April 19-25 – Sine Die

At 6:10pm on Sunday, April 25, the first year of the 67^th Washington State Legislature came to an unceremonious close, much as it began. The capitol buildings and their few occupants remained closed to the public and lobbyists, protected by chain link fences installed after the January violence at the U.S. Capitol. Those few members and staff permitted to enter the buildings remained masked while the vast majority of their colleagues joined virtual proceedings on zoom from their homes across the state.

Prior to the start of session, majority Democrats instructed their members to introduce no more than 6 bills and advised that bills would be more likely to be advanced if they had a clear path in the other chamber and fit into the following categories: address COVID-19 challenges, improve racial equity, advance economic recovery, address climate change, and increase revenue. The guidelines, designed to focus the workload in a virtual universe, were successful. In the 2019/20 biennium, legislators introduced 2408 bills (or roughly 1204 per year) and ultimately passed 868 bills (or roughly 434 per year). This year, the first half of the 2021/22 biennium, legislators introduced 811 bills and passed 337.

The narrowed policy focus paid off, with majority Democrats passing priority measures on police reform, cap and trade, capital gains, a low carbon fuel standard, and funding the long unfunded working families tax credit.

The Governor has 20 days to take action on bills, concluding any action by May 15^th.

Operating Budget

The 21-23 two-year operating budget (SB 5092) was unveiled on Saturday and passed both chambers on Sunday. Biennial operating spending will increase to $59.1 billion, an increase of over 12.6% from the 19-21 biennial budget. The budget uses about $1.8 billion from the $2.99 billion rainy day reserve account, depends on revenues from the federal government, and assumes a new capital gains tax.

Here are the main tax and appropriation bills that passed the Legislature this past week:

• Capital Gains Tax — The Legislature passed SB 5096, legislation to impose a 7% excise tax on the capital gains of the sale of assets, such as bonds and stocks, above $250,000 per year. Exempt from the tax are retirement accounts, sales of real estate, livestock, timber and certain agricultural lands, and capital assets acquired and used for purposes of a trade or business by a sole proprietorship. Beginning in 2023, the tax is estimated to raise roughly $420 million annually, and deposits tax collections in the Education Legacy Trust Account to fund early learning and child-care programs. House Democrats re-inserted language that would prevent a referendum to voters in the Fall, but would still allow for an initiative to be filed. A number of moderate Democrats in the Senate objected to the referendum language, but the necessary 25 votes for passage were ultimately secured by Leadership. The bill as it is transmitted to the Governor will still allow for an initiative, but it’s unclear whether the necessary signatures can be gathered in this COVID environment by early July in order to place the measure on the November ballot. An initiative can also be pursued in 2022. Finally, a lawsuit is likely to be filed challenging the constitutionality of this legislation, as many legal scholars believe it establishes an income tax, which is specifically prohibited by the State Constitution.
• Telecommunications Tax – The Legislature passed HB 1477, legislation to impose a tax on wireless, wireline and VOIP phone lines, to fund a 988 behavioral health and crisis intervention hotline and call center hubs. The bill also funds mobile crisis teams to respond to individuals in crisis. The tax is $.24 per line per month starting in October 2021 and increases to $.40 per line per month in January 2023.
• Unemployment Insurance Tax Relief – The Legislature passed SB 5478, legislation to provide an additional $500 million in unemployment insurance tax relief to businesses who were significantly impacted by the Covid-19 pandemic. The bill creates 4 categories of employers who experience an increase in their experience rate in 2022. To be eligible for the first two categories, employers must be within defined NAICS codes. Tier 3 & 4 category employers are also eligible but must have less than 5000 employees and jumped several rate classes to be eligible to buy-down the rate class. Significant additional funding will be needed in 2022 to address pandemic claims’ impact on the UI Trust Fund.
• Document Recording Fee – The Legislature passed HB 1277, legislation to impose a $100 surcharge on recorded documents to fund supportive housing, rental assistance and various homelessness prevention strategies. The bill is estimated to raise $292 million in the 21-23 biennium.

Capital Budget

The Legislature passed a $6.3 billion 21-23 capital budget (HB 1080), of which $3.9 billion is financed by bonds and $2.4 billion from various accounts: $589 million in federal stimulus, $275 million in MTCA, $255 million in alternative financing authorizations and $1.2 billion in other funds. Approximately $82 million in bond capacity is reserved for the 2022 supplemental capital budget. The capital budget invests heavily in several programs: Over $2 billion for universities, colleges, and k-12 education, $350 million in housing and homelessness, $428 million in behavioral health, $411 million in broadband and much more for assorted environmental programs.

Transportation Budget

The Legislature passed a 21-23 current law biennial transportation budget (SB 5165) that appropriates existing resources to various transportation projects. An additive funding package was not agreed to by the Legislature. However, two policy bills passed that are tied to funding a future transportation funding package:

• Low Carbon Fuel Standard (HB 1091) – After a flurry of activity in the last two weeks of the Session, the Legislature passed HB 1091, legislation to impose a low carbon fuel standard in the state of Washington. This bill aligns with similar programs in California and Oregon and was a major component of Governor Inslee’s climate agenda. This bill does contain a provision that requires adoption of a major transportation package that includes an increase in the gas tax of at least $.05 for this measure to be implemented. Transportation focused lawmakers are expected to work to try and fashion such a proposal, with the intention of a one-day special session some time in the summer.
• Climate Commitment Act (SB 5126) – Also closely related to a transportation package is legislation establishing a carbon cap and invest program for greenhouse gas emissions. This legislation will be implemented by the Department of Ecology, and requires covered facilities or suppliers producing or supplying more than 25k metric tons of carbon dioxide equivalents to reduce their emissions or purchase allowances. The funds generated by this program are directed towards programs aimed at reducing carbon emissions. There are also provisions to help offset the costs of these programs for electricity providers, natural gas suppliers, and Energy Intensive Trade Exposed (EITE) businesses. This bill was a top priority for the Governor and Majority Democrats in the Senate and House.

Agriculture & Natural Resources

• SB 5220 (Van De Wege, D-Sequim) A retail sales tax exemption is provided for a qualifying grant made by federal, state, tribal, and local governments for salmon habitat restoration. The existing B&O tax exemption is expanded to include grants received by a nonprofit organization from tribal governments.
• HB 1382 (Tharinger, D-Sequim) Creates the Habitat Recovery Pilot Program (pilot program) for habitat restoration projects that meet certain criteria. Exempts qualifying projects from certain permitting processes. Establishes a consultation and review process for pilot program projects.
• SB 5273 (Salomon, D-Shoreline) Requires a person replacing a residential marine bulkhead to use the least impacting technically feasible bank protection alternative for the protection of fish life.
• HB 1168 (Springer, D-Kirkland) Creates the Wildfire Response, Forest Restoration, and Community Resilience Account to fund certain wildfire preparedness, prevention, and protection activities and requires the Department of Natural Resources (DNR) to report every two years on how account funds are used. Requires the DNR to implement a variety of wildfire preparedness, prevention, and forest health initiatives including increasing coordination with various entities, developing a forest health work force, providing an aviation support program, creating a small forest landowner forest health program, and exploring and developing markets for woody biomass residuals from forest health treatments.
• SB 5172 (King, R-Yakima) Agricultural employees are entitled to overtime, which shall be implemented over a period of three years. No damages, penalties, or other type of legal relief will be granted to an agricultural employee or dairy employee seeking unpaid overtime under the Minimum Wage Act as it existed on November 4, 2020 (i.e. safe harbor clause).

Brynn Brady, Ceiba Consulting | Martin Flynn Public Affairs, Inc.