(The Center Square) – The Washington State Economic and Revenue Forecast Council (ERFC) adopted an official outlook based on the 2022 supplemental budget that continues to assume capital gains tax revenue.
That’s in spite of Douglas County Superior Court Judge Brian Huber’s March 1 ruling that the capital gains tax adopted last year, Senate Bill 5096, is an unconstitutional graduated income tax.
State Attorney General Bob Ferguson has since asked the state Supreme Court to take the case on direct appeal.
The official outlook passed by a 5-2 vote during Thursday’s virtual meeting.https://c7626b41cc60df241a43de72c906716d.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Rep. Timm Ormsby and Sen. Christine Rolfes – both Democrats – voted to pass the outlook, along with state Treasurer Mike Pellicciotti, Office of Financial Management Director David Schumacher, and Department of Revenue Director Vikki Smith.
Two Republican legislators – Rep. Ed Orcutt and Sen. Lynda Wilson – voted against passing the outlook.
Orcutt asked and got an alternative outlook that does not assume capital gains revenues.
“I’m going to be voting against the motion,” Orcutt said leading up to the vote. “My concern is that it does not include the impact of the capital gains income tax being ruled unconstitutional by a court of competent jurisdiction, so therefore I’m going to request a no vote today and request that an alternative forecast showing the impact of not having capital gains income tax income also be posted.”
The alternative outlook in the Budget Outlook Adoption document shows that without the capital gains revenues, the enacted budget would not balance in this biennium and the next.
Per the document, the unrestricted near general fund outlook ending balance would be negative $11 million in 2021-2023 and negative $356 million in 2023-2025.
Those shortfalls could be covered by either the Budget Stabilization Account (BSA) – essentially the state’s rainy day fund – or the Washington Rescue Plan Transition Account (WRPTA) that can be used to respond to COVID-19, but also functions as a shadow reserve account.
Total reserves would be $2.698 billion in 2021–23 and $3.491 billion in 2023–25.
Andy Toulon, fiscal analyst for the House Appropriations Committee, explained WRPTA contains $2.6 billion when factoring in $1 billion of federal funding set aside last year, a transfer of $1.1 billion from the BSA balance this biennium, and a planned transfer of another $500 million from the general fund in the next biennium.
The outlook adopted by the ERFC includes the addition of a section showing the WRPTA balance.
Sen. Rolfes previously asked if it would be possible to add the WRPTA balance to the summary of reserves for transparency purposes.
OFM Director Schumacher agreed.
“I think it’s probably very appropriate, considering how much money is in this account, to make sure that it’s clear to people where our reserves are,” he said.
Treasurer Pellicciotti also favored making the WRPTA balance more transparent to both the public and ratings agencies.
“It is something my office has communicated would be clearly advisable, to have a more transparent indication related to the existence of that WARPTA account,” he said. “And I think it would be more helpful to the public to be able to see the full funds that are available. And obviously since these funds are broadly able to be used, you know, I think is something that we were going to be indicating to the credit rating agencies in the months ahead, of the existence of the fund and the specific purposes for which that fund would normally be available.”