Tough budget decisions amid new revenue

Cities did relatively well in the newly-adopted budgets with good news in shared revenues and funding for other priorities like law enforcement training, behavioral health and affordable housing. We were disappointed to see further sweeps in funding from the Public Works Trust Fund, but still some good news overall with infrastructure funding increasing over the last biennium. Check out our budget matrix for a full wrap-up of major areas impacting cities in the budgets.

Maybe one of the most unexpected aspects of the session was the ongoing budget challenges facing the Legislature. They began the session with budget writers talking about a $3.5 billion shortfall based on increased expenses for maintenance level programs, as well as new costs for school employees’ benefits, special education, behavioral health and state employee collective bargaining contracts. Thanks to the strong economy, there was an increase in the revenue forecast of about $500 million that helped fill the gap. The Legislature, led by Democratic majorities, also passed new revenue proposals to balance the budget including a graduated approach to REET; a B&O tax on financial institutions; closing some tax preferences (including making it more difficult for out of state buyers to avoid paying the state sales tax and an increase in the hazardous substance tax.

Both state and city budgets got a boost from the passage of SB 5581 regarding implementation of the Wayfair decision and collection of remote seller sales tax. The Department of Revenue predicts cities will see an additional $13 million in sales tax revenue over the 2019-21 biennium from the changes and $20 million in the next biennium.

Cities that charge a local B&O tax are impacted by two bills adopted this session. HB 1059 changes the date for annual filers effective January 1, 2021. HB 1403 is the result of the B&O apportionment task force and was supported by both cities and the business community. Thanks goes to Rep. Frame (D–Seattle) for smoothly shepherding this bill through the legislative process. AWC will work with B&O tax cities to incorporate the changes into a model B&O tax ordinance by the January 1, 2020 deadline.

While this was a pretty solid session for cities in the budget, we will have to continue to be vigilant as economists predict an economic slowdown that could impact both state and local budgets in the future. We can’t take for granted that future legislatures will continue to partner with cities. In the coming 2020 session, we will again be talking about the importance of state shared revenues and funding for infrastructure and other local needs.

City priorities – Outcomes

PRO – Fully funded state shared revenues for Liquor Profits, Liquor Taxes, Municipal Criminal Justice Assistance, Fire Insurance Premium Taxes, City-County (6050) Assistance, and Streamlined Sales Tax (SST) Mitigation.

PRO – Funded continued SST mitigation for jurisdictions most negatively impacted after October 2019.

PRO – Passed SB 5581 aligning the Department of Revenue’s regulatory changes with the United States Supreme Court’s decision in South Dakota v. Wayfair, increasing sales tax revenues for the state and cities.

PRO – Passed a Model Toxics Control Act reform bill (SB 5993), creating a $63 million per biennium in dedicated funding for local stormwater assistance; the bill also stabilizes the funding source and provides more resources for toxic cleanup sites.

PRO – Passed HB 1667, making public record grant andtechnical assistance programs permanent.

PRO – Created greater public works contracting flexibility by raising bid limits for cities (SB 5418).

CON – Funded Marijuana Excise Tax distributions at last biennium’s level of $30 million, instead of planned increase to 40 million when distribution allocations were established in 2015.

CON – Transferred $300 million from the LEOFF 2 pension account to the Benefits Improvement Account to fund new, increased pension benefits at the expense of funding current benefits (HB 2144).

Budget & finance bills