In the final days of the 2019 session, the budget conference committee reached agreement on state operating, capital, and transportation budgets for FY 2019-21. The budgets were passed with just minutes to go in the legislative session.

Overall, the final operating budget is positive for cities and our legislative priorities, including increased funding for homelessness, behavioral health, and culverts. It also assumes passage of SB 5993, which makes significant changes to the Model Toxics Control Account (MTCA) with the intent to stabilize funding, and provides additional resources for additional funding for stormwater, solid waste and remediation programs (see our article on SB 5993).

Overall, the final operating budget is positive for cities and our legislative priorities, including increased funding for homelessness, behavioral health, and culverts.

Unfortunately, the final agreement adopted the House’s proposal continues to sweep $160 million in funding from the Public Works Trust Fund (PWTF) for education, as well as additional appropriations or transfers in the capital budget for other uses, including statewide broadband. The budget also transfers $300 million from the LEOFF 2 pension fund to the Benefits Improvement Account.

Final operating budget

The final operating budget funds $52.4 billion in state near-general fund expenditures and relies on two primary new taxes to generate additional revenues a graduated real estate excise tax (REET) and a state service B&O tax surcharge on specific industries to fund higher education, as well as several changes to tax preferences and exemptions. (see our revenue article).

For more information, see our budget summary chart. Check out some of the highlights of how the budget impacts cities:

• State shared revenues: The proposal fully funds state shared revenues, with one exception. The budget did not include an expected increase in marijuana excise tax distributions, which were funded at the last biennium’s level of $30 million instead of $40 million originally anticipated when distributions were approved (HB 2136 in 2015).
  
  For eleven warehousing jurisdictions impacted by the state’s change to destination-based sales tax sourcing, streamlined sales tax (SST) mitigation funding is fully funded beyond October 2019.
• Pensions:The final budget includes a LEOFF 2 pension fund transfer of $300 million to the Benefits Improvement Account, which concerns cities because it would reduce the funded status of the plan. Further, these funds are held to provide current member benefits, and this proposal transfers those funds to an account to provide new benefits. Funding the Benefits Improvement Account is a state obligation which should not be shifted to the LEOFF 2 fund.
• Basic Law Enforcement Academy (BLEA): The Senate budget funds 19 classes each year as requested by cities. The annual increase of nine classes will help cities keep up with the need to train new officers and supports public safety in our communities.
• Mental Health Field Response Grant Program: $4 million is appropriated in response to the Trueblood settlement to help phase in a grant program statewide, of which $3 million will be used for phase one jurisdictions. This program is an invaluable tool to help our local law enforcement address the behavioral health crisis in our cities.
• Municipal Research Services Center (MRSC): MRSC and the crucial technical assistance it provides to cities is fully funded.
• Homelessness & behavioral health: The budget invests significant levels of additional funding for grants and community-based behavioral health services.
• Affordable housing: The budget includes passage of HB 1406 to provide a local sales tax credited against the state tax for affordable housing projects.

Final capital budget

Highlights affecting cities include:

• Housing and behavioral health: The Housing Trust Fund is funded at $175 million, which is an historic level. The budget also invests significantly in behavioral health community facilities.
• Public Works Trust Fund: The operating budget took $160 million out of the PWTF for education in addition to continuing the diversions of REET, solid waste utility revenues, and public utility tax revenues. The capital budget also expands the PWTF for additional uses, including $21.5 million for a new broadband program to expand service in underserved areas of our state. AWC will continue to work with the Legislature to prevent further diversions of PWTF money for new programs in future years and to restore traditional funding levels.
• Culverts: The capital budget includes $26.5 million for the Fish Barrier Removal Board. We appreciate the state’s continued investment in local culvert funding and recognition that the state must use a strategic approach to address both state and local barriers to maximize the value of this investment.
• Model Toxics Control Account: The final budget includes significant changes to the Model Toxics Control Account (MTCA) through passage of SB 5993, which will make changes to stabilize funding and provide additional resources for stormwater and water programs.