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State budget outlook: Revenue up but expenses up more

OLYMPIA — Here's the budget outlook for next year's Legislature, and the state as a whole: Washington will take in a bit more tax money than lawmakers were told to expect before they passed a budget and left town in July. But the programs in that budget are costing more than expected.

That means there's a gap of about $455 million between what the state expects to collect in taxes and fees, and what it is scheduled to pay out in programs and wages.

Wednesday’s economic and revenue forecast from State Economist Steve Lerch was the standard good news/bad news of those quarterly projections.

On the plus side, more people are working and wages are rising slightly; car sales are up; housing starts and home sales also up; revenue from legal marijuana sales are continuing up. All of that should add more to state revenue than earlier projects.

But state manufacturing orders are down; the global economy is slowing; a strong dollar means exports are dropping and the Federal Reserve is expected to raise interest rates. That's going to keep revenue from growing as fast as recent months.

Adding all of that together, the state should take in $37.2 billion in taxes and fees for its 2015-17 budget cycle. It's scheduled to spend $37.5 billion, and could cover that difference from reserves. But the costs don't include the $100,000 per day fine the state Supreme Court has levied because the Legislature has not come up with a plan for improving some aspects of public school funding, or some $155 million in costs for fighting last summer’s wildfires.

Revenue isn't growing fast enough to cover costs, David Schumacher, director of the Office of Financial Management, said. “What this means, of course, is that there will be very little room for new spending in this year's supplemental budget.”

That's even before the Legislature confronts what could be a budget hit of about $1 billion to revenue from a ballot measure voters approved earlier this month. Initiative 1366 says the state sales tax will be reduced 1 cent on the dollar starting April 15 if the Legislature doesn't approve a constitutional amendment that requires future tax increases to be approved by a two-thirds majority.

Many Republicans support such an amendment, but many Democrats don't, and a constitutional amendment requires that same two-thirds majority in both chambers to go to the ballot. The initiative's constitutionality will be challenged in the courts, but no one can predict when, or how, that will come out.

Schumacher said Gov. Jay Inslee's supplemental budget, to be released in mid-December, won't assume that sales tax cut is going to happen.

Sen. Andy Hill, chairman of the Senate Ways and Means Committee, said the cut in the sales tax would create a big hole, but whether it becomes part of legislative budget proposals will depend on what happens after lawmakers return in January.

"There's a way out of that," Hill, R-Redmond, added, by passing the supermajority for taxes. 

Sunday Spin 2: Ins and outs for 2016

Although candidates for the 2015 election may be shoulder-to-the-wheel, nose-to-the-grindstone right now, the 2016 crop of candidates isn’t far behind.

On Friday, State Sen. Cyrus Habib, D-Seattle, launched a campaign for lieutenant governor next year. His press release announced he was doing this with the support of several legislative colleagues and he hoped to “elevate the office as an advocate for kids, colleges and global partnerships.”

Folks running for lieutenant governor often have lofty goals for the office, but one of the main tasks of the Number 2 state executive is presiding over the Senate, which involves calling on members to speak as they stand to offer wisdom on pieces of legislation. On this, Habib is an interesting candidate, because he has been blind since age 8 from a rare form of cancer.

That wouldn’t disqualify him from holding the job, Brad Owen, the five-term incumbent and current occupant, said. Lieutenant governors have advisers and staff on the dais, and Habib could have an aide there as a spotter.

But Owen hasn’t decided that he’s not running for re-election. In fact, he filed his notice of candidacy with the Public Disclosure Commission on Thursday.

“We’re just keeping our options open until my wife and I have time to decide,” he said. Habib getting into the race would be “totally irrelevant to my decision,” he added.

Meanwhile, state Sen. Andy Hill, R-Redmond, has said he will not run for governor. Hill is the Senate Republicans chief budget maven as chairman of the Ways and Means Committee. That’s a powerful position, but not usually a stepping stone to higher elective office, as predecessors including Dino Rossi could attest.

