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POSTED: Monday, Oct. 26, 2009

Initiative 1033: Fiscal discipline or budget obstruction?

Year 10: This time, Eyman wants to tie tax increases to inflation, population

The long-standing chess match between Tim Eyman and Government, with a capital G, entered its 10th season this year with Initiative 1033, another ballot measure that seeks to limit how much money state and local lawmakers can collect from their taxpayers.

Eyman began in 1999 with I-695, a measure to eliminate the state car tax, which cost state and local governments about $800 million a year in lost revenue and saved taxpayers that same amount. Although a judge invalidated I-695, the Legislature enacted the measure because it had passed with so much public support.

Cutting taxes and limiting tax growth are recurring themes for the watch salesman-turned-professional tax fighter. This time around, Eyman wants to put cities, counties and the state on an allowance that can grow each year, but by no more than the rate of growth in population and inflation. Any money collected in excess of that growth rate would have to be rebated to property owners in the form of lower taxes.

Eyman says it is a reasonable limit that would force elected officials to be more disciplined in how they spend public dollars.

“They cannot control themselves during good times,” he said. “I honestly believe government will be better off with this fiscal discipline. It will keep them from over-expanding, hiring too much in good times, then contracting in bad times. Either we put this kind of limit on them or they will create fiscal roller coasters from now until doomsday.”

Public officials, unions, social service groups and others who have mobilized to oppose Eyman say I-1033 would work severe hardships on governments at a time when they are laying off workers and struggling to provide services because of a deep recession.

“His past initiatives have kind of taken bites around the apple,” said Gig Harbor Councilman Derek Young, a 12-year incumbent. “This one is a buzz saw. We’d be cutting into basic services, public safety, education and roads.”

The governor’s budget office estimated that the state would receive nearly $6 billion less over the next six years if voters approve I-1033, and that cities and counties would be deprived of $2 billion that otherwise would flow into their coffers.

Eyman doesn’t think those numbers are exaggerated. To the contrary: He thinks they actually might understate the amount of money governments would not be getting and, correspondingly, how big a break taxpayers would get on their property tax bills.

A BIGGER, BROADER MEASURE

Unlike some past ballot measures he has sponsored, Eyman’s I-1033 is aimed only at the larger governments – the state, its 39 counties and its 281 cities. On the other hand, he isn’t targeting just one tax, as he did with Initiative 747 and its 1 percent limit on the growth of property taxes. He’s taking aim at all the taxes and fees those governments collect and put into their general funds. The general fund is the main checking account for most governments.

Eyman said it takes a broader approach to keep government officials from raising fees and other taxes to make up for the limitations that voters have put on one particular tax source.

“If they can find a way to get around it, they’re going to find a way to get around it,” he said. “They’ll find a loophole.”

As an example, Eyman cites the changes the Legislature has made to the state spending limit since it was first imposed by voters in 1993. The measure set a firm limit on the growth of state spending. It also was pegged to the growth of population and inflation, since those are the two main factors that drive up government spending.

But lawmakers from both political parties chafed under the limit and, Eyman said, they have been undermining it for the past decade. The most recent change, in 2007, got rid of the population-inflation formula and allowed state government to boost its spending limit at the rate of personal income, which generally grows much faster and therefore allows to the Legislature to spend more money.

Eyman said I-1033 would rein in spending much as I-601 did at first, because governments could not spend all the money they collect in taxes and fees.

HOW IT WOULD WORK

To illustrate how I-1033 would work and to simplify the math, let’s assume the city of Tacoma will collect a total of $1 million from all of its property, sales, business and utility taxes and fees that are supposed to be deposited into its general fund. That $1 million for 2009 becomes the base year.

In 2010, the growth in population and inflation is expected to be about 3.1 percent. Consequently, Tacoma would be allowed to collect $1,031,000 for its general fund. But the economy is expected to rebound next year, and the combination of taxes already on the books would increase revenues for urban cities by about 8.5 percent in 2010.

If I-1033 became law, Tacoma would be allowed to collect $1,085,000 in 2010, but would have to put the amount in excess of the population and inflation rate – in this case, $54,000 – into a special fund and then lower its property tax collection in 2011 by that $54,000.

I-1033 would not apply to enterprise funds, such as garbage collection, electric bills, and sewer and storm water utility bills. But the 6 percent utility taxes on all of those bills in Tacoma do go into the city’s general fund, so that amount would be subject to the overall tax limitation.

Young said there are two main problems with I-1033. For one, the base year (2009) has been one of the worst on record in decades. The recession has crimped tax collections at way below normal levels, he said. And governments have had to lay off workers and cut services to live within their means, he said.

An economic rebound in 2010 would generate more tax revenues and let governments climb out of the holes they are in, but not if I-1033 passes, he said.

Secondly, all cities are treated the same, and they should not be, Young said.

