Bruce Ramsey/Times editorial columnist
County's craftiness over car-tab tax
By passing Initiative 776, Washington voters ordered local governments to remove all taxes on car tabs. King County is arguing in court that it cannot. It has pledged its $15 tax as security for an issue of bonds, and to withdraw the pledge impairs the rights of bondholders. Therefore, the county must keep collecting the tax.
That is neat — and disingenuous.
The first bad odor was the news — after the election — that the county had not sold those bonds until October. In other words, as citizens were getting ready to take back the tax, the county was quietly pledging it as collateral for a loan.
The county denied any intent to thwart the people of Washington. The bond sale, it said, had been scheduled for two years. And so it had. But that wasn't the right question. The question was: When had the county decided to pledge the tax?
"We started talking about it in April or May, when we were putting the bond issue together," said Robert Cowan, King County's finance director.
I-776 had been filed the previous December. They knew about it.
Was I-776 the motivation for pledging the tax?
"It wasn't the primary motivation," Cowan said. The primary motivation, he said, was to match a roads bond with a road-related tax.
But inoculating their $15 tax with antibodies to Tim Eyman's initiative was one of their motivations.
In July, Ron Sims, King County executive and chairman of Sound Transit, said the lawyers of both agencies had looked into the Sound Transit car-tabs tax. They determined that the tax had been pledged against bonds sold in 1999, and could not be repealed by I-776.
And King County's tax? It seems that nobody asked.
On Sept. 20, King County's tax was pledged in the fine print of a bond ordinance. There was no controversy about it. Even Councilman Rob McKenna, who has been a persistent critic of Sound Transit, voted for it.
"It never occurred to me that it might be used later as a conscious effort to get around 776," he said.
On Oct. 1, King County sold $38 million in Limited Tax General Obligation Bonds.
There were no stories afterward about how King County had neatly inoculated itself. But there were continuing stories that Sound Transit had done that three years earlier. In late October the state Department of Licensing said it would continue to collect Sound Transit's tax even if I-776 passed. That fit the political message that the opponents of I-776 wanted: Don't vote for I-776 to hurt light rail. It won't. It will hurt roads. King County officials were quoted that the repeal of the $15 tax would stop road projects.
On Nov. 5, statewide voters approved I-776.
On. Dec. 3, King County told the court that its $15 tax was immune from repeal.
There is the story: Voters were treated like 3-year-olds. But how about investors?
King County was required to tell investors about I-776 in its disclosure document, and it did. After pledging not to repeal the $15 tax itself, it told investors, "The County believes that even if I-776 is approved by the voters and implemented, it will nonetheless have sufficient revenues to pay the principal of and interest on the Bonds when due."
In other words, the voters might repeal the tax — but don't worry.
The county had pledged two taxes to back up the bonds. First was the car-tab tax. Second was the property tax. The first raises $5 million a year and the second raises $238 million a year. So if the first tax goes away, bondholders will hardly notice.
The bonds, rated Aa1 by Moody's Investor Service and AA+ by Standard & Poor's, would suffer no loss of rating from I-776. So say Dari Barzel, senior analyst of Moody's, and Gabe Petek, analyst with Standard & Poor's.
The $15 tax is worth nothing to the bondholders. It is worth $5 million a year to King County government. And who is suing? Bondholders? Why, no. It is King County government.
Did King County government give a straight story to bondholders? It did. To do otherwise invites penalties under federal securities laws. There are no penalties, however, in the political arena. In that place, you are on your own.
Bruce Ramsey's column appears regularly on editorial pages of The Times. His e-mail address is firstname.lastname@example.org.