Olympia has produced three budgets in two themes. Call them “education first” and “education-plus.” It’s all education finance this year.
The Senate budget is in the first camp, offering a $1.5 billion spending increase for K-12 schools without raising taxes. There’s not enough money to make the Senate’s education increases — including additional funding for the colleges and universities — without keeping a firm lid on non-education spending. Meeting the school funding challenge within existing revenues necessarily squeezes social service funding.
Gov. Jay Inslee and the House rejected that approach and offered education-plus budgets. Their proposals lift K-12 spending by $1.8 billion and $1.9 billion respectively. They also increase higher education funding. The big differences come in increased spending on social programs. In particular, Democrats object to cuts in childcare services and a program that provides cash assistance to the blind, disabled and elderly.
Now negotiations between the House and Senate begin in earnest.
Both legislative budgets begin with a sizable overall increase in state spending. The Senate’s no-new-taxes budget still lifts spending by $2 billion, about 6.7 percent. The latest official forecast projected revenue growth of about 6.6 percent. And that’s assuming temporary business and beer tax increases expire this year as planned. The House takes spending up by about $3.3 billion, 10.4 percent, with $1.3 billion in new taxes.
Both budgets emerged as works in progress. The Senate relied on assumptions unlikely to be realized, like putting part-time state workers into the new state Health Benefit Exchange, savings from undefined efficiencies, and shaky fund transfers. The House also uses fund transfers, taps the state rainy day fund (requiring an improbable 60 percent supermajority vote by both chambers), and relies on tax increases that have yet to be approved in the House and will likely be rejected in the Senate.
They want an education-plus budget and passed it out on a party line vote. The Senate budget drew a bipartisan majority, 30-18, with nine Democrats in support, though several of them continue to call for new taxes.
The largest revenue pick-up in the House proposal comes from extending a temporary increase in the tax rate on service businesses that is scheduled to expire June 30. They also extend, at a slightly reduced rate, a beer tax on large breweries and introduce a new tax on microbrews. The two combine for about 44 percent of the total proposed tax hike.
The balance of the House revenue plan entails going after what lawmakers call “tax preferences.” By statute, the clunky and imprecise term embraces reduced tax rates, credits, incentives, preferential rates, and exemptions. The House wants to change 15 of them, including hiking tax rates on insurance and travel agents, janitorial services and stevedoring firms. House Democrats also eliminate a sales tax exemption on residential landlines. And, after a state Supreme Court decision led to differential tax treatment of the estates of married and single taxpayers, reducing state revenues, they want to undo the distinction and capture the tax.
Some of the proposals seemed aimed at select industries simply because they are successful. With many prominent tech firms here, repealing incentives that spur research and development sends a troubling message, especially from a region that has built its reputation on innovation. Repealing a use tax exemption for firms generating energy from their own byproducts targets big oil refineries.
The House also repeals the sales tax exemption for tourists and other visitors from out of state, costing struggling retailers customers and sales. The revenue package takes another shot at imposing the sales tax on bottled water, which voters firmly rejected in 2010. There’s more.
The House lays out a groaning board of tax alternatives. Many items, those hardest to swallow, will remain untouched. Others may magically appear as the session winds down. Ultimately, a compromise in the $300 million to $500 million range, might be found to close the deal, possibly subject to voter approval.
Whether the result is education-plus or education-first, the budgets show that lawmakers in both chambers have taken the state Supreme Court mandate seriously. Public schools will receive substantial new funding in the next biennium. New taxes, if any, are for other priorities.
Richard S. Davis is president of the Washington Research Council. His email address is rsdavis@simeonpartners.com
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