Gov. Jay Inslee's $54.4 billion proposed state operating budget represents a roughly 20 percent increase from the existing budget.
OLYMPIA — Gov. Jay Inslee on Thursday unveiled an expansive 2019-21 budget plan for Washington, funded in part by $3.7 billion in new revenue that includes a proposed capital-gains tax.
Inslee’s $54.4 billion proposed state operating budget represents a roughly 20 percent increase from the existing budget.
The plan would fund existing government services — such as schools, prisons, parks and social-service programs — and provide $675 million for new collective-bargaining agreements that give raises to state workers.
The budget would fund his plans to reshape the mental-health system and add $1.1 billion in new education spending, from early learning through K-12 and higher learning, including $103 million to expand college financial aid.
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Additionally, the plan funds a $1.3 million request by the Washington State Patrol to supplement Inslee’s security detail. The governor’s protective team has been strained as he traveled the country during election season as chair of the Democratic Governors Association and as he considers a presidential bid.
The governor would pay for those and other priorities with a revenue package that includes a new tax on capital-gains earnings, a boost in business-tax rates for services and changes to make the real-estate excise tax more progressive.
Inslee called the package necessary both to properly fund government and to make Washington’s tax system less regressive.
“We’re asking those who have done so well to chip in a bit more,” Inslee said in a news conference. “This makes the system just a little bit more fair.”
Democrats in Olympia have in recent years discussed a capital-gains tax but have lacked the votes to enact one. Republicans have strongly opposed it, saying it is an unconstitutional tax on income — and questioned the need in general for more taxes.
In a statement, Sen. John Braun, R-Centralia, the ranking Republican on the Senate budget-writing committee, slammed Inslee’s tax package. He said it would hurt small businesses and repeated the GOP’s concerns about the capital-gains proposal.
“Ultimately the governor wants to go on an extreme spending spree and come January it will be up to lawmakers to address our priorities by governing with what we have,” Braun said in a statement. “At some point, the public is going to run out of patience with annual demands for billions more of their money.”
Inslee’s plan would institute a 9 percent tax on some capital-gains earnings above $25,000 for individuals and $50,000 for households.
Retirement accounts, homes, farms and forestry transactions would be exempt from the tax. About 1.5 percent of Washington’s households would be subject to it. The tax would raise about $975 million for the next two-year budget, and about $2 billion in future bienniums.
Inslee also would boost the state business-and-occupation-tax rate for services, which ranges from professionals like attorneys, accountants and architects to janitorial services, beauticians and massage therapists. The current 1.5 percent tax rate would increase to 2.5 percent, raising an additional $2.6 billion over two years.
The governor also proposed changes to the real-estate excise tax, which now applies a 1.28 percent rate to sales of property.
Under his plan, properties valued below $250,000 would see the rate reduced to 0.75 percent. Properties between that amount and $1 million would stay at the existing rate.
Properties valued at over $1 million would be subject to a 2 percent rate. At over $5 million, the rate would increase to 2.5 percent.
The governor also proposed two smaller tax changes in the wake of this year’s U.S. Supreme Court ruling known as the Wayfair decision, which allows states to collect sales tax on retailers outside their borders. That would raise about $123 million over two years.
Since lawmakers passed the current budget in 2017, Washington’s economy has continued to boom and the state has raked in higher-than-expected tax collections.
Without any new taxes, the state is projected to have about $50 billion for the upcoming budget cycle.
But the court-ordered K-12 school-funding plan that lawmakers enacted in recent years, driven by the state Supreme Court’s 2012 McCleary decision, has grown the obligations of state government, said David Schumacher, director of the state Office of Financial Management.
The proposed budget includes $4.1 billion for costs to maintain that plan, which the court approved in June after years of oversight, contempt orders and fines against the state.
“We’ve eaten the meal, now we have to pay the bill,” said Inslee.
The governor’s budget is a long way from being enacted. Even as Democrats now hold comfortable majorities in both the state Senate and House, lawmakers will release their own budget proposals during the legislative session that starts in January.
Sen. Christine Rolfes, D-Bainbridge Island, on Thursday called Inslee’s proposal “a great blueprint” with priorities that are “shared I think by the majority of Democrats in the Legislature.”
But Rolfes, who is the chief Democratic budget writer in the Senate, said the governor’s revenue package may be too much for lawmakers to embrace.
“His tax increases will be taken up by the Legislature, but they’re probably more ambitious than the Legislature will be able to pass,” she said. Rolfes added that she would encourage lawmakers to discuss some tax increases to solve significant problems that the state is confronting.
The governor’s plan would also raise the cap for school districts to impose local school-district property taxes up to 28 percent of their combined state and federal revenues. Those local levies had been capped and lowered as part of the 2017 bipartisan school-funding deal.
Some school districts, including those that had teacher strikes over the summer, have since complained that the lower levy caps would lead to revenue shortfalls. In a statement Thursday, the Washington Education Association, the state’s largest teachers union, applauded the governor’s budget, including the move to raise the local levy caps.
Inslee said he was confident that raising the caps wouldn’t run afoul of the state Supreme Court’s McCleary order. And the move is necessary so school districts can fund additional programs like arts, band or computer-coding programs, he said.
Braun in his statement slammed that provision, calling it a local tax increase and saying it would bring back “the same inequitable school-funding policy that led to the just-settled McCleary lawsuit.”