Understanding Washington’s Revenue on Fantastic Friday!

Dear Friends, 

As your elected representative, I am excited to share insights into Washington State’s budget process and how it impacts our community. Understanding this process is crucial for engaged citizenship and effective advocacy.

Our state operates on a two-year budget cycle, beginning July 1 of each odd-numbered year. The current 2023-25 biennial budget runs from July 1, 2023, through June 30, 2025.

The budget process involves several key steps. First, state agencies submit their funding requests. The Governor then reviews these requests and prepares a proposed budget. Following this, the Legislature reviews, debates, and ultimately passes the budget. Finally, the Governor has the authority to sign, veto, or partially veto the budget.

Three crucial committees shape our state’s fiscal policy:

• Capital Committee: The Capital Committee is focused on the allocation of funds for physical infrastructure projects, such as schools, transportation systems, and public facilities. Investing in infrastructure not only promotes economic growth but also improves the quality of life for residents. The current chair of the Capital Committee is Rep. Steve Tharinger. Under his leadership, the committee evaluates the need for capital investments and ensures that projects align with the state’s long-term strategic goals.
• Appropriations Committee: The Appropriations Committee is essential for determining how state funds are allocated for operational costs, including education, healthcare, and public safety. This committee reviews the proposed budget from the perspective of whether expenditures align with revenue forecasts. The current chair of the Appropriations Committee is Rep. Timm Ormsby, who oversees the analysis of budget requests from state agencies and works to ensure fiscal responsibility. My role in this committee is particularly significant as I am  dedicated to fostering a deeper understanding of the budget among my constituents, believing that informed citizens are empowered to advocate for their needs effectively.
• Finance Committee: This committee takes charge of tax policy and revenue generation. Its work impacts how the state raises funds to support various programs, ensuring that the tax system is fair and equitable. The current chair of the Finance Committee is Rep April Berg. Under her guidance, the committee discusses proposals for tax reform and evaluates their potential effects on the state’s revenue and citizens.

Your understanding of this process is vital. It empowers you to advocate effectively for community needs, participate in public hearings, and provide informed feedback to your representatives.

I will be hosting a legislative work session aimed at educating new legislators on Washington’s revenue process and the responsibilities of various agencies. This collaborative environment will contribute to a comprehensive legislative policy and fiscal plan that supports essential government services.

I invite you to join me for a special edition of Fantastic Friday, where I will share insights from my six years of service and four terms as your representative. Together, let’s strive to become the most informed constituents in the state!

Your engagement in this process is crucial. By understanding our state’s budget process, we can work together to shape policies that reflect our community’s needs and values. I am honored to serve you and facilitate greater transparency and responsiveness in our state’s fiscal planning.

Keep reading for more on this Fantastic Friday.

Rep. Debra Lekanoff

A Look at Washington’s Native Candidates

As your elected representative, I’m excited to share an update on the potential for increased Native representation in our state legislature. The upcoming elections could mark a significant milestone in Washington’s political landscape, reflecting the growing influence of Indigenous voices in our local governance.

Several Native candidates are poised to make an impact in this election cycle. Julie Johnson from the Lummi Nation, Lona Wilbur of the Swinomish Tribe, and Patricia Whitefoot from the Yakama Nation will have the honor of casting electoral votes for Vice President Kamala Harris in the presidential election.

In our state legislature, we currently have dedicated Native American representatives working tirelessly on bipartisan initiatives. These efforts focus on enhancing healthcare access, bolstering mental health resources, and strengthening environmental protections. Their work demonstrates the valuable perspective that Native legislators bring to our policy making process.

Looking ahead, Bob Iyall of the Nisqually Tribe is running for a Senate seat in the 22nd District. His campaign represents an opportunity to further increase Native representation in our legislature. Meanwhile, I’m honored to be running unopposed for reelection, and our colleague Claudia Kauffman’s term extends until 2026, ensuring continued Native presence in our legislative body.

It’s worth noting that since Washington achieved statehood in 1889, only nine Native Americans have been elected to our legislature. However, the current trend suggests a promising shift towards more inclusive representation. There’s a renewed interest among Native citizens to engage in public service beyond tribal governance, which is truly encouraging.

