Article by Erik Smith. Published on Thursday, August 19, 2011 EST.
It’s Not Just the Gas Station Operators Anymore – Some of Olympia’s Biggest Associations Join Suit Against Governor
By Erik Smith
Staff writer/ Washington State Wire
OLYMPIA, Aug. 18.—Some of Olympia’s biggest business groups are getting behind a lawsuit that challenges the way the state gives gas-tax money to Indian tribes, broadening a battle that until now has involved a handful of gas-station operators and their small but feisty trade association.
Five briefs have been filed before the state Supreme Court in the last six weeks backing a lawsuit from the Automotive United Trades Organization, the service-station group led by Tim Hamilton in McCleary, Wash. For more than a year now, Hamilton’s association has been a lonely voice challenging the bargain the state has struck with Indian tribes that gives them millions of dollars every year in gas-tax money.
But now the big dogs are getting into the fight – among them, the Association of Washington Business, the Associated General Contractors and a raft of the state’s small-business groups. Their entry into the battle makes it clear that it is a front-and-center issue for the state’s business community as a whole. If the voters catch on to what the state is doing, they say it will be harder to pass gas-tax increases for road projects statewide. The state also maintains no one has the right to challenge the deal, and the business groups say that stinks.
“The message the Supreme Court is getting is that this isn’t just about a few gas stations and the governor,” Hamilton says. “This is about all of us. It is a major policy issue that affects millions of citizens and all of these organizations and companies.”
Under a bill approved by the Legislature in 2007, the governor has the right to negotiate agreements with tribes that give them a big cut of the gas-tax revenue generated by tribally owned gas stations. It has proven a lucrative arrangement for the tribes. It gave them $28 million last year, and sales are booming as tribes scramble to put up pumps. At the rate things are going, state Department of Transportation estimates indicate the arrangement will be worth $427 million over ten years. That’s about half of the billion-dollar deficit the state expects in highway funding over the same period, just for projects already on the books.
A Sweetheart Deal?
The Indian gas tax deal has been one of the biggest controversies of the Gregoire Administration. Some call it a sweetheart arrangement between the governor and some of her biggest campaign supporters. It aimed to settle a case brought by a pair of Indian tribes, the Swinomish and Squaxin Island tribes, after a federal judge ruled in 2006 that the state had no right to collect taxes at the pump on Indian tribal land. The state had a simple solution. It could tweak the law. A federal Supreme Court decision had already established that the state could collect the money further up the chain, before the gas gets to the reservation – when a refiner sells to a distributor. And that’s exactly what the state did.
But the Gregoire Administration argued the tribes needed something more. Gregoire spokeswoman Karina Shagren says that prior to the compacts, there was nothing to prevent tribes from moving up and down the supply chain. “If a tribe wanted to purchase a refinery, it could, thereby making its fuel untaxable by the state,” she explains.
Some lawmakers, particularly Republicans, said the argument doesn’t pass the straight-face test. Refining and distribution require investments of hundreds of millions of dollars. It might be hard to justify the outlay to supply a handful of gas stations on a single reservation. Even if one tribe sold gas to another, they say the gas would be taxable the moment a tanker truck crossed the reservation boundary onto state land.
Yet few lawmakers were willing to cross an interest that spends millions of dollars in casino cash on political campaigns. The issue was muddied by a technical problem involving the taxation of gasoline distributors. And so, after a session of deal-making and coalition-building and fiery speeches on the House and Senate floor, the Legislature authorized the governor to strike deals with the tribes. The one her office came up with gives them an amount equivalent to 75 percent of the gas-tax revenue generated by sales at stations on tribal land. In other words, when they sell a gallon of gas, they get 28 cents of the state’s 37.5-cent gas tax. Since then, 23 of the state’s 28 tribes have taken the governor up on it, signing “compacts” with the state.
No One Knows Where Money Goes
Exactly what they’ve been doing with the money, no one off the reservation can tell for sure. The tribes are supposed to spend the money for their own road projects. But because the tribes are considered “sovereign nations,” the state’s taxpayers aren’t allowed to look at the books. And while the state Department of Licensing has the right to “audit,” its reviews are secret and don’t go very deep. The tribes report where they spent the money, and the state signs off.
Though the tribes don’t have to name any of their projects publicly, they have identified a few of their projects volunatrily in state reports. Seattle television station KOMO visited a few of them on the Puyallup reservation last May. It found a few half-finished roads that had been reported as complete, a newly paved parking lot at tribal headquarters, and a big landscaping project at the tribe’s enormous new gas station along Interstate 5.
