The state budget approved by legislators and signed by the governor late Friday includes a big funding boost to K-12 schools and hikes overall spending by 13.5 percent over the state’s present two-year operating budget.

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OLYMPIA — The Washington Legislature passed a two-year, $43.7 billion state budget Friday that raises state property taxes, adds billions of dollars to public schools and narrowly averted a looming government shutdown.

Gov. Jay Inslee signed the budget after 11 p.m. Friday. If not signed before midnight, when the current spending plan expired, state government would have begun to close down.

Lawmakers said they hope the plan will satisfy a 2012 state Supreme Court order known as the McCleary decision, which ruled the state was underfunding public schools in violation of its own constitution.

Gov. Jay Inslee makes remarks Friday night as he signs the state’s new two-year operating budget.

Budget highlights

New tax revenue

• $1.6 billion from an increase in the state property tax earmarked for education.

• $431.8 million from expansion of online sales-tax collections.

• $15.6 million from eliminating tax breaks on bottled water and extracted fuels.

New spending

• $1.8 billion added to public schools.

• $618 million for state-worker pay raises.

• $102 million to improve Washington’s troubled mental-health system.

• $75 million added to higher education.

• $25 million to expand early-childhood education.

• $6.3 million to create a new state Department of Children, Youth and Families.

• $4.6 million to fund a clean-air program that caps carbon emissions from a handful of businesses.

• $3.2 million to the Department of Corrections to hire records staffers and beef up its IT systems in the wake of a long-running mistaken release of prisoners.

“For decades, the state of Washington has fallen short,” said Sen. Kevin Ranker, D-Orcas Island. “I believe this comports with not just our constitutional obligation, but more importantly our moral obligation to help our kids.”

But even as lawmakers praised what many called a historic restructuring of public schools funding, the property-tax increases drew particular scorn from some Puget Sound lawmakers.

Many Democrats said the plan puts too heavy a burden on Seattle-area homeowners who could see their tax bills rise by hundreds of dollars a year.

It would increase the state property tax earmarked for schools, but reduce and cap local school-district tax levies. Residents in school districts in Seattle, Bellevue, Lake Washington and Mercer Island are expected to see their property-tax bills increase.

After voting Friday against the school-funding bill, Sen. Reuven Carlyle, D-Seattle, predicted Republicans would come to regret the tax increase.

“They can hold on all they want to this stereotype cliché that this is a tax increase on rich city folks,” Carlyle said. “But the truth is, this is middle-class people statewide, and real families.”

He said property owners will have a “jolt of reality” when the tax bills arrive. “And there’s going to be implications at the voters’ box,” he added.

Many Republicans, meanwhile, hailed the bill for restructuring how school districts use property tax levies to fund education.

As the Senate debated the proposal, Sen. Ann Rivers, R-La Center, one of eight lawmakers who worked closely on the lengthy and complex education plan, summed it up simply. “I’m really happy right now,” Rivers said.

The overall budget — which includes the K-12 school-funding plan — will boost spending by 13.5 percent over the state’s present two-year operating budget.

Lawmakers also expanded the collection of online sales taxes and closed two tax exemptions. And they approved a series of tax exemptions, including one that lowers the business-and-occupation tax on manufacturing.

The budget deal adds $7.3 billion over four years in state education spending, but state schools chief Chris Reykdal said that number doesn’t tell the whole story.

An early analysis from the Office of Superintendent of Public Instruction suggested that, thanks to the cap on local property-tax levies, schools would not bank all that new money, Reykdal said.

The $7.3 billion in state dollars would be offset by about $3 billion in lost local levy dollars, said Reykdal: “This is still positive, but let’s just be very straightforward about this.”

He said schools are likely to net about $1 billion or $1.2 billion per year. “We’re running those numbers now,” Reykdal said. “It’s really positive. It’s a great place to start, but we have a ways to go.”

Reykdal, who said his office did not get detailed budget documents until Friday morning, asked for patience as his staff tries to calculate the district-by-district impact of the proposal.

