Legislative update 0325: House proposed budget calls for some tax increases

From Diana Carlen
WAWG Lobbyist

Yesterday was the 71st day of the 2019 Legislative Session. The next major deadline is Wednesday, April 3. That is the opposite chamber policy cutoff, where policy bills from the opposite chamber have to be voted out of policy committee to stay alive.

One of the primary tasks of legislators during a long session (odd years) is to pass the state’s biennial budgets: operating, capital and transportation. During a short session (even years), the Legislature may adopt supplemental budgets to make adjustments and additions to the previous two-year plan. Four times a year, the Washington State Economic and Revenue Forecast Council adopts a bipartisan revenue forecast that is then used to build and adjust the state operating budget.

On March 20, the legislature received positive news—the state is expected to collect $860 million more than was expected through the middle of 2021. The projected overall state budget for 2019-21 is expected to be $50.6 billion. The current 2017-2019 budget was $46.1 billion.

Yesterday, House Democrats released their proposed operating, capital and transportation budgets for the upcoming biennium beginning on July 1.

The operating budget proposes a $52.6 billion operating budget for the next two years, which is funded in part through a proposed $1.45 billion tax package. The House Democrat proposal is roughly an $8 billion increase in state spending compared to the last budget cycle.  However, it is less than the $10 billion increase proposed by Gov. Inslee in December.

While the state is expected to bring in an additional $4.5 billion through the next biennium as a result of a strong economy, Democrats argue that additional revenue is not enough to fund all of the state’s obligations including ongoing funding for education as part of the McCleary court case that was resolved last year. Republican leaders responded that no new taxes should be needed with the healthy growth in tax collections.

The House Democratic tax package includes the following tax proposals:

  • Capital Gains Tax. The proposal would establish a 9.9 percent tax on capital gains above $100,000 for single filers and $200,000 for married couples, beginning in July 2020. The tax would apply to the sale of stocks and bonds, but exempt the sale of single-family homes or timber and agricultural lands.
  • Real Estate Excise Tax. This proposal would replace the flat 1.28 percent real estate excise tax. Under House Democrats’ proposal, the rate remains the same for homes that sell between $500,000 and $1.5 million. But the rate increases to 2 percent the portion of the sale above $1.5 million but less than $7 million, and it jumps to 3 percent for the portion of sales above $7 million. For homes that sell for less than $500,000, the rate is reduced to .9 percent.
  • Increase B&O Tax on Service Businesses. Under the plan, the B&O tax for certain businesses would increase from 1.5 percent to 1.8 percent, while large global technology companies could have a rate up to 2.5 percent. The tax proceeds would be dedicated to higher education, including full funding of the Washington College Grant program and more enrollment slots in high demand programs like computer science and engineering.

House Democrats plan to pass their budget, but not the accompanying tax package, off the floor of the House this Friday. Meanwhile Senate Democrats are expected to unveil their budget proposal later this week. The two chambers have until April 28, the last day of the 105-day legislative session, to negotiate and pass a final budget.

Notably absent in the proposed House operating budget were the following:

  • Repealing any agricultural tax incentives;
  • The study proposed by the Orca Taskforce on economic and regional impacts to removing Snake River Dams; and
  • Carbon tax.

In addition, the proposed House Capital Budget fully funds Washington State University’s $36.4 million construction request to complete the Global Animal Health II project.

Here are some items of interest included in the House operating proposal related to the agricultural sector:

Department of Natural Resources (DNR)

Wildfire Suppression. DNR is provided $12.6 million increase DNR’s ability to respond to wildfires. In addition, DNR is also provided $49.8 million from GF and $26 million from other funds for the costs of wildfire suppression that have occurred in fiscal year 2019.

Carbon Inventory Assessment. $375,000 GF to conduct a carbon inventory over Washington’s working lands which include forests and croplands.  A report is due to the Legislature on Dec. 1, 2020.

Department of Agriculture

Regional Markets Program. $630,000 over fiscal year 2020 and 2021 are provided solely for the department’s regional markets program, which includes the small farm direct marketing program and farm-to-school program.

Livestock Brand Inspections. $240,000 GF is provided for implementation of HB 2075 (livestock brand inspection).

Agricultural Economic Development in SW Washington. $250,000 is provided for the department to contract for agricultural economic development services in southwest Washington to develop a food hub.

Department of Fish & Wildlife

Wolf Recovery. $954,000 GF is provided to implement HB 2097, sponsored by Rep. Joel Kretz

PILT Payments. $3,993,000 is provided for 2020 and 2021 for payments in lieu of taxes to counties.

Conservation Commission

Voluntary Stewardship Program. $8,427,000 is provided for implementation of the voluntary stewardship program.

Food Policy Forum. $100,000 GF for the commission to convene and facilitate the food policy forum.

Legislation WAWG is watching

Forward Washington. Transportation Chair Sen. Steve Hobbs’ (D-Lake Stevens) transportation package, Forward Washington provides funding to large projects (including the I-5 bridge in Vancouver); adds money to a $100 million port grant program through WSDOT; a $1 billion increase in highway maintenance and funding for fish passage barrier removal; and other construction projects statewide. The revenue bill proposes controversial revenue sources like a carbon fee, impact fees, and a 6 cent/gallon gas tax increase. The revenue bill (SSB 5971) was referred to the Senate Ways & Means Committee and has not yet been scheduled for public hearing in that committee. The appropriations bill and bond bill are in the Senate Rules Committee.

Low-Carbon Fuel Standard. E2SHB 1110, creates a low-carbon fuel standard for vehicle fuels sold in Washington state, with the intent that increased use of lower carbon fuels would reduce in-state greenhouse gas emissions from the transportation sector. The bill had a public hearing in Senate Environment, Energy & Technology on March 19, and was amended and passed out of that committee on March 21. It is now in the Senate Transportation Committee. WAWG opposes the bill because it would raise the price of fuel with no benefit to the environment nor the transportation system.

Rail-Related Legislation. HB 1841 requires a mandatory minimum train crew size of two and expands up to four crew members for certain higher hazard trains. There are concerns about this bill because it does not exempt shortline rail operators from the locomotive cab crew requirements. The bill is scheduled for public hearing in the Senate Labor & Commerce Committee on March 26. AWB, railroad carriers, and the agricultural sector (including WAWG) are opposing the bill.

Clean Energy Standard. The “clean energy” bill, E2SSB 5116, imposes a “clean energy” standard on utilities to reduce greenhouse gases. It requires utilities to service load with 80 percent of their power coming from renewable or “non-emitting” (of CO2) power generation by 2030 and sets a goal of 100 percent of power coming from clean sources by 2045. Hydro is counted as renewable under the legislation. The bill was amended and voted out of House Environment & Energy on March 19. It had another public hearing in House Finance on March 21, and is scheduled for executive action on March 26 (or March 29 if necessary).

Greenhouse Gas Cap & Trade Program. SB 5981, sponsored by Sen. Reuven Carlyle (D-Seattle), creates a state cap and trade program to reduce CO2 emissions. It provides for lowering the cap over time and trading of allowances by “covered entities;” allocation of allowances; requirements to link Washington’s program with other cap and trade programs; and protections for “energy intensive, trade-exposed” (EITE) entities. The bill was heard in the Senate Environment, Energy & Technology Committee on March 21. It has not been scheduled for executive action.