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Education, mental health are top priorities in House budget proposal

Spokesman-Review (Spokane, WA) - 3/28/2015

March 28--OLYMPIA -- Washington would spend an extra $1.4 billion on public schools, increase money for mental health programs and give raises to teachers and state workers, under a two-year budget unveiled Friday by House Democrats.

To help pay for this $38.8 billion spending plan, they are proposing several tax increases, including a capital gains tax on investment gains of more than $25,000, a bump in the business and occupation tax rate on services, and changes to seven tax breaks that have survived previous attempts at elimination.

"Our upside-down and backwards tax system is fundamentally unfair," said House Finance Committee Chairman Reuven Carlyle, D-Seattle.

The chief budget writer for Senate Republicans quickly criticized the plan for raising taxes to pay for schools when the state expects some $3 billion in new revenue under current tax rates. Public education is the state's paramount duty, Ways and Means Committee Chairman Sen. Andy Hill said, and the state should first spend any new money on that.

"I don't know if that's unconstitutional, or just unconscionable," said Hill, of Redmond.

The formal release of a budget by majority Democrats in the House begins the complicated back-and-forth between two chambers controlled by different parties, the results of which the governor must ultimately agree to sign. It may or may not be finished by April 26, the final day of the regular session. It will be the subject of a hearing Monday in the House Appropriations Committee and could come to a vote of the full House as early as Tuesday.

"I have the votes for this budget," said Appropriations Chairman Ross Hunter, D-Medina, and that vote will happen later in the week. Democrats also have enough votes to pass the tax increases, although they won't come to a vote next week, said House Majority Leader Pat Sullivan, D-Covington.

The predominantly Republican Senate Majority Coalition Caucus will release its budget proposal "in a few days next week," Hill said.

Among key features of the House spending plan are:

--An extra $1.4 billion for public schools to meet a state Supreme Court order. That includes some $750 million in maintenance, supplies and operating costs, an amount with which Senate Republicans are likely to agree; the rest includes money for smaller class sizes in kindergarten through third grade, all-day kindergarten in districts throughout the state, and a cost-of-living increase for teachers and other school staff that is mandated by a voter initiative but regularly suspended by the Legislature in tough budget times. It does not include money to reduce class sizes above third grade, which is mandated under Initiative 1351, which voters passed last November.

--A freeze in tuition at state colleges and universities, and the $106 million extra in state money to those universities to cover that freeze. Senate Republicans passed a bill cutting tuition by tying it to the average state wage, although Hill would not say if their budget would have that tuition cut. The House plan has nearly $103 million in financial aid for college students.

--An extra $100 million for mental health care, including $35 million for more beds at community mental health facilities. That's an effort to address a court ruling that some mental health patients are being kept too long in hospital emergency rooms or in other inappropriate settings. It also would spend $23 million to add beds at state hospitals for court-ordered competency exams and restoration services.

The state's economic forecast assumes Washington will collect more than $37 billion in taxes, fees and other revenue for its general fund in the two-year budget cycle starting July 1, about $3 billion more than the current cycle. Unlike the federal government, the state can't run a deficit. To cover the gap between that projection and the amount the budget would spend, House Democrats are proposing several separate tax bills.

Among the changes proposed:

--A 5 percent capital gains tax on investors who receive more than $25,000 individually, or $50,000 as a couple. Like the federal tax, it would exempt up to $500,000 for the sale of a primary home, retirement accounts, most agricultural lands and livestock, and most tax bills.

"This is for the super-wealthy," Carlyle said.

To answer criticism that a capital gains tax is volatile, House Democrats propose dedicating $400 million, an amount they believe is "virtually guaranteed" to be collected based on historic data, to higher education and place the remainder in a special fund that would be used to cover years when collections fall below that level. The capital gains tax would start in 2016 and affect fewer than 32,000 people.

But the bulk of it would be paid by just 1,000 people, Hill countered, and those taxpayers would be motivated to move investments around or time their sales to avoid the tax.

--Raising the B&O tax rate on services from the current 1.5 percent of gross receipts to 1.8 percent. At the same time, the state would raise the exemption for small businesses from the current $56,000 to $100,000.

--Closing or changing seven tax preferences. The current exemption from sales tax that some residents of other states get would be changed to a refund those residents could claim on purchases of more than $25. The sales tax exemption for bottled water would be repealed, as would the use tax exemption for extracted fuel, and preferred B&O rates for royalty income, travel agents and prescription drug resellers. The real estate excise tax on some foreclosure sales would be limited.

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