We’ve seen the positive impact of Native leadership in figures like the late John McCoy of the Tulalip Tribes, who set a strong precedent for collaboration among legislators. My colleagues and I are committed to building on this legacy, fostering dialogue on crucial issues such as environmental protection and the preservation of sacred lands.

As we approach the November elections, the potential for increased Native representation offers hope for a more inclusive future in Washington’s governance. This diversity in our legislature is vital for ensuring that all voices are heard and considered in our policymaking process.

I encourage all constituents to stay informed about these developments and to participate actively in our democratic process. Your engagement is crucial in shaping a government that truly represents all Washingtonians.

Let’s Talk About the Washington Tax System

As your elected representative, I’m pleased to provide an update on sales and use taxes in Washington State. These taxes are vital revenue sources for our local governments, including cities, towns, counties, transit districts, and public facilities districts.

Effective June 6, 2024, cities and towns are now authorized to enter agreements sharing portions of their basic and optional sales and use tax revenues as per SHB 2428.

Washington utilizes a destination-based sales tax system established in 2008, meaning that the tax rate is based on the delivery location of a purchase rather than the seller’s location. For example, if furniture purchased in Auburn is delivered to Seattle, the tax rate applicable in Seattle is charged. Sales taxes largely apply to retail sales of tangible personal property and some specific services. Remote sellers are also required to collect sales tax on sales delivered to Washington residents.

Sales taxes encompass most tangible personal property in Washington. Some services, like lodging and certain recreational activities, are also taxable. Local governments must collect sales tax on all taxable purchases unless exempt.

Use tax applies when a taxable purchase is made out-of-state and brought into Washington. If the sales tax paid is less than the local rate, the buyer must pay the difference. For example, if furniture bought in Oregon incurs no sales tax, but the local rate in Washington is 8.2%, the buyer owes a use tax of 8.2%.

Numerous exemptions exist under state law, such as for prescription drugs and groceries, though prepared foods and restaurant meals typically remain taxable. Additional exemptions for local governments include charges for public records and specific services for transportation projects. A recent change in nonresident sales tax exemptions requires purchases to be taxed at the time of sale, with residents of states without a sales tax eligible to claim refunds later.

The State of Washington imposes a 6.5% sales tax, with local jurisdictions allowed to impose additional local sales taxes. Cities and counties can collectively impose up to 1.0% in unrestricted sales taxes.

• Basic Sales Tax: Cities, towns, and counties can impose a basic sales tax of 0.5%.
• Optional Sales Tax: An additional optional sales tax of up to 0.5% is also available.

Specific taxes can be levied for designated purposes, including:

• Affordable Housing: Counties may impose up to 0.1% for affordable housing.
• Criminal Justice: Counties can impose a 0.1% sales tax for criminal justice services.
• Cultural Access Program: This allows cities, towns, and counties the option to impose up to 0.1% for cultural programs, effective from July 23, 2023.
• Emergency Communications: Counties can levy a tax for enhanced 911 services, now up to 0.2%.
• Public Safety: Sales tax for public safety purposes may be up to 0.3% for counties and 0.1% for cities, with strict usage requirements.

Sales tax revenues can take 60 to 90 days to be disbursed to local governments, given the monthly collection cycle by the Department of Revenue. Rate changes can only take effect on set dates—January 1, April 1, or July 1—after a notice period.

For more detailed discussions on implementation and administrative aspects, local governments can refer to MRSC’s City Revenue and County Revenue Guides. Further information can be accessed via the Washington Department of Revenue’s resources on sales and use taxes, including exemptions and rate lookup tools.

This structured approach ensures local governments utilize sales tax revenues effectively while fostering transparency and compliance among all entities involved.

Washington State Climate Committment Act

The Washington State Climate Commitment Act (CCA), enacted in 2021, represents a significant step towards achieving comprehensive climate goals within the state. It establishes a framework for reducing greenhouse gas emissions, promoting clean energy, and ensuring environmental justice. The CCA aims to cut emissions by 95% below 1990 levels by 2050, aligning the state with ambitious climate targets.

At its core, the CCA implements a cap-and-invest program. This approach places a limit (cap) on the total greenhouse gas emissions allowed from large emitters, rewarding organizations that reduce emissions and penalizing those that exceed their limits. The program also features a market component, allowing for the buying and selling of emission allowances among businesses. This flexibility encourages innovation and investment in cleaner technologies.

