The forecast projects that the state will take in $231 million more than was expected – $100 million for 2011-13 and $121 million for 2013-15.  In addition the release of the caseload forecast this afternoon is expected to provide $90 million in relief. This good news may be the push needed for the Legislature to strike a final budget and head home.

Throughout the legislative session and the first special session budget negotiators have been stuck trying to reach a deal for additional revenue (House) and reform legislation (Senate). The projected increase in the revenue forecast may allow for the case to be made that additional revenue is not needed and in turn no reform (such as workers compensation and K-12) would be necessary at this time in exchange for revenue.

In the early hours of Friday morning Governor Inslee signed into law two pieces of legislation. The first bill fully restores the estate tax, responding to the recent Bracken decision by the courts, and devotes the funds to education. The passage of this bill prevented the Washington Department of Revenue from issuing several checks to taxpayers in the next budget period because of the court ruling that found married couples using a certain kind of investment strategy should not have been on the hook for the tax. The bill does make this change to taxes retroactive which is likely to draw a legal challenge.

The passage of the estate tax legislation was successful in the Senate only because the House agreed to approve legislation that would deal with how the state handles environmental clean-up funds.

So what is next.

No further action took place on Friday. Over the weekend rank-and-file members for both chambers were sent back to district while budget negotiators met. Both chambers are scheduled for floor action on Monday, but the House is not asking members to return until Tuesday.

On June 18 the Economic and Revenue Forecast Council will release its quarterly revenue forecast.  In addition, the caseload forecast will also be issued. Speculation suggests that both forecasts will provide lawmakers with good news to close out the budget negotiations for the next biennium.

Budget negotiations continue. Though no breakthrough occurred over the weekend the progress made late last week lends itself to some optimism that the Legislature will complete its work prior to July 1. The major difference between the Senate and the House continues to be the Senate’s opposition to new taxes and the Houses’ concern about the policy bills put forth by the Senate in exchange for a revenue and budget deal.

Throughout the regular session and the first special session, the Senate has moved forward a number of policy bills in exchange for moving forward some revenue in a final budget. Last Thursday saw the first breakthrough in this area with the passage of the estate tax bill, which only came after the passage of an environmental-cleanup fund policy bill.

In addition the Senate also passed a wide-ranging education bill on Thursday that is now being considered by the House.  The education bill along with a workers’ compensation reform bill are still in the mix, but two other major policy bills – state expenditure limitations on non-education areas of the budget and legislation that would grant principals the option to reject teachers who are appointed to their schools – appear to be off the table as the process moves forward. The Senate is still working to move forward the workers compensation and education bills in exchange for additional revenue around out-of-state shoppers and/or restoration of a tax on phone and other communications companies.

If the Legislature is unable to pass a budget by July 1, much of state government would likely have to shut down. The heads of state agencies have until 5:00 p.m. today to brings lists to the Governor identifying the services and staff that would be legally allowed to continue operating int he event of a partial government shutdown.

Special sessions are authorized to run for 30 days and the governor cannot limit the types of bills or topics that are considered in a special session.  Legislation that was not passed off either the Senate or the House floors will be returned to the Rules Committee in its chamber of origin as part of the close-out process for the regular session.

In addition, the Governor stated that his Cabinet would be meeting to discuss contingency planning as the new fiscal year approaches on July 1. The state constitution does not provide for spending money if no budget is in place July 1, but it does mandate some services that would be required to continue.

The budget released by the Senate is similar to the budget proposed at the end of April with two major exceptions.

The Senate passed three policy bills deemed necessary from the Senate’s perspective for a final budget deal.  The bills expand a worker’s compensation settlement program, reform the management of K-12 schools and places the emphasis  in the state budget on public education (early learning through higher education) by limiting spending on non-education programs. The education reform bill and the spending limit bill contain referendum clauses forcing a public vote on these issues.

In addition, the Senate passed a series of three revenue bills that would increase revenues to the state by approximately $300 million. The revenue package differs from the one passed last week by the House.

The Senate revenue package includes a requirement that non-residents apply for sales tax refunds instead of receiving these refunds automatically.  In addition the package includes two additional changes to current taxes including ending a tax break for residential phone services  and offering a fix to the recent ruling on the estate tax by the courts. The revenues generated from the telecommunications tax and the estate tax would go to support state human service programs.  The proposal passed by the Senate does not seek to close additional tax exemptions as put forward by the House.

