Yesterday the Senate Ways and Means Committee approved several budget-related bills (outlined below). Significant changes were made to some of the bills.

SSB 5998 would make the real estate excise tax (REET) rate graduated. The Senate budget assumed enactment of a graduated REET, but the vehicle was SB 5991, which would have increased revenues by $421.1 million. As passed by W&M, SSB 5998 would continue to impose REET at a rate of 1.28 percent for sales of undeveloped land, timberland, agricultural land, or water or mineral rights. For all other property sales, the rate would be 1 percent if the selling price is $450,000 or less. If the selling price is more than $450,000, the rate would be 1.5 percent on any portion of the price that is more than $450,000 but less than or equal to $900,000; 2.0 percent on any portion of the price that is more than $900,000 but less than or equal to $1.8 million; 2.5 percent on any portion that is more than $1.8 million but less than or equal to $3.6 million; and 3.0 percent on any portion that is more than $3.6 million. The thresholds would be adjusted for inflation. The increased collections from this proposal would be directed to the education legacy trust account (ELTA), but there is no fiscal note for this amended version. The structure of this graduated REET is more like the House version (in HB 2156) than SB 5991.

As Kriss wrote yesterday, the REET is a volatile tax—and it would be more so if the rate is graduated. And the budget sustainability problems created by volatility are exacerbated when revenues are directed to the ELTA rather than the general fund–state (GFS) because they then don’t feed into the rainy day fund.

SSB 5997 is one of the main tax increase bills assumed in the Senate budget; as originally proposed, it would increase GFS revenues by $63.6 million. It would change the sales and use tax exemption for nonresidents to a refund program and increase business and occupation taxes for travel agents and tour operators. As amended by W&M, the business and occupation (B&O) tax rate for travel agents and tour operators would be increased from 0.275 percent to 0.9 percent. The original bill would have increased the tax rate to 1.5 percent; so, a revised fiscal note would probably estimate that revenues would increase by less than $63.6 million.

SB 6016 would limit eligibility for the preferential B&O tax rate for international investment management services and the sales and use tax exemption on the purchase or use of standard financial information. This would increase GFS revenues by $59.4 million in 2019–21. (The bill was introduced on April 17, so the revenues are not included in the Senate budget figures.)

SB 6012 would expand the renewable energy sales and use tax exemption by making water a qualifying energy source. It would reduce GFS revenues by $12.2 million in 2019–21. (The bill was introduced on April 13, so the revenue effects are not included in the Senate budget figures.)

SB 5996 was part of the Senate’s budget proposal, but its tax increase would be directed to a dedicated account (the wildfire prevention and suppression account), so the funds are not subject to the outlook. As amended by the committee, the higher tax on property and casualty insurance premiums would be replaced with a “wildfire surcharge” of 0.52 percent of receipts of each property and casualty insurer (except medical professional liability business). The minimum surcharge would be $1,000. Insurers would be allowed to recoup the surcharge through policyholder premium surcharges or rates.

SB 5999 would appropriate $183.7 million from the budget stabilization account (BSA, or rainy day fund) in 2017–19 to reduce the unfunded actuarially accrued liability in the Teachers’ Retirement System Plan 1. (This would require a three-fifths vote of the Legislature.) Effectively, this action would pay off the unfunded liability seven months earlier than under current law. It would have no impact on state costs over the four-year budget window, but it would save the state $243.6 million over 25 years.

SSB 6009 would appropriate $40.7 million from the BSA in 2017–19 for fire suppression costs. Because the governor had declared an emergency (resulting from a catastrophic event), a supermajority vote will not be required for this bill. Originally, the bill would have also appropriated $744,000 from the BSA for the measles outbreak in Clark County, but that provision was removed in committee as it would have meant the bill would require a three-fifths vote of the Legislature. (Although the governor also declared an emergency related to the measles outbreak, it likely wouldn’t be considered by the Legislature to be a catastrophic event.)

HB 2144 would eliminate the local public safety transfer. The local public safety enhancement account (RCW 41.26.800) contributes funds to an account within the Law Enforcement Officers’ and Fire Fighters’ Plan 2 retirement fund and distributes funds to local governments for public safety purposes. Transfers are required to be made to the local public safety enhancement account from the GFS in odd-numbered years (if general state revenues have increased by more than 5 percent), but the 2013, 2015, and 2017 transfers were suspended by the Legislature. This would save $50.0 million in 2019–21. The bill was passed by the House on April 15.

SJR 8212 would amend the constitution to state that the moneys of the family and medical leave insurance fund and the fund to provide for long-term care services and supports may be invested (as the moneys of public pensions, industrial insurance funds, and funds held in trust for people with developmental disabilities may be). (2SHB 1087, which would create a long-term care services and supports program, has been passed by both the House and Senate this session.)

Our policy brief on the budgets passed by the House and Senate is available here, and a side-by-side comparison is here.