OLYMPIA — For much of last year, the COVID-19 pandemic and related job losses made Washington’s budget forecast look dismal, with billions in projected shortfalls leading to calls for swift spending cuts.

The budget deal reached by Democratic lawmakers in Olympia on Saturday bears little resemblance to those austere predictions.

Buoyed by a rapid economic recovery and padded by a new tax on capital gains, the 2021-23 operating budget clocks in at roughly $59 billion — about $5 billion more than the budget approved two years ago.

The spending blueprint funds a host of priorities that Democrats have sought for years, including new dollars for child care programs, a tax exemption for low-income families and more money for forest health and wildfire-fighting capabilities.

Legislators also used the opportunity to put money into the state’s public health system, a long-neglected area that felt deep pressure during the pandemic.

On top of that, lawmakers are allocating an additional $10 billion in federal COVID-19 relief to help families and businesses recover from the pandemic and its economic fallout.

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That money will fund $1.7 billion to help reopen Washington’s K-12 schools and address learning loss, and $658 million for rental assistance.

Lawmakers are also allocating $1.1 billion in federal dollars for the deployment of vaccines, testing and contact tracing and recruitment of public health workers.

It also includes $500 million for unemployment insurance relief to employers hit hard by COVID-19 restrictions, and $340 million in pandemic assistance for residents who can’t get help through other programs due to their citizenship status.

Lawmakers are expected to vote on the budget package Sunday, the final day of this year’s regularly scheduled 105-day legislative session.

Washington’s operating budget is the state’s primary spending blueprint. It funds K-12 schools and higher education, parks and prisons, and mental health, foster care and other social service programs.

Democratic budget writers hailed the spending plan as a bold investment that will pay dividends. They said they don’t want to repeat the steep and counterproductive spending reductions that followed the Great Recession a decade ago.

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“Many of us also remember devastating cuts from the last recession. We basically said we aren’t interested in that,” said state Rep. Mia Gregerson, D-SeaTac, one of the budget negotiators, during a virtual news conference on Saturday. “This investment is about rebuilding and recovering together.”

To that end, the budget includes $261 million to implement a long-stalled tax credit for low income families. It also provides $50 million to expand subsidized health care premiums for qualified people enrolled in plans through the state Health Benefit Exchange. And it provides $147 million on Washington’s long-underfunded state and local public health systems.

Republicans criticized the spending plan, which they had little power to shape with majority Democrats in both chambers and Gov. Jay Inslee firmly in control.

Imposing new taxes even as regular tax collections are growing is “a choice, not a necessity,” said state Rep. Drew Stokesbary, R-Auburn, who called the budget process run by Democrats “unnecessarily partisan.”

New capital-gains tax

Fulfilling a long-sought desire by Inslee and other Democrats to make the state’s wealthiest residents pay a higher share of taxes, Democrats pushed through the new 7% tax on capital gains of more than $250,000 from the sale of stocks and other investments.

The new tax, expected to raise more than $400 million a year, is likely to face legal challenges. But Democrats included a provision aimed at blocking a public referendum on the tax.

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Democratic budget leaders danced around their intentions on including that clause at the news conference Saturday. “We’re not prohibiting a public vote,” said state Sen. June Robinson, D-Everett, pointing out that an initiative could be filed to repeal the tax.

But statewide initiative campaigns require twice as many signatures as referendums to qualify for the ballot, and the deadline for signatures could make it difficult to launch such a campaign this year.

Democrats defended their overall approach to tax policy as a matter of fairness.

Senate Ways and Means Chair Christine Rolfes said the capital-gains tax, combined with a tax rebate of up to $1,200 for low-income families, will start to fix the state’s regressive tax system.

“That is a historic rebalancing of the way things work in the state of Washington,” said Rolfes, D-Bainbridge Island.

Washington House lawmakers Saturday evening voted 52-44 to approve a final version of the tax. The Senate is expected to take it up on Sunday.

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In addition to the capital-gains tax, Democrats were pushing through a $100 increase in the fee to record documents such as real estate deeds, to pay for housing, rental assistance and eviction prevention.

Spending increases

For Democrats and progressive groups, the higher taxes and spending represent a welcome turnabout from the state’s approach during the Great Recession.

“When we gut public investments in the name of fiscal responsibility, those costs don’t go away, they just get shifted to local governments, or households,” said Misha Werschkul, executive director of the Washington Budget and Policy Center, a left-leaning think tank.

The new deal spends on other long-sought priorities, such as $130 million for increased forest-health programs and wildfire-fighting capabilities for the state Department of Natural Resources.

And it provides $517 million in federal and state funds for new behavioral health funding, which builds on efforts lawmakers have made in recent years to address the state’s troubled mental health system. That includes new dollars for six additional youth mobile crisis teams around the state, and higher payment rates for care providers.

The mental health funding also schedules dollars to make sure the University of Washington’s new behavioral health teaching hospital is ready to operate once it is built in the coming years.

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Elsewhere in the budget, funding is provided to establish Juneteenth as a paid holiday for state workers and to create an independent office to investigate uses of deadly force by law enforcement.

But questions have been raised by some about the sustainability of the state’s spending, with lawmakers creating new programs in part relying on federal dollars.

An analysis by the Washington Research Council, a business-backed nonprofit, cited the decision to draw down the state’s rainy day fund, as well as using one-time federal relief to start ongoing programs.

“The federal money isn’t going to be there forever,” said Emily Makings, senior analyst with the group.

Under the new spending blueprint, the state’s total budget reserves at the end of the two-year spending cycle will be $1.2 billion.

On top of that, Democratic lawmakers Saturday said they were holding about $1 billion of federal aid in reserve in case it is needed.