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Proposed 2021-23Budget & PolicyHighlightsOffice of Governor Jay InsleeDecember 2020

Table of ContentsOverview: Beyond the pandemic1Economic and revenue outlook8Governor’s Proposed 2021–23 Biennial Budget10Governor’s Proposed 2021-23 Budget Balance Sheet11Preventing homelessness from growing worse during COVID-19pandemic14Budget offers support for child care providers struggling during pandemic19Human Services - Operating21Human Services - Capital31Education - Operating33Education - Capital37Natural Resources - Operating41Natural Resources - Capital45General Government - Operating49General Government - Capital52Transportation55Replacing the state’s outdated and at-risk core business systems58Employee compensation61Revenue62Results Washington65

Beyond the pandemicBuilding a stronger Washington for working families and businessesThe worst global pandemic in more than a century has had devastating — and often disproportionate— consequences for households, businesses and communities across our state. Gov. Jay Inslee’s 2021–23 operating, capital and transportation budgets will emphasize equity in many forms as we work todefeat COVID-19, rebuild the state’s economy and protect vital services.When the COVID-19 virus reached Washington, state leaders and public health officials movedaggressively to slow its spread. Meanwhile, medical professionals and caregivers worked tirelessly totreat those infected by the deadly and highly contagious virus.Those actions — and the many sacrifices everyone made over the past nine months — undoubtedlysaved many lives. Still, as of this month, more than 200,000 Washingtonians have been infected andmore than 3,000 have died.Beyond the illness itself, the pandemic has inflicted pain and hardship in virtually every area of ourlives.Proposed 2021-23 Budget & Policy Highlights1

OverviewJoblossesanddurationpost-WWIIrecessionsin nsin Washington19602%195319571981196920002008Percent job changes relative to peak employment er of months after peak employmentSource: Washington Employment Security Dept. and Economic and Revenue Forecast CouncilSource: Washington Employment Security Dept. and Economic and Revenue Forecast CouncilIn the first months of the pandemic, hundredsof thousands of Washingtonians lost their jobs.Almost no business was left unscathed. Schoolswere closed, forcing teachers and parents toimmediately shift to virtual education. The needfor food and rent assistance skyrocketed asfamilies struggled to make ends meet.The pandemic’s blow to the economy alsowreaked havoc on the state budget. Almostovernight, the state went from a near-recordbudget surplus to a projected multibillion-dollarshortfall. The situation gradually improvedthroughout the summer and early fall. But as ofNovember, the state had about 217,000 fewerjobs than in February, revenue projectionsfor the next three years remained more than 3.3 billion below pre-pandemic levels, and2the state’s economic forecasters warned us ofsignificant fiscal uncertainty for the foreseeablefuture.Early efforts to control virus, providerelief, minimize budget crisisLast March, soon after coronavirus cases beganspiking across the state, Inslee announcedhis Stay Home, Stay Healthy order. Thisrequired Washingtonians to stay home exceptfor essential activities, and it banned largegatherings and closed nonessential businesses.Over the course of the spring and summer, thegovernor issued numerous orders and relatedguidance aimed at stopping the virus. Fromthe start, Inslee took steps to make sure peopleProposed 2021-23 Budget & Policy Highlights

Overviewwould have a place to live and food on theirtable, such as placing a moratorium on evictingrenters and joining nonprofit organizationsto raise money for food banks. His officeworked with the Legislature to distribute morethan 2.1 billion in federal funds to coverthe fast-rising cost of response efforts andprovide assistance for households, workers andbusinesses hardest hit by the pandemic.The Inslee administration also worked from thestart to confront the state’s pandemic-relatedbudget crisis. Acting decisively after the 2020legislative session, the governor used his vetopen to make budget cuts that will save the statemore than 440 million over three years. Hedirected state agencies under his authority tocancel a scheduled 3% wage increase for manygovernment employees and begin furloughsfor most state employees. He also placed afreeze on hiring, personal service contracts andequipment purchases (with limited exemptions).The furloughs, canceled pay raises and freezeswill save tens of millions of dollars in thecurrent two-year budget. Meanwhile, stateemployees stepped up by agreeing to newcollective bargaining agreements for the nexttwo-year budget that provide no generalwage increases and call for monthly one-dayfurloughs for most workers.The governor will urge the Legislaturein January to quickly pass legislationapproving an additional 100 million in grantsto assist struggling businesses and an additional 100 million in rental assistance to help bothtenants and landlords.Still, the state will have a lot of work to do withits response and recovery efforts, which guidedInslee as he prepared his 2021–23 operating,capital and transportation budgets. Thegovernor’s budgets will enable the state to:y Continue its aggressive response tothe ongoing pandemic and build morecapacity for tackling future public healthcrises.y Rebuild the state’s economy and continueefforts to support households, students,workers and businesses impacted by thepandemic.y Protect previous investments in areassuch as education, child care and earlylearning, climate action, behavioral healthreform, homelessness and access tohealth care.y Address racial and economic inequity.Governor puts forward plans toboost response and recovery effortsThe large infusion of federal coronavirusrelief and other stimulus money proved vital inhelping Washington mount a strong responseto the pandemic and weather the initialeconomic storm. But some of those funds haverun out and it’s unclear whether the federalgovernment will come through with moresupport for state and local governments.Proposed 2021-23 Budget & Policy Highlights3

