Election Q&A: Car-Tax Measure

Initiative 695 offers a chance to change the way the state is governed with a social experiment of sorts that gives citizens far more control over state and local tax policies, and more cash in their pockets.

But at what cost? And is it worth it?

Debate about the initiative has raged across the state for the past five months in an otherwise quiet election season. With just nine days to go until the Nov. 2 election, the crossfire is intensifying.

The initiative has split the Republican Party, rattled the establishment and triggered unusual threats from big campaign contributors who fear its consequences. It's also revived anti-tax sentiment in the state and shined a spotlight on a widely hated car tax that has been around since the Great Depression.

Here are some answers to commonly asked questions about I-695:

The car tax

Q: What would Initiative 695 do?

A: It would abolish the state's car tax and replace it with a flat $30 annual fee. It also would require voter approval of all future tax or fee increases by state or local government. The law would go into effect Jan. 1.

Q: How much money is collected from the car tax now?

A: The state collects about $750 million a year from car taxes on about 5.5 million vehicles, including passenger cars, trucks, trailers, motor homes, motorcycles and campers. Boats would not be affected by I-695.

In addition to the car tax, there are licensing fees that generate about $165 million a year. I-695 would eliminate both the fees and the tax and replace them with a flat $30 fee.

Q: How much do Washington vehicle owners pay in car taxes now?

A: It depends on the year and the model. The state estimates the value of the vehicle and bills owners at 2.2 percent of that estimated value on an annual basis. The rate is 2.5 percent in portions of King, Snohomish and Pierce counties, as approved by voters in 1996 to help finance a new light-rail system and expanded bus service in the Puget Sound region.

The average vehicle owner in Washington pays $143 a year per vehicle.

Q: Are the estimated values calculated with the Kelley Blue Book?

A: No. The state uses a formula that assumes the value of a new car is its manufacturer's suggested retail price. The estimated value falls to 95 percent of the original sticker price the next year, and continues to decrease until the car is 13 years old when the owner pays a tax based on 10 percent of the sticker price.

Q: Does the state's tax system reflect the true market value of vehicles?

A: Not for many newer cars and vehicles that depreciate quickly. Most new cars don't sell at their sticker prices, and most lose value faster than the state estimates. As a result, many taxpayers pay taxes based on inflated values.

For example, a 1998 Suzuki Sidekick JS Convertible is worth 54 percent of its original sticker price, according to the Blue Book estimate. But the state is taxing it this year as if it were worth 95 percent of that sticker price.

Or, consider a 1994 Buick Skylark. The state taxes it at 65 percent of its original sticker price. The Blue Book says it's worth about half that much.

Under I-695, the owner of any vehicle - regardless of its age or value - would pay $30 every year to get license tabs renewed.

Q: Where did the motor vehicle excise tax come from?

A: The MVET, or car tax, as it is commonly known, was created by the Legislature in 1937. Lawmakers replaced a property tax on cars and trucks to generate more money for public schools.

Over the years, the car tax revenues have been steered away from education, toward transportation and other state and local programs and services.

In 1990, legislators tweaked the way the tax was calculated to make it more lucrative. Since then, the state has been collecting more than double the revenue. The car tax is now the state's fourth biggest stream of tax revenue, pulling in about $750 million a year.

Q: Where does the money go?

A: About half of it is doled out by the state and sprinkled throughout county and city governments to pay for specific police, fire and health services. Primarily, it's used to finance mass-transit agencies, such as King County's Metro.

The other half gets divided among state agencies. The money buys ferryboats, supports local economic-development projects, helps finance the state Department of Transportation, the air-pollution-control office and more.

Over the next six years, about $365 million in car-tax revenue is earmarked to help pay back the loans for $1.9 billion in road improvements throughout the state. Those projects were approved by voters as part of Referendum 49 last year. They include new HOV lanes in the Puget Sound area and highway on-ramp improvements for the new sports stadiums in Seattle.

Q: What sort of potential budget shortfalls would I-695 create at the local level?

A: Overall, it would affect suburban cities and rural communities more than big urban cities like Seattle and Spokane. Because of the state's robust economy, big cities are flush with sales-tax revenues and rely less on the car tax. Smaller communities that don't have a strong retail base rely on the car tax to help pay for basic services.

Garfield County, for example, estimates that it would lose 37 percent of its operating budget should I-695 pass. Seattle, the state's largest city, would lose 2 percent of its budget.

Mass-transit agencies say they would face a 25 percent shortfall in funding. For example, the car tax provides about a fourth of Metro's budget - or about $100 million a year.

Public-health districts say they would lose up to 20 percent of their funding, which could impact such services as child immunizations, HIV programs and routine inspections on restaurants.

Q: How would Sound Transit be affected if I-695 passes?

A: Sound Transit is linked with local bus services that would lose hundreds of millions of dollars in car-tax funding. The state Department of Transportation says it would lose $1.2 billion in the next two years and may not finish HOV lanes and train-track improvements that are core to the Sound Transit plan.

