By Diana Carlen
On Sunday night, the final gavel came down, and the 2021 Legislative Session adjourned Sine Die. It was a session unlike any other, held almost entirely remotely and with the campus closed to the public due to the pandemic. While people could testify remotely, oftentimes, people were not able to testify because of the high number of people who signed up and committees running out of time.
It was a brutal session for agriculture, who was playing defense on several fronts. In the final week of the session, despite strong opposition from agriculture, the Legislature hit agriculture with a double whammy by adopting both a low carbon fuel standard and cap-and trade legislation, both of which will increase fuel and energy prices dramatically. Moreover, the Legislature also passed a capital gains tax on the final day of the session which could impact some agricultural land, despite statements made by proponents that it was not their intention to impact agricultural land.
Notably, the two bills authorizing a low carbon fuel standard and cap-and-trade include language that the programs cannot be enforced until the Legislature enacts a state gas tax increase of at least five cents. However, the Legislature did not reach an agreement on a transportation revenue package. Rumors have begun that lawmakers may return for a special session later this year to adopt a revenue package.
Over the next month, the Governor will continue to take final action on bills. Once a bill passes the Legislature, it is delivered to the Governor to be signed into law, vetoed, or partially vetoed (he has the authority to remove entire sections of a bill, but not specific sentences). Unless indicated otherwise in the legislation, bills will be effective law beginning on July 25.
Cap and trade passes the Legislature
On Saturday, April 24, the Climate Commitment Act (Cap & Trade, E2SSB 5126), sponsored by Sen. Reuven Carlyle (D-Seattle), passed the Legislature. While this bill was considered Necessary to Implement the Budget and not subject to legislative deadlines, at the start of the week, the chances of passage seemed slim as it had not yet passed the entire House of Representatives. The bill now proceeds to the governor to be signed into law. Key provisions of the bill:
- Establish a cap-and-trade program for greenhouse gas emissions to be implemented by the Washington State Department of Ecology (Ecology).
- While the program begins on Jan. 1, 2023, enforcement of a compliance obligation for covered entities is contingent on the passage of a 5-cent gas tax in a future legislative session, tying it to a transportation revenue proposal along with Low Carbon Fuel Standards (HB 1091)
- Exempts motor vehicle and special fuel used for agricultural purposes by a farm fuel user from the cap-and-trade program. Requires Ecology to determine a method to expand the agricultural fuel exemption to apply to fuels used to transport agricultural products on public highways and to maintain this exemption for five years.
- The following are eligible uses from the Climate Commitment Account: grants, rebates and other financial incentives for agricultural harvesting equipment, heavy-duty trucks, agricultural pump engines, tractors, and other equipment used in agricultural operations; grants, loans or any financial incentives to food processors to implement projects that reduce greenhouse gas emissions; renewable energy projects; farmworker housing weatherization programs; dairy digester research and development; and alternative manure management. However, projects funded from the Climate Investment Account must meet high workforce labor standards, including employer paid sick leave programs; family sustaining wages; pay equity based on gender identity and race; career development opportunities; and maximize access to economic benefits for local workers and diverse businesses.
Low carbon fuel standards passes Legislature
On Sunday, April 25, House Bill 1091, which would establish a statewide low carbon fuel standard, passed the Legislature. Under the bill, Ecology is directed to adopt rules establishing a Clean Fuels Program with the following notable provisions:
- Limit greenhouse gas (GHG) emissions per unit of transportation fuel to 20 percent below 2017 levels by 2038.
- Reduction in the GHG emissions attributable to each unit of the fuels not to exceed 0.5 percent each year in 2023 and 2024; 1.0 percent each year 2025-2027; 1.5 percent each year 2028-2031; and no change in 2032 and 2033.
- Carbon intensity reductions required by the standard are prohibited to go beyond a 10 percent reduction until a 2030 JLARC review of the Clean Fuels Program has been completed; and the 2033 Legislative session has adjourned.
- A price cap is put it place that may not exceed $200 in 2018 dollars for 2023. For 2024 and subsequent years, the price cap may exceed $200 in 2018 dollars, but not beyond CPI inflation for urban consumers, west region.
- Compliance obligations or credit generation is prohibited until the passage of a 5-cent gas tax in a future legislative session, tying it to a transportation revenue proposal along with the Climate Commitment Act (SB 5126)
- The following transportation fuels are exempt from GHG emission intensity reduction requirements until Jan. 1, 2028: Special fuel used off-road in vehicles used primarily to transport logs; dyed special fuel used in vehicles that are not designed primarily to transport persons or property, that are not designed to be primarily operated on highways, and that are used primarily for construction work including, but not limited to, mining and timber harvest operations; and dyed special fuel used for agricultural purposes.
- Beginning Jan. 1, 2028, Ecology must not increase the reductions required by the standard beyond a 10 percent reduction until at least a 15 percent net increase in the volume of in-state liquid biofuel production and the use of feedstocks grown or produced within the state relative to the start of the CFP.
Capital gains tax passes
Early last week, the House passed ESSB 5096, sponsored by Sen. June Robinson (D-Everett), which would establish a capital gains tax of 7 percent on capital gains that exceed $250,000 in a given year. The House also included language that prevents the voters from filing a referendum.