Property owners who qualify for the senior citizen tax-exemption program would not be affected by the property-tax increase.

Otherwise, property owners in communities with higher property values should expect to pay more.

“There’s just no question that Seattle and King County end up paying a significantly larger bill here at the end of the day,” Reykdal said.

Property taxes

Seattle lawmakers wrestled with the property-tax plan Friday afternoon as they pondered the late-breaking budget deal.

Democrats have said the plan, called a property-tax swap, would increase taxes in “property-rich” school districts like Seattle, Bellevue, Mercer Island and Lake Washington, and lower them in other districts.

Sen. Kevin Ranker, D-Orcas Island, one of the budget negotiators, said rough numbers show the average Seattle homeowner would pay more than $400 in additional property taxes each year.

Sen. David Frockt and other Seattle Democratic lawmakers Friday said Seattle Public Schools would benefit from the plan.

“Seattle Public Schools is going to have a significant increase in funding,” said Rep. Gerry Pollet, D-Seattle, who voted for the K-12 plan.

On Friday afternoon, Pollet, Frockt and two other Democratic Seattle senators — Carlyle and Jamie Pedersen — gathered in a conference room to chart out how they believe the plan would affect Seattle schools.

The lawmakers showed numbers they said came from Seattle Public Schools. Under the plan, the district could see a net increase in funding of $14 million in the 2017-18 school year, according to the numbers.

After that, the district could see $43 million net in new money in 2018-19; $58 million in 2019-20; and $55 million in 2020-21.

Rep. Nicole Macri, D-Seattle, said she would prefer to fund education through new taxes on income or capital gains.

“We’re not getting the progressive change that I hoped we would,” Macri said.

But she voted for the plan, she said, because “this is what compromise looks like.”

Budget details

The $43.7 billion budget represents a $5.2 billion increase from existing and new taxes, according to budget documents.

Of the $7.3 billion in state money to K-12 education over four years, $1.8 billion is spent in the 2017-19 budget.

The bulk of the new revenue comes from the state property-tax increase, which raises $1.6 billion through 2019.

Another $464 million comes through the expansion of online sales-tax collections, and the elimination of tax breaks on bottled water and extracted fuels, the latter of which benefits oil refineries.

Legislators also found money to extend tax breaks to manufacturers, the film industry and agricultural wholesalers, among others.

The budget contains $618 million for state employee raises sought by Gov. Jay Inslee and other Democrats. One in every five of those workers is expected to get an extra-large pay hike.

The agreement spends $102 million to improve Washington’s troubled mental-health system. Additional money would add community-crisis centers and beef up funding for the state’s psychiatric hospitals.

Under the budget, tuition at Washington’s public colleges and universities would go up by about 2.2 percent. It’s the first time in four years that lawmakers have allowed tuition to rise; in 2013-15 they froze it, and in 2015-17 they cut it by as much as 20 percent, depending on the school.

The budget includes money to increase the number of students getting financial aid to attend college. In 2015-16 — the latest year for which numbers are available — about 69,000 students received the State Need Grant, and an additional 24,000 who were eligible were put on a waiting list.

Additional money would decrease the waiting list by about 900 students in 2017-18.

The Legislature also set aside $15 million for medical education in Spokane, money that would go to help pay for students studying at both the University of Washington and at Washington State University’s new Elson S. Floyd College of Medicine, which opens this fall.

The deal adds $25 million to expand a key early-childhood-education program and gives the Department of Corrections $3.2 million to hire records staffers and beef up its IT systems in the wake of a long-running mistaken release of prisoners.

The deal also spends $6.3 million to create a new state Department of Children, Youth and Families.

The new agency would merge the Department of Early Learning with Child Protective Services, juvenile-justice programs, foster-care services and other child-welfare programs administered by the Department of Social and Health Services.

Inslee got a win in the budget on the clean-air rule he implemented by executive authority. The compromise spends $4.6 million to fund the program, which establishes carbon caps on greenhouse-gas emissions coming from a handful of businesses.