That keeps Seattle Port District Commissioner Bill Bryant as the leading Republican to take on Democratic incumbent Jay Inslee.

Insurance Commissioner Mike Kreidler has also filed for re-election to what would be his fifth term.

Inslee, Lege leaders say they’re closer on budget deal

OLYMPIA – Gov. Jay Inslee and legislative leaders seemed to concur Friday that they are closing in on an agreement on the 2015-17 state budget, something that has eluded them for 155 days.

But they didn't completely agree on how close, or the components of that agreement.

In a series of press conference, Inslee and leaders of both chambers from both parties said they are optimistic an operating budget could be passed in time to avoid a partial government shutdown. That prospect exists if the state enters its new fiscal year on July 1 without authorizing spending for many programs and salaries.

“There is no reason – zero – why we can't have a budget done in one week,” Inslee said. 

Both sides had moved toward a “middle ground,” he said, although he thought Democrats who control the House have made significant movements in reducing spending and dropping proposals for new taxes, including a capital gains tax on high-income residents. Republicans who control the Senate have moved somewhat less, the governor said, but enough that a “framework” is emerging in which both sides could have “big policy wins” in the final budget.

To do that, Inslee said legislators will have to agree to close some tax exemptions and come up with $300 million or so to close a gap between the levels in the rival spending plans.

House Majority Leader Pat Sullivan, of Covington, said House Democrats have agreed to take the capital gains tax off the table if the Senate Republicans agree to close some tax exemptions or “loopholes.” He wouldn't specify which ones, but added “we have a list of potential loophole closures that we're looking at.”

But Senate Ways and Means Chairman Andy Hill, R-Redmond, wasn't conceding that any exemptions definitely need to be closed. Any gap that exists might be closed by shifting money from other funds or “redeploying resources to higher priority items” – also known as spending cuts.

“There are a lot of ways to move,” Hill said. 

Legislators have not yet agreed to a level of spending for the coming biennium, although they did agree they've moved closer. House Democrats finished the regular session with a budget proposal of about $38.9 billion, while Senate Republicans approved one of about $37.9 billion. After one full special session and 22 days of a second special session, House Democrats say their latest plan is about $38.2 billion, an amount proposed more than a week ago in an effort to break the stalemate; the Senate GOP proposal is just under $38 billion.

House and Senate Democrats said they have moved a lot, while Senate Republicans have moved only a little bit. Senate Republicans said their budget was built on “living within our means” while the House budget required new taxes, so the House needed to move more.

All sides expressed confidence they could settle on a final spending plan and pass it by next Saturday, the final day of the second special session. But shortly after the round-robin press conferences, signs of agreement began to fray on one of the key points of contention in the two plans, college tuition.

Senate Republicans have proposed tuition reductions as high as 25 percent for state universities. House Democrats have proposed a tuition freeze, coupled with more financial aid.

After the Republican press conference, Hill released a statement that Democrats had agreed to reduce tuition. Not true, Sullivan said in response. At the press conference, he said Democrats still have concerns about the effect the tuition reductions proposed by Republicans would have on the state's Guaranteed Education Tuition program, which allows for the purchase of future college course hours at the present rate.

2nd Spec Sess Day 4: House budget cuts spending and new taxes

OLYMPIA — House Democrats unveiled their latest budget proposal, a $38.4 million plan with lower spending and fewer taxes than a bill they passed earlier this year. It's an effort to move toward the center in the current budget standoff.

Described by House Majority Leader Pat Sullivan as "a substantial compromise", it would require a capital gains tax on upper income investors, but  no increase in the business and occupation tax.

The chief budget negotiator for Senate Republicans said it comes down on spending but "they're still depending on taxes. We think taxes are unnecessary."

House Democrats counter that the Senate's $37.9 billion plan relies on accounting tricks that make it unsustainable and a gamble on sending one major change to voters in November. If voters say no, that's a $2 billion hole they'll have to fix late this year or early next.