Higher Education

The proposed budget assumes no increases in resident undergraduate tuition rates for the 2013-15 biennium. The budget provides $58.2 million in funding to support the core academic functions of the institutions of higher education and an additional $50 million in recognition of the institutions performance in support of statewide goals relating to student retention and degree completion. Finally the budget makes an investment in financial aid.

Additional dollars are provided to WSU to expand their medical programs in Spokane and to establish the Center on Ocean Acidification within the UW.

The investments in the Senate proposal are funded in part with dollars that would be generated from a 20% surcharge on international students who attend the two- and four-year public institutions.

Evergreen

For Evergreen the Senate’s proposed budget would require that tuition remain at zero for the 2013-15 biennium for undergraduate resident students. The College may increase tuition beyond this level but would be required to invest in institutional financial aid.

In addition the budget provides $1.159 million above maintenance level funding to  support the core academic functions of the institutions of higher education and $953,000  in recognition of the College’s performance in support of statewide goals relating to student retention and degree completion.

Finally, the Washington State Institute for Public Policy, a public service center of Evergreen, is funded to support six study/research projects for the Legislature.

Yesterday the House worked late into the evening passing a proposed operating budget, released on Wednesday, 53-35.  The House also passed a revenue bill that would provide funding for K-12 and higher education by closing  some tax preference with a vote of 52-40.

Today both the Senate Majority Coalition Caucus and the Senate Democrat Caucus are expected to meet. It is reported that the Senate will return to Olympia tomorrow morning for floor action. Though it is unclear exactly what is planned.

Overall the proposed budget addresses the state’s $2.6 billion budget problem through policy enhancements, fund transfers, reduced spending, and increased resources.

The House proposal makes $1.5 billion in additional policy enhancements, the majority of which are in K-12 ($955 million). Among the investments made include:

• $839 million to K-12 to fund increased materials, supplies, and operating costs; reduce early elementary class size (K-3); fund pupil transportation and expand all-day kindergarten
• $146 million for home care worker compensation
• $68 million for postsecondary education financial aid
• $30 million for Early Childhood Education Assistance Program enhancements
• $25 million for debt service on anticipated new capital projects
• $24 million for state parks

These enhancements as well as the other parts of the budget are funded through a combination of savings, reduced spending, and increased resources.

• $509 million in fund transfers
• $1.6 billion in reduced spending
• $339 billion in increased revenue

The House proposal leaves $606 million in projected total reserves.

Higher Education

The House proposal makes an investment in higher education that moves in the right direction. The budget provides $11 million in targeted funding for state instructional support.

The proposed budget assumes a  3% tuition increase for all of the four-year public institutions and the community and technical colleges.

The budget includes language requiring the Office of Financial Management to convent a joint committee to propose an incentive funding model for the public baccalaureate institutions.

Finally the budget makes an investment in financial aid including the College Bound Scholarship program and the State Need Grant.

The House proposal continues the suspension of some small state financial aid programs from 2011-13 including suspension of Washington Scholars, WAVE, Health Professional Scholarships, and Future Teacher Scholarships.

Evergreen

For Evergreen the House’s proposed budget would allow tuition for undergraduate residents to increase by 3% per year of the biennium. The College may increase tuition beyond this level but would be required to invest in institutional financial aid.

In addition the budget appropriates $1.157 million for the purpose of instructional support. These funds include $405,000 in additional funds to support this effort and $752,000 that would come to the College if the proposed revenue budget (HB 2034) is passed.  If the revenue package is not passed by the Legislature, then the $752,000 would be met within existing college funds. Evergreen is required to provide a report by September 1, 2014 that provides the specific details on how these amounts were spent in the preceding fiscal year and any process changes or best-practices implemented in the College.

Finally, the Washington State Institute for Public Policy, a public service center of Evergreen, is funded to support a comprehensive study of the financial incentives promoting distributed generation in Washington and to provide primary staff support for a K-12 funding task force.

Next Steps

The House is expected to move the  proposed biennial operating budget out of committee this afternoon followed by a vote on the floor on either Thursday or Friday.

After nearly three weeks of little action- though budget negotiations continued – the House Democrats and Senate Democrats released a proposed operating budget and a smaller revenue package.

The release of a proposed budget comes on the heels of action earlier this week and late last week  regarding the estate tax. Late last week the House Finance Committee moved legislation to fix a loophole in the state’s estate tax that was caused by a Supreme Court decision earlier this year. The Senate Ways & Means committee voted on its response to the court decision earlier this week.

