Potential Impacts of Proposed Initiative 747

Under current state law, growth in the property tax portion of state and local government budgets is limited to the rate of inflation, or up to 6 percent under extraordinary circumstances.  Proposed Initiative 747 would lower this cap to 1 percent, unless voters approve a higher increase. Because inflation consistently averages above 1 percent, I-747 would cut funding in constant dollars to the state school levy and to local governments. The Washington Department of Revenue estimates that total state and local funding losses could exceed $1.8 billion for fiscal years 2002 to 2007.

The state and many local governments in Washington are already in serious financial straits due to the combination of revenue losses under Initiative 695 and increasing costs – particularly education, healthcare, and transportation-related costs. Voters approved Initiative 695 in 1999, repealing Washington’s Motor Vehicle Excise Tax. This resulted in a loss of revenue to state and local governments of $1.8 billion for the 2001-2003 biennium. A year after passing the large tax cut, voters approved a pair of initiatives (I-732 and I-728) that mandated over $700 million in new education spending for the 2001-2003 biennium. The costs to the state of providing low-income health care have also risen exponentially – they are projected to be $1 billion higher in 2001-2003 than they were in 1999-2001 – as caseloads and coverage cost per person increased sharply. Budgetary pressures are exacerbated by the need for increased funding to address the state’s significant transportation problems. Proposed Initiative 747 would further destabilize state and local finances in Washington and lead to cuts in funding for fire departments, libraries, hospitals, law enforcement agencies, schools, cities, and counties.

While it is unlikely that many citizens favor de-funding community emergency services, libraries, and schools, Washington’s regressive tax system places a disproportionate burden on low- and middle-income families, engendering significant anti-tax sentiment. Until the issue of tax equity is addressed by state policymakers, tax-cutting initiatives will probably continue to appear on state ballots.

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