A proposed $400-million extension of light rail from the University District to Northgate also is unlikely to get financial support from the Legislature. Sound Transit says state assistance is the only way they can get to Northgate.

I-695 would not repeal Sound Transit's authority to collect the 0.3 percent tax on the value of a car in the tri-county area, as was approved by voters in 1996. Sound Transit's motor-vehicle excise tax is expected to bring in $539 million by 2006.

However, transit officials would have to decide how to administer the tax.

Sound Transit would ostensibly need to create a local taxing system - a miniversion of what the Department of Licensing does now with the state car tax - that estimates the value of vehicles in King, Snohomish and Pierce counties, and then charge vehicle owners in those counties for the transit tax.

Q: Could the loss of funding be replaced, or would there be cuts in services?

A: No one really knows what specific programs, if any, would be trimmed or eliminated. That's up to the city councils, county commissioners and particularly state lawmakers to decide.

Interviews with city and county leaders indicate they intend to do everything possible - including cutting back on parks and library services - to avoid laying off police officers. Many local governments and transit districts also have budget surpluses they can tap.

Q: Could the Legislature come up with another way to finance the same programs?

A: Lawmakers could decide to cut spending elsewhere, such as on education, prisons and social services, to help backfill some of the budget holes created by I-695. They also could spend some of the $70 million they have set aside for emergencies during this two-year budget cycle.

Beyond that, they could dip into the state's $1 billion surplus. But it wouldn't be easy.

To use the reserves, lawmakers would have to clear two hurdles. They would probably have to agree to spend above the voter-approved spending cap. Two-thirds of them also would have to agree to tap into more than $400 million of the surplus.

Many legislators say both propositions are politically dicey since the spending cap was created by voters through another ballot measure six years ago - Initiative 601. Also, both Republicans and Democrats say they would be leery of digging into state reserves because they would interpret passage of I-695 as a message by voters to cut government spending.

If they rely on the reserves alone to replace car-tax revenues, the money would run out in less than two years.

Voter approval of taxes

Q: What would we get to vote on if I-695 passes?

A: All increases in taxes, government fees and public-utility rates. This would include state and local taxes, from property taxes to business taxes. The fees could include everything from the cost of a school lunch to what it costs to get into the county dump.

The initiative exempts higher education and civil and criminal fines. Colleges and universities, for example, could raise tuition without a public vote. And state and local governments could increase court fines without public approval.

Q: Is there any place in the United States that does that now?

A: No. This would be the most far-reaching measure on the books. In Colorado, voters approved a measure in 1992 that requires votes on all taxes at the state and local level, but not on fees and utility rates.

Q: How's it working in Colorado so far?

A: Former opponents of the measure say it hasn't been as bad as they'd expected. Voters have approved many requests for tax increases.

Of 27 new taxes proposed since 1993, 13 were approved. Increases to existing taxes were approved 42 out of 81 attempts. Statewide proposals, have not fared as well. Still, the main sponsor of the Colorado law says it has forced government to treat voters more like customers.

Others worry that citizens are getting election fatigue, overwhelmed by the budget minutiae and the political spin the cities and school districts now present to make their case for increased government spending.

Q: Did Colorado voters also cut taxes with their 1992 measure?

A: No. There was no tax cut, so governments were not faced with a dramatic loss in revenue.

Q: How much would it cost to hold all these elections?

A: The extra cost would be negligible if the issues were handled on regularly scheduled election days. King County estimates it costs 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.

Q: Why are we voting on Initiative 695?

A: The I-695 campaign turned in 514,000 signatures in July to qualify for the ballot, almost three times as many signatures as needed to qualify and the second-highest number of signatures ever gathered for a citizen initiative.

Q: Who is backing I-695?

A: The campaign is led by its sponsor Mukilteo entrepreneur Tim Eyman. The initiative has been supported by the Washington State Republican Party, the League of Washington Taxpayers and the Libertarian Party. The campaign has scored well in the polls but has had trouble collecting money.

So far, it has raised almost $200,000 and doesn't have enough cash to buy radio or television ads, relying instead on mass mailings. The average contribution to the campaign is about $50. Most of the money comes from citizens and a handful of car dealerships.

Q: What are the main arguments for I-695?

A: Proponents say the car tax is unfair, unreasonably high and that it's time to abolish it. They also say voters should seize this opportunity to gain control over future tax and fee increases in a state that is already one of the highest-taxed states in the country.

The timing is perfect for a big tax cut, they say: The state's economy is roaring, and lawmakers are sitting on a fat surplus.

Eyman predicts that taxpayers would pour their car-tax savings back into the economy by spending it on new clothes, computers and cars. He says any budget holes created by I-695 could be easily filled by increased sales-tax revenues and the state surplus.