The CCA is anticipated to generate substantial revenue through the auctioning of emission allowances. The funds raised via these auctions are crucial for supporting various climate-related initiatives and ensuring a just transition for affected communities and industries.

Allocation of Revenue: Revenue generated from the cap-and-invest program is allocated to several key areas, as outlined in the legislation:

• Clean Energy Investments: A significant portion of the revenue is directed towards initiatives that promote renewable energy sources, energy efficiency, and clean technology development. This includes funding for solar, wind, and other sustainable energy projects that help reduce reliance on fossil fuels.
• Transportation Initiatives: Investments are made in sustainable transportation projects, including public transit improvements, electric vehicle infrastructure, and programs that encourage the use of low-emission vehicles. This funding aims to reduce emissions from one of the largest contributing sectors—transportation.
• Climate Resilience and Adaptation: To address the impacts of climate change, allocations are made towards enhancing infrastructure resilience, protecting ecosystems, and developing strategies to adapt to changing environmental conditions. This encompasses projects that safeguard communities against extreme weather events and rising sea levels.
• Environmental Justice and Equity: The CCA emphasizes the importance of addressing inequities that marginalized communities face regarding environmental impacts and economic opportunities. A portion of the funds is earmarked for community engagement, support programs, and clean energy access initiatives, ensuring that vulnerable populations benefit from the transition to a green economy.
• Job Transition Programs: Recognizing the potential workforce disruptions due to the shift towards cleaner technologies, the CCA allocates resources for job training and retraining programs. These initiatives aim to equip workers in traditional industries with the skills needed for employment in renewable energy and other green jobs.
• Forest Management and Carbon Sequestration: Investments are also made in forest management practices that promote healthy forests and enhance carbon sequestration. Healthy forests play a critical role in absorbing carbon dioxide from the atmosphere, and funding is directed towards projects that restore and maintain these vital ecosystems.

The Washington State Climate Commitment Act represents a holistic approach to tackling climate change through a framework that not only imposes emissions limits but also marshals financial resources to address environmental challenges across the state.

By utilizing auction revenues strategically, Washington aims to create a sustainable future that focuses not only on reducing emissions but also on promoting equity, resilience, and a vibrant green economy. As the CCA is implemented, its successes and challenges will serve as a model for other states in their climate action efforts.

The Role of the Treasurer’s Office

The Washington State Treasurer’s Office plays a critical role in the financial management and fiscal health of the state. Established by the state constitution, the office is responsible for managing the state’s funds, investments, and debt, ensuring that taxpayer money is utilized effectively to support public services and infrastructure.

The Washington State Treasurer’s Office is charged with several vital functions, including:

• Cash Management: The office ensures that state funds are collected, managed, and safeguarded efficiently. It oversees the receipt and disbursement of funds, ensuring that sufficient cash is available for state operations.
• Investment Management: The treasurer manages the investment of state funds, including short-term cash and long-term investments, with a focus on maximizing returns while minimizing risks. This includes overseeing the investment portfolio of the Local Government Investment Pool (LGIP), which provides local governments with a safe way to invest funds.
• Debt Management: The office manages the state’s debt issuance, including the sale of bonds to finance capital projects. This involves analyzing market conditions and determining the best timing and structure for debt issuance to ensure favorable borrowing terms.
• Financial Reporting and Transparency: The treasurer’s office is responsible for maintaining transparent financial records and providing accurate reporting on the state’s financial condition. This is crucial for informed decision-making by lawmakers and the public.
• Supporting Local Governments: The office helps local governments with financial advisory services, investment management, and access to state-managed funds, ensuring that municipalities can effectively manage their finances.

The Washington State Treasurer’s Office is funded through the state’s operating budget, which is approved by the legislature. The funding primarily comes from two sources:

• General Fund Appropriation: A portion of the state’s general fund is allocated to the treasurer’s office to cover its operational expenses. This includes salaries, administrative costs, and resources necessary to fulfill its responsibilities.
• Fees from Investment Services: The treasurer’s office generates revenue through fees associated with its financial services, particularly from the Local Government Investment Pool. The returns from investments, including interest earned on state-managed funds, are also a source of income that contributes to operational funding.

