Washington Supreme Court Invalidates Property Tax Limit

November 9, 2007

Yesterday, the Washington Supreme Court ruled that Initiative 747, which limits property tax increases to 1 percent per year, is unconstitutional. The court split 5-4 in the case, Washington Citizens Action v. State, with the majority holding that I-747 was ambiguous as to its effects on property taxes.

The majority held that because I-747 was an amendment to a law that had already been declared unconstitutional, it has no effect. The dissenters argued that I-747 was not misleading, and voters understood that the effect of it would be to limit property tax increases, and they approved this.

Before 1997, property taxes increases in Washington State were limited to the lesser of inflation or 6 percent, unless voters approved a higher number. In 1997, Referendum 47 allowed local taxing districts to increase property taxes faster than inflation, but still subject to the 6 percent limit. This middle number, the “limit factor,” was subject to supermajority requirements and a finding of “substantial need” to become effective.

In 2000, voters passed Initiative 722, which reduced all increase caps from 6 percent to 2 percent. Most property tax increases would thus be the lesser of inflation or 2 percent. Referendum 47 taxing districts, with their limit factors, could exceed the rate of inflation but could not exceed 2 percent.

In late November 2000, a lawsuit was filed challenging I-722, alleging it unconstitutionally encompassed more than one subject. A trial judge enjoined the enforcement of I-722, and ultimately, in February 2001, invalidated it. The state supreme court agreed that I-722 was unconstitutional in September 2001.

Meanwhile, concerned that I-722’s legal situation would jeopardize property tax reductions, activists began circulating a new limitation initiative, I-747. This amended the “limit factor” cap, reducing it from 2 percent to 1 percent. The status quo limit factor was listed as 2 percent, not 6 percent, because I-722 was law at the time, even though its enforcement was enjoined. The voters passed I-747 in November 2001.

When they passed I-747, voters had in front of them an initiative that purported to reduce the cap on property tax increases from 2 percent to 1 percent. But because I-722 had been declared unconstitutional, current law at the time of I-747’s passage (“operative vote”) was actually a 6 percent cap. Consequently, the court ruled yesterday, I-747 amended a non-existent law and thus has no effect.

Why didn’t I-747’s backers fix this error after the state supreme court struck down I-722? State law forbids it. Although some of the ballot arguments made reference to the 6 percent limit in existing law, the majority ruled that voters who ignored the pamphlet and only read the text of the initiative would be misled:

[I]f a voter simply read the text of the initiative, he or she would have understood that I-747 reduced the property tax levy limit from two percent to one percent.[… He or she] would have perceived a much smaller impact on government coffers than would actually occur under I-747.

The majority unsatisfactorily suggested that “initiative proponents can effectively ‘amend’ an initiative simply by filing a new version of an initiative under a different number”-an incredibly expensive and difficult process.

Justices Charles Johnson, Gerry Alexander, Richard Sanders, and Tom Chambers dissented, rejecting the contention that I-747 was misleading:

There is no confusion, ambiguity, or uncertainty in this initiative. The ballot title and text clearly disclose the effect of the new legislation to reduce taxes and amend current legislation allowing higher yearly tax increases.[…] If a voter were to simply read the text of the initiative, the voter would have understood that I-747 reduced the property tax levy limit to one percent. This is not misleading.

The Olympian‘s extensive coverage discussed the likely political fallout of the ruling, as well as the danger of suddenly higher taxes:

Senate Republican Leader Mike Hewitt of Walla Walla and others called for re-enactment of the 1 percent lid.

“Now every homeowner in Washington is threatened with a massive property tax hike,” Hewitt warned.

Majority Democrats had balked at enacting the 1 percent limit by statute during their 105-day session this year, arguing in some cases that the high court was unlikely to strike down the 1 percent limit.

Under existing state law, taxing districts that did not raise property taxes by the maximum cap amount are not required to “use it or lose it.” Instead, the “leftover” unused tax hikes are banked, and since I-747 went into effect, some taxing districts have saved up 6.6 percent of unused tax increases.

Two of the justices in the majority were elevated specifically for this case, as two other justices recused themselves. One of the recused justices, Jim Johnson, was co-author of I-747.

Was this page helpful to you?


Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles