House Appropriations Chair Ross Hunter, D-Medina, goes public with new budget plan Wednesday. Visible in this picture are Sen. Sharon Nelson, D-Maury Island, Rep. Larry Seaquist, D-Gig Harbor, Sen. Jim Hargrove, D-Hoquiam, Rep. Larry Springer, D-Kirkland, House Majority Leader Pat Sullivan, D-Covington, and House Finance Chair Reuven Carlyle, D-Seattle.
OLYMPIA, June 6.—House Democrats made a bold move on the budget Wednesday, going public with a plan to split the difference with the Republican-leaning Senate majority, and bypassing closed-door negotiations that appear to have gone nowhere.
Instead Democrats are taking their proposal straight to the House floor for a vote, possibly as soon as today – a political strategy that takes the argument out of the shadows and places it in public view. In many respects the new House plan is as significant a move toward compromise as the bipartisan no-new-tax budget that was passed by the Senate earlier this year. The Democrats have given up on many of the ideas that have given their critics fits – they no longer plan to drain the state’s rainy-day fund, and they aren’t talking about continuing “temporary” taxes on service businesses that are scheduled to expire in June. Where once the House Democrats might have been a couple billion dollars away from the Senate, the difference now might be said to be a few hundred million dollars.
Yet they are still going after a relative handful of tax exemptions that will spark big controversy in the days and possibly weeks that remain in this year’s legislative session. The “loophole” plan ties $255 million in tax increases directly to K-12 education. It is a big issue in a year when the Supreme Court has ordered the state to beef up spending on basic education. Among other things, the Democrats hope to impose a new tax on the state’s oil refiners, and most likely, on anyone who buys gasoline. They also hope to eliminate a research and development tax credit for the high-tech industry, and they would make it considerably more difficult for Oregon and Montana shoppers to obtain a break on sales taxes when they do their shopping in Washington. Meaning the battle is far from over.
“The governor asked us yesterday to make a significant move,” said state Rep. Ross Hunter, D-Medina, chairman of the House Appropriations Committee. “He asked both sides to compromise, and this is a very large move in that direction.”
Republicans appeared cool to the proposal Wednesday, noting that the Democrats’ decision to go public represents an end-run around the budget negotiating process, and they pointed out that the tactic contradicts their agreement to keep their disagreements out of the press. Where education spending is concerned, they said the Dems are presenting the state with a false choice: They say the taxes really aim to keep the state’s bureaucracy afloat. State Rep. Gary Alexander, R-Olympia, the House Republican point-man on the budget, said, “While this proposal has the possibility of bringing both chambers closer together, the process they used may very well drive us apart.” Yet he conceded the Democratic proposal represented considerable movement.
Budget and tax bills cleared the House Appropriations Committee Wednesday evening on party-line votes of 18-8, and now move to the House floor.
Ties Tax Hikes to Education
Here are the broad strokes. The House Democrats earlier were talking about a $34.5 billion budget for 2013-2015. Their new proposal is $33.6 billion. So it is $900 million less than their last version, and just a hair above the $33.3 billion budget proposed by the Senate. But budget math always gets a little tricky and always is a bit imprecise. It might also be argued that the movement toward compromise is considerably greater than $900 million. That’s because the House Democrats wanted $1.3 billion in tax hikes and hoped to drain another half-billion dollars from the state’s rainy-day fund. Their latest plan leaves the rainy day money in the bank and counts on only $593 million in new taxes.
The way that tax revenue is calculated gets a little complicated, because Democrats also have found a new way to slice the argument. The budget bill, HB 1057, counts on $339 million in new tax revenue, most of it from a pair of technical fixes to existing tax law. The Democrats are counting on a fix to the Washington estate tax to correct a problem created by the Supreme Court in its so-called “Bracken decision” last year. Another fix would correct a problem created by a Supreme Court ruling on telecommunications taxation.
