“Just days after state voters passed an initiative aimed at limiting the government’s ability to raise property taxes, the Oak Harbor City Council is considering hiking local property taxes. Any tax increase would be against the recommendation of Mayor Patty Cohen, who has said she favors budget cuts over tax hikes for this year’s budget.Yet she painted a very bleak picture of the city’s finances – calling it a crisis – during the city council meeting Wednesday night, a day after state Initiative 722 passed by a wide margin.The forecast is dismal. … We are being bombarded by tax initiatives that have had a very grevious effect on the city, she said. We are finding ourselves in a position where we do not have a reserve, or a cushion, to fall back on because of the current tax reform environment.The city had a special meeting scheduled to consider the tax increase Friday morning, but it was cancelled after the county extended the deadline for property tax increases from Nov. 15 to Nov. 30. The tax increase will be discussed and possibly passed during the council’s regular meeting Nov. 21.I-722 limits property tax increases to 2 percent or the inflation quotient each year and limits the increase of assessed property value to 2 percent or inflation. Also, it voids all taxes increased between July 2, 1999, and Dec. 31, 1999 and mandates that government bodies give back to the taxpayers any taxes already collected.In all, I-722 means about a $1.28 million budget deficit for Oak Harbor.Interim City Supervisor Doug Merriman said that the city isn’t sure exactly how to budget for I-722. He says a recent state Supreme Court decision that last year’s tax-cutting initiative, I-695, is unconstitutional strongly suggests that I-722 will also fall to legal challenges for many of the same reasons.In fact, Seattle and three other cities have filed lawsuits asking a Thurston County Superior Court judge to throw out the initiative on grounds that it violates the state constitution.But to be on the safe side, Merriman said the city may cut part of the $1.28 million from the budget. Exactly how much, though, will be settled by council members during upcoming budget workshops.In addition, the city leaders are still struggling with the I-695-related cuts, which leaves the city $130,000 short for the 2001 budget.Another option Merriman said the City Council may look at is re-instating the 7 percent utility tax that was passed last year, but expires at the end of the year.With or without tax increases, cuts in city services and programs are likely. Cohen warned about the possibility of employee lay-offs. She said it will be tough on all employees if the city can no longer afford to keep the team together.Even if the city council passed the maximum 6 percent increase on the city’s share of property taxes, it would mean only a $125,000 increase in city revenue.But if I-722 holds up under court challenges, Merriman said any property tax increase passed this year, for next year’s taxes, would automatically be cut back down to 2 percent.It’s very confusing, he said. I-722 makes it very hard to know how to budget. “