Washington Lawmakers Pass $52.8 Billion Budget, Raise Taxes, Approve Affirmative Action, Adjourn

Washington lawmakers adjourned at midnight Sunday after majority Democrats approved an initiative to restore affirmative action and passed a $52.4 billion, two-year state operating budget. The budget relies on an array of tax increases, including on businesses and real estate transactions, but doesn’t impose a new capital gains tax as had been proposed. 

Passage of the budget capped a weekend of marathon floor sessions and last-minute votes as the clock ran out on the 105-day regular session. It was the first on-time adjournment of an odd-year, budget-writing session in a decade. 

Minority Republicans and open government advocates decried what they said was a lack of openness and transparency — “vampire” votes in the words of one — as Democrats fast-tracked tax bills and held overnight votes. But Democratic leaders said the pace was necessary to finish on time. In addition to taking tax votes in the early morning hours, when most people were sleeping, the House galleries were closed to the public on Friday and Saturday due to unspecified safety concerns. 

The budget vote marked the culmination of an action-packed, nearly four-month legislative session during which Democrats reasserted strong majority control of Olympia for the first time in six years. In doing so, they delivered Gov. Jay Inslee, who’s running for president, a number of long-awaited wins on his signature issue of combatting climate change, including a new mandate that all electricity sold in Washington be carbon free by 2045. That was just one example in a long list of priority Democratic bills that passed this year. 

In a post-adjournment news conference, Inslee praised the session as “epic.”

“There is a time to be humble and this is not one of them,” a jubilant Inslee said.

This is the first year since he took office in 2013 that Inslee has enjoyed robust Democratic majorities in both the House and Senate.

The new state budget, which for the first time eclipses the $50 billion mark, dedicates more money to early learning, public schools, higher education and mental health. It also leaves nearly $2.8 billion in reserves. 

Among the spending items:

• $3.9 billion to maintain current levels of K-12 funding, including salaries and cost-of-living raises.
• $451 million to pay for state employee salary increases and health care benefits that were negotiated as part of union contracts. 
• $280 million for behavioral health, including increased staffing at the state’s psychiatric hospitals and funding to comply with a lawsuit settlement involving inmates with mental illness who languish in jails.
• $83 million to increase rates paid to state-supported childcare providers. 
• $45.5 million to help prevent and fight wildland fires. 
• $41 million to increase housing assistance and services to people who are homeless. 
• $35 million to raise reimbursement rates for providers of high-level services for the most at-risk foster children, many of whom are now residing in out-of-state facilities.
• $10.3 million to address Washington’s backlog of more than 10,000 untested rape kits. 
• $2 million for added security costs related to Gov. Jay Inslee’s campaign for president. 

Tax Increases

To pay for the budget, Democrats passed a number of tax measures.

They include a graduated real estate excise tax to replace the state’s current flat tax of 1.28% on all sales. Under the new structure, a 1.1% tax would apply to property sales up to $500,000, while a 3% tax would apply to sales over $3 million. Democrats said the new tiered tax rate would result in reduced taxes for roughly 80-percent of real estate transactions while raising an estimated $598 million over the next four years. 

Majority Democrats also boosted the business and occupation (B&O) tax rate for large banks and travel agents, imposed a new tax on vaping products and eliminated the automatic sales tax exemption for shoppers from states like Oregon that don’t have a sales tax.  

Separate from the budget, Democrats approved a B&O tax rate increase on select professional services and “advanced computing” businesses, like Microsoft, to pay for a series of higher education investments, including free tuition for families making up to $50,000 a year and more enrollment slots for high-demand fields like computer science, engineering and nursing. 

All told, the Democrats’ tax package aims to raise more than $830 million over the next two years and $2 billion over four years. That doesn’t factor in a new payroll tax to fund a first-in-the-nation long-term care benefit that was passed separately. It also doesn’t include an overhauled hazardous substance tax designed to raise $359 million over the next four years. 

Notably absent from the package was a tax on capital gains which had been proposed by Inslee in December and also by House Democrats when they rolled out their budget proposal earlier this month.

Senate Democrats had their own capital gains tax proposal, designed to offset taxes in other areas, but it was never part of their budget plan and ultimately didn’t pass. 

“We held firm I would say on not using a capital gains tax to balance the budget,” said Sen. Christine Rolfes, the Democratic chair of the Ways and Means Committee. “We didn’t think it was necessarily a safe bet.”

Critics of the capital gains tax have argued it’s volatile and not constitutional in Washington where there’s no income tax. 

Republicans Bristle

Even without the capital gains tax, minority Republicans blasted the higher taxes as unnecessary. They pointed out the state was already on track to bring in a total of $50.6 billion in revenues over the next two years as a result of a healthy economy — a $4.5 billion increase over the current biennium.  State Sen. John Braun, the ranking Republican on the Ways and Means Committee noted that the Democratic budget represents an 18% increase over current state spending. 

