Monthly Archives: April 2010

Much of New Revenue Proposed is Temporary

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According to a news article by the Washington State Budget & Policy Center and echoed by blogs at the Seattle Times and the Everett Herald, 43% of the $801 million proposed in new revenue is temporary in nature.

The short-term fixes include:

– A B & O Tax surcharge to service-based industries that would increase the tax rate from 1.5% to 1.8% and expire June 30, 2013. This surcharge would generate an estimated $246 million in revenue per year.

– A $0.50 increase per gallon of beer, with an exemption for microbreweries generating less than 60,000 barrels of beer annually. The tax increase would expire June 30, 2010 as well and raise around $58 million per year.

– A new tax on soda of $0.02 per 12 ounces would expire on the same date and potentially raise $38 million per year.

The rest of the $801 million will be raised by permanent tax increases and business reforms, the largest of which would raise $155 million by clarifying and eliminating a State Supreme Court ruling that originally expanded a B&O tax exemption intended to apply only to businesses like Avon or Mary Kay that sell products solely through door-to-door sales.

Also proposed are sales tax expansions that would capture $64 million in revenue by creating a tax on bottled water and eliminating an exemption on candy and gum.

No Agreement Yet…But Here is What All the Buzz is About

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This week the House and Senate have been busy exchanging revenue proposals and counter-proposals.  Though no agreement has been reached between the two chambers, details of the single revenue package that is being shared among members of both the House and Senate have been revealed.

The current revenue package being discussed by all on The Hill does not include a sales tax or a a tax on software. In addition the package would continue exemptions on first mortgage interest income and out-of-state shoppers.

Further examination shows that three of the proposed provisions are temporary and expire in 2013. These include the B&O surcharge on most service businesses, the beer tax increase, and the soda/pop tax increase. To protect small service businesses, the B&O surcharge includes a doubling of the small business tax credit. Small businesses with gross sales up to about $56K will be exempt and those making up to about $80K will pay less. None of Washington’s breweries should be impacted by the beer tax increase since microbreweries will continue paying the same tax. Finally, a B&O tax credit for jobs at Washington’s candy manufacturers will likely buffer them from any negative impact of the candy sales tax.

Current Revenue Proposal
($801.3 million)

  • Temporary Services B&O surcharge to 1.8% without hospitals. Small business credit doubled. Effective May 1, 2010 and expires June 30, 2013 ($245.9 million)
  • Temporary Beer Tax increase of 50 cents per gallon. Microbreweries exempt. Effective June 1, 2010 and expires June 30, 2013 ($57.8 million)
  • Temporary soda/pop tax increase of 2 cents per 12 oz. Bottlers under $10 million in volume exempt. Effective July 1, 2010 and expires June 30, 2013 ($38.1 million)
  • Dot Foods ($154.7 million)
  • Cigarettes and other tobacco products (House Bill 2493) ($101.4 million)
  • Nexus ($82.4 million)
  • Sales and use tax applied to bottled water ($35.3 million)
  • Sales tax applied to candy and gum. B&O credit for jobs ($29 million)
  • Lottery Marketing (Senate Bill 6409) ($15 million)
  • Convention Center (Senate Bill 6889– Delivered to the Governor) ($10 million)
  • Tax avoidance ($8.2 million)
  • Property management. B&O ($6.9 million)
  • Agrilink ($4.1 million)
  • Homestreet fix ($3.9 million)
  • Corp. Dir. B& O ($2.1 million)
  • Bad debt ($1.7 million)
  • Livestock nutrients ($1.5 million)
  • PUD clarification ($1.2 million)
  • Tax debts corp ($1.1 million)
  • B&O dues ($1 million)

Both chambers hope to announce an agreement or disagreement sometime today with regard to the current proposed revenue package.

Over the weekend and through Tuesday, the Senate and House will need to pass a revenue package and operating and capital budgets, as well as, take action on various bills necessary to implement revenue and/or the budget, including the cigarette tax (HB 2493) which has passed the House and is now in the Senate; the lottery bill (SB 6409) which has passed the Senate and awaits action by the House; and finally perhaps take action on Senate Bill 6503 which would require state agencies to take a portion of their cuts in compensation related actions.

