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Originally published June 27, 2013 at 11:52 AM | Page modified June 27, 2013 at 9:34 PM

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$33.6B budget gets tentative OK; gives $1B boost to schools

Getting to a handshake deal on the state budget took 150 days of negotiations, and recognition by Democrats and Republicans they’d have to give up a lot of things they wanted.

Seattle Times Olympia bureau

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OLYMPIA — One-hundred and fifty days of contentious budget negotiations — and the threat of a government shutdown — ended Thursday morning with a handshake.

Democratic House Appropriations Chairman Ross Hunter and Republican Senate Ways and Means Chairman Andy Hill looked at each other, decided they were done and declared “that’s a pretty good budget.”

Nobody in the room said, thank God, that’s over. “I think that was implied,” Hill said.

In the end, negotiators agreed on a $33.6 billion, two-year state budget that would put an additional $1 billion into public schools and ensure state offices will remain open Monday.

The package represents a roughly $2.5 billion increase in spending over the current $31.1 billion budget that expires at midnight Sunday.

The budget bars higher-education tuition increases for one year, with some flexibility for increases in the second year. Lawmakers also agreed to end a tax break for residential phone service that’s projected to net about $85 million over the next two years.

Votes in the House and Senate are expected Friday.

Getting to Thursday’s handshake required substantial give on both sides.

House Democrats and newly elected Democratic Gov. Jay Inslee pushed for $1 billion or more in additional tax revenue by closing tax breaks and extending existing taxes to help fund education and social services.

Republicans, who took control of the state Senate in January for the first time in eight years, pushed back. They argued against any new tax revenue and pressed for a variety of controversial measures — including changes to the state’s workers’ compensation system — that Democrats opposed.

Democrats had to give up on the vast majority of their proposals to increase tax revenue. And Republicans had to leave behind changes to workers' comp and other key legislative proposals they’d insisted on earlier.

Plus, Republicans agreed to two tax-policy changes they had previously argued against.

One was a deal to get around a 2012 state Supreme Court ruling that allows certain married couples to escape Washington’s estate tax.

The compromise legislation created a new tax break for small businesses, while increasing the tax rate for wealthier estates.

It protected about $160 million in estate-tax revenue that otherwise would have been lost through refunds and a decline in future collections over the next two years.

The other policy change was an agreement to end the tax break that residential phone customers enjoy but cellphone customers do not.

Democrats — and lately Republicans — argue the Legislature needed to eliminate the tax break to head off trouble in the future.

The Department of Revenue has raised concerns that cellphone companies, and firms providing service through the Internet, could challenge the exemption for residential phones, arguing they should get it, too. If they did so and won, the state could potentially lose several hundred million dollars in tax revenue in the future.

The agency contends that eliminating the tax break for residential phones would level the playing field and pre-empt a lawsuit.

The average landline customer pays $14.56 a month for local residential telephone service in Washington, according to state officials. Eliminating the tax break would increase that bill roughly $1.30 per month.

Lawmakers also freed up money for the operating budget by transferring about $350 million from the capital budget, which means fewer dollars to support public-works projects.

The roughly $1 billion for schools was meant to satisfy a state Supreme Court order to spend more.

More than half of it was to be dedicated to student transportation, school supplies and building utilities — expenses now paid by districts that the court said the state should be funding.

The rest would go toward expanding state-funded all-day kindergarten and class-size reduction in kindergarten and first grades in high-poverty schools, among other items.

Budget writers made few details available Thursday.

Word of an agreement began leaking out shortly after the handshake.

Inslee, surrounded by negotiators from both parties, called reporters together an hour later to read a one-minute statement confirming the deal. The politicians then all left the room without answering questions.

Lawmakers said they hope to get a budget to Inslee to sign by 5 p.m. Friday.

“Our goal right now is, that when state employees leave (Friday) there is no question about what is happening on Monday,” said Republican state Sen. Steve Litzow, R-Mercer Island, one of the key negotiators for state spending on education.

Hill, R-Redmond, said there’s agreement by House and Senate leaders to pass the budget through both chambers without amendments.

“The idea is this bill is agreed upon by everybody, so we don’t have amendments because that slows the process down,” he said.

The pace of budget negotiations picked up last week after new state revenue and caseload projections gave the Legislature an additional $320 million to spend over the next two years.

While not a lot of money, given the size of the budget, it was enough to get past the biggest barriers to an agreement when combined with transfers from the capital budget and projected revenue from eliminating the tax break for phone service.

Although it appears lawmakers are close to approving the operating budget, Inslee has said he also wants them to pass a transportation tax package.

House Democrats approved a $10 billion transportation proposal Thursday afternoon. It now goes to the Senate, where its fate is uncertain. Senate Republicans had lobbied House members to defeat the bill.

Lawmakers were under intense pressure to finish up their work to avoid a government shutdown that would have started next Monday.

Agencies were directed this past Monday to start sending notices to roughly 26,000 general state-government workers to warn them of potential layoffs if a budget wasn’t approved by the end of the month.

The governor’s office last week said roughly two-thirds of all state agencies and boards and commissions would be partially or completely closed if the current budget were to expire Sunday without a new one to take its place.

The governor’s budget office warned that a shutdown, among other things, could force the state to close parks and suspend state-funded programs such as medical services for the aged, blind and disabled; the kidney disease/dialysis program; and health care for undocumented children.

Staff reporter Brian M. Rosenthal contributed. Andrew Garber: 360-236-8268 or agarber@seattletimes.com.

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