House and Senate Democrats release final $59B budget plan

The two-year plan comes just one day before the Legislature is set to conclude its session.

By Rachel La Corte / Associated Press

OLYMPIA — House and Senate Democrats on Saturday released a final two-year $59 billion state budget plan, just one day before the Legislature is set to conclude its session.

In addition to state funds, the budget also uses billions of federal dollars in spending on areas hit hardest by the pandemic, ranging from learning loss in schools and child care grants to rental assistance.

The compromise budget is very similar to initial proposals released last month by both chambers. The budget still includes a new capital gains tax on profits from the sales of stocks and bonds and other assets that awaits a final vote in both chambers.

“As the economy recovers and families recover, I think this budget is perfectly suited to lift everyone up equitably, providing resources strategically where we need them the most,” Democratic Sen. Christine Rolfes, the key budget writer for the Senate, said during the conference committee meeting in which the plan was adopted on party lines.

The budget is expected to pass both chambers before midnight Sunday, when the 105-day legislative session ends.

On Friday night, a conference committee approved a version of the new capital gains tax that includes language that appears to prevent a referendum on the measure, which is certain to face an immediate court challenge if approved by the Legislature and signed into law by Gov. Jay Inslee. Opponents of a capital gains tax argue it’s a tax on income that violates the the state constitution.

Republican Rep. Drew Stokesbary decried what he called a partisan budget process, especially the inclusion of the capital gains tax.

“The fact that this relies on new taxes is a choice, it’s not a necessity,” he said.

Republicans have argued that no new taxes are necessary due to the state’s economy outperforming what was initially predicted. In addition to state revenues steadily improving since the coronavirus pandemic shut down the economy last year, lawmakers have billions to use from the federal stimulus package.

In the current two-year budget that ends mid-2023, lawmakers used a total of $10.6 billion in federal COVID-19 funding, including most of the $4.25 billion in flexible funding that lawmakers have to use by the end of 2024. Lawmakers used all but $1.1 billion of that amount, putting $1 billion toward the transportation budget, $1.7 billion in the operating budget and $400 million in the state construction budget.

Budget writers also used the so-called rainy day fund to balance out the the current budget that ends this summer, transferring $1.8 billion from that fund.

Original versions of the capital gains tax looked to bring in $500 million a year, but the latest version settled on by House and Senate Democrats is now expected to bring in $415 million in 2023, the first year the state would see money from the tax, which would start in 2022. It would impose a 7% tax on the sale of stocks, bonds, and other high-end assets in excess of $250,000 for both individuals and couples.

Business owners are exempt from the tax if they were regularly involved in running the business for five of the previous 10 years before they sell, own it for at least five years, and gross $10 million or less a year before the sale.

Retirement accounts, real estate, farms and forestry would be exempt from the proposed tax. One new element added to the bill Friday night was allowing a taxpayer to deduct up to $100,000 a year from their capital gains if they made more than $250,000 in charitable donations in the same tax year.

The largest chunk of federal stimulus spent in the budget is about $1.7 billion for school reopening and funds for schools to address learning loss by students over the past year. Another $1.1 billion will be allocated for vaccine deployment, recruitment of public health workers and other efforts related to the pandemic.

Other areas funded by the federal money include:

— $658 million to extend the state’s rental assistance program

— $528 million for child care grants and provider rates

— $340 million for grants to adults who have been impacted by COVID-19 but are unable to access other benefits due to their citizenship status

The budget also uses a mix of state and federal funding on areas ranging from behavior health services to bolstering the public health system and wildfire preparedness and prevention.

It also expands a tax credit for low-income workers and families that would start paying out benefits for the first time in 2023. The state tax exemption was created in 2008, but has never been funded. Democrats put aside $261 million to implement the program.

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