A judicial defeat for initiative salesman Tim Eyman could lead to more income for Washington cities. A King County Superior Court judge struck down Initiative 747, his 2001 measure that limited property tax increases.

I-747, the ballot proposal that capped increases in property tax collections to 1 percent a year, was declared unconstitutional on June 13.

The ruling is good news for small communities like Langley.

“Everything Tim Eyman loses is a win for small cities in Washington,” said Langley Mayor Neil Colburn.

He added that many of Eyman’s initiatives have targeted small towns.

However, city governments must wait to see if the ruling will hold up to an appeal.

State will fight

State Attorney General Rob McKenna — a vocal backer of the initiative when he was a King County councilman in 2001 — announced two days after the ruling that he plans to appeal the decision.

“This ruling is disturbing in two ways,” McKenna said. “First, because it overturns the will of the people in approving property tax relief through Initiative 747 and second, because it sets an impossible hurdle for those seeking to exercise their constitutional right to initiative.”

Initiative 747 was approved in November 2001 by 57 percent of voters.

McKenna argued that the state constitution does not require initiative drafters to predict that the underlying law might be invalidated when they file their initiative and begin collecting signatures.

“Penalizing voters because the initiative drafters failed to predict whether or not I-722 would be upheld is bad public policy that severely damages the people’s power of initiative,” he said.

In the court ruling, Judge Mary Roberts said I-747 claimed that it would change the limit on property tax increases from 2 percent a year to 1 percent annually by amending Initiative 722, which had been passed earlier. She said in reality, I-722 had already been declared invalid.

I-747 misleading

The judge threw out the measure, saying “voters were incorrectly led to believe they were voting to amend I-722. The voters were misled as to the nature and content of the law to be amended, and the effect of the amendment upon it. The (state) constitution forbids this.”

Eyman, a Mukilteo watch salesman and for-profit initiative writer, is best known for sponsoring controversial initiatives.

He called the court decision “the goofiest ruling I’ve ever seen in my life.”

He said the ruling tells voters that they didn’t know what they were voting for when they decided the fate of I-747 in 2001.

I-747 cut tax revenues to state and local governments, but experts say the direct hit on public services is difficult to calculate.

Before the initiative was passed, a 6 percent annual increase in property taxes was possible, said Island County Commissioner Mike Shelton.

Later it was limited to 1 percent, and that squeezed an important source of income for cities and counties.

Government entities throughout the state adjusted budgets by cutting services, laying off employees, and dipping into reserve accounts.

Taxes could go up

Local officials said residents shouldn’t expect immediate changes.

“Short-term, nothing is going to change,” Shelton said. “Long-term, it opens the way for property tax increases.”

With the 1 percent limit out of the way, local governments would be free to set higher property tax levies when they adopt their 2007 budgets later this year.

But property owners won’t see any impact until they get their 2007 property tax bills next February.

Colburn said the city of Langley has not evaluated yet how the ruling will affect Langley’s finances.

“We don’t know what impact it may have,” he said. Colburn added it may help the city to fill potential budget holes if the court decision withstands an appeal.

Langley clerk-treasurer Debbie Mahler said before the initiative passed, Langley raised its property tax about 6 percent each year. “The Eyman initiatives affected the city’s revenues in a big way,” Mahler said. “Before I-722 passed, the city was allowed to increase our total property tax levy by

6 percent over the amount of the previous year’s levy. Property taxes and sales taxes are the two largest revenues that the city receives. I-722 took that increase down to 2 percent and was followed by I-747, reducing it to 1 percent.”

“This seriously impaired the city’s ability to raise revenues to keep pace with rising expenses,” she said.

Langley was also hit hard by an earlier Eyman ballot measure.

“This was all preceded by the Eyman initiative which eliminated motor vehicle excise taxes, another source of revenue that the city lost as a result of I-695,” Mahler said.

“All of Eyman’s initiatives took effect immediately upon passage in November, so each year he had one on the ballot, we had to prepare two preliminary budgets. We must pass our coming year’s budget by December each year and hold public hearings on the budget, so besides the fiscal impact of the initiatives, they created a lot of extra work,” she said.

Declining tax revenues from Eyman’s initiatives — and the lackluster economy in Puget Sound after the terrorist attacks of Sept. 11 — led to belt-tightening in Langley City Hall. With essential public services at risk, Langley asked voters last year to increase property taxes, and voters said yes. That might mean that city officials won’t immediately plan for a new increase in property taxes.

“Since Langley did receive a voter-approved increase in property tax, I think it highly unlikely that the city council would increase our levy by more than 1 percent. But that is up to them, based on financial considerations at budget time,” she said.

If the recent ruling holds up, limits on property tax increases would still exist.

Referendum 47, which I-747 supplanted, would become the law again. That measure sets looser limits on annual increases in non-voter-approved property-tax collections. For larger jurisdictions, R-47’s cap is the rate of inflation — 2.54 percent this year — but that can be increased to 6 percent if two-thirds of the members of a jurisdiction’s governing board agree.

The ruling came just a week after Eyman failed to gather enough voter signatures for his Referendum 65, which would have forced a public vote this fall on the state’s new gay civil rights law.

With the failure of Referendum 65, only two of the last six ballot measures sponsored Eyman have reached the ballot. Voters approved only one of the two, last year’s Initiative 900, which gave the state auditor the authority to conduct performance audits of state and local government agencies. However, the Legislature had already passed a similar law.