School “levy fix” passes after floor debate
On the final night of the 105-day legislative session, the House and Senate on Sunday approved a bill to enable public schools to raise more money from local property taxes.
Both chambers adopted the two-year, $52.4 billion state operating budget that boosts spending on K-12, higher education, and mental health and includes more than $800 million in new revenue.
The Legislature also approved Initiative 1000 to allow the use of affirmative action policies in education, government employment and contracting. It replaces the voter-approved ban on affirmative action passed in 1998.
The flurry of activity enabled legislators to complete their work shortly before midnight, avoiding a special session.
“We kept saying `we are going to push it to the last minute and we are going to do everything in our power to get done on time’ -- and we got done on time,” said House Majority Leader Pat Sullivan, D-Covington.
Backers of the levy bill said it would give school districts more flexibility in asking their voters for additional funding while opponents said the measure would reignite inequities between property-rich and property-poor districts.
Legislators in 2017 restricted the amount that school districts can collect through local operating levies, a law known as the “levy lid.” In a maneuver known as the “levy swap,” lawmakers increased the state property tax rate to pay for a sharp increase in K-12 funding. Last year, the state Supreme Court, which ruled in 2012 that the school-funding system was unconstitutional, ended its oversight of the case.
Over the past several months, several school districts including Tacoma, Olympia, and Seattle urged the Legislature to allow them to raise more revenue from local property taxes, saying the levy lid has deprived them of revenue and is triggering job cuts.
The deal that broke a logjam Sunday over the bill to raise the levy lid came together about two hours before the midnight end of the session. House Republicans worked with the Democrats who control the House and Senate to reach a compromise on the chambers’ competing bills.
“We saw an opportunity to find a way where we could get all of it done and avoid a special session,” said Rep. Drew Stokesbary, R-Auburn.
The final version of SB 5313 is the Senate’s blueprint to enable districts to raise more money from local property taxes.
Current law defines the maximum local levy that school districts can collect as the lesser of $1.50 per $1,000 of assessed valuation or $2,500 per pupil.
The bill defines a maximum levy as the lesser of $2.50 per $1,000 of assessed value or $2,500 per pupil for school districts with fewer than 40,000 students. For districts with 40,000 students or more, it’s the lesser of $2.50 per $1,000 of assessed value or $3,000 per pupil.
SB 5313 did not include a Senate provision to enable charter schools to receive funding from the state to ease the burden of lower property values, tax dollars referred to as local effort assistance. Several House Democrats objected to part of those funds flowing to charter schools, which are run by nonprofit organizations, open to all students, and publicly funded.
The bill includes a provision that House Republicans advocated to take away some levy funding from school districts if they use local tax funds for basic education. In response to the Supreme Court’s McCleary school-funding decision, the state funds basic education. State law requires local levy funds to be spent on “enrichment,” such as field trips, athletics, bilingual programs, drama and debate clubs, and marching bands.
To get more support for the levy lid “fix” bill, the House approved a Republican Senate bill to retroactively exempt the names of people who participated in the state’s bump stock buy-back program from the state’s public records law.
The state used $150,000 in taxpayers’ dollars to reimburse owners of bump stocks if they turned them into law enforcement. The State Patrol said 324 people in March turned in 1,000 of the devices, which enable semiautomatic rifles to fire at a rate approaching fully automatic. Two individuals and a media outlet filed public requests for the names.
A federal regulation that took effect March 26 reclassifies bump stocks as machine guns and makes it a felony to own one. The federal government took action after a gunman used bumpstocks when he opened fire in 2017 on a large crowd at an open-air country music in Las Vegas, killing 58 and injuring over 500 others.
The Senate also approved a bill sponsored by Stokesbary to transfer $58.4 million from the state’s rainy-day fund to school districts “uniquely harmed” by the Legislature’s response to the McCleary school-funding decision. He said those districts include Tacoma, Olympia and Tumwater.
The House voted 53-45 to approve the local levy lid bill. By a two-vote margin, the Senate agreed with the House amendments and sent the bill to Gov. Jay Inslee for his signature.
Both chambers approved the $52.4 billion state operating budget largely along party lines. The vote in the House was 57-41. The Senate tally was 27-21.
Compared to the current two-year budget, the 2019-2021 blueprint to fund the day-to-day operations of state government increases spending by $8 billion.
The tax changes, particularly the increases on businesses, generated the most controversy between Democratic and Republican legislators.
Under the current real estate excise tax, property sellers pay the same 1.28 percent rate. That would be replaced by a graduated tax that will reduce the rate for about 80 percent of property sales. The rate would increase to 3 percent for the portion of the selling price over $3 million.
