As Washington state lawmakers grapple with K-12 school funding, the big tax proposals are likely out of the picture. With capital gains, carbon pricing and a large shift in property taxes out, lawmakers may wind up with a series of smaller ideas to raise money.
OLYMPIA — A capital-gains tax. Carbon pricing. A dramatic shift in property-tax levies.
Washington’s elected officials this year put forward big ideas to satisfy the state Supreme Court’s order to fully fund Washington’s public-school system and pay for other government services.
But as days and months in Olympia tick by, lawmakers once again are running into the hardscrabble realities of divided government: Their most ambitious plans just don’t have the votes.
A Republican coalition holds the Senate by one vote. Democrats, after Rep. Jessyn Farrell resigned last week to pursue her bid for Seattle mayor, now control the House by one vote.
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Those fragile power blocs must scrounge up billions of dollars to satisfy the court’s 2012 McCleary decision, which ruled that Washington state was violating its constitution by underfunding schools.
Since then, the justices have been tapping their toes. In 2014, the court, not satisfied with lawmakers’ progress, held the state in contempt.
In 2015, the justices imposed a $100,000 daily fine against the state, which remains in effect.
Lawmakers, meanwhile, must also draft a 2017-19 state operating budget, the blueprint for spending on prisons, parks, education, social services and other services.
In recent years, fights over the budget have pushed Washington to the brink of a July 1 government shutdown.
As the Legislature last week drifted into its second special session without agreeing on either, Gov. Jay Inslee tried to make life easier for lawmakers.
In a news conference, the governor effectively took a capital-gains tax proposal, favored by himself and House Democrats, off the table.
Inslee reiterated his party’s strong opposition to the Senate Republicans’ proposed property-tax plan.
As a route to compromise, he suggested a pair of smaller House Democratic revenue proposals — changes to a real-estate tax and a proposal to expand the state’s collection of online sales tax. The governor also hinted he’d be open to a smaller property-tax adjustment.
A third ambitious idea, Inslee’s carbon-pricing plan as a solution for school funding and other needs, failed to gain traction this year in Olympia.
The governor’s remarks came after talking to lawmakers on both sides of the aisle, according to David Schumacher, director of the state Office of Financial Management.
“We heard over and over from the Republicans that capital gains was just … a non-starter,” Schumacher said.
“Not that they want to raise taxes in general, but if they were going to raise taxes, it wouldn’t be that one,” he added. “It just came out loud and clear.”
For Democrats, the Republican plan to raise property taxes in areas like Seattle and Bellevue, while cutting them elsewhere, “is just a hard political thing to swallow,” Schumacher said.
Sen. John Braun, R-Centralia and chief GOP budget writer, said Inslee’s move helped lawmakers who are negotiating — up to a point.
“We’re in a bit of a bind,” Braun said. “And to that extent the governor helped a bit by suggesting some of the stuff come off the table.”
But Republicans still have “some frustration” with the unwillingness by Democrats to vote on their proposed taxes, Braun said. That includes the smaller proposals suggested by Inslee.
When GOP lawmakers hear anecdotes that Democrats might not have the votes within their party to pass taxes through the House, Braun said it makes his job as negotiator more difficult.
“It makes it hard for me to make moves that I can sell to my caucus,” Braun said. “How do I negotiate there and then be credible on both sides?”
As lawmakers near the halfway point of the second special session, here is an overview of the compromise revenue ideas suggested by Inslee.
Real-estate excise tax
One proposal the governor mentioned is a House Democratic plan to make adjustments to what’s known as Washington’s real-estate excise tax.
Right now, people selling a house pay a flat tax of 1.28 percent.
The Democratic House budget proposed turning that into a graduated rate. People selling a home for less than $250,000 would see their rate cut to 0.75 percent, according to a recent version of the Democratic tax proposal, HB 2186.
Those selling a home for $250,000 to $1 million also would see a rate cut — to 1.028 percent.
For more pricey homes, the rates would climb. A seller of a home of $1 million up to $5 million would pay a 2 percent rate. And those selling homes for more than $5 million would pay 2.5 percent.
This proposal would be a legitimate and dependable source of money for education funding, said Rep. Kristine Lytton, D-Anacortes and chair of the House Finance Committee.
If approved, the plan could raise $435 million through 2019, according to an April fiscal analysis of HB 2186.
Another proposal from the Democratic House budget that Inslee suggested would expand what sales tax the state can collect on purchases made over the internet.
Under the proposal, remote sellers of goods with at least $10,000 in gross receipts sourced to Washington state would have to remit tax revenue, according to HB 2186.
Expanding the online sales tax would bring in about $442 million in new revenue through 2019, according to HB 2186’s fiscal analysis.
Much of the Senate Republicans’ McCleary funding plan revolves around a restructuring of property taxes often called a “levy-swap.”
It’s a proposal meant to attack perhaps the most vexing part of the McCleary decision: figuring out how the state will pay for teacher and school-worker salaries.
In their 2012 decision, the justices ruled that the state must pay those salaries.
School districts now use local property-tax levies to fund a big piece of those costs.
The GOP plan would set a uniform state property-tax rate at $1.55 per $1,000 of assessed value.
That means “property-rich” school districts, like Seattle and Bellevue, which now have lower tax levies, would see their rates rise. Meanwhile, “property-poor” school districts that now have rates higher than $1.55 would see their rates go down.
A compromise on property taxes could mean lowering that $1.55 number, according to Schumacher.
Republicans see their property-tax plan as a way to level the playing field for poorer school districts. But Braun said he is sensitive to Democrats’ concerns about the impact of a large property-tax shift.
“I don’t disagree with the governor that we have to be mindful of large increases for some areas,” he said.