Signs of strong economic recovery bode well for state and local budgets

In January—just four months ago—legislators and local leaders alike were very worried about economic uncertainty due to the pandemic. Fortunately, signs of economic recovery continued throughout the session resulting in a highly favorable state revenue forecast in March. The positive forecast, coupled with Congress passing the American Rescue Plan providing federal funding for a variety of needs, including direct support for the state and cities, provided a much-needed boost for the state’s budgets.

The Legislature’s last piece of business before adjourning on April 25 was to adopt the 2021-2023 operating, capital and transportation budgets. City budget priorities fared well overall. You can see some of the highlights in AWC’s budget matrix. One unexpected item in the budget is a $20 million city assistance account, to be distributed on a population basis, to help offset costs for public safety and criminal justice legislation. AWC is working with the Office of Financial Management (OFM) to determine how and when those funds will be distributed.

Additionally, the Legislature passed HB 1069, AWC’s priority bill on fiscal flexibility. Under HB 1069, cities can use certain existing revenue sources more flexibly through the end of 2022. The bill also provides additional flexibility with utility liens given the emergency shut off moratorium that has been in effect for more than a year. The Governor has vetoed a minor portion of the bill and included in his signing message a request that city-owned utilities prioritize working with utility customers who have delinquent accounts, to offer them assistance in paying their utility bills.

HB 1069 included an emergency clause, so it takes effect immediately:

• Allows a greater portion of the local Real Estate Excise Tax (REET) to be used for operations and maintenance of capital facilities through December 31, 2023.
• Allows the chemical dependency or mental health treatment sales tax to be used for certain capital projects necessary to the operation and delivery of those services.
• Broadens the definition of criminal justice purposes for the Criminal Justice Sales Tax to allow funds to be used for programs that will reduce interactions with the criminal justice system through December 31, 2023. Communities will have greater flexibility to put these limited funds where they are most needed.
• Allows funds from property tax levies approved in King County between 2015-2022 to supplant existing revenue. This does not allow for the funds to be redirected from their voter-approved purposes, rather it allows for the funds to continue supporting existing services instead of requiring they be spent on new programs at a time when local governments may not be able to afford to maintain existing services.
• Allows a city to impose a utility lien for past due charges when the emergency moratorium is lifted. Currently utility lien authority has a limited filing timeframe that is impacted by the emergency moratorium. This provision is intended to toll the timeframe to accommodate the emergency moratorium.

Finally, the Legislature passed a couple changes to tax laws that do not directly impact cities but may be of interest. The Legislature adopted a capital gains tax of 7% on capital gains over $250,000, SB 5096, and it fully funded the working families child tax credit with bipartisan support, HB 1297, which will begin providing tax rebates to qualifying families in 2023.