With Budget Crisis Averted, WA Lawmakers Consider More Pandemic Relief

Seattle WA

26 March, 2021

1:10 PM

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By Melissa Santos, Crosscut March 26, 2021 The Senate budget proposal would spend about $59 billion in state money over the next two years, on top of allocating about $7 billion in unused federal aid money. The largest portions of the federal relief money would go toward reopening K-12 schools and addressing student learning loss ($1.7 billion), as well as distributing vaccines and improving the response to COVID-19 ($1.1 billion). Senators would also tap about $1.8 billion from Washington's own rainy day fund to help add about $1 billion in state money for school reopening, as well as to reduce spikes in unemployment taxes that some businesses are facing. Next: Clean fuel legislation could be blocked again by one WA Democrat "If this isn't a rainy day, what is?" asked state Sen. Christine Rolfes, D-Bainbridge Island, the Senate's lead budget writer. Child care programs are another major focus. About $510 million in federal dollars would go toward supporting child care providers. In addition, the Senate Democrats are proposing to enact a statewide tax on capital gains, which would raise about $350 million per year for improving the state's child care system and about $200 million annually to help pay for a tax credit for low-income people. The capital gains tax isn't needed to balance the state budget, after the resurgence in state tax collections and the recent influx of federal relief money. Next: WA looks to end driver's license suspensions over unpaid debt But Democratic lawmakers say enacting the tax is an important step toward ensuring wealthy Washingtonians pay their fair share to support public services. Because Washington state doesn't have an income tax and relies mostly on sales taxes and property taxes to pay for things like schools and public services, lower-income people can end up paying a larger share of their income in taxes, a system Democrats have criticized as highly regressive. The 7% tax on capital gains would apply to profits that exceed $250,000 per year. Money from retirement accounts and real estate sales would be exempt from the tax. Republicans have criticized the proposed capital gains tax as illegal. If enacted, it will undoubtedly face a court challenge as opponents seek to overturn it, arguing it violates the state constitution. In the past, the state Supreme Court has ruled that a flat income tax is allowed under the Washington Constitution, but a graduated tax — one that taxes people at different rates based on their income level — is not. Republicans have insisted that Democrats are pursuing the capital gains tax largely to force the court to revisit those rulings. GOP leaders argue that could open the door to a statewide income tax that goes beyond taxing capital gains. But Democrats have countered that the capital gains tax isn't an income tax at all, but rather an excise tax, which applies to the sale of assets. House Speaker Laurie Jinkins, a Tacoma Democrat and long time supporter of the capital gains tax, has said she is confident the measure would easily pass any legal test. Jinkins and other leaders in the state House plan to release their budget plan Friday. That plan is also highly likely to include a tax on capital gains. Here are a few other highlights of the Senate budget proposal released Thursday. We'll update this story with more information from the upcoming House budget plan when it is released Friday. Tax relief Over the next two years, the state Senate plans to finally pay for a program called the Working Families Tax Credit. That rebate program, which gives money back to low-income families, was approved by the Legislature more than a decade ago, but lawmakers have never actually found the money to pay for it. The Senate plan would spend $268 million to put the program into place. Increasing Medicaid rates The Senate budget would spend $724 million in state and federal dollars to increase Medicaid reimbursement rates for health care providers. Rate increases would target primary care providers, behavioral health professionals and family planning clinics; all have said they desperately need rate increases to ensure they can continue to serve Medicaid patients around Washington state. Unemployment insurance Even after adjusting unemployment tax rates so most businesses won't get slammed with huge increases this year, the state Employment Security Department still has problems. Because so many people needed unemployment during the pandemic, the trust fund that pays for those benefits has been drawn down considerably, automatically triggering tax increases on business owners. The Senate budget would spend about $500 million to help replenish the trust fund, blunting some of the tax increases businesses will face in the future. This money is coming from the state's rainy day fund and will benefit businesses such as restaurants that have had especially high rates of layoffs, leading them to face some of the biggest tax increases later this year. Addressing pension liability An older state pension plan for teachers is underfunded, and state lawmakers would like to correct that. The Senate budget would spend about $800 million over two years to reduce the unfunded liability of the Teachers Retirement System 1 plan, which provides retirement benefits for people who entered the teaching profession before 1977. Preparing for disaster About $800 million in state dollars would be moved to the state's disaster account for the Legislature to address unexpected emergencies. Separately, about $125 million in state general fund money would go toward preventing and fighting wildfires. That's an investment that state Public Lands Commissioner Hilary Franz has been working to secure for several years. The House and Senate will need to negotiate a final budget deal, which they are expected to do before a scheduled adjournment date of April 25. Crosscut is a service of Cascade Public Media, a nonprofit, public media organization. Visit crosscut.com/membership to support independent journalism.