Private gas-station operators say the tribes are using the money to undercut their non-Indian competition. Trouble is, they can’t prove it. No one can disprove it, either. But the tribal gas stations generally have the cheapest gas around, beating nearby private gas stations by a dime in many cases and sometimes even a quarter. And Hamilton’s group points out that nothing keeps tribes from getting into the lucrative truck-stop business, which could take an even bigger bite from the state highway funds. “This is about creating financial empires,” he says.
Public Can’t Sue, State Argues
The legal challenge, filed last year by former Supreme Court justice Phil Talmadge on behalf of Hamilton’s association, takes a clever tack. The tribes can’t be sued, because they are “sovereign nations.” So the suit bypasses them entirely and names only the governor and the director of the Department of Licensing. It doesn’t seek to overturn the gas-tax compacts. Instead, it says the state can’t use gas-tax money to pay the bill.
Gas tax money gets special treatment in this state – it’s one source of revenue the Legislature and the governor can’t raid. The 18th Amendment to the state constitution says the money can only be used for highway purposes. The state includes ferries in the definition. But any other purpose – transit, social welfare programs – is off-limits. The state’s transportation interests have defended the amendment vociferously over the years, and an enormous body of law has grown up around it.
The suit maintains that by giving gas-tax money to the tribes without demanding accountability, the state is violating the constitution. The state’s argument is equally clever. When the suit came before the Grays Harbor Superior Court earlier this year, the attorney general’s office argued that the tribes needed to be named in the suit. And if they were named, then the suit had to be thrown out. A classic catch-22.
Judge Gordon Godfrey agreed with the state’s logic – but in his ruling, he appeared to call the argument repellent. “I do find one thing repugnant in this whole situation, and that is in our system of government the terminology that there is no judicial remedy,” he said. “This decision needs to be resolved by our Supreme Court. And I go back to the statement, no judicial remedy. Our whole country and our whole system is based upon judicial remedy.”
Imperils Gas Tax Increase
Now that Hamilton’s association has asked for direct review by the Supreme Court, it seems as if half the business groups in Olympia are weighing in. A flurry of friend-of-the-court briefs have been filed by 13 business associations and the Washington Policy Center, all backing the service-station group. But where Hamilton sees a tribal giveaway and a big competitive disadvantage, others emphasize different issues.
What galls the Association of Washington Business is the idea that the public has no right to challenge the deal, or even to know how public money is being spent. “It seems to be completely contrary to the premise of our democracy,” says AWB attorney Kris Tefft.
And the Association of General Contractors has gas-tax increases in mind. It’s going to be hard to convince voters to raise gas taxes for highway projects if they know a growing chunk of the money is going to the tribes. Business groups are beginning to see that it’s not just a beef between gas-station owners and the governor, said government affairs director Rick Slunaker.
“At some point we hope next year the Legislature will be able to craft a new revenue package to send to the public for their vote,” he says. “And to the extent that people believe that the money is being misused, misdirected, squandered, wasted – pick your adjective – that just makes it much less likely they are going to be willing to vote for an increase.
“Probably the biggest problem that the Department of Transportation faces right now is finding the money to maintain and preserve the roads and bridges that we’ve got. All of that is closely intertwined with the public’s confidence that the money that they are being taxed is being put to good use and being appropriately spent. The court needs to grab up the case and make some of those fundamental determinations about process, content and access to information. Because without it we think the uphill row that we are going to hoe next year on a big statewide transportation package becomes even steeper.”
A Broad Business Coalition
For its part, the Washington Policy Center says the issue touches on some of its core concerns – the lack of accountability, the possibility that the tribes might be misusing money, and the idea that the public ought to be able to challenge the state’s action in court. The right-leaning think tank is conducting a study of tribal gas pricing, due to be released next month, though the result may surprise no one. The Policy Center’s Mike Ennis said it is finding that tribal gas stations undercut non-Indian competitors by a significant margin.
The issue is going to have a significant bearing on whether the public is willing to support gas-tax increases, he says. “It is very difficult for voters to understand why the state needs a gas-tax increases when you have what I would call a sweetheart deal for the tribes, where they’re taking gas-tax revenue and giving it away, and we are paying more, but we are not getting any benefit.”
Other organizations filing briefs so far include the Washington Oil Marketers Association, the National Federation of Independent Business, the Washington Association of Neighborhood Stores, the Washington Food Industry Association, the Washington Asphalt Pavement Association, the Puget Sound Chapter of the National Electrical Contractors Association, the Mechanical Contractors Association of Washington, the National Utility Contractors Association of Washington, the American Council of Engineering Companies of Washington, the Associated Builders and Contractors of Western Washington, and the Washington Aggregates and Concrete Association.