Washington’s budget reserves now top $11 billion, with another billion in “shadow” account. Hearing shows support for tax relief.

The Washington Research Council reports that state budget reserves now exceed $11 billion, with another billion sitting in a “shadow” account. And more.

After the November revenue forecast, we estimated the state’s unrestricted ending balance in funds subject to the outlook (NGFO) was $8.649 billion over four years. With new information, we now estimate that the unrestricted NGFO surplus is $11.249 billion (17.6% of revenues).

But wait, there’s more. A lot more.

On top of the $11.249 billion NGFO surplus, the state has some one-time funds: $1 billion in the Washington rescue plan transition account (the shadow reserve account we discussed here), $1.273 billion left of the state’s share of the federal coronavirus state and local fiscal recovery fund, and about $1.2 billion in the budget stabilization account.

Here’s the discussion of the shadow account the WRC mentions. It’s from their June 2021 report on the adopted state budget.

After transferring the BSA balance to the GFS, the budget transfers $1.0 billion of it to the new “Washington rescue plan transition account.” The account may be used to respond “to the impacts of the COVID-19 pandemic including those related to education, human services, health care, and the economy. In addition, the legislature may appropriate from the account to continue activities begun with, or augmented with, COVID-19 related federal funding.” This is very broad, and could include, for example, the costs of the new child care bill.

As the WRC writes,

The Washington rescue plan transition account is essentially a shadow reserve account. But it is not subject to any constitutional restrictions, so it will be much easier for the Legislature to use the money (for any purpose) than if it remained in the BSA. This means that it is less likely that the money will be available when it is truly needed. By jumping at the chance to grab this money while employment growth is low, the Legislature set a bad precedent for the future. This undermines the BSA and the sus- tainability of the budget.

All that money has increased momentum for tax relief. We discussed some of the proposed tax cuts yesterday. The Senate Committee on Business, Financial Services and Trade held a hearing on one of them yesterday. The Center Square reports,

SB 5769 is four-part tax relief bill that would exempt the first $250,000 of a primary residence from the state property tax, eliminate the business and occupation tax, repeal the new capital gains income tax, and get rid of the new long-term care program and the tax that pays for it.

The so-called homestead tax exemption would be contingent upon passage of a constitutional amendment providing for such an exemption.

You can read their full report, which includes comments from proponents and opponents. Here are a few:

“We have about – a little over – $10 billion of revenue available to us this year, and I think that now of all time – being in such good shape with the budget – it is the opportunity for us to be able to give back to our taxpayers,” said Sen. Lynda Wilson, R-Vancouver, prime sponsor of SB 5769.

And,

Tommy Gantz, director of government affairs for the Association of Washington Business, focused most of her ire on the new capital gains income tax.

“With the budget outlook and revenue forecast, there is no justification for any operating tax increase, including the capital gains tax,” she said.

Jason Mercier, director of the Center for Government Reform with the Washington Policy Center, was all-in for SB 5769.

“I’ve been monitoring the state’s balance sheet for 20 years, and I’ve never seen a better opportunity for lawmakers to provide broad-based tax relief for Washingtonians,” he said.

Mercier went on to note, “And since the legislature adopted the budget, the revenue forecast has increased in ongoing funds $8 billion – $8 billion in revenue growth since the budget was adopted. And since November, that’s another $350 million of more tax collections.”

It’s a lot of money. We’ll see soon how/whether the legislation moves on.