The allocation of funds within the Treasurer’s Office is aimed at ensuring effective operations and fulfilling its mission. Key areas of expenditure include:

• Operational Expenditures: The office allocates funds for salaries, training, and everyday operational needs, such as technology infrastructure that supports efficient financial management.
• Investment in Technology: A significant investment is made in modernizing financial systems, enhancing cybersecurity measures, and implementing financial reporting tools that promote transparency and efficiency.
• Debt Service Costs: The treasurer’s office uses funds to manage the state’s debt obligations effectively, ensuring timely payments on state-issued bonds and financing projects that benefit public infrastructure.
• Public Outreach and Education:  A portion of the budget is dedicated to public outreach efforts aimed at educating local governments and the public about the treasurer’s services, investment options, and fiscal responsibility.
• Support for Local Government: The office provides financial advisory services to municipalities, directing funds towards programs that enhance local governments’ financial health and provide education on best practices in financial management.

The Washington State Treasurer’s Office serves as a critical pillar in the state’s financial management framework. By overseeing cash management, investment strategies, and debt obligations, the office ensures that taxpayer funds are utilized effectively to support essential public services and infrastructure.

Through prudent financial oversight and responsible spending, the treasurer’s office not only enhances the fiscal health of Washington State but also promotes transparency and accountability in the management of public resources.

As it continues to adapt to changing economic conditions and financial landscapes, the office remains dedicated to serving the people of Washington effectively and responsibly.

The Washington State Investment Board

The Washington State Investment Board (WSIB) plays a pivotal role in managing the investment assets of the state, ensuring the long-term sustainability and growth of public funds benefiting various stakeholders, including state employees, retirees, and public entities.

Established in 1981, the WSIB is responsible for managing a diverse portfolio aimed at maximizing returns while minimizing risks. This article explores the key functions of the WSIB, its investment management strategies, and how it generates and allocates revenue.

Key Functions of the Washington State Investment Board

• Investment Authority: The WSIB manages investment funds primarily for public retirement systems, including the Public Employees’ Retirement System (PERS), the School Employees’ Retirement System (SERS), and the Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF). The board is entrusted with ensuring the financial health of these funds to meet future benefit obligations.
• Diversified Investment Strategy: To manage risk and achieve optimal returns, the WSIB employs a diversified investment strategy. Its portfolio includes a mix of publicly traded equities, fixed income securities, private equity investments, real estate, and infrastructure. This diversification is essential to stabilize returns in varying market conditions.
• Sustainable Investment Practices: The WSIB is committed to integrating Environmental, Social, and Governance (ESG) factors into its investment decision-making process. This commitment aims to enhance long-term financial performance while addressing social and environmental concerns.
• Risk Management: The board employs rigorous risk assessment processes to identify and manage potential investment risks. This involves regular monitoring of the investment portfolio’s performance and market conditions to mitigate risks and advise on adjustments as needed.
• Collaboration and Reporting: The WSIB works closely with other state agencies and local governments to provide investment management services. It regularly reports on investment performance to stakeholders, ensuring transparency and accountability in its operations.

The WSIB manages multiple funds, including the:

• Public Employees’ Retirement Fund: Provides retirement benefits to state employees.
• Teachers’ Retirement Fund: Focused on funding retirement for educators and school staff.
• Infrastructure Investment Fund: Invests in public infrastructure to support state development projects.

The WSIB utilizes a comprehensive investment framework that includes asset allocation strategies tailored to meet the specific needs of each fund. Key aspects of the management process include:

• Asset Allocation: Determining the optimal allocation among various asset classes based on risk-return profiles and projected market conditions. The WSIB adjusts these allocations periodically, considering economic forecasts and investment performance.
• Investment Selection: The board employs a combination of in-house investment management and external investment managers, allowing for both specialized insights and broader market exposure. This blend helps maximize investment returns while controlling costs.
• Performance Monitoring: The WSIB continuously evaluates the performance of its investments against benchmarks and industry standards. By analyzing performance, the board makes informed decisions about future investment strategies and manager selections.