The House plan has more for teachers' salaries and health care benefits. It does not cut tuition at the state's colleges and universities by 25 percent as Republicans propose, but it does freeze tuition and spend more on student aid.

In a press conference this afternoon, House budget chairman Ross Hunter laid out a schedule in which they could reach an agreement by June 12, although Sullivan called that scenario "very aggressive." 

Sunday Spin 2: A slippery slope for openness

During one of the special session’s rare committee hearings, Senate Ways and Means Chairman Andy Hill zeroed in last week on what Republicans contend is a problem with the way state employee contracts are negotiated between union officials and the governor’s office. And danced close to saying flat out the governor was in the pocket of the unions.

“Can employee unions make contributions to political campaigns?” he asked John Lane, who was representing the Office of Management and Budget. This was presumably a rhetorical question because Hill received money from the Service Employees International Union 775, which represents home health care workers, in last year’s re-election campaign. His next question, also rhetorical: “Employee unions can spend, literally, millions on a governor’s race, correct?

“They literally can make contributions to help someone get elected – which is fine – but then the same person who may have received those contributions is then behind a closed door, negotiating for wage increases…Isn’t that one reason why we might want to make these more transparent?”

Lane responded that he thought the current process is very transparent because all the documents are available after the deal is done and the Legislature has hearings and gets to vote on it. They can reject the deal and send the sides back to the table.

Hill wasn’t buying it but eventually took a step back, saying he thought everything was on the “up and up” but the voters may have concerns because, you know, politicians don’t have that good of a rep. “It’s just one of these trust but verify things.”

 Despite ending on a less confrontational, Reaganesque note, the exchange did not sit well with the SEIU, which may be regretting the $1,700 it gave to Hill instead of his Democratic challenger. The union is “very disappointed” Hill implied there is something corrupt about union contributions, Adam Glickman, its secretary-treasurer, said: “We don’t hear similar concerns about contributions from large corporations that are seeking millions or billions of dollars in tax exemptions.”

Passing the bill to open up state worker contract talks is a GOP condition for keeping the negotiated raises in the budget, Hill said later in the week. But that could become a slippery slope: If legislators want to open up contract talks because they have a major effect on the budget, they might have extend that reasoning to their own closed-door budget meetings. Some reasons for keeping those closed – like participants talking more freely outside the public eye – are the same. So is the excuse that the public eventually sees the end product when a budget gets a committee hearing or a vote.

One special session down, one to go

OLYMPIA – The Legislature will go into double-overtime in an effort to reach a deal on how to spend some $38 billion on state programs, agencies and salaries over the next two years.

On Thursday, the last day of a special session called primarily to reach a budget deal, Senate Republicans released their latest spending proposal, the first they’ve made public since April, passed it out of committee without a hearing and sent it to the Senate.

House Democrats said they will study and counter with a proposal to be released Monday, and hold a hearing Tuesday after the public has had a chance to study it.

Monday will be Day 4 of the second special session, which Gov. Jay Inslee said Thursday to start at 9 a.m. today. He commended Senate Republicans for moving toward the middle on some spending issues, but said they need to move off their no-new-taxes stance, and was looking forward to seeing the Democratic counter.

“The most important thing now is to help people find a middle ground,” he said at an afternoon press conference which announced the long-expected second special session.

After House Democrats release their proposal Monday, he’ll have all budget leaders in his conference room at 10 a.m. to start daily budget negotiations. Asked why he didn’t require such meetings when the first special session started 30 days ago, Inslee replied the sides were too far apart then. Now, they are “in a place where we can see success.”

But taxes could still be a sticking point.

Neither Inslee nor Democratic leaders would say how much more revenue – generally speaking higher taxes or fees – would be needed to cover programs they want to add or accounting “gimmicks” they want removed from the Senate GOP proposal. Nor would they name a preferred tax system.

