State Legislature passes last-minute budget deal and property tax cut

On the final day of the legislative session, lawmakers approved a last-minute supplemental budget deal that funnels roughly $1 billion to K-12 public education and a $400 million one-time reduction in state property taxes.

For the entire 60-day legislative session, lawmakers had two issues looming over them stemming from the over $7 billion K-12 education funding reform package they passed last summer to meet the state Supreme Court’s 2012 McCleary ruling that the state fully fund Washington’s public school system.

One issue was a November 2017 follow-up mandate from the court that lawmakers speed up funding for public school staff salaries—to the tune of $1 billion—and the other was constituent backlash to the statewide property tax increase they passed last year.

But with an optimistic revenue forecast from state economists released last month projecting over $1 billion in additional unforeseen revenue flowing into government coffers over the next four years, lawmakers began angling for using the money to both meet the most recent court ruling and cut taxes.

The budget, which was unveiled in the early evening on March 7 by House and Senate Democrats, includes not only the $1 billion to K-12 public education for school staff salaries, but also $306 million for mental health and $116 million to help low-income students pay for college tuition. Additionally, the budget agreement sets aside close to $150 million for in-contempt-of-court fines lawmakers incurred by both the state Supreme Court following the McCleary ruling and a federal court after a 2015 mandate that the state improve mental health services, known as the Trueblood case.

“We comply with our court obligation, we fully fund our K-12 responsibilities … we invest a lot more money in mental health in general,” said Senate Democratic budget writer Sen. Christine Rolfes, D–Bainbridge Island at a March 7 press conference.

Additionally, Democrats are rallying around the Senate’s proposal for reducing property taxes. Their plan, SB 6614, would lower state property taxes one-time from $2.70 per $1,000 in assessed value to $2.40 in 2019. The reduction would be funded by redirecting excess tax revenue that would otherwise flow into the state’s Budget Stabilization Account or “rainy day fund,” which is intended to buffer the state in economic downturns.

Two weeks prior, House and Senate Democrats unveiled conflicting budget proposals: the Senate wanted to meet the most recent McCleary mandate while using the excess tax revenue to reduce property taxes, while House budget writers effectively ignored the court mandate and wanted to pass a capital gains tax to pay for future property tax cuts.

However, House Democrats have since reversed their position. “Everything that is in this proposal is agreed to,” said House Appropriations Committee Chair Rep. Timm Ormsby, D–Spokane, at the March 8 press conference.

Ormsby said that House Democrats dropped the push for a capital gains tax because it would have been “a difficult path,” he said. “Our number one priority was to get done on time,” Ormsby added.

While Democrats may be in agreement, Republicans were salty about both the budget proposal and the proposed property tax reduction. At the March 7 press conference, Senate Republican budget-lead Sen. John Braun, R–Centralia, said that the Democrats’ budget features a “tremendous amount of spending” and that “it could have been more disciplined.”

At the March 8 floor vote on the budget, Republicans were unanimous in their opposition to the budget proposal. “This budget relies on a diversionary raid on the rainy day fund,” said Sen. Sharon Brown, R–Kennewick. Sen. Doug Ericksen, R–Ferndale, said that the legislature has to recommit itself to “fiscal sanity.”

Democrats argued that the budget is balanced and will clear the Legislature of its legal obligations. Sen. David Frockt, D–Seattle, said at the March 8 floor vote that the fact that the budget meets the most recent McCleary mandate and pays the Trueblood court fines is enough to call it “terrific,” adding that those cases have been “roiling this body” for the past few years.

The budget passed the House 54-44 and along party lines in the Senate 25-24.

As for the Democrats’ proposed property tax reduction, Republicans are also largely uniformly opposed. Senate Republicans argued that the plan will drain state reserves and is a way for Democrats to get around rule in the state constitution that withdrawals from the rainy day fund require a 60-percent majority vote in the Legislature, rather than a simple majority.

Braun called the maneuver an accounting “gimmick.” “Fundamentally, this is a constitutional issue,” he said on the Senate floor on March 7. “I think that this will ultimately be seen as a unconscionable breach of the public trust.”

Republicans also pointed to a March 7 statement from state Treasurer Duane Davidson who said that the Senate’s attempt to divert funds from the rainy day fund sets a “dangerous precedent.”

“Choosing to not save today when we’re experiencing extraordinary revenue growth guarantees that our budget problems will be much greater when the next recession hits,” Davidson said in the statement.

Democrats countered that state reserves will still be substantial after the diversion, and that providing property tax relief should be the immediate priority. “We are cutting property taxes. We are doing a $400 million property tax relief for residents of Washington state,” said Sen. Mark Mullet, D–Issaquah, on March 7. “Taking $400 million before it goes into the rainy day fund does not put the state at risk.”

Sen. Reuven Carlyle, D–Seattle, called the property tax reduction a “extraordinary accomplishment.”

SB 6614 passed the Senate on March 7 along party lines 25-23 with one excused.

This report was produced by the Olympia bureau of the Washington Newspaper Publishers Association.