State looking at $1.3 billion extra from strong economy

OLYMPIA –Washington legislators find themselves in the enviable position of being able to count on some $1.3 billion more coming into the tax coffers than they thought when they passed a budget last June.

They’re looking at giving some of it back to taxpayers, although how much is likely to be a bone of contention in the three remaining weeks of the 2018 legislative session, and how to do it is complicated.

Thanks to a strong economy, low unemployment and a booming real estate market, the state can expect to see an extra $647 million come into its General Fund through June 2019, and another $671 million for the two years after that, state economist Steve Lerch said Thursday.

“We believe that the next years are going to look pretty good,” Lerch told the Legislature’s chief budget writers and other top officials at the Economic and Revenue Forecast Council meeting.

There could be a recession between now and 2023, and inflation could be a problem if the Federal Reserve Board raises interest rates too high or too fast, Lerch said. But the Washington economy overall is doing better than the nation as a whole.

The state is expected to get more good news later in the week when estimates on the demand for state services go down, which would mean the money the state pays out for certain programs will be less than budgeted.

The expected windfall in taxes prompted a call from Republicans to find a way to reduce the jump in state property taxes that the Legislature increased last year to pay for court-ordered improvements in public schools. Republicans are calling for a one-time credit, worth $1 billion statewide, that would reduce property tax payments. Property owners who split their payments in six-month segments would get a reduction in their bill for October, those who paid their entire bill at the start of the year would get a credit for the 2019 taxes.

It’s a one-time fix because property taxes are scheduled to decrease in 2019 as school districts reduce their levies as a result of the increase by the state. The two couldn’t change simultaneously because the state and the schools budget on different fiscal calendars.

Democrats, who are in charge of writing budgets in both the House and Senate this year, expect that some of the windfall will find its way back to taxpayers. But it’s complicated, House Appropriations Chairman Timm Ormsby, D-Spokane, said at a press conference after the economic council meeting.

Under the Washington Constitution, the state can’t refund a legally collected tax, Ormsby said.

The state also is under a court order to speed up the raises it has scheduled for teachers and other school staff as part of last year’s plan to meet its constitutional obligation to public schools. It also has other court orders to improve its mental health system to make sure people who may be incapable of standing trial are properly screened in a timely manner.

A few months ago, lawmakers were debating where to get the money to meet those court decisions, or suggesting the Legislature might ignore the state Supreme Court’s directive to raise teacher salaries in 2018 rather than 2019.

The extra revenue allows the state to comply with court decisions, Senate Ways and Means Committee Chairwoman Christine Rolfes, D-Bainbridge Island, said. The budget proposal Senate Democrats will release on Monday will have some tax relief in it, but Rolfes wouldn’t say Thursday what kind or how much.

House Democrats will release their budget proposal on Tuesday. Between now and then, Democratic leadership will be analyzing the new information on revenue and making decisions on how it fits into that budget proposal, Ormsby said.

Over the next three weeks, those two budget plans will have to be reconciled into a bill that can pass both chambers – with bipartisan support if they want to tap special reserve funds that capture excess revenue – and get Gov. Jay Inslee’s signature. If not the Legislature will face a special session.