The revenue generated from the WSIB’s investments plays a critical role in funding various public programs and benefits. Key components of revenue generation and allocation include:

• Investment Returns: The WSIB’s investment activities generate significant returns, which are distributed to various state funds, ultimately supporting retirement benefits and other public initiatives. These returns have a direct impact on the financial health of Washington’s public retirement systems.
• Fee Structures: The WSIB charges fees to its clients for investment management services. These fees are typically structured as a percentage of assets under management, ensuring that administrative costs are covered while maintaining competitive performance
• Support for State Programs: Investment revenues contribute to funding wide-ranging public programs, including education, healthcare, and infrastructure development, enhancing the quality of life of Washington residents.
• Risk Buffering: The WSIB’s focus on achieving stable and consistent returns helps create a financial buffer for the state, enabling it to manage economic downturns and other fiscal challenges effectively.

The Washington State Investment Board plays a vital role in managing the state’s investment portfolio, providing essential support for public retirement systems and state-funded programs. Through prudent investment strategies, a commitment to sustainability, and rigorous risk management practices, the WSIB ensures that public funds are utilized effectively to benefit current and future generations.

As financial markets evolve, the WSIB remains dedicated to its mission of delivering strong, long-term investment returns while promoting transparency and accountability in its operations.

Committment to National Credit Rating and Borrowing Capacity

The ability of Washington State to effectively manage its finances relies heavily on its credit rating, which directly influences its capacity to borrow funds at favorable interest rates. The Washington State Treasurer’s Office plays a crucial role in maintaining and enhancing the state’s credit rating, thereby ensuring that it can access necessary funding for public projects and services.

Understanding Credit Ratings: A credit rating is an assessment of the creditworthiness of a borrower, in this case, a state government. Ratings are assigned by independent rating agencies, such as Moody’s, Standard & Poor’s (S&P), and Fitch, based on a comprehensive evaluation of the state’s economic and financial health.

Higher credit ratings indicate lower credit risk, which can lead to lower borrowing costs when the state issues bonds to finance infrastructure projects, public services, and other essential programs.

The Washington State Treasurer’s Office actively works to uphold the state’s credit rating through a variety of strategies and practices:

• Fiscal Responsibility: The Treasurer’s Office ensures strict adherence to sound financial management practices. By promoting prudent budgeting, maintaining adequate reserves, and avoiding excessive debt levels, the office fosters a stable financial environment conducive to favorable credit ratings.
• Transparency and Accountability: Consistent transparency in financial reporting and operations is paramount. The Treasurer’s Office provides detailed financial information to stakeholders and the public, ensuring accountability in how taxpayer funds are managed. This transparency builds trust with credit rating agencies, bolstering the state’s reputation.
• Effective Debt Management: The office strategically manages the state’s debt portfolio, ensuring that borrowing is undertaken with favorable terms. This includes issuing bonds at the right time to take advantage of low-interest rates and refinancing existing debt when beneficial. Keeping debt service costs manageable is essential for maintaining a strong credit profile.
• Economic Diversification: Washington State boasts a diverse economy, which is a key factor in maintaining its credit rating. The Treasurer’s Office emphasizes policies that support economic growth across various sectors, including technology, healthcare, agriculture, and manufacturing. A robust economy reduces the risk of revenue volatility, which is viewed favorably by rating agencies.
• Engagement with Rating Agencies: The Treasurer’s Office maintains open lines of communication with credit rating agencies. This engagement includes providing updates on the state’s financial health, discussing new initiatives, and addressing any concerns that may arise. Proactive communication can lead to better relationships and more favorable ratings.

Washington State’s credit rating has significant implications for its borrowing capacity:

• Lower Interest Rates: A strong credit rating allows the state to issue bonds at lower interest rates, reducing the cost of borrowing. This enables the state to fund essential services and infrastructure projects more efficiently, maximizing the impact of taxpayer dollars.
• Increased Investor Confidence: A solid credit rating boosts investor confidence, allowing the state to attract a broader base of investors. This demand for bonds can lead to higher sale prices and more favorable terms when the state borrows.
• Easier Access to Capital Markets: The state can more easily access capital markets for funding needs when it holds a high credit rating. This ensures that Washington can finance critical investments in education, transportation, healthcare, and other public services without facing significant barriers.
• Long-Term Fiscal Stability: A strong credit rating indicates fiscal health, contributing to long-term financial stability for the state. This stability is crucial for planning and executing strategic initiatives that promote growth, development, and community well-being.

