Senate budget has tax break, money for schools

OLYMPIA – Washington property owners would get a tax break and the state would get out from under two major court decisions with a budget proposed Monday by Senate Democrats.

The budget plan would use about $400 million of the extra tax revenue lawmakers were told last week they could expect for a 2019 reduction in the state’s property tax rate and nearly $1 billion to comply with a Supreme Court order to speed up the money going to schools the pay for basic education.

It would also add $163 million to the state’s mental health budget, addressing a federal court order that the some state services for patients are inadequate.

The proposal, technically a supplement or update to the 2017-19 general fund budget, would not raise any current taxes and does not call for new ones, such as the carbon tax that Gov. Jay Inslee supports or a capital gains tax being considered by the House of Representatives.

Senate Ways and Means Committee Chairwoman Christine Rolfes, D-Bainbridge Island, called it a “no surprises, no frills budget.”

The Republican who wrote the current two-year budget in 2017 when the GOP controlled the Senate called the proposal a “positive step” but said it should have more tax relief considering the extra tax revenue the state expects to collect. Sen. John Braun, of Centralia, also questioned adding nearly $1 billion in salaries for teachers and other staff, saying it could create long-term problems for schools and the state “while doing nothing to directly help school children.”

Last week, the state’s economic forecast projected a booming economy and a strong housing market can be expected to generate about $1.3 billion more over the next 40 months than the estimates last fall, and some $2.3 billion over that period than when the current 2017-19 budget was passed last June.

“The revenue windfall offers us a rare opportunity to offer tax relief,” Rolfes said. Excess revenue goes into special reserve accounts, some of which require super-majorities to tap.

The state budgets on a two-year cycle, but any plan they approve must balance based on projections for the two years beyond that.

The biggest addition to the the remainder of the current budget cycle would be nearly $1 billion for teacher and school staff salaries. It would give them raises at the start of the 2018 school year that are currently scheduled to start at the beginning of the 2019 school year. The raises are part of the Legislature’s multi-year effort to comply with the Washington Supreme Court’s decision that the state was shirking its constitutional duty to provide adequate money for what’s considered “basic education.”

Major legislation last year included extra money for smaller class sizes in early grades, for special education and gifted programs, and spread the salary increases over two years.

The reason for splitting the raises into two bumps was a function of the different calendars involved in the change, Senate Republicans said. The state’s fiscal year starts on July 1, the schools’ start September 1, and property taxes are levied on a calendar year starting January 1.

Last year the Legislature agreed to a “swap” that raises the state property tax levy by 81 cents, to $2.70 per $1,000 of assessed valuation, and eventually reduces all school districts’ property taxes. But because of the differences in the fiscal years, the state tax increase starts this year but the reduction for school districts’ tax levies starts in 2019. That’s means higher property taxes this year in most of Washington, including increases in Spokane County ranging from 6.5 percent to 20 percent, depending on the school district.

“There’s a lot of strain on people’s property tax,” Rolfes said.

As currently written, the Senate budget proposal would reduce the new state levy by 31 cents in 2019, when levies for local school districts are also scheduled to come down.

Rolfes said they are looking for ways to reduce property taxes this year, when property owners are being hit by the higher state levy and the existing school district levy, but that’s difficult. The state constitution does not allow the Legislature to refund taxes that have been legally collected, and some property owners have already paid their 2018 property taxes.

The Ways and Means Committee will decide later this week whether to send the governor’s proposal for a carbon tax to the full Senate, but it’s not a factor in the budget proposal.

“The budget does not depend on a carbon tax,” Rolfes said. It could be more difficult to pass a new tax in a year when the existing tax system is generating excess revenue, she added.

Senate Democrats also released their update to the 2017-19 capital construction budget, which adds a total of $300 million in projects around the state. That includes about $65 million for public school construction, $35 million for mental health expansions, including an extra 25 beds at Eastern State Hospital, and $25 million for a wide range of community projects.

The extra money for mental health programs is likely to satisfy a federal court decision known as Trueblood, Sen. David Frockt, D-Seattle, said.

“It’s in line with what (the attorney general’s office) is negotiating with the plaintiffs,” he said.