Jim Haley & Jerry Cornfield, County Judge Strikes State Raise in Taxes, Everett Herald, Mar. 18, 2006.
Brad Shannon, Court Ties Up State Tax Increases, The Olympian, Mar. 18, 2006.
David Postman, Spending Limit's Legality Placed in Spotlight, Seattle Times, Mar. 8, 2006.
