OLYMPIA – Senate Democrats pushed through a plan to give property tax payers a break in 2019, but Republicans contend it is too meager and unconstitutional.
The plan would put some $400 million of the extra tax money the state is expected to collect from a growing economy into the Education Legacy Trust Fund, and would use it to lower the state’s property tax levy next year.
It passed the Senate on a 25-23 vote on the second-to-last day of the regular session, the same day Democrats from both chambers released their supplemental budget that adds a total of $1.2 billion in spending for public schools, colleges, financial aid and a wide range of mental health and other health-related programs. The tax cut is part of the overall spending plan.
The supplemental budget includes an extra $825 million through June 30, 2019, for public schools, including some $776 million in raises for teachers and other school staff to reach final compliance with a state Supreme Court order.
It was the Legislature’s response last year to that court order, known as the McCleary ruling, that property tax bills around the state went up this year. Lawmakers raised the state levy, but the local school district levies won’t start to go down until 2019. With an extra $1.3 billion in projected revenue coming into state coffers over the next 3 1/2 years, legislators have been working for weeks to find a way to provide property tax relief.
Sen. Doug Ericksen, R-Ferndale, said the state should return the entire increase in state property taxes – almost $1 billion – this year in recognition that “times are good in Washington.”
But Sen. Christine Rolfes, D-Bainbridge Island, said county officials who handle the assessment and collection of property taxes are concerned about changing taxes bills that have already been sent out. The bill delays the tax cut in 2019 by reducing that year’s state levy by 30 cents per $1,000 of assessed value.
“We should be more concerned about the taxpayers than the tax collectors,” Sen. Steve O’Ban, R-Pierce County, said. But Sen. Dean Takko, D-Longview and a former county assessor, said a rebate at this point in 2018 would be “extremely expensive and very confusing.”
Democrats suggested Republicans, who proposed the tax swap as part of a landmark bill to solve McCleary, bore the main responsibility for the higher property tax bills. They were in the majority last year when the “levy swap” was proposed, Sen. Reuven Carlyle, D-Seattle said.
“There was a vigorous defense that this was a tax cut,” Carlyle said of the way the tax swap was presented last year. But Democrats are in the majority this year and “the new majority is lowering the property tax,” he said.
Sen. Mike Padden, R-Spokane Valley, countered that the House, too, voted for the tax swap, and Democrats had the majority there. They also wouldn’t have done a levy swap last year if they had known there would be so much extra tax revenue, Senate Republican Leader Mark Schoesler, of Ritzville, said.
Although Republicans voted for a larger tax cut, they also challenged the system Democrats are proposing to use to come up with the money for their cut.
Under the state Constitution, extra tax money coming into the state General Fund is put in a reserve account, which can only be tapped by a 60 percent super majority. Democrats are calling for the money that will cover their proposed tax cut to go into the special Education Legacy Trust Fund, arguing it is coming from property taxes that were raised for schools. That would bypass the general fund, and keep it from automatically going into the reserve account.
State Treasurer Duane Davidson, a Republican, issued a letter saying the move was shortsighted and could jeopardize the state’s bond rating.
“I urge the Legislature to not start a terrible precedent of diverting Rainy Day funding,” Davidson said. They should put the money in the Rainy Day fund “adjourn and then go home.”
“This is Bizarro World,” Sen. Mike Baumgartner, R-Spokane, said. “We all know the plain meaning of the Rainy Day account and what it takes to access it.”
Ultimately, Republicans faced a Hobson’s choice: vote for tax cuts they want but against their stance on preserving the reserve account, or vote against tax cuts. Sen. John Braun, R-Centralia, asked for a ruling that the bill violated the state constitution because it contained two unrelated things – a tax cut and money for education.
Lt. Gov. Cyrus Habib ruled the subjects were related and the bill was constitutional.
Passing the reserve fund also means spending it can be approved by a simple majority, without any Republican votes in the Senate where Democrats are in a one-vote majority and the House where they are up by two members.
Sen. Andy Billig, D-Spokane, said Republicans may be most opposed to the plan because it removes any leverage they would have for supplying the votes needed to pass a budget with a tax cut that came out of the reserves.