Gov. Inslee signs record state budget, new taxes to pay for it

OLYMPIA – Gov. Jay Inslee praised a record $52.4 billion operating budget for its boosts to spending on schools, mental health, affordable housing and environmental programs – and ignored calls to veto some of the tax increases needed to pay for it – as he signed the last bills from what he called “the most productive” legislation session in his lifetime.

“Our economy is strong, the strongest in the nation,” Inslee said as he prepared to sign the operating budget. That economy is expected to pour $5.1 billion more into the state coffers in the upcoming two-year budget cycle than it generated for the current cycle, which ends June 30.

The state will spend about $4 billion more on its public schools, much of it on salaries, as well as $155 million more for students in special education and covering the cost of benefit packages for teachers and other staff who provide “basic education.”

It will pump more into college financial aid in an effort to wipe out the backlog in requests for the state Need Grants for those who qualify.

It will begin the process of moving some mental health treatment into community-based facilities rather than the state’s two psychiatric hospitals.

It will spend more money on child care, fighting homelessness, increasing affordable housing, try to boost salmon production and save dwindling orcas.

“This is a budget that puts people first,” Inslee said, complimenting majority Democrats for accomplishing “the biggest and heaviest lift” without needing a special session, as they have in the last four budget cycles. They also did it without Republican votes.

All of that spending couldn’t be covered by the expected increase in state revenue, so taxes are scheduled to go up for certain businesses and real estate sales, and some out-of-state visitors may have to decide whether it’s worth the sales tax they will have to pay when shopping in Washington.

Large international banks with branches in Washington and net annual income of at least $1 billion will see the biggest increase, with a special jump in business and occupation taxes that local banks won’t have to pay, from the current 1.5% of gross receipts to 2.7%. The tax was passed on a fast-track with little advance warning of its hearing, then moved to a floor vote in the House the same day and passed in the Senate without a hearing in the Financial Institutions Committee that has jurisdiction over bank policy.

Republicans and the Democratic chairman of the Financial Institutions Committee, Sen. Mark Mullet, asked Inslee to veto the bill. David Postman, Inslee’s chief of staff, said taxes and budget matters sometimes don’t get as much “airing” as the governor would like at the end of the session but “sometimes it can’t be helped.”

Some of the banks targeted are expected to challenge the constitutionality of that tax in court.

All banks, plus many other professional services including lawyers, architects and accountants, will see their B&O tax go from 1.5% to 1.8%, with some advanced computing businesses paying 2% or 2.5%, depending on their worldwide gross profits.

The Real Estate Excise Tax will change from a straight 1.28% percent assessment to a graduated rate that rises with the price of the home. The part of the sale below $500,000 will be taxed at 1.1%; the portion between $500,000 and $1.5 million will remain at 1.28%; 2.75% for any portion between $1.5 million and $3 million; and 3% for any amount after $3 million. The break-even point is about $1,533,000, so anyone buying property below that will pay less in REET. Above that, they’ll pay more.

Visitors to Washington from states that have little or no sales tax will no longer be exempt from the state sales tax when they pay for items at the cash register. If their purchases over the course of a year amount to $25 or more, they’ll be able to file for a rebate with the state.

Separate tax legislation signed Tuesday calls for taxes ranging from 9 cents to 27 cents per milliliter of liquid vapor solution, depending on the volume, whether it includes nicotine or not. Opponents of that new tax, which included both consumers and small shops that sell the products, came to the Capitol with signs calling for a veto.

When it was clear that wouldn’t happen, some attended the signing ceremony, flashed “thumbs-down signs” as Inslee signed the bill and left the room chanting, “Jay Inslee kills small businesses.”