At odds over education funding and how to cut property taxes

OLYMPIA, Feb. 20 -- Democrats in both chambers of the state Legislature are at odds over adding more funding to public education and how to cut property taxes across Washington.

Banking on a promising tax revenue forecast, Senate Democrats want to use excess tax revenue to fund public K-12 teacher salaries and cut state property taxes. House Democrats, however, declined to invest more in salary compensation this year despite a court order that they do so. They also proposed a capital gains tax to pay for future property tax cuts.

The supplemental budget will amend the legislature’s two-year operating budget, which was approved by lawmakers last summer.

On Monday, Senate Democrats rolled out their version of the budget, which featured big ticket items such as putting roughly $1 billion more towards public K-12 teacher salaries, investing $163 million in mental health treatment, and a one-time reduction in state property taxes to the tune of $403 million.

Senate Democrats are vying to appease several looming court mandates with their budget proposal. In late 2017, the state Supreme Court ruled that lawmakers must speed up the implementation of funding for teacher salaries to meet an imposed 2018 deadline—the last step in fulfilling the 2012 McCleary ruling that the state fully fund K-12 education in Washington state. The figure identified by the court was roughly $1 billion.

Additionally, as a result of a federal court 2015 ruling—commonly referred to as the Trueblood case—the state has also been ordered to improve mental health competency evaluations for incarcerated pre-trial detainees.

Last week, state economists released a forecast that predicts that over $1 billion in extra tax revenue will be flooding into government coffers over the next few years, buoying desire among some lawmakers to meet the court mandates and invest in public services without raising taxes.

Given the influx of new revenue, lawmakers are also keen on providing property tax relief, due to the statewide property tax hike that partially funded the $7 billion education package that passed the legislature last summer.

“We’re funding our public schools and addressing mental illness, we’re living within our means, and we’re returning taxes to Washingtonians at a time when economic growth is extraordinarily good,” said Chair of the Senate Ways and Means Committee, Sen. Christine Rolfes, D–Kitsap County, at a Monday press conference.

In contrast, in addition to putting $180 million towards mental health, the supplemental budget proposal put forward by Democrats in the House of Representatives allocates no additional funding towards K-12 teacher salaries—effectively ignoring the state Supreme Court’s recent order.

At aTuesday briefing, Democratic House Majority Leader Rep. Pat Sullivan, D–Covington, said that school districts will struggle to speed up the teacher salary funding, and that lawmakers from both parties and chambers had already committed to a two-year phase-in of teacher salary funding last year when the $7 billion education package was passed.

“We’ll continue with the phase-in that we agreed to last year,” he said.

Additionally, House Democrats want to cut property taxes by dipping into state reserves to reduce the tax rate in 2019 and 2020, while also passing House Bill 2967, which would impose a capital gains tax to finance future state property tax reductions starting in 2021.

“Our neighbors and our friends back home are really hurting from our property tax increase,” said the sponsor of the capital gains tax bill, Rep. Kristine Lytton, D–Anacortes, at the Feb. 20 briefing. She added that, with the McCleary funding issue “behind” the legislature, lawmakers shouldn’t rely as heavily on property taxes.

“We thought we should have a more progressive tax to help pay for McCleary,” said Sullivan.

According to budget documents, the one-time Senate Democratic tax cut proposal would go into effect next year, and would reduce the state property tax rate by 31 cents per $1,000 in assessed property value, amounting to roughly $400 million from state reserves. The House tax cut would temporarily reduce the property tax rate by roughly 34 cents in 2019 and 40 cents in 2020, costing around $1 billion.

Both the Senate and House proposals to cut property taxes require drawing from the state Budget Stabilization Account—commonly referred to as the “rainy day fund”—which requires a 60 percent vote in either chamber. Democrats hold a one seat majority in the Senate and a two seat majority in the House.

Democrats in the legislature have pushed a capital gains tax as a way to pay for public education in past years, but the proposal always met opposition from Republicans and some Democrats, and never made it to the governor’s desk. And in January, House and Senate Democratic leadership were not enthusiastic about advancing a capital gains tax during the 2018 session.

Sen. Rolfes said Monday that if the House passes a capital gains tax as part of its budget that it “wouldn’t be dead on arrival.”

The capital gains tax bill passed out of the House Finance Committee on Monday.

House and Senate Republicans are opposed to the latest effort to push a capital gains tax. House Minority Leader Rep. Dan Kristiansen, R–Snohomish, said at a Tuesday press conference that passing a capital gains tax would be a slippery slope to enacting an income tax.

At the same briefing, Sen. Sharon Brown, R–Kennewick, said: “this is not the time that we should be talking about reevaluating our entire tax structure,” she said.

Meanwhile, Senate Democrats have played up their budget’s lack of new taxes. Vice Chair of the Ways and Means Committee, Sen. David Frockt, D–Seattle, said Monday that Republicans “should like” their proposal because it cuts taxes without raising new revenue.

In a statement, Sen. John Braun, R–Centralia, said that while he was largely happy with the Senate Democrats’ budget proposal, it “doesn’t go far enough” in providing property tax relief. He later told reporters Monday that the legislature should try to provide property tax relief in 2018.

Additionally, Sen. Braun said the budget should feature a broad-based business and occupation tax cut for manufacturers—similar to a bipartisan manufacturing tax cut that was vetoed by Gov. Inslee last year. On Monday, he told reporters that the tax cut should be “part of the deal.”

The state Supreme Court and federal courts have continued to levy penalties on the state for failing to meet the McCleary and Trueblood mandates. Both the Senate and House Democratic budgets allocate almost $150 million to pay off the accrued fees.

Rep. Sullivan said that the House plans to hold a floor vote on their budget package on Friday. The Senate tentatively plans to vote on its budget package that same day.

There are less than three weeks left in the 2018 legislative session, which is slated to end on March 8.