The 2019 legislative session officially adjourned on Sunday, April 28. It was the first time the Legislature has ended on time for a budget-writing session in ten years.
This 105-day budget-writing session was marked by a slate of newly elected legislators entering the mix and a strong Democratic majority in both chambers. The legislature saw considerable activity this year in the housing, energy and environment, and mental health policy areas.
The Seattle Metropolitan Chamber of Commerce and the business community had some important successes this year, including the passage of our top priorities: Sen. Jamie Pedersen’s condo liability reform bill and Initiative 1000, the Washington State Diversity, Equity, and Inclusion Act.
One factor exacerbating our region's housing prices is the shortage of options for entry-level homebuyers. To address our region’s critical need for additional housing stock, legislators unanimously approved updates this session to Washington’s condo liability laws.
As leaders at the Master Builders Association of King and Snohomish Counties and Homesight explained, one major challenge to building more condos was "that the warranty requirements of Washington’s Condominium Act are unclear, making it easy for condo owners to sue builders for any type of construction defects, even relatively minor deviations from the building code. These broad, open-ended standards have led to excessive construction defect lawsuits and higher insurance premiums, which has had the effect of deterring many builders and developers from considering condominium projects."
Senator Jamie Pedersen’s ESB 5334 addressed these flaws to encourage more condo development. Specifically, the bill further defines condo warranties, clarifying that breaches of warranty must be significant and capable of causing injury or impairing building function. Gov. Jay Inslee signed the bill into law on April 30, and the bill goes into effect on July 28, 2019.
The House brought I-1000, which would restore affirmative action in Washington state, to the floor for a vote in the evening on Sunday, April 28, with only hours left in session.
There was a spirited floor debate in both chambers, and, ultimately, the initiative passed the House in a party line vote (56-42, with Rep. Blake (D-19) voting with the minority) and the Senate in another party line vote (26-22, with Senator Mullet (D-5) voting with the minority).
As an initiative to the legislature, I-1000 does not require Gov. Inslee’s signature and goes into effect on July 28.
Those opposed to I-1000 have expressed interest in pursuing a referendum effort. In order to place a referendum on the November ballot, opposition would have to file approximately 130,000 signatures by July 28.
Budget and Revenue Bills
Following a larger-than-anticipated revenue forecast for the 2019-21 budget, the legislature proceeded to roll out $52.4 billion in operating budget spending (a close to $8 billion increase from the previous biennium) and an unprecedented package of tax bills raising $850 million in new tax revenue.
The largest expenditures in the operating budget included:
- $3.9 billion to maintain current levels of K-12 funding
- $451 million to pay for state employee salary increases and health care benefits
- $280 million for behavioral health
- $45.5 million to help prevent and fight wildland fires
A broad slate of new taxes were passed to fill the spending gap, which included:
- A graduated real estate excise (REET) tax (ESSB 5998)
- Increased business and occupation (B&O) tax rate for large banks (SHB 2167) and travel agents (ESSB 6004)
- A new tax on vaping products (E2SHB 1873)
- Elimination of the automatic sales tax exemption for non-residents (ESSB 5997).
On top of the budget spending, the Democrats also passed E2SHB 2158, which generates nearly $1 billion over four years by imposing a B&O surcharge on professional services and "advanced computing" businesses to fund various higher education and career connected learning programs.
Despite Gov. Inslee and both chambers considering a capital gains tax, a new capital gains tax failed to gain traction and did not pass this year.
In addition to the operating budget, lawmakers also passed new state capital and transportation budgets in the last 24 hours of session. Also in the final hours, the Legislature passed a controversial bill (ESSB 5313) to lift the local levy lid for schools.
Some Budget Successes
The final bill to increase taxes on travel agents and tour operators (ESSB 6004) was significantly lower than the initial proposal, which would have raised taxes by over 500%.
The proposed large increase sparked concerns from the travel industry and the Seattle Metro Chamber. The final increase was lowered in response to those concerns.
Early in budget negotiations, the Senate Ways and Means Committee moved $14M from University of Washington Foundational Support and dispersed those funds to other in-state universities. The Seattle Metro Chamber aided the UW in its efforts to restore this critical funding that goes toward the UW’s essential operations like employee compensation. Ultimately, $14M was restored to fully fund UW’s foundational support.
Another bill supported by the Seattle Metro Chamber, Rep. Tana Senn’s 2SHB 1603 passed the legislature this session. The bill prevents families from permanently losing access to Temporary Assistance for Need Families (TANF) and WorkFirst.
Threats to cut Sound Transit 3 funding, which the Chamber opposed, were unsuccessful. However, Tim Eyman’s Initiative 976 will still appear on the November ballot.
Unfortunately, Senator Guy Palumbo’s SB 5363, which the Seattle Metro Chamber worked hard to support, did not pass this year. This legislation would have enabled cities to extend the multi-family tax exemption, an important tool supporting affordable housing and increasing density.
The multi-family tax exemption is a 12-year tax exemption for multi-unit buildings where at least 20% of units are set aside to be affordable, rent-restricted units. The legislation, SB 5363, would allow MFTE to be extended for an additional 12 years if participating municipalities choose to extend the tax credits.
Without extending MFTE, the property tax exemption is set to expire on more than 2,000 affordable homes before 2022.
The bill passed the Senate but stalled out in the House. The Seattle Metro Chamber is hopeful that the is legislation can pass next year under different House leadership.
This was Speaker Frank Chopp's last session as the Speaker of the House. Chopp has been in this role for 20 years, making him the longest serving speaker in Washington state. House Democrats will select a new speaker on July 31, although it is unclear at this time who that person will be. Many predict they will select the first-ever female speaker.