If you consider only the budget bill itself, the Democrats are providing just $700 million in new spending for K-12 education to satisfy the Supreme Court’s McCleary decision. That is the same level of McCleary spending proposed by House Republicans early in the session. But the Democrats also are advancing a separate bill, HB 2034, which ends the $255 million in tax exemptions and directs the proceeds to K-12 education. That creates a linkage that did not exist before, though it might also be noted that the Democrats’ ‘war on loopholes’ has gotten considerably less ambitious. Originally they targeted twice that amount.
House Finance Chairman Reuven Carlyle, D-Seattle, said the effort to end tax exemptions was “more modest in scope than we had hoped,” but said the $255 million level seemed more realistic. From there it was a matter of winnowing the list to the targets that had the greatest support within the House Democratic Caucus. Of course you can count on them to fight back: The oil industry, always a favorite target for Democrats and their environmental-group allies, has been girding for the end-of-session fight for months. The high-tech industry also is coming out swinging. Lewis McMurran of the Washington Technology Industry Association allowed that the state might see some additional tax revenue if it eliminates the R&D tax credit, but he said it would come mainly from taxes on hotel rooms and rental cars when governors visit from other states trying to lure Washington businesses away.
Linkage Called Improper
Because Democrats managed to keep their plans under wraps until just a few hours before their noontime announcement, criticism from the other team was muted. Republicans also said they felt constrained by the “cone of silence” that covers budget negotiations, although the Democrats’ decision to take the battle public appears to have reduced that concern. From the Senate Majority Coalition came merely a terse statement from Majority Leader Rodney Tom, D-Medina, arguing that the linkage between tax exemptions and education is improper. “I am disappointed that this House budget proposal is balanced on the backs of Washington’s school kids. Our children deserve our first dollars, not our last dime.”
It is likely to become the leading talking point against the Dems’ plan. The line of argument goes like this. The Supreme Court’s McCleary decision reaffirms that K-12 education is the state’s top priority. So if the state needs to pay more money for schools, it ought to come from the $2 billion in additional revenue that is expected over the next two years as the economy recovers. If the Legislature raises taxes, what it is doing is really raising money for social programs, state employee overhead and other purposes. Thus Republicans say any linkage to education is a false choice.
Clearest statement of the position Wednesday came from refinery-country lawmaker Vincent Buys, R-Lynden, during the vote in the House committee. “We’re saying that we are going to fund education out of these tax increases, but education should have been funded long ago,” he said. “If we are going to put it to the citizens for a vote on whether to fund environmental or other social programs or whatnot, we know that those probably wouldn’t pass, so we are really holding education hostage here.”
Another point of political disagreement: The Republicans in the House and the Senate Majority Coalition are holding out for big reforms on education, workers comp and other policy areas. Those policy bills cause Democrats to gulp, as they hit at the constituencies that support Democratic campaigns — labor unions, teachers and others. House Majority Leader Pat Sullivan, D-Covington, said Democrats don’t feel a need to resolve those issues before the end of the session. “We can get workgroups together to try to get an agreement that will be prepared for next January on things we can’t get done.”
Why Go Public?
The big question: Why are House Democrats going public with their offer, rather than continuing to negotiate with the Senate majority coalition? While one might suspect Dems are trying to create public pressure for their position, their leaders say there is a more technical reason. They say it is because the Legislature’s current special session is now five days from its scheduled adjournment date on June 11. It is unclear why the adjournment date of the special session has suddenly become an issue of major importance, as Gov. Jay Inslee has the ability to call the Legislature back on June 12 for a second special session. In fact, at a news conference Tuesday, Inslee promised to do so if the Legislature fails to reach agreement. The only hard and fast deadline the Legislature faces is the July 1 drop-dead date for adoption of a new budget.
At their press conference Wednesday, Democrats insisted their decision to go public was a matter of scheduling – nothing more. “We need to engage in a process which enables us to technically, feasibly to get done by next Tuesday,” Sullivan said. “We have begun this process in order to get this done. Our goal is to get done by Tuesday. We are continuing to meet and talk, but again we have to start this process.”
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