In this March 12 photo, Washington state Senators work on the Senate floor at the Capitol in Olympia. The Senate released its budget Friday. (AP Photo/Ted S. Warren, file)

In this March 12 photo, Washington state Senators work on the Senate floor at the Capitol in Olympia. The Senate released its budget Friday. (AP Photo/Ted S. Warren, file)

Less spending and fewer new taxes in Senate Democrats’ budget

The $51.9 billion plan avoids capital gains and business tax hike that House Democrats proposed.

OLYMPIA — Conversations on a new state budget picked up steam Friday as majority Democrats in the Senate rolled out a plan that would spend and tax less than their House counterparts in the next two years.

Senate Democrats put forth a $52.2 billion spending blueprint to bolster behavioral health services, transform the mental health system, boost special education funding and provide pay hikes for state workers.

It counts on $518 million of added revenue, most of it from a new way of taxing property sales and ending the ability of nonresidents to avoid paying sales tax on their purchases.

Overall, Senate Democrats propose to spend $400 million less than their House counterparts.

And, unlike their House colleagues, they do not include a controversial capital gains tax or increase in business taxes as part of the budget.

However, Senate Democrats are proposing a capital gains tax and want to use the money to provide a tax break for low-income families, tax relief for small businesses and cover the cost of eliminating sales tax on diapers, feminine hygiene products and over-the-counter medications. None of those programs are tied to the two-year budget.

“This is a smart budget that reflects our shared values and fulfills commitments to quality education and a more effective behavioral health system,” said Sen. Christine Rolfes, D-Bainbridge Island, the lead Senate budget writer and chairwoman of the Ways & Means Committee.

She said the two chambers are now “in a good overall place” for negotiating and reconciling the differences by the scheduled end of session April 28.

The lead Republican on the Senate Ways and Means Committee said it is “a much better start than what we’re seeing from the House.”

“The tax increases in the proposed Senate budget are still unnecessary, and the spending is higher than necessary, but there is no question it’s much more respectful of taxpayers than the House approach,” Sen. John Braun, R-Centralia, said in a statement.

Meanwhile, on Friday, House Democrats brought their $52.6 billion budget to the floor for a vote. It counts on $1.4 billion from new and higher taxes — including a capital gains tax — a higher business tax rate and a rejiggering of the real estate excise tax rates. But those tax bills were not to be voted on.

There are differences in the two budgets.

For example, the Senate plan pushes nearly $283 million into behavioral health. That includes adding staff and improving safety at Western State Hospital, one of two state psychiatric hospitals. Some of those dollars will go to increasing the number of beds in treatment facilities in communities around the state. The House budget puts almost $340 million into behavioral health programs, with a little bigger investment in changes related to current and future operations of the state hospital.

The Senate plan increases spending on special education in public schools by $156 million, more than double the House amount. But it contains roughly $125 million less for the expenses of a new statewide health insurance program for school employees.

In higher education, the Senate allots $75 million more for the state need grant program. However, the House would wind up at a much higher mark if its business tax hike is passed.

In early learning, the Senate approach funds 760 additional slots in the Early Childhood Assistance and Education Program in the next two years, half as many as the House plan.

The major component of the revenue proposal put forth by Senate Democrats is a restructure of the state’s real estate excise tax that would bring in a projected $421 million in the biennium.

They want to replace the flat rate of 1.28 percent imposed on each sale of property with a four-tier graduated rate that starts with a lower mark of 0.75 percent on any sale of property valued at less than $250,000.

The current rate of 1.28 percent would continue to be imposed on properties valued between $250,000 and $999,999. A new 2 percent rate would be levied on sales of properties valued between $1 million and $5 million, and 2.5 percent on properties valued above $5 million.

Under state law, sellers are responsible for the tax. In practical terms, it gets passed on, thus buyers of expensive properties would pay a little more and buyers of cheaper properties a little less under this approach.

For example, on a $200,000 home, the current rate results in $2,560 owed in real estate excise taxes. That sum would drop to $1,500 under the proposal. On an $8 million home — like one sold in Woodway in 2016 — the excise tax due would climb from $102,400 to $160,000.

Senate Democrats also count on gaining $54 million from ending the sales tax exemption for nonresidents and $38.5 million from axing a tax break for prescription drug resellers.

And there would be $91 million raised for a new wildfire protection account from an increase on insurance premiums.

Hearings on the Senate budget is slated for early next week.

Jerry Cornfield: 360-352-8623; jcornfield@herald Twitter: @dospueblos

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