State: I-776 won't cut off Sound Transit

The state says Sound Transit would continue to get motor-vehicle excise-tax money — even if voters approve Initiative 776 next month — unless a court orders otherwise.

Initiative 776 is intended to limit car tabs to $30 a year and repeal local taxes on vehicle registration, including the 0.3 percent tax that helps support Sound Transit's bus, commuter-rail and light-rail programs. Supporters have characterized the initiative as a way to stop light rail.

But in a letter last month to the state Department of Licensing, which collects and distributes the money, Sound Transit officials argued the tax can't legally be repealed because the regional-transit agency already has pledged the proceeds to help pay off outstanding bonds.

In a Sept. 20 response, licensing director Fred Stephens concurred.

"... We will continue to collect and remit the (tax) unless and until a court of competent jurisdiction adjudicates that (the department) may not do so," Stephens wrote.

King County Executive Ron Sims, who also is Sound Transit's board chairman, said Stephens' conclusion is significant. "Mr. Eyman (I-776 sponsor Tim Eyman) has called this a vote against Sound Transit," he said, "but the law of the state of Washington is saying that Sound Transit will continue to collect the taxes."

Eyman disagreed.

"We're very confident we've drafted the initiative to end the tax immediately," he said. "They're whistling past the graveyard if they think it won't. ... "

If I-776 passes, Eyman said, the Attorney General's Office should go to court to challenge Stephens' interpretation. If it won't, he said, his organization would. "Voters want $30 tabs, and now they're being told they're not going to get them," he said.

Stephens' letter was released yesterday by Sims' office, and also was made available to Eyman as part of Sound Transit's response to a public-records request from the initiative sponsor. But Eyman said Sims and Sound Transit had contacted the media before notifying him of the records' availability and called the move part of a campaign of "last-minute threats, lies and scare tactics."

Sound Transit's motor-vehicle excise tax accounts for about 20 percent of the agency's revenue. King, Snohomish and Pierce County voters authorized it, along with a sales tax, in 1996 to finance transit projects. The owner of a $20,000 vehicle pays $60 a year.

In 1998, Sound Transit signed a 10-year contract with the Department of Licensing to collect the car-tab money on its behalf.

A year later, the transit agency sold $350 million in bonds. Ric Ilgenfritz, Sound Transit's communications director, said the 30-year bonds provided money for projects and programs throughout Sound Transit's service area, including light rail.

Sims said in July that Sound Transit was likely to emerge untouched if voters approved I-776. But Sound Transit sought clarification from the state last month after it received a letter from the Federal Transit Administration asking about the initiative.

The FTA is weighing an application from Sound Transit for $500 million in grants to help build its proposed, $2 billion-plus light-rail line from downtown Seattle to Tukwila.

In a Sept. 10 letter to Stephens, Desmond Brown, Sound Transit's general counsel, and Hugh Simpson, the agency's chief financial officer, noted that Sound Transit had pledged revenues from the motor-vehicle excise tax to help pay off the 1999 bonds.

A repeal of the tax would force Sound Transit to violate its contract with bondholders, they argued. That's forbidden by the U.S. Constitution and Washington state law, they said.

They asked — and got — Stephens to concur with their analysis that the Licensing Department should continue to collect the tax for Sound Transit, even if I-776 passes, so long as the 1999 bonds are outstanding.

Gerald Anderson, an assistant attorney general who works with the Department of Licensing, said the question was fairly simple for the department.

"The department's role is fundamentally administrative and ministerial," he said. "The department wasn't trying to prejudge the effects of 776 so much as it was simply reiterating its statutory and contractual obligations."

None of the correspondence between Sound Transit and the Licensing Department addresses whether I-776 would impair Sound Transit's power to sell more bonds to finish the light-rail line. If it does, that still could put the project in jeopardy.

Eyman said there's no question the initiative prohibits future bond sales backed by motor-vehicle taxes. Sims said lawyers have advised him that's not so, "but that's going to be decided by a court."

Eyman said Olympia attorney Jim Johnson, who drafted I-776 and now is a candidate for the state Supreme Court, reviewed the bond documents before writing the initiative to make certain it would end the tax immediately.

The initiative says that if repeal of the motor-vehicle excise tax affects bonds previously issued for light rail, "the people expect transit agencies to retire these bonds using reserve funds including accrued interest, sale of property or equipment, new voter-approved tax revenues, or any combination of these sources of revenue."

But it also says that if courts rule I-776 illegally impairs existing contracts, the initiative still would apply to new contracts, including bond refinancing.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com.

Information in this article, originally published October 17, was corrected October 18. The name of Sound Transits chief financial officer is Hugh Simpson, not Hugh Spencer.