December 17, 1999

Locke's post-695 budget: Tax cuts, plugging revenue losses, few highway projects

By DAVID AMMONS
AP Political Writer

OLYMPIA (AP) -- Gov. Gary Locke, responding to voter-approved tax-cut Initiative 695, Thursday proposed a budget that restores most of the revenue lost by local government, aids the ferry system and provides some property-tax relief and the promise of a "dividend" check to every family.

He sweetened his election-year budget proposal with a suggestion that the state rebate part of future tax surpluses as a "prosperity dividend" for every man, woman and child. But the checks wouldn't start flowing for three or four years.

The estimated rebate, which presumes the economy continues to perform well, would be about $34 per person in 2003. The money would amount to half of the surpluses that accumulate above that needed to reserve a 5 percent "rainy day" fund each year.

The other half, under Locke's plan, would go to school and college construction, technology and other one-time infrastructure needs of education.

As approved by voters in 1993, Initiative 601 called for excess revenue to accumulate in a reserve fund equal to 5 percent of the budget and then to finance school and college construction. But education has never benefitted, since lawmakers and governors gave away over $3 billion in tax breaks, mostly to business, Locke said.

"Today's budget takes a big step for schools and the working families of Washington by settling once and for all how we will use surplus state revenue," the governor told a news conference.

"It's not the time to let up on our mission to improve education. We must be impatient, not complacent."

Locke's budget provides little for state and local highway projects, but helps keep the ferry system afloat, albeit with major service cuts. Locke says no local government would be expected to take more than a 10 percent budget cut due to I-695 revenue losses.

While proposing budget cuts, the governor also suggested spending abut $100 million on public schools and colleges, including class-size reduction.

The Democratic governor's proposal, which will go to a politically divided Legislature for the session that convenes Jan. 10, relies heavily on the state's $1.2 billion reserve. It also counts on $157 million in budget savings, including a reduction of 1,500 workers from the state government payroll.

Republican House Co-Speaker Clyde Ballard, East Wenatchee, speaking before Locke's budget proposals were outlined for reporters, suggested Republicans will want to cut state spending much more than Democrats. He proposed a hiring freeze and a 5 percent across-the-board budget cut for most agencies.

I-695, which eliminated the value-based car tax in favor of a $30 annual fee per vehicle, dries up a $750 million source of revenue for state and local government each year.

The loss during the 18 months left in this two-year budget is estimated at $1.1 billion, primarily affecting state highways and ferries and local transit, health and public safety programs.

Locke's plan would restore about $387 million.

I-695 sponsor Tim Eyman, who planned to introduce a transportation-related followup initiative Thursday, had mild praise.

"No one is raising taxes, which is progress," he said Wednesday in an interview. "I-695 supporters always said they (state and local officials) should prioritize spending and only go to the taxpayers as a last resort. It seems like they are doing that and working with the existing dollars that are there. You gotta pat them on the back."

But he rejected Locke's position that the state can't afford many new highway projects. Locke and others are saying "let folks stew in gridlock for another year, until they can propose a big gas tax increase," Eyman said.

Some highlights of Locke's plan:

• TAX CUTS: The governor proposes eliminating the state property tax on senior citizens and disabled people. Budget Director Marty Brown said the senior citizen tax break would amount to as much as $500 a year. Locke also wants a 6.2 percent state tax reduction for all other property owners. That would be about $27 a year on a $150,000 house.

  The tax breaks would cost the treasury $14 million for senior citizens and $46 million for the other taxpayers in 2001. Taxpayers still would pay their local property taxes, which account for the majority of the tax bite.

  Locke also proposes a constitutional amendment to ease property tax spikes by averaging the new assessment with those of the past three years for each piece of property. The state Supreme Court has said this averaging can't be done without amending the constitution.

• LOCAL GOVERNMENT AID: Locke wants to backfill at least 90 percent of the lost revenue to cities and counties. For public health departments, this would cost $39 million and for public safety, including police and fire, it would cost $33 million. His budget presumes the state would begin a long-term commitment to taking over these costs.

  Locke also proposes a $51 million one-time grant program to help local government as a "bridge" to a time when property taxes will be capped and financial times will be tougher, Brown said. Some locales will use that money for runaway youth and others will restore some of their 10 percent budget cuts, he said.

• TRANSIT: The governor proposes $200 million in funding for transit systems, half of it one-time-only and the rest as a permanent tax credit. Locke's plan would restore a little more than half of the revenue losses.

• FERRIES: Locke wants to use gas-tax money to replace some of the ferry system's revenue loss. Out of a loss of $281 million in operating and construction money, budget aides said the governor's plan would replace $124 million. The governor would defer to the state Transportation Commission on where to make necessary service cuts and presumes that no new passenger-only ferries would be built.

• HIGHWAYS: Nearly all projects authorized by the Legislature earlier this year will be put on hold. Nine projects that have already have signed contracts will be allowed to proceed, but "everything else stops," Brown said.

• BUDGET CUTS: Locke would trim the current $20 billion state budget by about $157 million. Biggest pieces: $71 million from lower-than-predicted school enrollment, $44 million from welfare savings, and $23 million by agencies trimming their staff by 1,500 positions.