Democrats said the new real estate excise tax structure would provide more funding for the K-12 system, including special education and pre-kindergarten.
A new windfall profits tax will increase the business and occupation rate for large banks. For financial institutions with $1 billion in global net profits, their B&O rate will increase from 1.5 percent to 2.7 percent. Their total rate will increase to 3 percent because they also will pay for the new workforce education program.
That program also will be funded by an increase in the B&O rate from 1.5 percent to 1.8 percent on several professional service employers that rely on well-educated workers.
The revenue would be used to make public college or apprenticeship training tuition-free for families earning about $50,000 or less and partial tuition scholarships to families earning up to $88,000 for a family of four. Funds also go toward enabling more students to get degrees in computer science, engineering, and nursing.
Legislators also are expected to approve a tax on vapor products, which would be levied on the consumer but collected by the retailer like the marijuana excise tax. Other elements of the tax package include raising the B&O rate from 0.275 percent to 0.9 percent for travel agents and tour operators.
Democrats said the increased revenue is needed to pay for the leading priorities of Washingtonians, including an additional $280 million to help pay for the state’s mental health strategy. That long-term plan, which also includes spending in the state’s bricks-and-mortar capital budget, focuses in large part on moving civilly-committed mental health patients out of Western State Hospital in Lakewood into community settings for treatment and services.
“This budget is reflective of the expectations of our constituents across the state, whether it be in K-12, in higher ed, in early learning, in social services. All of those requests and input that we received from around the state are reflected in the budget,” Rep. Timm Orsmby, the Spokane Democrat who is chairman of the House Appropriations Committee. He spoke Saturday as the conference committee that hashed out the final budget bill approved it.
The state has more revenue for its budget because of a strong economy, but also because the Legislature increased taxes in 2017 to fund public schools adequately, said Sen. Christine Rolfes, D-Bainbridge Island. She is chairwoman of the budget-writing Senate Ways & Means Committee.
“That’s a big part of the revenue growth that we’re seeing and it’s not quite enough to finish our commitment to the public school system. In this budget, we are meeting the commitments we made to the kids who are in the K-12 system by investing better in special education. I think we’re still going to need to do more, but it’s a big investment in special education,” she said.
Rolfes said the operating budget includes a $155 million increase in spending over two years on special education.
Republicans slammed the tax increases as unnecessary.
Sen. John Braun, the Centralia Republican who is the ranking GOP member on the Senate Ways & Means Committee, also accused Democrats of not looking hard enough for potential savings, such as the amount of funding set aside for collective bargaining contracts for state employees.
“It’s unbelievable that all of these tax increases are coming at a time when state government is already taking in a record amount of tax revenue and that our colleges and universities need to pin their hopes for funding on a new tax bill, much less this one,” Braun said.
Braun said the worst tax increase is the B&O rate hike that he said would affect 40 industries and categories of professional-service providers, including law, engineering, and technology firms.
“The majority says this new tax, which would pull close to a billion dollars out of the economy in just four years, is critical for supporting higher education. But the truth is, higher taxes on these industries and employers are no more necessary than the higher taxes on fuel and real-estate transactions and other things that were approved,” he said.
The two-year state operating budget runs from July 1 to June 30, 2021.
Earlier, the House and Senate approved Initiative 1000.
During the House debate, Rep. Brandon Vick, R-Vancouver, referred to the initiative as “diversity through discrimination, pure and simple.”
Rep. Mike Chapman, D-Port Angeles, said the issue should unite urban and rural areas of the state instead of being divisive.
“Our core value is everybody deserves a fair shot,” he said.
The House approved the initiative 56-42.
The initiative moved to the Senate, where Sen. Bob Hasegawa, D-Beacon Hill, said: “There’s a misperception that I-1000 or affirmative action grants privilege to advance less qualified people over more qualified people; that is absolutely wrong.”
Sen. Hans Zeiger, R-Puyallup, said he wasn’t convinced the initiative is the solution to bringing more fairness to government contracting. He said the state should focus instead on “levelling the playing field between smaller and larger businesses.”
The Senate approved the initiative by a four-vote margin.
Members of the group Asians for Equality, which opposes I-1000, chanted outside the Senate chamber and shouted in the gallery to protest the vote. Lt. Governor Cyrus Habib, who presides over the Senate, ordered the sergeant at arms to clear the gallery.
Opponents of I-1000 have said they would try to use a referendum to overturn the Legislature’s approval.
At a press conference after the session ended, Inslee applauded the Legislature’s work and cited several of the bills that he requested that passed both chambers.
“There is a time to be humble and this is not one of them,” he said.