A Flurry of Action Over Revenue…Counting Votes

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Though no final revenue agreement has been reached, a flurry of activity between the House and Senate leadership has taken place in efforts to find common ground.

The Senate and House both held Pro Forma sessions today and are expected to hold Pro Forma sessions tomorrow. Though most of the members are away from Olympia,  Senate and House leadership have met multiple times over the last few days to review and exchange offers on a revenue package. In addition, leadership from both chambers have met together with the Governor.

The details of the negotiations over revenue are being held close to the vest as the 30-day deadline for the first special session nears. However, one critical piece of information that has been confirmed is that the Senate has officially removed a plan to temporarily increase the sales tax from current negotiations.

At this time, each chamber is meeting with their respective members regarding the latest proposal in negotiations. If sufficient votes can be counted in favor of a negotiated package, it is possible that the Legislature will be able to conclude the first special session by Tuesday, April 13 the official deadline.

House Tweaks Revenue Proposal…Members and Senate Review

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Earlier this week, the Senate released a new revenue package. Yesterday, Finance Chair Ross Hunter announced the House has a slightly-tweaked counter-proposal.

The changes that the House is proposing have not been shared. Representative Hunter did note that the House tweaked version of the Senate’s revenue proposal was presented to House members last night.  In addition, House and Senate leadership were also scheduled to talk last night regarding revenue.

At the time of this post,  the Senate has yet to voice any support or concern on the changes proposed by the House.

The revised package proposed by the Senate further reduces the sales tax increase from two-tenths of 1 percent to one-tenth of one percent and retains the Working Family Tax Rebate. In addition, the new proposal increases the existing tax on beer to 50 cents per gallon; beer with micro-brews exempted, and extends the sales tax to candy and gum with in-state producers getting a jobs tax credit. Finally, the new proposal includes the House’s proposal to raise taxes on all tobacco products, not just cigarettes.

The Senate and House are scheduled for Pro Forma sessions today and tomorrow, Thursday, April 8.  Both chambers are scheduled for floor action and caucus on Friday, April 9.

Nine School Districts Statewide to Receive Federal Grants for Improvement

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Nine Washington school districts – Seattle, Tacoma, Marysville, Yakima, Wellpinit, Sunnyside, Highline, Grandview and Longview – met federal criteria to receive grants meant to improve student performance. The grants, valued at an average of $17 million each, are given to “consistently lowest achieving,” or Tier III schools.

The schools receiving funding will work with the Office of Superintendent for Public Instruction to determine how the funds will be best utilized. Those districts receiving funding were required to apply for assistance.

One-Week to Go…Senate Reveals New Revenue Package

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Over the weekend, Senate leadership offered a revised revenue package to the House. The new Senate proposed revenue package would raise $816 million.

The revised package proposed by the Senate further reduces the sales tax increase from two-tenths of 1 percent to one-tenth of one percent and retains the Working Family Tax Rebate. In addition, the new proposal increases the existing tax on beer to 50 cents per gallon; beer with micro-brews exempted, and extends the sales tax to candy and gum with in-state producers getting a jobs tax credit. Finally, the new proposal includes the House’s proposal to raise taxes on all tobacco products, not just cigarettes.

Overall the new Senate proposed revenue package raises $502.5 million in business-related taxes (i.e. court cases and loopholes).  The remaining $313.8 million in revenue is raised by:

  • Taxing bottled water (effective May 1, 2010) ($35.3 million);
  • Increasing taxes on cigarettes (effective May 1, 2010) and other tobacco related products (effective October 1, 2010) ($101.4 million);
  • Increasing the sales tax by .10 (effective June 1, 2010)($90.3 million);
  • Increasing the tax on beer by $0.50 ($57.8 million); and
  • Extending the sales tax to candy and gum ($29 million)

As of today, most House members had not seen the Senate’s new revenue proposal.

House Passes Compensation Reduction Bill

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This afternoon the House passed Senate Bill 6503 which focuses on state savings through the reduction of compensation-related changes for state employees.  The bill is referred to by many as the “furlough bill”.

