House Appropriations Chair Ross Hunter, D-Medina.

OLYMPIA, June 7.—House Democrats sent their split-the-difference budget proposal sailing in the direction of the Senate Thursday night as they passed their $33.6 billion tax-and-spending plan on a largely party-line vote, taking the dealmaking out of the negotiating rooms and putting it on the public stage.

The bold move by the House Dems has shaken things loose during a special legislative session that until this week had witnessed little activity. Democrats went public Wednesday with their proposal, making an end-run around the normally-secretive budget negotiations and upstaging the Republican-leaning Senate Majority Coalition. Senate leaders said Thursday they have presented a counter-offer, but are offering no details, saying they believe negotiations ought to remain private. “We are not going to negotiate in the press,” said Senate Majority Leader Rodney Tom, D-Medina.

The House Democrats’ new proposal represents a significant back-track on their original plan for $1.3 billion in new taxes. In broad strokes, the new plan raises taxes by a bit over a half-billion dollars and ditches some of their hardest-to-swallow proposals, including a plan to reinstate a “temporary” business and occupations tax surcharge on service businesses. Nearly half of that new revenue comes from technical fixes to Washington estate and telecommunications taxes, which otherwise is jeopardized by court decisions. But in the most controversial move, they aim to eliminate some $250 million in tax exemptions. And after changes adopted on the House floor Thursday night, they are providing roughly $900 million to implement the Supreme Court’s McCleary decision, which held the state is not spending enough to meet its constitutional duty to fully fund K-12 education.

“It is still a strong investment in public education,” said House Appropriations Chair Ross Hunter, D-Medina. “It is not as strong an investment as I would like, and it certainly is not as strong as our original approach. …[But] this budget is a strong budget.”

Taxes the Central Dispute

No negotiating in public: Senate Majority Leader Rodney Tom, D-Medina.

The vote on the House floor Thursday night sends this year’s battle over the budget into its final phase. The big debate at the statehouse has been over whether tax increases are really necessary. Though the McCleary decision forces big new spending on basic education at a time when the state has no money to spare, it is the same situation that confronts lawmakers every year as they decide which needs are most compelling and which are least deserving. They have approximately $2 billion more to spend than they did the last time they wrote a two-year budget. And the Senate Majority Caucus, with input from the Democratic side of the aisle, managed to write a no-new-tax budget that nevertheless provided $1 billion for new education spending. Although Democrats have pointed to assumptions they call questionable, the dispute is a matter of a few hundred million dollars – a tiny percentage of the state’s multi-billion-dollar budget.

House Finance Chair Reuven Carlyle, D-Seattle, argued the Democratic position — that it “simply is not possible” to meet the state’s McCleary obligations without additional tax revenue. “We are reinvesting in public education, we are prioritizing the McCleary obligation, and fully funding the ‘paramount duty’ to the extent that we can, given the constraints,” he said.

He said the House gets the money by closing “a small number of tax breaks” – though that certainly doesn’t minimize the argument. They include a $40 million hit on the oil industry with what is essentially a new tax, one that is likely to be reflected in higher gasoline prices. Also targeted is the state’s high-tech industry, with elimination of a research and development tax credit, as are merchants in border counties that deal with a high percentage of Oregon customers. Though Oregon residents would still qualify for an exemption from Washington sales tax, the Democratic proposal would make the exemption harder to obtain. Instead of allowing Oregon residents to flash their ID at the cash register, they would have to submit receipts and apply for a refund from the Department of Revenue. “People are not going to come from Oregon and pay that tax they are not used to paying and then go and ask for a refund, which is going to take however long to get,” argued state Rep. Ed Orcutt, R-Kalama. That seems to be part of the idea: The change is expected to generate $47 million.

Republicans Charge Hostage-Taking

House Republicans offered tempered criticism, crediting the Democratic majority with making a significant move toward compromise. But they charged that the Dems are improperly trying to establish a link between education spending and their war on tax breaks – thus setting up a false choice. The charge has to do with the way the Democrats have configured their tax-and-spending plan. The budget bill provides about $700 million for McCleary spending, while roughly $200 million comes from a separate bill eliminating six tax exemptions. The proceeds are earmarked for K-12 education.

If Democrats had earmarked the money for general government bureaucracy, state Rep. Matt Manweller, R-Ellensburg, said the debate would have a decidedly different flavor. “Isn’t it ironic that the one aspect of our public policy that we are required to fund is tied to a tax increase, but the other areas of the budget that we are not required to fund are not?”

Said state Rep. Chad Mangendanz, R-Issaquah, “Our kids are being held hostage to generate more revenue for the state.”

Republicans also were critical of what they call budget gimmicks, including a raid on the Public Works Trust Fund and a delay of payments to school districts that pushes expenses into the next biennium.

Now Senate’s Turn

The House votes Thursday essentially laid out the Democratic position for the Legislature’s endgame and put the ball in the Senate’s court. The chamber passed a series of policy bills necessary to implement the budget, including a measure that implements new rules for the Washington Health Exchange (HB 1947) and another that reenacts the state’s “hospital safety net assessment,” (HB 2016) which will leverage $273 million in federal Medicaid money for the state. The change to the out-of-state sales tax exemption, originally part of the omnibus tax-exemption measure, was offered in a separate bill, HB 2036.

The budget bill, HB 1057, was passed by a vote of 53-45. The tax exemption measure, HB 2034, passed 52-40. Democrat Monica Stonier of Vancouver crossed over on both and voted with Republicans.

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