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Published on Friday, December 19, 2014

Governor releases budget proposal

On Thursday, Governor Inslee released his operating budget proposal for the 2015-17 biennium, which funds state operations from July 1, 2015 through June 30, 2017. The news is mostly good for cities: No cuts to state-shared revenues, and cities get a slice of marijuana revenues. The Public Works Trust Fund didn’t fare as well.

New revenue

The proposal provides $1.3 million to fund basic education under the McCleary decision, freezes in-state tuition for higher education, and provides state employees with their first salary increase in seven years. To fund these priorities, the Governor proposed closing several tax loopholes, enacting a few new taxes, and using a portion of the state’s rainy day fund. The new revenue includes:

  • Imposing a capital gains tax on earnings above $25,000 for individuals and $50,000 for joint filers. Generates $798 million for the biennium.
  • A market-based carbon pollution tax. Generates $380 million for the operating budget.
  • Increasing the cigarette tax by 50 cents per pack and enact tax on e-cigarettes and vapor products. Generates $56 million for the biennium.
  • Eliminating sales and use tax exemptions for non-residents, bottled water, extracted fuel, and on vehicle trade-ins greater than $10,000. Generates $252 million for the biennium.
  • Eliminating the preferential state B&O tax rate for royalties. Generates $29.6 million for the biennium.

State shared revenue

The Governor’s proposal fully retains state revenues shared with cities. Streamlined sales tax mitigation, municipal criminal justice, city-county assistance, and the annexation sales tax credit all remain intact. While the permanent diversions of local liquor revenue remain, the Governor did not propose additional cuts. It also funds the Local Public Safety Enhancement Account for the first time at $10 million for the biennium: 50% distributed to jurisdictions with LEOFF 2 members and 50% transferred to the LEOFF benefits improvement account.

Marijuana tax sharing

The proposal gives cities and counties a share of the marijuana excise tax revenue: $2.1 million in the 2013-15 biennium and $13.3 million in the 2015-17 biennium. This represents approximately 10% of the expected excise tax revenue. We appreciate the Governor’s recognition of the need to share revenue with local governments and hope this can be the beginning of the conversation as we plan to keep working with the Governor and legislators to ensure funding for cities at a more significant level.

Local infrastructure funding

The Governor’s proposed capital budget includes only $70 million for the Public Works Trust Fund 2016 Construction Loan List for 19 projects (list here) and no money for pre-construction or emergency loans. The Public Works Board had recommended a list of 49 projects totaling $170 million.

Governor’s Book #1 budget

While this is the Governor’s preferred state budget for the upcoming biennium, this budget is what’s known in Olympia as “Book #2.” The Governor also is required to release a budget that relies only on existing revenue, and on Friday morning, he released some information about his Book #1 while stating it does not reflect his proposal to the Legislature. While the details of the full proposal were not available as this article was written, we expect it to contain significant cuts to shared revenues and local infrastructure programs and to many other state agencies and programs.

More information

For more detail on the Governor’s proposals, check out AWC’s budget matrix and Governor Inslee’s budget documents.

Categories: Budget & finance
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