Some of state's taxes invalid, judge rules

OLYMPIA — A Snohomish County judge ruled Friday the Legislature violated the voter-approved spending limit last year by manipulating the state budget to avoid having voters consider $250 million in tax increases.

Superior Court Judge James Allendoerfer in Everett said voters must have their say if the state wants to continue collecting the increased taxes on cigarettes, alcohol and self-service laundries, among other things.

The immediate effect on consumers is unclear.

The judge said lawmakers and state officials "exploited a loophole with the express purpose of artificially increasing the limit," according to Dick Stephens, the attorney for the group of organizations that sued the state.

The judge's ruling, made from the bench, also was confirmed by Janelle Guthrie, a spokeswoman for Attorney General Rob McKenna, whose office defended the case.

Stephens said Allendoerfer didn't address what should happen to the taxes already collected. But the ruling could affect $130 million in taxes the state hoped to collect and spend this fiscal year, he said.

McKenna's staff was reviewing the decision Friday and would consult with state officials before deciding whether to appeal, Guthrie said.

The taxes were raised last year to help balance the state's $26 billion, two-year budget. Cigarette taxes went up 60 cents a pack, and hard-liquor taxes rose $1.33 per liter.

The judge ruled that the series of money transfers made by the Legislature "trumps the intent and spirit of 601," a reference to the 1993 initiative that sets a state spending limit and requires voter approval to raise taxes above that limit.

The limit is based on a three-year average growth in population and inflation.

In 2000, the Legislature approved a loophole that allows the limit to be raised by transferring money among different state accounts.

The Legislature did something like that last year, according to the plaintiffs, to raise the limit by about $250 million.

Allendoerfer said the Legislature manipulated the budget "to avoid a vote of the people" on the tax increases for the current two-year budget, according to Jason Mercier, senior budget analyst for the Evergreen Freedom Foundation.

The lawsuit was filed last year by the Evergreen Freedom Foundation along with the National Federation of Independent Business, the Building Industry Association of Washington, the Washington Farm Bureau and the Washington State Grange.

The judge made his ruling in part based on e-mails between legislative and budget staff for Gov. Chris Gregoire's administration that laid out a road map for the complicated maneuvers that would allow the limit to be pumped up and avoid a public vote on taxes.

The state had argued that the e-mails should be protected by legislative privilege. Allendoerfer ruled in January that he would allow some of the e-mails to be entered as evidence, and he quoted from several Friday.

Gregoire, a defendant in the case, said she had not been briefed on the court ruling and could not say what the immediate financial impact will be.

But she said the judge should not assume that something written in an e-mail among staff shows the intent of the Legislature.

Gregoire, a former attorney general, said intent should be determined by what the full Legislature did, not "one legislator's perception" or comments from "a staffer, who by the way, didn't have a vote."

Stephens said the judge's ruling was a big victory for groups that want a strict state spending limit.

"If the Legislature can do the $250 million shift, they can do it with $25 billion," Stephens said. "There really would be no limit."

David Postman: 360-943-9882 or dpostman@seattletimes.com