OLYMPIA – State spending in the next two years will help Washington recover from the pandemic, assist schools with reopening, expand public health services and improve the state’s wildfire fighting capabilities, if a Democratic budget proposal released Saturday wins final approval.
Using one-time federal money, draining the state’s “rainy day fund” and implementing a new capital gains tax, Democrats’ plan spends $59.2 billion over the next two years and uses $10 billion in federal stimulus funds.
The House and Senate are expected to vote on the plan before the legislative session ends Sunday night. The 1,100-page final plan was released to the public one day before lawmakers must vote on it.
With unpredictable revenue increases, infusion of federal funds and the virtual nature of the session, Senate budget lead Christine Rolfes, D-Bainbridge Island, called this budget “the most complicated budget that I’ve been a part of.”
“The investments we’re making are strategic,” she said. “There’s a lot of progress in this budget.”
The budget would allocate most of the federal stimulus funds on COVID-19 recovery, including $1 billion for vaccine distribution, $1 billion for housing assistance and $3.3 billion on K-12 education, to assist in reopening over the next two years.
The state would be left with about $1.1 billion in federal flexible funds to be used later. States have until the end of 2024 to spend them.
It also would set aside some federal funding for child care priorities as part of a legislative package that passed the Legislature earlier this week. Democrats have said federal money would help fund the child care programs until the state begins receiving money from a capital gains tax.
The final budget plan accounts for the capital gains tax, which has yet to pass the full Legislature. The controversial proposal would implement a 7% tax on the sale of long-term assets, such as stocks, bonds or property. It has exceptions for small family-owned businesses, real estate, livestock and some retirement assets.
The capital gains tax proposal passed both chambers but was caught up in negotiations until late Friday night, when the House and Senate came to an agreement. The deal keeps language in the bill that makes the tax “necessary for the support of the state government and its existing public institutions,” which opponents say could prevent voters from bringing a referendum on the bill.
Both chambers must pass the final tax proposal by Sunday.
The budget accounts for $415 million each year in revenue for the state from the capital gains tax. The state would not begin receiving the revenue until 2023.
The final budget deal would drain the state’s rainy day fund reserves, about $1.8 billion. One million of the funds would be moved to a new “transition account” to help with COVID-19 costs. It wouldn’t be spent right away, but would be in a new account that wouldn’t necessarily have the same constitutional restraints as the rainy day fund, which requires support from three-fifths of lawmakers to be used.
In some cases, only a simple majority is required to drain the fund, such as if the employment growth for a fiscal year is less than 1%. This is how lawmakers are justifying the decision to draw down the fund now, meaning they’ll only need a majority.
Rep. Timm Ormsby, D-Spokane, said the new “transition account” would give the state “the most flexibility that it can” to use that money throughout the rest of the COVID-19 pandemic.
The plan would leave the state with about $1 billion in reserves by 2025.
Republicans have been critical of Democrats’ budgets, specifically the capital gains tax and the use of the rainy day fund. With so much federal money coming into the state, many have said it is not necessary to create a new tax and use the state’s savings.
The top-ranking Republican on the Ways and Means committee, Sen. Lynda Wilson, of Vancouver, said she was pleased that some of their priorities were funded in the budget, such as the working families tax credit. But she told the committee Saturday that she still has concerns, namely the capital gains tax.
“That alone is why this will be an entirely partisan budget,” she said.
Democrats have argued the federal funds should only be for one-time uses, and any new investments will need a long-term funding source.
The budget would allocate $130 million in the next two years for wildfire response and forest health, as laid out in a bill passed by the Legislature this week. It also would set aside around $147 million for foundational public health services for the next two years. That money would go to the Department of Health and local public health jurisdictions, which many have said were underfunded and ill-prepared for the COVID-19 pandemic.
The plan would fully fund the working families tax exemption, a rebate for low-income families that passed the Legislature in 2008 but has yet to receive funding. A bill to fund it passed this session with bipartisan support.
Republicans expressed concerns with the lack of transparency from Democrats during the budget writing process.
Wilson said she was disappointed there was no discussion across the aisle before the conference committee, a bicameral group that must recommend a version of the proposal to be voted on the floor by the full body. The budget cannot be amended on the floor after the conference committee.
House Republican Budget lead Rep. Drew Stokesbary, R-Auburn, said writing a budget over Zoom “adds friction.” He criticized the majority party for not including Republicans in early discussions and then releasing the proposal the day before it must be passed.
He said he had not seen any part of the final deal until Friday evening. It is not necessary to follow such a partisan process, Stokesbary said.
Ormsby told reporters that the budget process requires bills to make their way through the chamber before being funded in the budget, so nothing in it is new.
“Nothing in this budget did not get a public vetting,” he said.