On Thursday, Gov. Inslee signed and partially vetoed the supplemental operating budget. (His veto message is here.) Appropriations levels have not yet been officially updated on the state’s fiscal site, but it looks like the vetoes will reduce appropriations from funds subject to the outlook (NGFO) by about $12.9 million. (As passed by the Legislature, the supplemental increased NGFO appropriations by $5.071 billion.)

Of the vetoes, about $9.2 million is simply related to bills that the Legislature did not ultimately pass (so the corresponding appropriations will lapse). The governor also vetoed $1.2 million that had been proposed across various agencies to produce an analysis of educational opportunity gaps. According to the veto message, “The provisos in the final budget do not reflect the intent of the legislative members of the Educational Opportunity Gap Oversight and Accountability Committee, and they requested that I veto these sections to allow for updated provisos to be enacted next session.”

Some of the other vetoes include:

• The supplemental created a broadband deployment task force. Gov. Inslee vetoed it because “it is not appropriate for the executive branch to staff a legislative task force.”
• The budget included a study of the resilience of Washington’s electric grid. Gov. Inslee vetoed it because “The requirements in this section are redundant to planning efforts already under way at the Utilities and Transportation Commission, Department of Commerce, and Northwest Power and Conservation Council.” (Gov. Inslee also partially vetoed ESHB 1846, which expands the sales and use tax exemption for data centers, to remove a study of the resilience of Washington’s electric grid.)
• The budget included a requirement that, to generate all-day kindergarten funding allocations, enrollments under a school district’s uniform entry qualifications must be based on the ability and/or need of an individual student. According to the veto message, “Because this would limit school services for our young learners during and after the pandemic, I cannot support this proviso.” The budget separately includes a requirement that the Washington State Institute for Public Policy (WSIPP) study student participation in transitional kindergarten—the governor did not veto this provision. (For more on these provisions, see here.) In his veto message, the governor says he will ask OSPI, after the WSIPP study is completed, to “work with agencies and stakeholders . . . to further define how school districts may grant exceptions to the uniform entry qualifications based on the ability, or the need, or both, of an individual student as laid out in statute.”

On the revenue side of the balance sheet, the governor partially vetoed ESB 5901. The bill creates a sales and use tax deferral for certain investments in buildings or machinery and equipment for manufacturing or research and development. Investments will not qualify if they take place in King, Pierce, or Snohomish counties. The deferral is limited to $400,000 per person and will expire July 1, 2032. The governor did not veto these provisions.

Additionally, ESB 5901 modifies the existing sales and use tax exemption for construction of warehouses, distribution centers, and grain elevators. The governor vetoed these modifications. Currently, exempt construction includes expansion if at least 200,000 square feet are added. As passed by the Legislature, ESB 5901 would have changed the definition of exempt construction to include expansion of at least 100,000 square feet—if the building is not in King, Pierce, or Snohomish counties. ESB 5091 would also have added a ceiling of $400,000 to the exemption for construction or expansion of warehouses or grain elevators in any county and would have added an expiration date of July 1, 2032.

According to the governor’s veto message,

I recognize that warehousing is an important part of the state’s rural economy, but the tax incentives in this bill are overly broad, as they apply to 36 of the 39 counties in the state. Additionally, due to the increasing consumer preference for online shopping over the past few years, which only increased with the pandemic, the warehousing industry has remained strong and does not require an expanded tax incentive program to remain competitive at this time.

The Seattle Times reports,

The governor had actually intended to go even further and veto the entire bill, and even prepared the explanation of the full veto. But shortly before Thursday’s bill signing, the governor’s office decided to keep part of the legislation.

The reason? Because part of the legislation might benefit a clean-energy project the governor is seeking to lure to Washington.

“There was a provision in there that could be important to a high-tech manufacturer in the clean-energy space,” Inslee said, when asked about the change to a partial veto.

The balance sheet for the budget as passed by the Legislature assumes that ESB 5091 would increase NGFO revenues by $1.1 million in 2021–23 and by $750,000 in 2023–25. It is not clear what the fiscal impact of this veto will be.