As lawmakers pose for the bill-signing shot in the wee hours of Friday morning, a voice calls out: “Make sure the Department of Revenue gets this photo!”

OLYMPIA, June 14.—A late-night deal that plugged a $160 million hole in Washington’s estate tax at the very last possible second also forced compromise on a key environmental bill before this year’s Legislature – and showed lawmakers still may be able to reason together, despite all the shouting and namecalling of the last week.

It may not have looked like cooperation — the Republican-leaning Senate majority demanded action on the environmental-cleanup measure before it would consider the estate-tax bill. Rank-and-file lawmakers remained at their desks on the House and Senate floors for 12 full hours as Democratic and Republican leaders hammered out their agreement, while rumors of one deal after another swept the chambers and were repeated and amplified by the crowd of eager lobbyists who gathered just outside the doors. Members attempted to interview the reporters who wandered aimlessly through the wings, but it was a time when reporters knew less about the gameplan than they did. At various points it appeared the Senate might insist on other concessions, including major pieces of legislation on workers’ comp and education reform. But the House balked at those and cool heads prevailed. Ultimately the estate-tax bill, HB 2075, passed 30-19.

At stake was the certain loss of $12 million in tax refunds the Department of Revenue would have had to send out in the mail Friday morning if no compromise had been reached on the estate tax. Nearly $50 million in total refunds would have been mailed over the next few days, and the state’s ultimate liability might have reached as high as $138 million. At the same time, another $22 million in taxes over the next two years could not have been collected. The estate-tax problem was the result of an adverse decision by the state Supreme Court last year that identified a technical glitch in a tax bill passed by the Legislature in 2005 – inadvertently exempting the estates of hundreds of wealthy married couples from having to pay Washington’s estate tax. The Department of Revenue, under court order, faced a 9 a.m Friday deadline to begin mailing refunds.

But when the Legislature finally delivered the bill to Gov. Jay Inslee at midnight Thursday, and he signed it into law at a hurriedly-convened ceremony a half-hour later, that problem was averted. Mike Gowrylow, spokesman for the Department of Revenue, said Friday morning the agency canceled its trip to the Post Office. “As soon as the governor signed the bill into law, we sent a message to the person who was going to put those check in the mail and told them not to do it,” he said.

The fact that the Legislature managed to strike a deal, no matter how chaotic it might have appeared, showed the effect a wee bit of pressure can have. Lawmakers will be feeling considerably more of it over the next two weeks. The largely Republican Senate majority continues to press for the ed-reform and workers’ comp measures, as well as a spending-limit bill that aims to reduce pressure for tax increases in the future. The Democratic majority in the House wants tax increases right now. Meanwhile the state is up against a rather hard-and-fast deadline, rather more important than the Department of Revenue’s run to the Post Office. If the Legislature doesn’t pass a budget by June 30, the end of the fiscal year, state government operations will shut down.

Matter of Give and Take

Rank-and-file lawmakers had plenty of time Thursday to sit back, relax, and wait for legislative leaders to arrive at a deal. Here state Rep. David Taylor, R-Moxee, gets a load off his feet.

What happened Thursday was a matter of the give and take that occurs in a Legislature where power is divided, said Senate Republican Leader Mark Schoesler, R-Ritzville. And certainly it was an unusual vote. Republicans generally never have been enthusiastic about the estate tax – many call it the “death tax.” Key players in the majority caucus negotiated a deal with the House that slightly changes the terms of the tax, providing a deduction for small family-owned businesses while increasing the tax rates for the very wealthiest estates. Yet opposition continued to run strong. That was demonstrated by the fact that on the final vote 19 members of the majority coalition voted against it – 18 Republicans and one Democrat, Tim Sheldon of Potlatch. Only six members of the majority coalition voted for the measure, together with 24 members of the Senate Democratic Caucus.

To the uninitiated that vote might not seem remarkable, but in the halls of the Legislature it was an odd thing indeed. Normally when more than half of a majority caucus opposes a bill and most of the support comes from the minority, a vote never takes place. It is a game played by Democrats and Republicans alike, dozens of times every session – the essence of party politics.

In return for allowing a vote, the Senate Majority Coalition demanded a concession – a similar vote on one or more of the many government-reform measures it has sent over to the House, where Democratic leaders have not permitted votes to occur. On those bills, a majority of members of the House, both Republicans and Democrats, might be expected to vote yes if the measure advances to the floor. And so, after the House got things moving early Thursday by passing a new version of the estate-tax compromise, it was up to the Senate to react. Thus the dickering began.

Now $2.7 Billion in Additional Revenue

Now $2.7 billion in additional revenue: Ways and Means Chair Andy Hill, R-Redmond, makes pitch for estate-tax measure on Senate floor.