The bill adopted by the House this afternoon, in a vote of 50-38, differs from the version of the bill passed by the Senate on the first day of special session.  The underlying bill (Senate Bill 6503) was amended on the House floor to:

  • Provide that alternate higher education plans may provide for reductions to operations, as well as compensation.
  • Exempt agency closure requirements  for functions of the Attorney General’s Office directly related to civil, criminal, or administrative actions, the Office of Financial Management (OFM), during sessions of the Legislature, and the Labor Relations Office of OFM through November 1, 2010.
  • Allow bargaining between the governor and each exclusive bargaining representative, rather than the Governor negotiating with a single coalition of all of the exclusive bargaining representatives, in the event that general government state agencies do not have approved reduction plans.
  • Exempt the operations of the Office of the Insurance Commissioner that are funded by industry regulatory fees from the requirement of agency closure days or approved alternate compensation expenditure reduction plans.

Senate Bill 6503 now goes to the Senate for concurrence on the changes made by the House. If the Senate does not concur on the amendments the bill will go to conference.

Water is Just as Murky as Before

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The Washington House is the on the floor today to consider several bills necessary to implement the budget. The Senate opened the floor today with a Pro Forma session and then adjourned until Monday, April 5 at Noon.

Negotiations and discussions continue on all fronts and are expected to continue through the weekend. The point of contention at the end of the regular session and the beginning of the special session nineteen days ago remains the sticking point today – revenue.

The primary focus of disagreement has and continues to be the implementation of a temporary general sales tax increase. The Senate has supported this increase and included it as part of their package to reach the agreed upon $800 million revenue target. The House, however, does not have the support for an increase in the sales tax.

Last night Senator Brown, Senate Majority Leader, shared in a telephone interview that she has communicated with Governor Gregoire and House leadership that she would try to develop a new proposal without a sales tax that still meets the $800 million revenue goal.

As noted by many on the Hill the process of dropping the sales tax and adding back revenue adjustments that would reach the $200 million covered by the currently proposed sales tax is not a simple act of subtraction and addition.

For one thing, the Senate is holding firm to raising $800 million in new revenue. It also appears that the Senate is having difficulty finding the 25 votes needed to support other substitute taxes (i.e. in place of the sales tax), such as a tax on first-mortgage interest earnings of banks; adding a sales tax to custom software transactions; and ending a sales-tax exemption for out-of-state residents whose purchases help border-county businesses.  

At the same time, the House is finding challenges in securing the 50 votes necessary to pass a sales tax increase and is holding firm on its opposition to repeal a $10 million tax break for coal purchases by the TransAlta power plant in Centralia and other Senate proposals.

Which raises the point that until a deal is final and passed out of the Legislature, it still comes down to votes.

The Governor and House and Senate leadership continue to meet to try to find a go-home package that will bring the special session to an end. Fingers are crossed that an agreement will be reached early next week, giving time for printing, this would open the way for legislators to return on Friday (April 9) and work through the special session deadline (April 30) to pass a 2010 supplemental operating and capital budget and revenue package.

April Fools…Wishful Thinking…Somewhat

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Late this afternoon, it was discovered the much anticipated resolution of a tax package of $800 million to close the $2.8 billion state budget gap was not completely true. 

While there is no “final” agreement” it does appear that an initial agreement has been reached. After a brief floor session in which the Senate concurred with House amendments on three Senate bills, Senators joined their respective caucuses to discuss a new revenue proposal (this is what was hinted at in the earlier email).  There are no indications as of yet regarding the response from members.

The House is expected to discuss the new revenue proposal tomorrow when they return to Olympia to move some bills forward in the legislative process.

Change is in the Air

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Today another key staffer to Governor Gregoire announced her departure from the Governor’s Office.

Robin Arnold-Williams served as head of the Governor’s Executive Policy Office.  She has been in this role since December 2008 and will leave at the end of April. No replacement has been named at this time.

Arnold-Williams shared that it was a time for a break from a long public-service career.

Arnold-Williams departure comes after the recent resignation of Linda Bremer as Director of General Administration and Joyce Turner’s move to Director of General Administration from Gregoire’s Deputy Chief of Staff. Both of these moves come after several internal changes in the Governor’s staff including Director of the Office of Financial Management and the Governor’s Chief of Staff.