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Published on Friday, July 12, 2013

Another state budget with significant impacts to cities

Most state shared revenues and programs cities care about remain intact after the budget deal. However, cities faced significant cuts in two places: liquor taxes (more on that below) and the Public Works Trust Fund (more on that and the capital budget can be found in this week’s Infrastructure article.)

Significant cuts to liquor revenue again

As session began, legislators expressed support for AWC’s priority of restoring the $10 million in local liquor taxes permanently diverted last year and removing the cap placed on local liquor profits. As budget proposals from the House, Senate, and Governor were released, there was cautious optimism that, at a minimum, they would not make any further cuts to local liquor revenue.

When lawmakers finally reached a budget deal just days before the looming state government shutdown, we were very disappointed to find that their compromise, 3ESSB 5034, once again relied on local liquor taxes to help balance the state budget.

Instead of appropriating the full (minus the previously enacted $10 million annual diversion) distribution of $49.5 million, legislators sought to cut local liquor taxes by 50% and appropriated only $24.7 million in liquor taxes to cities and counties over the next two years.

AWC has since learned that by changing the local liquor tax distribution formula for this biennium, they may have inadvertently reduced local liquor taxes by more than they had planned. We are working with state agency and legislative staff to resolve this issue and will provide updates in future Legislative Bulletins and our weekly CityVoice newsletter.

The Legislature also opted not to restore the historic growth in local liquor profits, but no further reductions were made to this other source of liquor revenue. Cities and counties will continue to receive the amount frozen by last year’s legislature: $98.9 million per biennium.

No cuts to other state shared revenue

All other state shared revenues remain whole, including streamlined sales tax mitigation, municipal criminal justice, city-county assistance, and the annexation sales tax credit.

With the exception of continuing the 25% direct charge to cities for sending law enforcement officers to training, other programs funded through the operating budget also appear to be funded, including gang prevention grants, auto theft prevention, and public defense.

More budget information about specific programs impacting cities can be found on AWC’s budget summary chart.

And a deal on telecommunications taxes

On a positive note, the final budget deal included passage of HB 1971, which removes the sales tax exemption for all residential phone lines, requires retailers to collect E911 taxes on prepaid wireless phones, and makes a number of other changes related to telecommunications.

Removing the sales tax exemption for all residential phones is expected to generate approximately $5 million per year for cities. But perhaps even more importantly, the bill’s retroactive provisions address the issues raised in the 2011 Sprint Spectrum v. Washington State Department of Revenue case. Those issues may have required local governments to issue an estimated $249.5 million in sales tax refunds to telephone service providers.

This was a much needed fix to an ongoing and expensive problem facing the state and local governments.

BillTracker AWC priority Bill # Descriptive title Final status
    E2SHB 1971 Telecommunications tax parity Law; Various effective dates
Major HB 1368 Restoring city and county liquor revenue Failed
Major HB 2067 Restoring city and county liquor profit sharing Failed
    SB 5422 Telecommunications tax parity Failed; See E2SHB 1971
Major SB 5703 Restoring city and county liquor revenue Failed
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