Inslee proposes $57.6 billion budget that fights COVID-19, raises taxes, taps reserves

OLYMPIA – Washington’s government would spend $57.6 billion over the next two years in its efforts to fight COVID-19, shore up the economy and clean up the environment, under plans released Thursday by Gov. Jay Inslee.

That total for the state’s operating budget – which covers most state programs, spending and salaries outside of transportation and major construction projects – would be an increase of about $5 billion over the current two-year budget.

“We need to act with vigor and resolution to help the recovery of the economy of Washington,” he said in a news conference releasing the budget. “Now is not the time to make cuts to the provisions of the state that help families and our businesses.”

Reaction from top Republicans on the committees that will hold hearings on Inslee’s budgets and craft spending plans of their own ranged from disappointment to “underwhelming” with criticism of new taxes.

“I would’ve thought after eight years of trying, he would’ve been able to come up with more creative ideas than the ones he keeps coming up with that fail to pass,” said Rep. Drew Stokesbary, ranking member of the House Appropriations Committee, who called the whole package underwhelming.

The state would get some of that extra money from growing state revenues, but also from a proposed capital gains tax of 9% on annual investment earnings of $50,000 for a married couple and a draining of the state’s Rainy Day Fund. Inslee has proposed such a tax before.

Inslee is also proposing a monthly tax of about $3 on health insurance policies, which would be placed into a special fund to help pay for improvements in public health programs.

State employees would not receive a raise in the budget cycle’s first year; most would be subject to one furlough day a month. The state’s employment contracts could be opened for negotiations in the second year, depending on the status of the economy and pandemic.

As part of the state’s effort to help recover from the pandemic, Inslee said he will ask the Legislature for quick approval of a second spending plan that would provide $100 million in assistance to struggling businesses that have had to close some of their services and another $100 million in rental assistance to landlords whose tenants have been unable to pay rent because they were laid off.

Sen. Lynda Wilson, lead Republican on the Ways & Means Committee, said the aid for businesses and rental assistance should’ve happened a long time ago. Although Inslee wants the package passed almost immediately once the Legislature is in session, she criticized him for refusing to call a special session earlier.

“We needed to be addressing this a long time ago,” she said. “Now it’s going to have to be warp speed to get it passed.”

The two-year budget would provide relief of about $790 million for businesses facing markedly higher rates for unemployment insurance, which are tied to layoffs from the economic downturn. Senate Labor and Commerce Chairwoman Karen Keiser, D-Des Moines, said the Unemployment Trust Fund, which was among the nation’s healthiest at the start of the pandemic with some $4.7 billion, is now below $2 billion.

The budget would also spend more on hospitals, low-income housing for the homeless and other social services.

Public schools would get a total of $400 million for expenses as students return to classrooms, giving districts the option to help them catch up on learning with more hours, Saturday classes or longer school years.

A separate $4.75 billion capital construction budget proposal calls for more projects than in recent years, boosting the economy in the short term through construction jobs and tackling more projects community colleges had scheduled for later years.

Among the most controversial aspects of Inslee’s proposal is likely to be the capital gains tax, which has been attempted several times in recent years but never made it through both chambers of the Legislature.

Critics call it an unconstitutional income tax, though Office of Management and Budget Director David Schumacher said state experts believe it is legal and will withstand a court challenge.

Wilson said a new tax would likely pass, but will face a court challenge, calling it the “most volatile revenue source that there is. Every other state in the Union calls it an income tax,” she said.

Inslee said it was a way to make the state’s tax system less regressive – or reliant on taxes that fall more heavily on lower income groups – with a system that only effects the top 2% of state residents. While he expressed confidence it could pass, he’d look at other alternatives the Legislature proposed to make the tax system fairer.

“We’re in the middle of a pandemic and we simply have to have relief for our families,” he said. “This is a very small ask of the most wealthy folks in our state.”

That doesn’t mean he was proposing the capital gains tax as a temporary tax, he said later. “We don’t want to make more fairness just temporary.”

Stokesbary said a capital gains tax is the wrong direction for the state and “just bad economic policy, especially right now.”

“If we’re telling people who have the capital to invest that it’s going to cost them to do so, they’re less likely to stay here and do it,” he said.

Moving $1.7 billion out of the Rainy Day Fund, officially called the Budget Stabilization Account, could be controversial and requires legislative approval. But because the state is in the middle of an pandemuc emergency, state law would allow the Legislature to do that with a simple majority, rather than the 60% super majority required in normal times. Inslee’s Democratic Party controls both houses of the Legislature.

Under Inslee’s proposal, the state would begin replenishing the Rainy Day Fund over the next two years, building it up to about $560 million by the end of the 2023 fiscal year.

Inslee’s budget proposal is the beginning of a months-long process, with separate budgets drafted, debated and passed in the House and Senate, and compromises among lawmakers and the governor on spending and taxes.

Because of the pandemic, the 2021 legislative session is expected to be conducted with virtual committee meetings and floor debates, and lawmakers have been told to expect fewer bills to be considered and voted on. Inslee said he didn’t think that would pose a problem to his budget and related proposals, which also include a clean fuel standard and allowance on the amount of carbon pollution certain industries can emit.

“I’m optimistic the Legislature is going to be able to do what they need to do,” Inslee said. “I don’t think we should trim our sails much, here. We have big things to do.”