Yesterday Governor Inslee held a press conference urging movement towards a final budget. With one week left the Governor expressed his increasing concern, especially given the differences between the Senate and the House to address the estate tax, about the lack of progress.  He stated again and again that seven days remain to get the job done.

Today the House and Senate Democrats released a proposed operating budget and revenue package at noon followed by a public hearing on the revenue package and an executive session on the proposed budget.

It is expected that the House will convene on the floor tomorrow and Friday to pass the proposed budget and revenue package as well as some additional policy bills. The Senate is also expected to convene to consider its proposed estate tax legislation and a bill to increase penalties for DUIs.

While budget negotiators continue to meet, there is no sign of a final budget to date.  Technically the Legislature is in violation of state law entering June without a budget.

The primary area of disagreement continues to be whether or not  new revenue is needed to balance the budget.

If a budget agreement doesn’t emerge this week a second special session might be necessary because of the time it takes to pass a budget. With the chances of a second special session increasing, so have discussions around next steps and impacts about what happens if state government enters a new fiscal year (July 1) without a budget.

In the meantime, lawmakers are teeing up some other issues for a likely floor vote including an omnibus bill to address impaired driving.

Senate Bill 5941 would reduce tuition by 3% for undergraduate resident students for the 2013-15 biennium at the public baccalaureate institutions and community and technical colleges. Beginning in 2015-16 through 2018-19 the public baccalaureates and the community and technical colleges could not raise resident, undergraduate tuition cannot exceed inflation.

The bill also allows for the following exception if SB 5942 passes. If the Legislature does not provide sufficient funding to meet baseline funding levels then the institutions can increase resident undergraduate tuition for the following academic year necessary to achieve the baseline funding levels.

Senate Bill 5942 would create a baseline level of funding beginning in 2014 that is equal to the maintenance level appropriations in the 2013-15 budget expressed as a per-resident student rate based on a three-year average of the number of actual FTE enrolled resident students. The per-resident student is also required to increase each fiscal year by the rate of inflation.

Also in 2014 any funds available after meeting the baseline levels or increases to higher education would be required to be distributed based on performance to institutions. The funds would be distributed on a proportional basis and for the public four-years based on a three-year average performance on five metrics.

1. Average time to degree for undergraduate students
2. Number of undergraduate high-demand degrees produced
3. Freshman retention
4. Low-income populations
5. Space utilization

Finally the bill would establish a work group to review the per-resident student rates utilized to establish baseline funding and make recommendations for achieving equal funding for similar institutions by the 2017-19 biennium.

Three amendments were offered to SB 5942, though none of the amendments were passed.

• Would strike the entire bill and replace it with language to direct the Office of Financial Management to convene a technical incentive funding model task force to design an incentive funding model to provide new incentive funding to four-year institutions of higher education that demonstrate improvement on existing performance measures and to control resident undergraduate tuition growth.
• Would make students who are enrolled or accepted for enrollment for at least three-quarter credits or the equivalent semester hours, in a qualifying higher education program, eligible for the State Need Grant program.
• Would require the State Auditor to conduct a comprehensive financial audit of UW and WSU.

Both bills were moved out of committee and to the Senate floor for further consideration.

This morning the House Finance Committee met to move legislation to make changes to the state’s estate tax for married couples.

House Bill 2064 is in response to the Bracken Decision — a state Supreme Court ruling that allows a spouse to transfer assets to a surviving spouse without paying taxes if they’re using a certain type of trust, known as a Qualified Terminable Interest Property trust. As a result of this ruling the state can no longer collect estate taxes on the trust when the surviving spouse dies. If passed the legislation would make changes to the estate tax law to prevent such refunds in the future

It is estimated that the decision could cost the state $160 million dollars over the next two years.  The Washington Department of Revenue will begin issuing tax refund checks in June worth about $40 million dollars because of the decision.

It is possible that the Washington House will take up the bill on the floor tomorrow.

In the Senate legislation is expected to be heard before the Ways & Means Committee on Friday regarding the estate tax.  Also on Friday the Senate Ways & Means Committee will hold a hearing on two higher education related bills.

Senate Bill 5936 would create a performance funding framework for higher education and Senate Bill 5937 would decrease tuition for resident undergraduate students by 3% for the 2013-15 fiscal biennium and limit future growth of tuition for this category of students to inflation.