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Published on Wednesday, December 14, 2016

Governor’s proposed state operating budget released today

Late this morning, Governor Inslee released his proposal to fund state programs and services for the two-year biennium beginning July 1, 2017. This proposal addresses many items impacting cities, including state shared revenues, law enforcement training, and funding for infrastructure, mental health, and homelessness programs. Right now AWC’s Government Relations Team is reviewing the proposals, and our preliminary analysis will be available here by the end of the day.

Yesterday, the Governor released his plans to generate revenue and fund basic education. Overall, he proposes $4.4 billion in new revenue for the state’s 2017-19 biennium, and the vast majority of that will be devoted to K-12 education.

To comply with the state Supreme Court’s McCleary decision, his education plan would reduce local school levies throughout the state. According to information released by the Governor’s office, levies will be reduced in 119 of the state’s 295 school districts, and more than 75% of households and businesses will see a decrease in their property taxes.

To replace the local levy funds and increase overall school funding, the Governor’s revenue plan includes the following nine items:

  1. Increasing the B&O tax rate on all services to 2.5%: $2.3 billion
  2. Imposing a carbon tax of $25/ton plus inflation plus 3.5%: $1.1 billion
  3. Enacting a capital gains tax of 7.9% ($25,000/$50,000 threshold with an exemption for all residential property): $821 million
  4. Limiting the vehicle trade-in exclusion to $10,000: $91 million
  5. Limiting the REET foreclosure exemption: $59 million
  6. Imposing sales tax on bottled water: $57 million
  7. Repealing the extracted fuel exemption (except hog fuel): $52 million
  8. Modifying the nonresident sales tax exemption: $49 million
  9. Extending economic nexus to retailing B&O activities: $12 million

At the same time, the proposal would increase the state B&O tax filing threshold to $100,000 in gross business receipts and increase the small business tax credit.

Several of these items would also generate additional revenue for cities. Local sales and use tax would increase with the vehicle trade-in exclusion, imposing sales tax on bottled water, modifying the non-resident sales tax exemption, and repealing the extracted fuel exemption. City REET collections would increase by limiting the foreclosure exemption.

More information about each of the revenue items is available here.

Governor Inslee acknowledged that he is offering a bold proposal, and some Republican lawmakers are already voicing criticism. By tradition, the Republican-controlled Senate will release its own budget proposal next.

Categories: Budget & finance