Washington Democrats Have Days Left to Negotiate a New State Budget — and Decisions on Taxes

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OLYMPIA — Comfortable majorities this year in the state House and Senate doesn't necessarily mean Democratic lawmakers are having an easy time writing a new budget.

Democratic lawmakers Wednesday were working to complete a final deal on a 2019-21 state operating budget.

And they faced hard decisions about how much money to raise through taxes -- or what spending they should skip.

Without any new taxes, legislators are expected to have nearly $50.6 billion to fund the new budget. That amounts to a nearly 16% increase from the existing budget when Gov. Jay Inslee first signed it into law in 2017.

But Democratic leaders have said new revenue is necessary to adequately fund government. They cite the costs of Washington recent court-ordered K-12 schools funding plan and a mental-health system in need of overhaul.

With Sunday the last regularly scheduled day of the legislative session, budget writers and others say a deal likely needs to come together Thursday or Friday to finish on time.

When asked Tuesday afternoon what obstacles remained to be resolved in negotiations, Sen. Christine Rolfes, the Senate Democratic budget writer, said: "Really, revenue; how to pay for things."

Rolfes said Wednesday afternoon that lawmakers would work through the night if needed. But, she added, "Things are humming along, problems are being solved every hour."

Proposed budgets by House Democrats, Senate Democrats and Inslee each included a plan to change the state real-estate excise tax (REET), which is paid by those selling homes, from a flat 1.28% to a graduated rate.

The proposals do it in different ways. But the idea is people with less expensive homes would get a lower rate, and people with pricier homes would pay a higher share. Democrats have called it a way to raise new revenue while also making the tax system more progressive.

"I think that's likely," said House Majority Leader Pat Sullivan, D-Covington, when asked about the REET in a final deal. But, "I think we're still working through the details on that as well."



In terms of spending, Sullivan said a final budget deal would wind up somewhere in between the Senate's proposal of about $52 billion over two years, and the House proposal of $52.6 billion.

Rep. Drew Stokesbary, R-Auburn, argued that recent growth in tax collections, combined with the fact that Democrats are negotiating among themselves, should translate into a legislative session that finishes on time and without new taxes.

"We could write a budget that funds all of our priorities without raising taxes," said Stokesbary, the ranking Republican on the House Appropriations Committee.

Stokesbary called the change to the REET "poor tax policy" and said it might place a burden on sellers of multifamily housing units right as the state experience a housing-affordability crisis. But he said that it appeared likely to emerge in a final budget deal.

A REET tax alone likely wouldn't get Democrats to the spending levels that they have been seeking, Stokesbary added, meaning some other tax would likely be necessary.

House Democrats and Inslee also introduced different versions of a new tax on capital gains and increases in the business-and-occupation tax, as well as ending some tax breaks.

But a capital-gains proposal has always faced an uncertain fate in the Senate, where three of the chamber's 28 Democrats late last year said they opposed the governor's version. It would take 25 votes to pass that legislation.

Conservatives have argued that a capital-gains tax is unconstitutional, meaning it would almost immediately face a court challenge.

But taxes are only half the equation in a budget deal. If Democrats can't properly fund programs, they'll ultimately have to pay those costs down the road, said David Schumacher, director of the Office of Financial Management.

Using budget maneuvers -- like tweaking projected costs and savings to programs in future years -- might delay the need for some taxes.

But lawmakers would "just be skipping a payment and having to come back" next year to fund those items in a supplemental budget, said Schumacher.