Gov. Jay Inslee signed the state’s $43.7 billion operating budget shortly after 11:00 p.m. June 30, less than one hour before the midnight deadline. As the Seattle Times reports,
The overall budget — which includes the K-12 school-funding plan — will boost spending by 13.5 percent over the state’s present two-year operating budget.
Lawmakers also expanded the collection of online sales taxes and closed two tax exemptions. And they approved a series of tax exemptions, including one that lowers the business-and-occupation tax on manufacturing.
The budget summary includes these high-level observations.
Summary
The 2017-19 proposed compromise budget, PSSB 5883, provides $43.7 billion Near General Fund-State and Opportunity Pathways (NGF-P) and $87.3 billion in all funds. For NGF-P, this represents a net $5.2 billion increase from 2015-17 spending levels. PSSB 5883 leaves an unrestricted ending balance of $985 million at the end of the 2017-19 biennium and meets the four-year balanced budget requirements.
Revenue
Forecasted revenue in the NGF-P from the June 2017 forecast is expected to increase by $2.6 billion from $39.0 billion in the 2015-17 biennium to $41.7 billion in the 2017-19 biennium.
The 2017-19 proposed compromise budget assumes additional net revenue increase of $2.1 billion from three bills: HB 2242 Basic Education Funding ($1.6 billion increase), HB 2163 Revenue ($431.8 million increase), and SB 5977 Tax Preferences ($15.6 million decrease).
The proposed conference budget assumes additional net revenue changes of $97.6 million from budget driven revenue, transfers and HB 1716 Construction Registration Account. PSSB 5883 also transfers $254 million from Public Works Assistance Account.
Spending
PSSB 5883 provides $2.1 billion in net funding above maintenance level as follows:
Major Increases
$1.8 billion for K-12 public school ($7.3 billion four-year). This is an addition to the $1.4 billion in increased maintenance level costs from continuation of basic education enhancements
$618 million for collective bargaining and related compensation costs ($1.5 billion four-year)
$102 million for behavioral health and the investment plan ($147 million four-year)
$75 million for higher education ($143 million four-year)
$73 million for Long-Term Care and Development Disabilities ($147 million four-year)
Major Savings
$1.9 billion related to I-1351 savings (2019-21 only)
$463 million from the use of Budget Stabilization Account for pension related costs ($925M four-year)
$292 million from the continuation of the Hospital Safety Net (2019-21 only)
$50 million from suspending payments to the Local Public Safety Account ($100M four-year)
The Democratic governor said he was proud to sign “a truly historic budget” he praised for finally addressing a court order to fix how the state pays for schools.
“I believe this budget at long last will meet our constitutional obligations to fully and fairly fund basic education,” Inslee said.
I am relieved the Legislature has found bipartisan agreement to more amply fund our public schools.
The new education funding plan adds $7.3 billion in state funds during the next four years, but offsets that with a loss of about $3 billion in local levy funds. This approach primarily addresses the state Supreme Court’s requirement, in McCleary v. Washington, that basic education funding come from the state. It also makes important new investments in our public schools.
Adding this new funding is a solid start to building the education system our kids deserve and our economy needs.
The Washington Research Council has prepared a breakdown of policy changes in the compromise budget from those passed in March.
The bulk of the new education funding comes from an increase in the state property tax accompanied by a cap on local levies. The so-called property tax swap had long been considered a likely element in any legislative compromise. It remained controversial to the end, as the Seattle Times reports,
But even as lawmakers praised what many called a historic restructuring of public schools funding, the property-tax increases drew particular scorn from some Puget Sound lawmakers.
Many Democrats said the plan puts too heavy a burden on Seattle-area homeowners who could see their tax bills rise by hundreds of dollars a year.
It would increase the state property tax earmarked for schools, but reduce and cap local school-district tax levies. Residents in school districts in Seattle, Bellevue, Lake Washington and Mercer Island are expected to see their property-tax bills increase
Other elements of the revenue package are still being discussed. Another Seattle Times story reports on the reduction in the manufacturing B&O rate.
Under the measure approved by the Legislature on Friday, business-and-occupation (B&O) tax rates for manufacturers will be reduced 40 percent over four years, starting in 2019.
By 2022, manufacturers will be taxed at the lower rate that lawmakers gave to Boeing and other aerospace companies in 2003 and later extended as part of a record-setting $8.7 billion tax-break package.
The tax reduction won praise from Eric Lohnes, director of governmental affairs on tax and fiscal policy for the Association of Washington Business, who said business advocates have long been pushing for more support for manufacturing.
“Washington has been lagging behind in the manufacturing sector compared to the rest of the nation,” he said.
The Times reports on reactions from the governor’s office.
Jaime Smith, a spokeswoman for Gov. Jay Inslee, said in an email Saturday that the governor’s budget team is still reviewing the tax package and “no decisions have been made” on whether he’ll sign or veto the bill.
The News Tribunes reports that concerns have been raised about the online sales tax, included in HB 2163 along with eliminating the sales tax on bottled war and narrow an exemption for extracted fuel and other tax changes. TNT reporter Walker Orenstein writes,
Steve DelBianco, the executive director of NetChoice, a trade association focusing on electronic commerce, said he’s developing legal arguments and rounding up money to challenge the plan.
“Washington is not likely to see any new revenue from this law, since a court would bar enforcement while legal challenges are resolved,” DelBianco said in an email. “So nobody in Olympia should be counting on new tax revenue in the near term.”
In Olympia, lawmakers were undeterred.
They pointed to Colorado’s ultimate success in the courts as reason to proceed. The U.S. Supreme Court declined to hear an appeal to the Colorado law brought by the Data and Marketing Association.
There will be much more analysis of the adopted budget, which was still being reviewed as it worked its way through the Legislature on Friday. The Legislature remains in session, with the fate of the capital budget and legislation to fix the state Supreme Court’s Hirst water rights ruling in limbo, according to the Spokesman-Review.