OverviewThe governor is putting forward a broad rangeof budget and policy proposals to help thestate build back stronger and provide ongoingsupport to households, workers and businessesstill struggling due to the pandemic.opportunities to help get children back ontrack. His budget also focuses on equitablestudent supports, such as new funding toprovide broadband connections for familieswho cannot afford internet services.For example, the governor’s budget includesfunding to shore up the state’s unemploymentsystem, which was put under enormousstrain due to staggering job losses, especiallyduring the first months of the pandemic. Thegovernor is proposing legislation that would,among other things, ease unemploymentinsurance rate increases on businesses andincrease minimum weekly benefit amounts forunemployed workers.Child care providers have also been particularlyhard hit by the COVID-19 pandemic. Besidesstruggling with the increased costs of meetingstate and federal health guidelines, theirrevenues were reduced due to the smaller classsizes they created to keep children and staffsafe.The governor is also proposing major newinvestments in our state and local publichealth systems. We need a large part of thoseinvestments now to help finish defeatingCOVID-19. This includes funding for personalprotective equipment and testing supplies, andmaking sure we have the resources we need todistribute the vaccine that just became available.He is also proposing new, ongoing revenueto bolster our state’s chronically underfundedpublic health system.The number of unsheltered homelessindividuals was already on the rise inWashington and the economic fallout from thepandemic intensified the crisis. With tens ofthousands of Washingtonians still strugglingto pay their rent or mortgage, the governor isproposing significant new funding for rent andforeclosure assistance and other measures tokeep people from homelessness.The pandemic caused major disruptions for ourpublic school system and more than 1.1 millionstudents statewide. The governor proposessignificant new investments to expand learning4Since spring, the governor approved usingnearly 191 million in federal CARES Actfunding to support child care businesses andhelp low-income families afford child care. His2021-23 budget continues those efforts.From the start of the 2021–23 budgetdevelopment process, the governor madea commitment to focus on equity. In itsinstructions last summer to state agencies, thegovernor’s budget office directed agencies toconsider how their budget requests will affectmarginalized communities. Agencies were toldto address the following questions in preparingtheir budget requests:“How is your proposal impacting equity inthe state? Which communities are impacted bythis proposal? Include both demographic andgeographic communities. How are disparities incommunities impacted?”The governor’s budgets demonstrate hiscommitment to equity and inclusion by fundingprograms and policies that work to eliminateracial disparities. These include funding anequity office as a tool to root out racism anddiscrimination. His budget also includes fundsto establish an office that investigates policeProposed 2021-23 Budget & Policy Highlights

OverviewAnnualpercentagechangechange ofof realreal 86 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025Fiscal yearIncludes General Fund-State, ELTA, OPA and WEIA revenueSource: Economic and Revenue Forecast Council, Nov. 2020Includes General Fund-State, ELTA, OPA and WEIA revenueSource: Economic and Revenue Forecast Council, Nov. 2020using excessive force, eliminate contractingdisparities, and introduce an equitable financialliteracy plan to help communities of color.For example, projected education fundingneeds (for the current budget and the first yearof the next budget) have fallen by an estimated 831 million, largely due to lower schoolenrollments and pupil transportation costsamid the pandemic. The governor proposesreinvesting some of that savings to meet criticalneeds, while using the rest to help balance thebudget.New revenue needed to supportrecovery efforts, protect vital servicesSince last spring, after state revenue projectionsbegan a steep dive, Inslee resisted calls forimmediate funding cuts to state services. Heargued such cuts would harm many of thepeople already hardest hit by the pandemic andhamper recovery efforts.While Washington’s budget picture hasimproved since spring, the state still facessignificant fiscal challenges.Besides dipping into reserves, the governor’sbudget relies on savings in a number of areas.Proposed 2021-23 Budget & Policy HighlightsBut the state needs additional revenue tocontinue and strengthen the state’s pandemicresponse and recovery efforts while alsoprotecting previous investments in other stateservices.As he has in the past, Inslee proposes a newcapital gains tax on the sale of stocks, bondsand other assets. This would not apply to soleproprietor businesses, retirement accounts,5

Overviewhomes, farms and forestry. Earned incomefrom salaries and wages are not capital gainsand would not be taxed at all. The proposed taxchange — which will not go into effect untilthe second year of the 2021–23 biennium —would raise more than 3.5 billion over the nextfour years.begin implementing the governor’s proposedClimate Commitment Act. This act is acomprehensive climate program to help usmeet statutory greenhouse gas limits, increaseclimate resilience, and reduce the impactsof climate change on communities andecosystems.With the tax geared to very large capital gains,only a tiny fraction of the state’s wealthiesttaxpayers would be affected. In that regard, itwon’t worsen Washington’s dubious distinctionof having the nation’s most regressive statetax system — an upside down tax system thatdisproportionately impacts people at the lowerend of the economic scale and allows the verywealthiest individuals and most prosperousbusinesses to pay relatively less in taxes.The capital budget invests in programs andprojects to support the transition to cleanerbuildings. It also puts money into the state’sClean Energy Fund to support the clean energyefforts, such as electric grid modernizationprojects and research into new and emergingclean energy technologies.The governor also proposes narrowing the“bad debt” tax loophole the state currentlyallows businesses to claim when customersfail to pay. And, to help fund his proposedinvestments in public health services, thegovernor is proposing a new per member/permonth assessment on health insurance carriers.The new revenue will help the state maintainits healthy reserves. Heading into the nextbiennium, the state is projected to have about 2.5 billion in total reserves. Under Inslee’sproposal, the state would still have about 1 billion in total reserves at the end of thebiennium.Governor uses budgets to back bold‘climate commitment’The governor is again making climate actiona top priority in his operating, capital andtransportation budgets.The operating budget provides funding to6Meanwhile, the transportation budget providesmajor new investments to support cleantransportation efforts, which includes fundingto electrify our state ferry and transit systems.And more funding will continue our work withOregon and British Columbia on plans for anultra-high-speed rail corridor across westernWashington.Transportation budget steps upremoval of fish passage barriersUnder the governor’s 2021–23 transportationbudget, the state wi