The Washington State Treasurer’s Office is deeply committed to maintaining a strong national credit rating, recognizing its vital role in the state’s financial health and borrowing capacity. Through a combination of prudent fiscal management, transparency, effective debt strategies, and proactive engagement with credit rating agencies, the office works to enhance the state’s financial standing.

As Washington continues to invest in its infrastructure and public services, a strong credit rating will remain essential for accessing the funding necessary to ensure a prosperous future for its residents. By prioritizing these efforts, the Treasurer’s Office not only safeguards current financial health but also lays the groundwork for sustainable growth and stability in the years ahead.

Understanding Washington’s Budgets

The state budget process in Washington is critical in shaping the fiscal policy and priorities of state government. The process involves the collaborative efforts of both the legislative and executive branches, ultimately guiding the allocation of state resources over a two-year period.

Washington operates on a biennial budget cycle, which means the state government’s budget is adopted for a two-year period. Here is an overview of the process:

• Budget Proposal by the Executive Branch: The Governor’s Office prepares a draft of the biennial budget, typically released shortly after the legislative session starts, which begins in January of odd-numbered years. The Governor’s budget proposal outlines revenue forecasts, projected expenditures, and a detailed financial plan for state operations.
• Legislative Review and Hearings: The Legislature, which consists of the House of Representatives and the Senate, reviews the Governor’s budget proposal. Various committees hold public hearings to gather input from citizens, stakeholders, and state agencies. This stage allows for transparency and dialogue regarding budgetary priorities and needs.
• Legislative Budget Development: After review, the Legislature develops its version of the budget. This may involve modifying the Governor’s proposals, reallocating funds, or introducing new spending initiatives based on legislative priorities. The budget bill must pass both chambers of the Legislature.
• Final Approval: The final budget must be adopted by a majority vote in both the House of Representatives and the Senate. Once approved, the budget is sent to the Governor for signature.
• Governor’s Veto Power: The Governor has the authority to veto specific line items or the entire budget. If the Governor vetoes parts of the budget, the Legislature can choose to override the veto or work to amend the budget accordingly.

In addition to the biennial budget, Washington has a supplemental budget process that occurs during the odd-numbered years. This process allows the Legislature to make adjustments to the existing biennial budget.

Here’s how it works:

• Legislative Adjustments: The Legislature reviews the existing biennial budget to identify areas where adjustments are necessary. These adjustments can be influenced by changing economic conditions, unforeseen expenditures, or priorities that emerge throughout the biennium.
• Proposal and Hearings: Similar to the biennial process, lawmakers propose supplemental budget adjustments, and committees hold hearings to discuss these changes.
• Voting and Approval: The supplemental budget adjustments are then presented as a separate bill, which must be approved by both the House and the Senate. Once passed, it also requires the Governor’s approval.

Differences Between Biennial and Supplemental Budgets: The primary difference between the biennial and supplemental budgets lies in their purpose and scope:

• Biennial Budget: This is the comprehensive budget that sets the fiscal framework for the next two years. It outlines all expected revenues and expenditures, including funding for state agencies, education, transportation, and public services.
• Supplemental Budget: This is used to modify the biennial budget to accommodate changes in fiscal conditions or emerging needs. It often includes demand-driven expenditures that were not anticipated during the biennial budget development.

The budgets proposed by the legislative and executive branches serve different roles in Washington’s budgetary process:

• Executive Branch Budget: The Governor is responsible for developing the initial budget proposal, which reflects the executive’s policy priorities and vision for the state. This budget is often seen as a “starting point” for budget discussions and includes projections for state revenues and expenditures based on the Governor’s assessment of the state’s needs.

 

• Legislative Budget: The Legislature takes the Governor’s proposal and reviews it through various committees, leading to modifications that reflect the needs and priorities of both chambers. The legislative budget may differ significantly from the executive proposal based on the lawmakers’ perspectives and the input they receive from their constituents and stakeholders.

In essence, while the executive branch proposes a budget aligned with the Governor’s objectives, the legislative budget reflects a collaborative process that incorporates various viewpoints from elected representatives of the state.

The Washington State legislative budget process is integral to ensuring that public funds are allocated effectively and transparently. The biennial and supplemental budgets allow for comprehensive planning and mid-cycle adjustments, respectively, while the collaboration between the legislative and executive branches reflects democratic principles and accountability. This process not only impacts financial stability but also shapes how key services are delivered to residents across Washington State.