Cities fare well in adopted 2017-19 state operating budget

On the final day of the state’s fiscal year, and 175 days after coming to Olympia in January, legislators adopted an operating budget, thus avoiding a state government shutdown.

For cities, recently released information shows that legislators heard the messages from city officials that maintaining the historic partnership with cities makes a stronger state. See a more detailed chart of city impacts and read our summarized city budget highlights below.

The $43.7 billion biennial operating budget funds a K-12 “McCleary fix” with $5.4 billion of new revenue over two biennia 2017-2021, with some of these new revenues also yielding additional city revenues, as noted below. However, we are disappointed that the proposal does not include a new local option to allow cities or counties to increase property taxes greater than one percent, or any other new “cap.”

The capital budget has not been acted upon, and there are several policy bills remaining for legislators to work on before their third special session ends on July 20.

State-shared revenues:

• Traditional state-shared revenues with cities such as liquor and criminal justice assistance are fully funded for 2017-19. This is significant and welcomed!
• Local government marijuana mitigation revenues are reduced from $30 million to $12 million for cities and counties in the 2017-19 biennium. The budget also provides that if marijuana revenues exceed certain forecasts, local governments will receive an additional $18 million in the 2017-19 biennium. However, in all biennia following 2017-19, the budget imposes a $6 million per fiscal year limit on marijuana distributions.
• While streamlined sales tax (SST) mitigation is funded for 2017-19 for the 48 cities receiving it, the budget includes the intent to phase out these distributions. A budget proviso is included to study the actual revenue impacts from the new state implementation of collecting internet sales taxes from out-of-state retailers (described below).

New revenues:

New revenues will be available from two major tax changes:

• A state version of the Marketplace Fairness Act to collect sales tax on internet purchases from out-of-state retailers to compliment taxes already collected on in-state retailers; and
• An increase to state property tax levy to a flat rate of $2.70 per-thousand assessed value for the next four years for education funding.

Additional sales taxes will be raised by eliminating the bottled water tax exemption, narrowing an exemption and implementing a state use tax on self-produced fuel, and repealing other tax loopholes.

The sales tax changes will increase local sales tax distributions for local governments for 2017-19:

• Marketplace fairness – $39.6 million local sales tax to cities for 2017-19. For estimates of impacts by city, see AWC’s Open Data Portal.
• Bottled water sales tax exemption repeal – $ 7.4 million local sales tax to cities for 2017-19.

LEOFF 2 pension: LEOFF 2 pension state contributions are fully funded.

Public Works Trust Fund: We are hearing that the capital budget (expected be voted on in July) will likely include a loan list for the first time since 2011. The operating budget uses loan repayment and revenue dollars for the general fund, but we hear the Legislature plans to partially replace them with state bond proceeds. While not ideal, the Legislature has demonstrated its intent to keep the program alive with this expected funding and passage of the public works trust fund reform bill HB 1677.

Housing, homelessness, and human services:

• The budget assumes passage of SB 5254 providing for a four-year extension to 2023 of the document recording fee at current levels.
• Homelessness funding in the Housing and Essential Needs account is fully funded.
• Funding is provided to implement the Medicaid 1115 waiver for behavioral health and supportive housing.

Municipal Research and Services Center (MRSC): Fully funded.

Basic Law Enforcement Academy (BLEA): Funding is provided for six additional classes per year in the operating budget, and eight classes for 2017 in the supplemental budget.

Family and Medical Leave: The budget assumes passage of SB 5975 providing for a new state funded paid family and medical leave program. The program would be funded by a combination of employee and employer contributions for employers with more than 50 employees. All employees would be eligible for up to 12 weeks paid family or 12 weeks paid medical leave, with a combined total of 16 weeks within a 12-month period and a payment of up to $1,000 per week.

AWC very much appreciates the efforts of city officials over these past several months. Thank you for connecting with your legislators and encouraging them to maintain and value the city-state partnership.

As always, if you have questions about what is in the budget or how it impacts your city, please contact us at any time.