It has been a while since I have sent an update, partly because the first special session came and went with nothing accomplished. Read: Washington taxpayers get $77,000 bill for most unproductive Legislature gathering in state’s history. Despite us still not having an operating budget, there are plenty of issues you should be aware of in the budget process and what has been proposed in the budget negotiations.

Revenue forecast

Yesterday, the Washington State Economic and Revenue Forecast Council (ERFC) released its quarterly revenue forecast for the current and upcoming budget cycles. The council is projecting a $110 million increase in revenue for 2011-13, a $121 million increase for 2013-15, and a $51 million increase for 2015-17. This means state lawmakers will have an additional $231 million in revenue as they consider the 2013-15 operating budget and the 2011-13 supplemental operating budget. Keep in mind, the state has $2 billion more in tax revenue for this budget than the last – a 6.6 percent increase in tax collections. This forecast just adds a little on top of that.

How we arrived in a second special session without a budget is rather simple. The Democrats want to implement or increase taxes, and the bipartisan Senate Majority Coalition Caucus wants some reform bills if new tax revenue is going to be on the table. This budget could have been passed long ago with the amount of tax revenue we have coming in. Here is the forecasted total state revenue from the ERFC:

• $30.646 billion for the 2011-13 biennium (ends June 30);
• $32.662 billion for the 2013-15 biennium; and
• $35.357 billion for the 2015-17 biennium.

House Democrats proposed budget and taxes

House Democrats did offer a new budget proposal at the end of the first special session. It passed the House by a vote of 53-35. All Republicans and one Democrat voted against it, House Bill 1057. Their latest proposed budget does make some concessions, particularly backing off on the permanent extension of the Business and Occupation (B&O) surtax on service businesses. I truly believe House Democrats backed off this tax increase because the attention it started receiving. In case you missed it, you should click the “Are you on the list?” photo to find out how extensive their tax plan was and how it truly hits our hard-working, middle-class folks. The reason I bring this up, even though they have dropped this part of their tax package majority leadership said “tax” revenue will have to be part of the debate in the future and it is not going away. Click Increase in Washington revenue may avert government shutdown to read more.

They appear to be backing off on taxes, but their last budget proposal did leave the B&O surtax in place for a handful of industries. They also remove the sales tax exemption for non-residents. This will have a major, negative impact on Clark County. Their proposal also removes the sales tax exemption on bottled water – a tax voters turned down in 2010. Now is not the time to be raising taxes. There are still more than 57,000 people out of work since the start of the recession five years ago. Look again at the tax revenue numbers I have shared. The state’s tax collections are up almost 7 percent. Why are we talking about raising taxes?

My other concerns with the House majority party budget include:

• it reduces spending on K-12 education by approximately $500 million;
• it uses an education apportionment shift that could impact school funding;
• it sweeps all the funds out of the Public Works Trust Fund (PWTF) from the capital budget (Local governments depend on this fund for critical infrastructure projects);
• and there are about $600 million in fund shifts throughout the budget.

It is impossible to have a sustainable budget when you are using gimmicks, such as sweeping accounts and one-time money shifts like the education apportionment and taking the PWTF monies.

The most telling part of their budget is that it spends less on education than any of the other budget proposals we have seen and still raises taxes. They are clearly putting students, teachers and our education system up against tax increases. House Republicans have been saying since Day One that we must fund education first, then if taxes are needed to fund other priorities then the majority should bring it up for a discussion. Raising taxes, particularly holding out school funding to do so, should not be an option.

The Senate Majority Coalition Caucus also passed a new version of their budget over the weekend – Senate Bill 5034. It has not changed much from the bipartisan budget they passed in the regular session; the difference is they are asking for reform legislation to be passed as part of a budget agreement. There is speculation that they would consider dropping the reform legislation if House Democrats drop consideration of their tax increase proposals.

Death tax reappears

The biggest black eye of the session will be the shameful execution of House Bill 2075, or what is referred to as the Bracken Bill. It reinstates the estate tax on married couples’ assets and does so with a retroactivity clause. That means families, who have deceased family members, will have to pay millions in taxes to the state Department of Revenue.

You will hear a lot of political rhetoric surrounding this issue, but the main and most significant point is this measure changes the rules retroactively so the state does not have to provide refunds to those taxpayers who followed the rules that were upheld by the Washington State Supreme Court. Not only does this set a dangerous precedent, but I believe it is unconstitutional and will be struck down by the same court that upheld the law. That will mean we will still owe the refunds plus interest and court and legal costs. It also means the budget will have to be adjusted to reflect this loss in the future.

Satellite TV tax update

I received a number of emails concerning a proposed satellite television tax. When House Democrats released their last operating budget proposal it included about $50 million in additional revenue from a satellite tax within a telecommunications services reform bill House Bill (HB) 1971. We were anticipating an amendment to HB 1971 to include a new tax on satellite service. However, the amendment never appeared. Both HB 1971 and HB 1057 were voted out of the House without the proposed tax.

It is disappointing most of my update includes talk of tax proposals from the other side of the aisle in the House, yet no reform measures. At this point, in June, budget negotiators need to reach an agreement on a proposed operating budget and get out of Olympia before we do any more harm to the taxpayers of Washington. I am hoping that budget agreement is coming soon.

Please let me know if you have any questions.