“We can’t be Pollyanna-ish and think we can do this with twinkle dust,” Inslee said.

Senate Ways and Means Committee Chairman Andy Hill, R-Redmond, said Democrats need to reduce their spending requests. The need to raise taxes “went out the window” with a new forecast last week that estimates the state will collect an extra $400 million in revenue over the next two years and any argument to the contrary is just “taxes for the sake of taxes,” he said.

“That's just silly,” House Majority Leader Pat Sullivan, D-Covington, responded a few minutes later. The Senate GOP budget still relies on shifting money out of other accounts, special one-time expenditures and unspecified reductions in certain programs, he said. Finding new sources of revenue is a better option.

The Legislature did have one budget success before adjourning Thursday. They approved a plan to spend some $5 billion the state will collect in existing transportation taxes and fees for the next two years. It includes money for A more difficult decision that would require them to raise gasoline taxes by 11.7 cents for new transportation projects might be made in the second special session.

Special Session Day 30: Senate GOP releases budget 2.0

OLYMPIA — On the last day of the first special session and the eve of a second special session, Senate Republicans released their latest proposal for a 2015-17 operating budget that increases spending on salaries, health care and tuition. It meets many of the Democrats' requirements without raising taxes, the GOP budget leader Andy Hill said.

The need for raising taxes "went out the window" with a new forecast that estimates the state will collect an extra $400 million in revenue over the next two years, Hill, R-Redmond, said. Any argument to the contrary is just taxes for the sake of taxes, he said.

"That's just silly," House Majority Leader Pat Sullivan, D-Covington, responded a few minutes later. The Senate GOP budget still relies on "gimmicks" like shifting money out of other accounts, special one-time expenditures and unspecified reductions in certain programs, and finding new sources of revenue is a better option, Sullivan said.

The Senate GOP budget, dubbed Budget 2.0 because it is the second one released to the public, moves toward House Democrats' position on certain points. It segregates money from marijuana taxes for programs the voters approved with Initiative 502 rather than funneling it directly into the general fund, as well as sending $12 million of it to local governments to help deal with the effects of marijuana legalization. It pays for cost-of-living increases negotiated in contract talks between the state employees unions and the governor's office, under the condition the Legislature passes a law to open future contract talks to legislators and the public.

Sullivan said that condition might meet with resistance in the House, although there may be a way to provide more coordination between the governor's office and the Legislature during contract talks. Senate Republicans weren't concerned about opening up contract talks during the recession when unions were making concessions, he added.

Republicans have also proposed adding nearly $100 million in the higher education budget to move up the pace of their planned tuition reductions at the state's public colleges. Their first budget would have cut tuition by 25 percent over two years; this plan cuts it that amount in the first year of the budget and provides extra money for state need grant recipients attending private schools.

Among the other shifts in the budget is an increase in spending for medical education in Spokane. The University of Washington would get $9 million for its WWAMI program, requiring it to have 60 first year medical students and 20 second year students next year, and 60 more first-year students in 2017.  Washington State University would still get the $2.5 million proposed to seek accreditation for its proposed medical school.

The budget proposal, which was released to the public about 11 a.m., will get a hearing — and a possible vote — in Senate Ways and Means Committee meeting that starts at 1:30 p.m. The first special session ends today, and Gov. Jay Inslee is expected to call a second special session to start Friday; the budget could come up for a vote in the full Senate early in that second session.

Sunday Spin: Could he spend money on a new metaphor?

OLYMPIA – Someone please give Senate Republican budget writers a new metaphor for hyperbolic parsimony.

Looking at the state’s less than cheery prospects of matching income to outgo last week, the chief GOP Senate budgeteer deployed the well-worn image of personal thriftiness, the squeezed toothpaste tube.

“I’m the kind of guy who, with toothpaste, I squeeze the tube as empty as I can get it and then I cut it open and scrape out the rest and then I buy a new tube,” Sen. Andy Hill, R-Redmond said. “That’s the way I approach budgeting this year" . . . 