Q: Well, aren't Washington residents overtaxed?

A: By many accounts, yes. But it depends on which study you rely on for statistics. Washington often ranks as a heavily taxed state - usually between eighth and 17th in the nation - because of its high sales taxes, high car taxes and moderately high property taxes.

Eyman's preferred study, conducted by the Tax Foundation, says the Washington is the sixth-highest taxed state in the country. In its calculations, the foundation uses the federal income tax.

Because it is one of eight states without a personal income tax, Washington is sometimes portrayed as a low-tax state for individuals.

A May study by the Utah State Tax Commission concluded Washington households pay the lowest amount of state and local taxes of the seven western states: Arizona, California, Colorado, Idaho, Oregon, Utah and Washington. The same study said Washington businesses pay more taxes than their western counterparts because of the state's business and occupation tax.

Q: Who opposes I-695?

A: Most of the state's business community, the state Democratic Party, environmental groups, labor leaders and others.

The No on 695 campaign has collected almost $2 million, about 10 times as much money as the initiative's backers. Boeing, Microsoft, Weyerhaeuser and Fisher Companies Inc., the parent company of KOMO-TV, have each given at least $50,000 each.

Opponents have spent much of their money on radio and television ads.

Q: What are the main arguments against I-695?

A: Opponents say it would devastate state and local programs and worsen traffic jams by derailing hundreds of transportation projects, including $1.9 billion in bonded road construction money the state intended to begin spending early next year.

Economists say it's also unlikely the initiative would result in increased sales-tax revenues because the money would be shifting from public employees' salaries to private workers.

They also say the voter-approval component of the initiative would hamstring government and require elections for such mundane proposals as raising library fines.

Q: What does Gov. Gary Locke say about I-695?

A: Locke opposes it. Two weeks ago, he promised to pursue a cut in the car tax if voters reject I-695. But he has not provided specifics other than to express a desire to make the state's formula for determining car values more accurate.

Even if Locke developed a plan, it's unclear what the Legislature would agree to do.

Q: If the initiative passes, can people hold off on renewing their license tabs until Jan. 1, and then pay $30 at that time?

A: Yes. But if they use their vehicle in the meantime, they could get caught. Police can ticket a vehicle with expired license tabs, even if it's just parked on the street. The penalties range from $66 to $157 depending on how tardy the tabs are and whether the vehicle is moving or not.

The Department of Licensing and car dealers believe many people are stalling on renewing their tabs or on buying new vehicles, until the election is decided.

Q: Are there legal questions about the constitutionality of I-695?

A: Some legal experts say requiring voter approval of tax and fee increases robs the Legislature of its power to make laws. I-695 supporters say the initiative wouldn't infringe on legislators' rights but merely require them to ask voters for final approval of fee or tax increases they pass.

Q: What other potential legal issues are there?

A: There's likely to be numerous court challenges regarding voter approval on future taxes and fees.

The state Attorney General's Office is preparing guidelines to help government lawyers interpret the law and determine which fee increases might require a public vote. But the state says the provisions of I-695 are too ambiguous to provide definitive advice. The disagreements that are likely to arise between public agencies and citizens may have to be clarified through litigation or a two-thirds vote of the Legislature.

Government lawyers say the personal-property tax that was lifted in 1937 would go back into effect if voters repeal the motor-vehicle excise tax. But I-695 supporters insist their measure inoculates taxpayers from that threat because re-establishing a property tax on vehicles would require a public vote.

Jim Lynch's phone message number is 360-943-9882. His e-mail address is jlynch@seattletimes.com ------------------------------- Household tax burden

Washington's ranking among the 50 states varies significantly depending on how tax burdens are calculated. Washington usually ranks between being the 8th and 17th highest-taxed state. Here are two contrasting views:

- The Tax Foundation, a nonprofit, anti-tax group, includes local, state and federal income taxes in its comparisons. Washington ranks higher in this study than in other tax analyses:

1. Colorado . 2. New York . 3. Minnesota . 4. Wisconsin . 5. New Jersey . 6. Washington .

- The Utah State Tax Commission came out with very different results in its May 1999 study of tax burdens in seven western states. The commission focused on the percentage of income that people spend on major local and state taxes, excluding federal taxes. Washington came out with the lowest tax burden for residents:

1. Utah, 8.5% . 2. Idaho, 7.6% . 3. California, 7.5% . 4. Oregon, 7.1% . 5. Colorado, 6.8% . 6. Arizona, 6.7% . 7. Washington, 5.7% .

Sources: The Tax Foundation, Utah State Tax Commission.

------------------------------- Comparing tax revenues

Here are some of teh state's top tax revenue generators on an annual bases.

Sales Tax $5.2 billion . Business 7

Occupational Tax 1.8 billion . Property Tax 1.3 billion . Motor Vehicle

Excise tax $750 million . Gas Tax $600 million .

SOURCE: State Office of Financial Management.