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Published on Wednesday, December 14, 2016

Governor’s proposed state budget impacts cities

On December 14, Governor Inslee released his proposed operating, capital, and transportation budgets for the state’s two-year biennium beginning July 1, 2017. Because the Governor’s budget relies on a series of new revenue proposals which face an uncertain future in the Legislature, some have described it as the high water mark for funding for many areas of the budget. Even that high water mark presents a mixed bag on city priorities. Here’s our analysis of how AWC priorities are addressed.

  • State shared revenues: The good news is the proposal fully funds all shared revenues, including liquor profits and taxes, SST mitigation, criminal justice assistance, and the Fire Insurance Premium Tax. It also continues the current funding mechanism for the Municipal Research and Services Center (MRSC) through city and county liquor revenue.
  • Public Works Trust Fund: The bad news is the proposal permanently sweeps and kills the Public Works Trust Fund. All revenues except for what is needed to provide match to the federal infrastructure funds are permanently diverted to education. In its place, the Governor is making investments in grant programs like $50 million for the Centennial Clean Water program and proposing a program at the Housing Finance Commission that will provide an opportunity for cities to access the private capital market with a competitive interest rate and low transaction costs. Details have not been released yet, but we are told that the eligible uses of these dollars will be quite broad, so community facilities and other infrastructure needs could possibly utilize this option. While both of these approaches have merit and are likely things we support, it will be a bitter pill to swallow if this is indeed the end of the Public Works Trust Fund.
  • Homelessness: The Governor proposes $140 million in additional funding for housing and homeless programs, including $91 million for the Housing Trust Fund and $20 million to serve chronically homeless adults, families with children, and unaccompanied youth. The Governor is proposing to eliminate the sunset on the fees that support state and local homelessness efforts but did not include an increase in those fees as supported by AWC and our partners.
  • Mental health: The Governor also proposes $300 million in new funding for the state’s mental health system. While the proposal calls for additional funding for Western State Hospital, the focus is on expanding services in communities.
  • Basic Law Enforcement Academy: Cities and others have requested eight additional basic training classes each fiscal year to meet increasing demand. The Governor is proposing eight additional classes in FY 2017, four additional classes in FY 2018, and another four additional classes in FY 2019. Another four classes in FY 2018 and FY 2019 can be offered if local law enforcement agencies agree to directly pay the full cost.
  • Model Toxics Control Accounts (MTCA): The Governor’s proposal also impacts other capital budget priorities like toxic cleanups and stormwater assistance. An area of the capital budget that has gotten a lot of attention in recent years is the funding shortfalls facing the model toxics control accounts (MTCA) which fund toxic cleanups, stormwater, and other important city priorities. The Governor has proposed a new carbon tax that funds both capital investments as well as education. Some of the capital investments are in areas that MTCA has previously funded, so this proposal creates opportunities to mitigate the impact of falling revenues from MTCA. The budget also proposes a mechanism to maintain a steady level of revenue by assessing a surcharge on the hazardous substance tax if revenues come in below $160 million per biennium. While we appreciate the recognition that these are critical investments and that these proposals help the MTCA problem, if either proposal does not ultimately pass the funding for stormwater and other priorities will be back at risk.
  • Culverts: A new program is funded to invest in a strategic approach to fixing failing culverts that block fish passage, for the first time creating a funding source to address local government culverts.  A $19.7 million investment is made in the highest priority barriers around the state. This is a critical step to get moving on what is a looming financial challenge for cities and we appreciate the investment and partnership.
  • Pension costs: Rates are adjusted to reflect pension contribution rates adopted by the Pension Funding Council and the LEOFF 2 Board. In addition, local governments will be expected to include the cost of the state's pension contribution in what they charge for reimbursed activities performed by their personnel, such as providing traffic control for construction projects or security for special events. Local governments will submit those funds to the pension fund.

More details about the Governor’s budget proposals is available on AWC’s Budget Summary Chart and through the Office of Financial Management’s budget page.

Categories: Budget & finance