To read the rest of this item, or to comment, continue inside the blog.

Senate budget plan ‘simply an update’

OLYMPIA – Public schools would get more money for math and science supplies and state colleges would keep tuition from going up in a proposal released by the Senate budget writers.

But there would be no major new expenses, no cost-of-living raises for teachers, no new taxes and no closing of tax loopholes under the supplemental budget with a net increase of $96 million to the $33.6 billion two-year spending plan approved last year.

“Last year we did the heavy lifting,” Senate Ways and Means Committee Chairman Andy Hill, R-Redmond, said. “This is just simply an update" . . . 

To read more about the Senate budget proposal, or to comment, click here to continue inside the blog.

To get further details on the proposal, check out the documents below.


Hill: No pay raise if budget is late

OLYMPIA — Sen. Andy Hill has some ideas to speed up the budgeting process that may not endear him to his colleagues. Everyone else who waits on the Legislature to cobble together a budget might cheer them, however.

The Redmond Republican who will repeat last year's role as head of the Senate Ways and Means Committee issued his latest "Windows on the Budget" missive that suggests legislators and their campaigns should feel it in the pocketbook if they don't pass a budget in the regular session.

They should not get any raise that is approved for them by the Citizens Salary Commission if they don't pass a biennial operating budget in the 105-day session that is supposed to adopt a two-year spending plan, Hill said. They'd get their old salary, but no pay bump.

Interesting idea, considering they needed two special sessions to come up with a budget last year and an extra 30 days in 2011.  But it wouldn't have been much of an incentive in those years, because legislators' pay has been at the same level — $42,106 — since 2008.

Another suggestion might be a bigger incentive, and is based on a lesson from last year. No campaign fund-raising for incumbents until the budget is passed. . . 

Senate budget: More for schools, less for social programs

Sen. Andy Hill describes the budget proposal with Sen. Jim Hargrove waiting nearby in the State Reception Room.

OLYMPIA — Leaders of a Senate committee released a $32.5 billion operating budget that spends more on education, less on programs for the poor and doesn't raise taxes. They acknowledged they don't know if it has the support to pass that chamber, let alone become the actual spending plan for the next two years.

It differs significantly from recommendations from Gov. Jay Inslee last week, but meets four goals Senate budget writers set at the beginning of the year, Ways and Means Chairman Andy Hill, R-Redmond said: It doesn't hurt the economy by raising taxes; increases spending on education programs ranging from pre-kindergarten through graduate school; it preserves some services for "the most vulnerable" and it was crafted by members of both parties.

The budget adds about $1.5 billion to the state's public school system, with about $1 billion of that going to basic education costs. The state is under a Supreme Court order to meet the constitutional requirement to make education its top priority.

It adds about $300 million to the state's universities, colleges, community and technical colleges, and orders a 3 percent cut in tuition.

It relies on some $303 million in federal money for fully participating in Medicaid expansion from the federal Affordable Care Act, or Obamacare. It cuts money for such programs as Temporary Aid to Needy Families, childrens nutrition and aid to the disabled.

With the Senate divided 25-24 between a majority coalition made up of all 23 Republicans and two disaffected Democrats, and the remaining 24 Democrats, Hill emphasized the budget was drafted as "a true collaboration."

But the ranking Democrat, Sen. Jim Hargrove of Hoquiam, said he was only sure of two votes for the budget, his and Hill's. Other Democrats may want to restore money to some social programs and look for tax increases or close tax loopholes to pay for it, he said.

"We'll have to wait to see the floor vote" to see if it has bipartisan support in the Senate.

In a prepared statement, Gov. Jay Inslee called the Senate budget proposal "deeply flawed," and said it relied on "short-term fixes and budget tricks" while cutting social services to pay for schools.

A hearing on the Senate budget proposal was scheduled for about three hours after the spending plan was released. The House Appropriations Committee is expected to release it's own budget in the coming days.