When it was all over more than 12 hours later, Schoesler told reporters he thought the passage of the environmental cleanup bill was a big win – and maybe there was one good thing about the estate tax after all. With another $160 million in tax revenue, there are 160 million fewer reasons to raise other taxes. He noted that the Senate has proposed spending $1 billion for basic K-12 education in the next two-year budget, under orders from the state Supreme Court – the House would spend somewhat less and it seeks additional tax increases to do it. Schoesler said, “This makes it even easier to stick to $1 billion, and this should send a message, $1 billion is what it is going to be.”

Senate Ways and Means Chairman Andy Hill, R-Redmond, noted that if you take the estate tax and all the money that will be generated by existing taxes, and you add the non-controversial revenue measures the Senate has agreed to enact, the state will have $2.7 billion more to spend for 2013-15 than it did the last time around. “I hope that now, with $2.7 billion, we can finally get a budget that both houses and the governor can agree on, that will give us $1 billion [for education.]”

Argument not over: Gov. Jay Inslee.

Gov. Inslee, after signing the estate-tax bill, said he was glad to get it done – but he doesn’t think the restoration of the estate tax ends the argument. “Unfortunately, the math doesn’t allow us that luxury,” he said. “We have an over $4 billion problem in this state, according to the McCleary decision. This is about $160 million, so it does the very smallest step toward a $4 billion solution. So we have a lot of work to do here. We have a number of loopholes that we will be closing. We have a phone-tax glitch that needs fixing. These are very, very doable things, and I am looking forward to getting that done.”

Deal for Environmental Bill

Inslee signs the cleanup measure, SB 5296. From left, Sens. Jim Hargrove, Doug Ericksen, Kevin Ranker and Steve Litzow.

The environmental bill that emerged as a result of the compromise, SB 5296, attempts to draw a box around the state’s toxic-waste cleanup program – a program that has become a tempting target for lawmakers over the last few years as they have snatched money from under the seat cushions in order to plug big holes in the state budget. The Model Toxics Control Act, passed by a voter initiative in 1988, imposes a tax on “hazardous substances” – mainly oil – to pay for cleanup projects where no responsible party could be held liable, or where the liability belonged to a public agency.

The trouble was, the tax kept generating more and more money every year as the price of gasoline went up, until it became big enough to make a real dent in the state’s big budget troubles. Lawmakers drained it of $233 million over the last four years, and the state Department of Ecology used it to backstop budget cuts as it diverted another $57 million for programs that had nothing to do with the original purpose of the tax. And as the cash cow has been milked, green groups have agitated for increases in the tax rate, to provide more money for environmental programs – a taxing problem that most likely would mean higher gas prices for every motorist in the state.

The bill that passed the Senate Thursday night can’t bind the actions of a future legislature, but it offers a degree of protection for the program by establishing the purposes for which the money can be used, and it aims to speed up on spending on cleanup projects. It was the fruit of session-long dealmaking between Senate Energy and Environment Chairman Doug Ericksen, R-Ferndale, and Sen. Kevin Ranker, D-Orcas Island. Ericksen calls it a jobs-creating bill: “It will put people in Washington state to work cleaning up our environment, and by cleaning up our environment and redeveloping these contaminated sites we will create future economic opportunity for the people of Washington state.”

Ranker, the ranking Democrat on the committee, said the measure would provide an opportunity for so-called “brownfields” to be redeveloped. “It is really exciting because it cleans up communities and creates jobs,” he said. “It is a win-win.” The measure passed the Senate 26-22 and the House 67-18 – an indication of opposition that has come from green groups. They have pointed to largely technical concerns about the legislation during the current debate, but they also have defended the Department of Ecology’s diversions of money away from cleanup as a way to pay for other environmental programs they favor.

Bigger Dealmaking on Horizon

Even though passage of the environmental cleanup bill required plenty of leverage and considerable back-room negotiation, it was probably the lowest-hanging fruit of all the government reforms sought by the Senate majority this year. Education and workers’ comp measures will be more difficult for the Democrats in the majority in the House to accept because they are opposed by the Washington Education Association and the Washington State Labor Council, big financiers of Democratic campaigns. The Senate Majority “pulled” two bills to the Senate floor Thursday night with a Rules Committee vote, in an attempt to negotiate those as well, but coalition leaders conceded the dealmaking there hasn’t jelled.

The two bills were SB 5127, a measure that would expand the state’s structured settlement program for injured workers who are covered by the state’s workers’ comp program, and SB 5946, an omnibus education-reform measure that incorporates many of the ed-reform bills passed by the Senate earlier in the session. The Senate took a vote on the education bill Thursday night – lawmakers on both sides said they are close to a deal on that one – but workers’ comp may take a while. After negotiations with the House went nowhere Thursday, Senate leaders said it was clear it would take more than a few hours to hammer that one out.

During debate on the Senate floor Thursday night, state Sen. Mark Mullet, D-Issaquah, a freshman in his first session, acknowledged that there was something bewildering about the back-and-forth bartering and the Senate’s insistence that the House pass the environmental bill before the Senate would consider the estate tax measure. But he supposed it did make some sense. “I know that with my four kids, I don’t give them their allowance money until they have actually done the chore. I have learned that if I pay them up front, they don’t actually clean the room.”

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