State forecast projects over a billion in additional tax revenue: ‘Extraordinary revenue growth is good news for lawmakers looking to balance budgets

State economists project that over a billion dollars in additional tax revenue will be flowing into government accounts over the next several years, impacting upcoming talks in the Legislature over the supplemental budget.

On Thursday, Feb. 15, the Washington State Economic and Revenue Forecast Council released its prediction that tax collections will increase by $647 million between the 2017-19 biennium and $671 million over 2019-21.

“The next four years are going to look pretty good,” said Steve Lerch, chief economist and executive director at the Washington State Economic and Revenue Forecast Council. “Taxable activity is growing faster than we thought … I think it’s due to consumer confidence, that employment has been growing. The state’s economy has been doing very well.”

The council attributes the majority of the revenue growth to retail sales, cigarette, alcohol, and business and occupation taxes—in addition to one-time audit collections—while the next biggest portions are composed of property taxes and real estate excise taxes, followed by other sources including cannabis taxes.

The state’s total reserves for the 2017-19 biennium are now projected to be more than $3.7 billion, according to the state Office of Financial Management.

The news changes the calculus for lawmakers as they go into the remaining three weeks of session with big issues left to tackle in drafting a supplemental budget such as adding more funding for public education and providing property tax relief to constituents.

Late last year, the state Supreme Court ruled that the legislature must funnel an additional $1 billion to public education to fund teacher salaries before September 2018—the last step in meeting its 2012 McCleary mandate that the state fully fund K-12 education.

The Legislature is also grappling with funding for mental health to meet a 2015 federal court order that the state shorten wait times for mental competency evaluations of pre-trial detainees in jails, as well as meet demands from the federal government that Washington improve services for patients at Western State Hospital.

Additionally, lawmakers are haggling over whether to provide property tax relief to constituents. Last summer, the legislature approved a $7 billion education package to meet the McCleary mandate, which was primarily paid for with a substantial property tax increase.

Lawmakers in both chambers of the Legislature are taking their cue from the Senate Ways and Means Committee, which released its budget proposal on Monday, Feb. 19.

Ways and Means Committee Chair Sen. Christine Rolfes, D–Kitsap County, said on Feb. 15 that the “extraordinary revenue growth” permits the Legislature to meet its various mandates while also cutting property taxes. “Our direction was to comply with all of our federal and state court mandates without raising taxes, and I think we’re now in a position to lower them at least temporarily,” she said.

In the weeks leading up to the revenue forecast release, Rolfes had indicated that she intended to craft a budget that would meet the mandates without relying on new revenue. The latest forecast allows Senate Democrats to “stay the course,” she said.

Republicans, also pleased with the burgeoning revenue forecast, stressed providing property tax relief as a top priority. However, they were cautious about how the revenue should be allocated and whether it should be on a short or long-term basis.

“With more resources, we are then faced with a choice: do we spend that on bigger government and more spending in other areas or do we prioritize for those things that we need to do like transportation and special education and property tax relief?” said Sen. Joe Fain, R–Auburn, at a Feb 15 press conference.

In this economy “we are prone to swings,” he added. “We don’t want to dramatically increase spending in other areas with expenses because we are experiencing a one-time bump in revenue.”

“It was a plus for all of us that we saw new revenue come in,” said House Minority Leader Dan Kristiansen, R-Snohomish, at the Feb. 15 press conference. “I do want to make sure that we are cautious about how we jump forward and spend any of that new revenue—whether it be one time spending or whether it be spending that we’re going to have to depend on over the years to come.”

Republicans say they have their own property tax relief legislation. Sen. Doug Ericksen, R–Ferndale, is sponsoring SB 6439, a bill that would allow taxpayers to defer 81 cents per $1,000 of assessed valuation of this year’s taxes to the following year’s bill as well as reduce next year’s overall levy by 81 cents.

Meanwhile, Senate Democrats are expected to roll out their own proposal to reduce the state property tax rate next week along with their budget proposal.

Sen. Rolfes said that the majority of the new revenue will go into the state’s budget stabilization account—colloquially known as the “rainy day fund”—and that it will likely take a 60 percent majority vote in both chambers to access it.

Both Rolfes and her counterpart in the House, Appropriations Committee Chair Rep. Timm Ormsby, D–Spokane, said on Feb. 15 that neither of their committees are budgeting for new revenue sources such as a carbon tax or a capital gains tax.

Deputy Senate Majority Leader Andy Billig, D–Spokane, said at Feb. 15 press conference that his caucus is not planning for any new revenue, and that Governor Jay Inslee’s proposal to tax carbon emissions is about investing in climate change mitigation, not adding revenue to the state’s general fund to pay for non-environmental investments such as education.

This report was produced by the Olympia bureau of the Washington Newspaper Publishers Association.

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