“That’s enormous growth, biggest growth in nearly 30 years,” Braun said. “So I’m pretty worried … that we’re buying into services that frankly won’t be sustainable in two or four years.”

Senate Republican leader Mark Schoesler was more blunt.

“The taxpayers got mugged this year,” Schoesler said. 

But Democrats insisted the spending and taxation levels were responsible and necessary to maintain the state’s commitment to fully fund public schools while also addressing critical needs like shoring up the state’s mental health system, which is a bipartisan issue. The budget will also pay for state employee pay raises and cover the cost of shifting school employee healthcare from local districts to the state. 

“We have a budget that invests in the priorities and values of the people of Washington state,” said Sen. Andy Billig, the Senate’s Democratic leader. “I’m really proud of the budget.” 

Billig also defended the Democrats’ tax package. 

“We are raising those in the ways that we think are the fairest and as low taxes as we can possibly do to be able to make those important investments,” Billig said. 

While technically separate from the budget, Rolfes heralded the new spending in higher education —  nearly $1 billion over four years paid for by the B&O tax rate increases — which she said was unprecedented. 

“This is probably the biggest investment the state has made in higher education in decades,” Rolfes said. “It’s a historic investment.”

But Republicans were quick to criticize Democrats for funding the boost in higher education spending through a separate tax bill outside of the base budget.

“We can’t find a few hundred million dollars [in the budget] to fund higher ed — that is maddening to me,” Braun said.  

Last-Minute Votes

In addition to the operating budget, lawmakers passed new state capital construction and transportation budgets over the weekend.

Also passing in the final hours of the legislative session was a bill to create a public health insurance option on the state’s health benefit exchange, another priority of Inslee’s. 

On Sunday night, as a midnight deadline loomed, Democrats in the House and Senate also passed a compromise plan to lift the existing cap on local school levies. The current cap is $1.50 per $1,000 of value or $1,500 per student, whichever is less.

School districts across the state had warned that without more local levy capacity they would be forced to make budget cuts and layoff teachers and staff.

Republicans largely opposed lifting the levy cap and argued it would once again create a system of haves and have-nots across Washington’s 295 school districts. The cap was imposed in 2017 as part of a bipartisan plan to address the state’s underfunding of schools in the McCleary school funding case. 

Sunday evening also brought dramatic votes in both chambers on I-1000, an initiative to the Legislature to bring back affirmative action to Washington. The measure cleared both the House and Senate almost entirely along party lines after passionate, back-to-back debates in each chamber. I-1000 would effectively overturn I-200, a voter-approved ban on affirmative action passed in 1998.

“I have witnessed how I-200 has devastated fair opportunities for communities of color and women,” said Democratic state Rep. Sharon Tomiko Santos, who has regularly introduced bills to overturn I-200.

Republicans countered that I-1000 was divisive and urged a “no” vote. 

“With this change we’re saying that race matters more than merit,” said Republican state Rep. Brandon Vick. “This is diversity through discrimination, plain and simple.” 

As the Senate debated I-1000, opponents could be heard chanting loudly in the rotunda. After the vote, observers sitting in one of the galleries erupted in anger and started yelling at lawmakers until they were escorted out by security. 

A Changing Legislature

The 2019 legislative session is likely to go down as one of the most activist sessions in recent memory. This was the first year since 2013 that Democrats enjoyed solid majorities in both the House and Senate. A Republican-led coalition controlled the Senate from 2013, when Inslee was first elected, until 2017. Last year, Democrats held one-seat majorities in both chambers. 

But during the 2018 election, state Democrats rode an anti-Trump backlash and won back several seats in the House and Senate. In January, they welcomed a record number of new members and the most diverse freshman class of lawmakers in state history. The combination of new, progressive members and solid Democratic majorities spurred four months of fast-paced legislating as Democrats once again asserted one-party control in Olympia. 

In addition to Democrats once again having a lock on the Legislature, the 2019 session was marked by two other dynamics.

It was the first legislative session following the end of the McCleary school funding case which required lawmakers to invest billions more into public schools. While lawmakers still had to prioritize K-12 education this year, and special education in particular, they no longer had the Washington Supreme Court looking over their shoulder freeing them up to focus on other issues. 

The 2019 session also marked the end of an era. Last November, Speaker of the House Frank Chopp announced he would step down at the end of this session after 20 years. Chopp is the state’s longest serving speaker of the House. On Sunday, the House took time out of the busy schedule to honor Chopp. House Democrats will choose a new speaker in July. They are widely expected to elect the first woman speaker of the House.