Washington House Democrats have trimmed their education improvements budget from almost $1.34 billion to $1.16 billion.
That is in contrast the Republican-oriented Senate's $1 billion education fix-it proposal going into budget talks to begin later this week.
House Democrats got rid of their plan to extend the soon-to-expire beer tax and the proposed repeals of three tax exemptions as part of political maneuvering in trying to get most of their budget proposals through the Senate and Gov Jay Inslee.
Democrats worried about the beer industry launching a massive initiative campaign to repeal the beer tax extension — worth $58 million to the state in 2013-2015 — in the fall, said Rep. Reuven Carlyle, D-Seattle and chairman of the House Finance Committee. "Raising $10 million (for a repeal campaign) would be nothing to them," Carlyle said.
In 2010, Washington voters rejected the Legislature's earlier tax increases on soda pop, candy and bottled water.
House Democrats also eliminated the proposed repeals of three business-and-occupation tax exemptions on stevedoring, insurance agents and janitorial service — together worth roughly $110 million in 2013-2015.
Carlyle and Rep. Ross Hunter, D-Medina and chairman of the House Appropriations Committee, said no deals on the matter have been made with the Senate, which is controlled by a 23-Republican-two-Democrat alliance.
In a related matter, the Senate passed a complicated education bill 25-23 Tuesday that would permanently eliminate a frequently suspended cost-of-living raise for teachers under Initiative 732, plus shift $166 million from the "common schools fund" to help pay for the Senate's $1 billion education fix-it plan. Democrats in both chambers argue that money is constitutionally limited to construction, and the shift is unconstitutional. Republicans say the shift is constitutional. One clause appears to envision shifts when construction needs are met. The Washington Attorney General's office has not issued an opinion this matter, and says it wouldn't normally.
Entering the budget talks, the Senate proposes an overall operating budget of $33.21 billion and the House now a roughly 34.33 billion budget with tax-related measures to raise the extra education money. The Senate's Majority Coalition Caucus wants to protect all tax exemptions and extend a hospital safety net tax. The House Democrats now want to repeal 11 tax exemptions, plus extend the soon-to-expire business-and-occupation tax on service-related firms and the hospital safety net tax.
Hunter said no decisions have been made yet on what would be trimmed out of the House's previous $1.34 billion package to start complying with a Washington Supreme Court ruling that K-12 education must be significantly improved by 2018. The total price tag through 2018 is believed to be about $4.5 billion
The Democrats' improvement package for 2013-2015 currently includes phasing in full-day kindergartens, starting to reduce teacher-student ratios in Grades K-3, starting to expand high school graduation requirements to 24 credits statewide, slightly expanding the number of high school class hours in a year and tackling all the equipment and building work needed to put those improvements into action. (In the Senate Tuesday, Sen. Christine Rolfes, D-Bainbridge Island, said Washington has the fourth-most-crowded classrooms in the nation.)
Also on Tuesday, the House Finance Committee approved sending two tax measures to the full House, with eight Democrats in favor and five Republicans opposing on each.
One bill would eliminate nine tax exemptions and extend the B&O tax on service firms to raise almost $900 million. The other bill would put stricter controls on new and modified tax exemptions. Separate bills handled at other times called for eliminating an estate tax exemption for married couples plus a sales tax exemption for residential landline phone service. Those two would raise $269 million for the overall revised $1.16 billion education fix-it package.
House Republicans on the finance committee followed their Senate counterparts to argue that the Supreme Court's education fix-it requirements can be done without repealing tax exemptions or extending the B&O tax.
"We don't need new taxes. We've got plenty of money for education," said Rep. Ed Orcutt, R-Kalama.
Orcutt and other Republicans argued that the new $1.16 billion would go to the state's general fund with no guarantee that it would go to education. They contended the education fix-it work can be funded by internal budget shifts, plus cuts made in general administration costs, as well as significant trimming of social and health services. Besides the tax-related measures, House Democrats propose cutting health and social services much less than the Senate budget would do.
"We have to have the courage to fund education first and say 'no' to the other people," Orcutt said.
Carlyle countered that Washington is 36th in the nation in tax rates for state and local governments. And he said all the money from the B&O tax extensions and the repeals of tax exemptions will go to the education fix-it work. "We are on the march to become a low-tax, low-services, low quality-of-life type of state.... Closing a few exemptions is hard work, but investment in education is essential," Carlyle said.
The finance committee's Republicans tried Tuesday to take out the B&O tax extension plus all the repeals of tax exemptions — including exemptions on bottled water, non-residential sales taxes and extracted fuel used by oil refineries — out of the bill. Democrats defeated each attempt.
"We're using a butcher knife on these businesses, not a scalpel. ... We're picking winners and losers," said Rep. Terry Nealey, R-Dayton and ranking Republican on the committee. Rep. J.T. Wilcox, R-Yelm, argued that the Democrats have not proven that the targeted exemptions are not benefiting the state's economy.
Democrats countered that current exemptions already give specific firms advantages over other types of businesses.
"We're asking some businesses to invest in public education. I very much think this is a very wise investment in public education," Carlyle said. Democrats also argued that improved education would help the state economically. "Our economic success is based on lifting all people up," said Rep Chris Reykdal, D-Olympia.
Democrats agreed with Republicans that B&O taxation based on a business' gross income is flawed system. But Reykdal said the B&O tax system needs to stay in place until the Legislature can design a better system.
Meanwhile earlier, the Senate unanimously sent to the House a bill by Majority Coalition Caucus Leader Rodney Tom, D-Medina, that would require any new tax exemption or changes in existing exemptions to include an expiration date, specific economic goals and criteria to figure out if those goals are being met.
Carlyle rewrote that bill to keep the basics, but also added an automatic expiration after five years if no specific date is otherwise set. It would also require businesses receiving the exemptions to file annual reports with the state on how their competitiveness was specifically helped and how many new jobs were created. That information would be public unless the business can otherwise show that such transparency would cause it economic harm.
On Tuesday, the finance committee unanimously extended the period before automatic expiration to 10 years. But the finance committee's five Republicans objected to the fact that a company's information would be initially public. "We have concerns about the public seeing what taxpayers are paying," Orcutt said.
The committee's eight Democrats kept the transparency clause intact. Carlyle said that as finance committee chairman he is s currently allowed to see a company's tax-exemption-related information on a confidential basis, while other legislators and the public are not allowed to see that same information at all. "That's outrageous," he said, noting some companies are big with lobbying clout to get exemptions.
Carlyle believes the exemption-related information should be public with the burden on a company to prove that confidentiality is needed. He said with 640 tax exemptions currently in effect, the public needs to know who is receiving what kind of economic benefits from the state.
For exclusive coverage of the state Legislature, check out Crosscut's Olympia 2013 page.