‘Sin taxes’ can stay, state high court rules

OLYMPIA — The state Supreme Court on Wednesday upheld a package of tax hikes used to balance the state budget in 2005, ruling that lawmakers were allowed to bump up a voter-approved spending limit with a series of money transfers.

The ruling overturns a lower-court decision and avoids the messy possibility of millions in sales tax refunds to consumers. But the high court didn’t find 1993’s Initiative 601 unconstitutional, and didn’t deliver clearer rules about executive and legislative privileges that allow some government records to remain secret.

The lawsuit, filed by a coalition of conservative groups, claimed the Legislature and Gov. Chris Gregoire circumvented I-601’s spending limits by adopting a package of taxes without voter approval, including a big jump in the liquor tax.

The initiative’s spending cap limits budget increases to no more than the growth in population plus inflation, often around 6 percent a year. Lawmakers can affect the level by shifting funds around.

That’s what the Legislature did in 2005: Lawmakers moved $250 million from one account into the state general fund, bumping up the spending limit. They then “spent” that money into a third column, and transferred it back into the original account.

When the lawsuit was filed, the Legislature passed a follow-up bill aimed at curing any potential problem with the spending limit and tax decisions.

Wednesday’s controlling court opinion, written by Justice Mary Fairhurst, said lawmakers didn’t do anything wrong because they have the power to amend prior statutes.

One state law — in this case, I-601 — can’t bind the Legislature from changing laws in the future, the court said. Those powers are left to the state and federal constitutions.

“To reason otherwise would elevate enactments of prior Legislatures to constitutional status and reduce the current Legislature to a second-class representative of the people,” the court said.

The case was the first major legal test of the state’s main spending-limit law. It was brought by the Washington Farm Bureau, Washington State Grange, state chapter of the National Federation of Independent Business, the Building Industry Association of Washington and the Evergreen Freedom Foundation.

Last year, Snohomish County Superior Court Judge James Allendoerfer agreed with those critics that the Legislature’s money shifting artificially inflated the state spending limit.

After that accounting trick, lawmakers had room to pass the budget-balancing tax package.

It included a 60-cent-per-pack increase in cigarette taxes, raising $175 million; a $1.33-per-liter tax on hard liquor, generating about $50 million; and a sales tax on extended warranties on consumer products, raising about $37 million.

Allendoerfer later excluded the cigarette tax hike from his ruling. An estate tax also was not included.

Had Allendoerfer’s ruling been upheld, the state could have been on the hook for about $110 million in tax refunds to consumers who bought liquor or extended warranties, Revenue Department spokesman Mike Gowrylow said.

Joining Fairhurst in Wednesday’s majority opinion were Justices Bobbe Bridge, Charles Johnson, Barbara Madsen and Susan Owens.

The court’s four other justices agreed with the results of the ruling, but wrote separately to raise different legal points.

Justice Tom Chambers and Chief Justice Gerry Alexander said they would have ruled I-601 unconstitutional because it treads on the Legislature’s power to pass laws.

Justice Richard Sanders and Justice James Johnson wrote separately to assert that the people’s political power comes before the Legislature’s.

Open-government watchdogs had hoped the Supreme Court also would rule Wednesday on executive and legislative privilege, a pair of constitutional principles that can limit public and judicial scrutiny of the government’s decision-making processes.

Those principles have been established on the federal level and in other states, but Washington appellate courts have never upheld them. Both privileges were raised in the I-601 case, after the lawsuit’s plaintiffs sought documents detailing budget discussions between the Legislature and Gregoire’s staff.

Allendoerfer affirmed the privileges and laid out specific rules for their use last year during the initial phase of the I-601 case. But the Supreme Court on Wednesday said it didn’t need to visit that issue because its overall ruling favored the state.