The Senate refused to concur on House amendments. The Senate asked the House for conference, and a conference committee was appointed. The conference committee produced the following changes to the capital gains legislation that were ultimately adopted by the Legislature:
- There was a change that allowed charitable deductions over $250k capped at $100k.
- The fund will now be appropriated between the general fund and the capital budget with the first $500 million going to the Education Legacy Trust account and the reminder going to the Common School Construction account in the capital budget.
- The language preventing a referendum continues to be remain in the bill.
Unfortunately, the final bill did not exempt all agricultural land as promised by proponents of a capital budget. The legislation is likely to face a legal challenge from opponents who say it is a tax on income that violates the state constitution. Moreover, while the proponents of the tax included language to prevent the voters from filing a referendum, an initiative could still be filed, but that would not be able to happen until 2022.
2021-2013 final negotiated biennial budgets released and adopted
During a long session, the Legislature’s primary task is to pass the state’s biennial budgets: operating, capital and transportation. Last week, the House and Senate budget chairs released their negotiated budget proposals for the 2021-2023 biennium. All three budgets were negotiated in conference committee, which means no amendments could be offered, and legislators could only vote for or against the budget during final passage. Notably, each of the respective budgets utilizes a portion of the $4.25 billion in funding that the state received through federal funding.
2021-2023 capital budget highlights
The 2021-23 capital budget, which funds brick and mortar construction (excluding transportation), appropriates $6.3 billion for the biennium, utilizing $3.9 billion from general obligation bonds, $589 million in federal funds and reserves approximately $82 million in bond capacity for the 2022 supplemental capital budget. Below are notable highlights:
- Education: The capital budget appropriates $8 million to demolish Johnson Hall at Washington State University Pullman Campus in preparation for the construction of a federally funded replacement science facility; $2 million is appropriated for the Agricultural Science in Schools Grant for the FFA Foundation.
- Water supply: Ecology is provided the following appropriations for water supply, flood control and streamflow restoration: $40 million is for work related to streamflow restoration; $42 million is for additional work on projects under the Yakima River Basin Integrated Plan; $45 million is for continued implementation of the Columbia River Basin Supply Development Program; $4.3 million is for projects related to the Sunnyside Valley Irrigation District projects; and $5 million is for a water banking pilot program to implement strategies to meet local water needs.
- State fairs: $8 million is appropriated for Washington State Fair Health and Safety Grants.
2021-2023 operating budget highlights
The state’s operating budget funds all state agency operations, including K-12, higher education, human service programs and more. Leading up to the beginning of the legislative session, there were concerns that the operating budget would face a significant revenue shortfall. However, the March economic revenue forecast reflected a rebound from the pandemic. This, combined with revenue from the federal government, provided the state with revenue to have one of the largest increases in state budgeting in recent history. The 2021-2023 operating budget appropriates a total of $59.19 billion, which is an increase of $3.2 billion.
The budget assumes passage of the capital gains tax, which is estimated to increase NGFO revenues by $415 million in 2021–23 and by $840 million in 2023–25.
The budget drains the budget stabilization account (or the rainy day fund) in 2019–21. Of the $1.820 billion transferred to the general fund–state, $1 billion would then be transferred to a brand new account called the Washington rescue plan transition account that requires only a simple majority of the legislature to access.
Below are notable highlights:
- Cap-and-trade and low carbon fuel standard: The budget provides funding for these two carbon bills.
- Environmental Justice Task Force recommendations: The budget provides funding for E2SSB 5141.
- Nooksack and Lake Roosevelt adjudications: The budget provides Ecology with $463,000 for fiscal year 2022 and $537,000 for fiscal year 2023 for preparation and filing of adjudications of state water rights in the Nooksack (water resource inventory area 1) and Lake Roosevelt.
- Wildfire prevention: $125 million in state funds for wildfire preparedness, prevention and protection activity as provided in 2SHB 1168.
- Farmworker housing: $159,000 is provided to implement 2SSB 5396 regarding the sales and use tax exemption for farmworker housing.
- Water banking: $10 million in funding is provided to Ecology to create a grant program to support banking water rights to help meet and maintain local water needs.
- State energy strategy: $1.35 million is provided to support the implementation of the 2021 State Energy Strategy regarding energy use in new and existing buildings, including measures to support local government emission reductions, workforce measures and utility electrification benefits.
- Pesticide registration: $412,000 is appropriated to implement SSB 5317 concerning pesticide registration and pesticide licensing fees.
- Fertilizer fees: $153,000 is provided to implement SB 5318 regarding fertilizer fees.
- Soil health: $2.1 million is appropriated to Washington State University to continue development of a new soil health research and extension initiative.
2021-2023 transportation budget
The 2021-20233 transportation budget appropriates $11.7 billion, much of which is utilized to fund projects from the 2015 Transportation Revenue Package (Connecting Washington) and to fund the replacement of state-owned culverts. This budget utilized $1 billion in federal funds to backfill revenue shortfalls due to COVID-19.