If local taxing districts begin seizing the opportunity to raise taxes beyond the 1 percent cap, that could hurt Democrats in next year's election.

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OLYMPIA — Tim Eyman lost in court — again. So why does it seem like he’s winning?

When the liberal wing of the state Supreme Court on Thursday tossed out an Eyman-sponsored cap on property-tax increases, the Democrats who control state government were left holding a political stink bomb.

In a 5-4 ruling that seemed to catch the state’s entire political establishment by surprise, the court overturned Eyman’s Initiative 747, a 2001 measure that limited increases in property-tax collections to 1 percent a year.

After initially sounding equivocal about what to do, Gov. Christine Gregoire and House Democratic leaders said Friday they will push to reinstate the 1 percent cap when the Legislature convenes in January.

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“The voters approved Initiative 747, it has been in place for five years and I think we need to leave it in place,” Gregoire said in a statement.

“We have every intention of going in there and reinstating the initiative,” said Rep. Lynn Kessler, D-Hoquiam, the House majority leader. To do anything short of that, she said, “would be political suicide.”

It’s unclear, however, whether that will fly in the Senate, where Democratic leaders want to explore other forms of property-tax relief.

The Supreme Court ruling came two days after voters sent some clear anti-tax signals to lawmakers, rejecting numerous local tax measures and passing another Eyman initiative that will make it harder for the Legislature to increase taxes.

With I-747 in the grave, some local governments — from library districts to cities and counties — could begin ratcheting up taxes.

There’s a lot of disagreement on how fast and how high taxes could increase now that I-747 is dead. But if local taxing districts begin seizing the opportunity to raise taxes beyond the 1 percent cap, there could be severe fallout for Democrats in next year’s election.

Earlier this year, after a lower court’s 2006 ruling invalidated I-747 on a technicality, Democrats brushed off Republican calls for legislation to reinstate the law. Not necessary, Democratic leaders said at the time, because the Supreme Court will surely reverse the lower-court ruling and uphold I-747.

When the opposite happened Thursday, Republicans pounced.

Minutes after the ruling came down, they sent out told-you-so news releases chastising the Democrats for not acting sooner. Then on Friday, Eyman and Republican gubernatorial candidate Dino Rossi called on Gregoire and the Democrats to convene a special session to deal with the problem immediately.

“This is a powder keg that will explode if you ignore the voters’ clear no-new-taxes message,” Eyman said in an e-mail to Gregoire and lawmakers.

Kessler said she doesn’t see any need to rush into special session, “unless some of these taxing districts start going crazy.”

What may be a great sound-bite issue for Eyman and the Republicans is a sticky political problem for Democrats.

The state’s cities and counties, which collectively wield a powerful voice in Olympia, vehemently opposed I-747 and will lobby hard against reinstating the cap. They favor replacing it with a more flexible inflation-based cap.

Meanwhile, progressive groups are leaning on Democrats to instead focus on a more targeted approach — something that would preserve total property tax collections but shift the burden to wealthier taxpayers.

Thursday’s ruling marked the third time the high court has overturned an Eyman tax-limit initiative. And it left some lawmakers queasy with déjà vu.

In 2000, the courts tossed out Initiative 695, another Eyman-sponsored measure that abolished the state’s car-tabs tax. But then-Gov. Gary Locke and the Legislature moved quickly to kill the tax, saying they wanted to carry out the will of the voters.

But eliminating the car-tabs tax put a big fiscal squeeze on local governments.

“Last time the Supreme Court overturned one of Tim Eyman’s unconstitutional measures, Olympia responded by quickly enacting a flawed statute,” Seattle Mayor Greg Nickels said Friday in a written statement. “I urge them not to make that mistake again.”

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com

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