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Dear Friends and Neighbors,
It’s day 82 of the 105-day session and the Legislature is concluding a busy week. The major developments the last five days were the House and Senate putting forward their respective 2015-17 operating budgets. This is an important step to ensuring state lawmakers finish their work by April 26. You can find information on these proposals here and here.
House and Senate operating budgets
The House operating budget passed on a party-line 51-47 vote yesterday. I voted against the bill because it represents a large tax increase. The Senate state spending plan will likely pass early next week.
It’s important to note there are similar priorities reflected in the two proposals. Both budgets would invest heavily in K-12 education and McCleary obligations, including more funding for: K-3 class-size reduction; all-day kindergarten; and materials, supplies and operating costs. They would enhance early learning programs and prioritize changes to our troubled mental health system. Both plans would also provide teachers and state employees with pay raises, though there are some differences in the approaches.
The two major differences in the House and Senate proposals are higher education and overall state spending. The House proposal would freeze tuition rates at our four-year institutions of higher education, while the Senate would actually reduce tuition rates by 25 percent by the end of the budget cycle. Unfortunately, the House plan would rely on $1.5 billion in new tax increases. This would increase state spending by $5.2 billion — a 15 percent increase over the last budget cycle. This growth in state government worries me. The Senate plan would close certain tax exemptions, but not raise taxes. As a result, the Senate would spend $37.8 billion, while the House would spend $38.8 billion.
While I still have some concerns with the Senate proposal, including how it addresses the hospital safety net assessment and public works trust fund, it is a better option than the House plan at this point. You can learn more about the Senate proposal in this one-page summary.
Proposed new taxes
I am the ranking member on the House Finance Committee and directly involved with decisions on our state’s tax policy. We have a complicated and unfair tax system in our state. The state’s B&O tax is assessed on a business’s gross income, not net income. For this reason, there are more than 600 preferences or exemptions to help keep employers competitive in our state.
The House Democrats’ tax proposal, House Bill 2224, contains a 5 percent capital gains tax on any gain over $50,000 per couple, and raises the B&O tax on service-related businesses (find list here). Combined, these two tax increases would create an estimated $1.1 billion in additional revenue to the state. Another $400 million in new taxes would be generated by removing certain tax preferences.
The tax package and operating budget are explained by the House Democrats in this blog post. I remain concerned about the impact these tax increases would have on our fragile economic recovery.
The next steps
The good news is budget writers from the House and Senate will soon begin negotiating a final compromise. The two sides are about $1 billion apart in terms of overall state spending, and will have to work through several policy decisions. You can find a succinct side-by-side comparison from the Washington Policy Center here. A more detailed analysis can be found at this non-partisan website.
The last two years, state lawmakers were able to craft balanced, bipartisan operating budgets. Unfortunately, it took two special sessions in 2013. I expect the Legislature to finish its job on time this year. We owe it to taxpayers.
Watch: Legislative update
Listen: House floor remarks
Telephone town hall on April 7
Rep. Maureen Walsh and I will be hosting a telephone town hall on the evening of Tuesday, April 7. The hour-long event will begin at 6 p.m. and last an hour. The format is similar to a call-in radio show. To join in, please call (509) 885-9012. Once connected, you can ask us questions or just listen in to the community conversation.
Staying in touch
I’ll be spending time with my family this weekend — watching the Final Four games tomorrow and celebrating Easter on Sunday. I hope you have a restful holiday weekend.
Please contact me if you ever have any questions, comments or concerns to pass along.
Sincerely,
Terry Nealey