For instance, Tacoma, Bellevue and Redmond have business and occupation taxes. Gig Harbor does not.

“Instead of raising property taxes or creating a B&O tax, Gig Harbor had socked away money for a rainy day, and now it’s raining,” Young said. Eyman is “proposing something that would not allow us to rebuild that rainy day fund,” he said.

Eyman said this ballot measure gives local officials a safety valve: If they need more money, they can put a tax increase on the ballot and ask voters to approve it.

“You can tax the voters into oblivion as long as you get voters to agree,” he said.

MONEY MATTERS

The opposition has raised $3.4 million to wage a campaign against I-1033, and as of last week $2 million remained to be spent on an advertising blitz the final two weeks before the election.

Eyman raised $650,000, including a $250,000 loan he got by taking out a second mortgage on his home. But virtually all of that money went into the signature drive to get the measure on the ballot. He relies mostly on newspaper, TV and radio news stories – not advertising – to get his message out.

Mike Dunmire, a retired investor in Woodinville, has bankrolled much of Eyman’s campaign, donating $300,000 to the cause. Bellevue developer Kemper Freeman kicked in $25,000, but overall the nearly 1,000 contributors kicked an average of only $55, Eyman said.

On the other side, the main contributors are the public employee unions, some of whose members would be laid off, be furloughed or have their benefits cut back if I-1033 were to pass.

Unions for state, city, county and school workers have chipped in well over $2 million.

“Our members want to feel like they have the resources to do a good job,” said Chris Dugovich, president of the Washington State Council of County and City Employees, which has 18,000 members in 280 jurisdictions across the state.

“As everyone well knows, the cuts have been big and furious,” he said. “It’s been a disastrous year in terms of revenues for local governments – furloughs, no pay increases, benefit cuts. Then, say the economy does get a little better and we return to a normal year. Then you have to rebate (some tax revenues) in the form of a property tax cut.”

Young and Dugovich said tax-vote elections are not the safety valves that Eyman portrays them to be.

“Elections are costly,” Young said. “You just won’t see cities and counties doing that.”

Said Dugovich, “Eyman’s already got the 1 percent (property tax) lid in place. So you’ve got some pretty tight controls over property tax as it is. This is ridiculous if everything has to go to the ballot. We elect people to make those decisions.”

Joseph Turner: 360-786-1826

joe.turner@thenewstribune.com

blog.thenewstribune.com/politics

BIGGEST DONORS

More than $4 million will be spent on the campaigns for and against Initiative 1033, Tim Eyman’s latest ballot proposition that tries to limit government taxes or spending. The lion’s share, $3.4 million will be spent by opponents. Eyman & Co. will have spent about $650,000, but virtually all of that was for the signature drive to get I-1033 on the Nov. 3 ballot.

Here are the Top 10 contributions in favor:

1. Mike Dunmire, retired investment manager, Woodinville: $300,000

2. Tim Eyman, initiative promoter, Mukilteo: $250,000 (loan)

3. Kemper Freeman, developer, Bellevue: $25,000

4. Duane Alton, store owner, Spokane: $5,000

5. Electrical Contractors Association, Seattle: $3,000

6. Rolan Becker, trucking company owner, Mukilteo: $2,000

7. Gerald Scheider, retiree, Tukwila: $2,000

8. Terrence Zehrer, self-employed, Seattle: $2,000

9. Morris Mehrer, drywall company owner, Seattle: $1,750

10. Dagny Lord, retiree, Nine Mile Falls: $1,000

Here are the Top 10 contributions against:

1. American Federation of State, County and Municipal Employees, Washington, D.C.: $300,000

2. National Education Association, Washington, D.C.: $300,000

3. Service Employees International Union, Seattle: $265,000

4. Bill Gates III, Kirkland: $100,000

5. Washington State Council of County and City Employees, Everett: $100,000

6. International Union of Operating Engineers, Washington, D.C.: $75,000

7. Washington Federation of State Employees, Olympia: $75,000.

8. Microsoft, Redmond: $50,000

9. Nicholas Hanakuer, venture capitalist, Seattle: $50,000

10. International Brotherhood of Electrical Workers, Washington, D.C.: $50,000 HOW MUCH IS ENOUGH?

State government spending had been limited to the growth in population and inflation until 2008, when the Legislature started using the growth in personal income to adjust the spending limit upward. Personal income allows more state spending because it has been higher than the previous formula in 10 of the past 14 years.

Fiscal Increase in Increase in

yearPopulationPersonal

/InflationIncome

19947.24.3

1995 6.25.8

1996 5.15.8

1997 4.58.0

1998 4.08.1

1999 4.27.8

2000 3.38.8

2001 2.93.9

2002 2.82.4

2003 3.32.0

2004 3.23.9

2005 3.06.0

2006 2.87.7

20073.48.0