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Published on Friday, June 5, 2015

Update on new House and Senate operating budget proposals

As the first special legislative session concluded and the second special session began, the House Democrats and Senate Republicans each released revised budget proposals, which are being referred to as versions 2.0 in Olympia.

As we reported in last week’s Bulletin, the Senate Republicans released their version 2.0 on the last day of the special session, May 28. The House Democrats then revealed their version 2.0 on the following Monday, June 1.

Neither chamber’s revised budget proposal changed their original approach to state shared revenues. The House proposal fully funds shared revenues with cities. The Senate proposal continues the 50% cut to local liquor taxes from last biennium and sweeps the city share of the Fire Insurance Premium Tax.

One of the most significant differences in the new proposals is the Senate’s handling of the Public Works Trust Fund. The version that passed the Senate in early April swept $200 million from Public Works Trust Fund ($100 million each state fiscal year) and allocated $140 million in bond proceeds as backfill to cover loans already under contract. The budget also included grants (not loans) for almost all of the city projects that were included in the loan list recommended by the Governor and the House plus some additional projects.

However, the new version proposed by the Senate sweeps $100 million from the trust fund ($50 million per year). Presumably the reduced amount of the sweep will simply reduce the amount of bonded backfill that will be needed (that will show up in the capital budget). As far as we know, the Senate still intends to fund the same project lists. The Senate’s new proposal also specifies intent to direct $94 million in future loan repayments to basic education and provide financial assistance for local government infrastructure in future biennia through loan guarantees.

The House did not change their approach in their revised budget proposal and continues to provide $69.7 million for the 2016 construction loan list.

Both proposals take advantage of the positive state revenue forecast in May, which showed about $300 million more coming in to the state than expected over the 2015-17 biennium. The Senate proposal combined this additional revenue with existing resources to fund their proposal. The House combines this new projection with a scaled back revenue proposal.

The House is no longer proposing the eight new revenue items contained in HB 2224 and instead assumes only a 5% capital gains tax under a modified HB 1484, which would generate an estimated $550 million over the next biennium. This means their new proposal does not include the revenue items that the AWC Board of Directors voted to support in April: Washington State Marketplace Fairness, modifying the nonresident sales tax exemption, imposing sales tax on bottled water, and narrowing the REET exemption on foreclosures. These four items would have generated an estimated $263 million for the state and $98 million for local government.

On Tuesday, June 2, the House Appropriations Committee took testimony on their version 2.0, including a few remarks by AWC’s Vice President and Everett Councilmember Paul Roberts. His message to legislators included a thank you for fully funding the state shared revenues cities and their continued support for a viable Public Works Trust Fund. Cities stand ready to help get the operating budget to the finish line and close out this year’s legislative session.

For a side by side comparison of the current state operating budget proposals, please see our updated budget matrix.

Categories: Budget & finance