We're only going to do 20 minutes today. 35 minutes.
20 minutes today. We're going to talk about the
budget negotiations. Keep it tight, buddy. Keep
it tight. It's a negotiation, isn't it? Not with
me, it's not, because lately I'm not into negotiating
anymore. Welcome to County Connection. the official
podcast of the Washington State Association of
Counties, where we dive into the legislative
issues shaping the future of our communities.
From budgets to public safety, infrastructure
to elections, we'll break down what's happening
in Olympia and how it impacts counties from across
the Evergreen State. Stay informed, stay engaged,
and join us as we amplify the voice of Washington's
39 counties. Welcome back, everybody, to the
County Connection Podcast. I'm Paul Jewell, the
Government Relations Director with the Washington
State Association of Counties. We're, geez, 70
-some days into the legislative session, actually
a few more than that, I think. And today is April
1st, April Fool's Day, sort of, not really. You
actually are really listening to a podcast. But
we've got Brian Inslow here. Brian, welcome back.
It's good to see you. It's nice to be here. The
scheduling of today and having me on is not lost
on me. I appreciate that. Yeah, that's what I
was kind of going with, a little bit of irony
at the beginning. Yes. Well, I'm glad that you're
here. Brian, we're going to talk about the budget
today. And the timing on this is really interesting.
I think it's actually probably a perfect time
to record this podcast because the budgets came
out last week. Both budgets have now been voted
off their respective floors. The Senate debated
and voted out the budget on Saturday. Last night,
the House did the same thing with their version
of the budget. We've got... Transportation budgets
in front of us also. The capital budgets were
released yesterday. They're being heard today.
So there's a lot going on with the state financial
picture right now. But I want to focus mostly
on the operations budget since both of those
are now out of their respective chambers and
into what we call conference. Why don't you kind
of explain so far what's happened with the budget
process and what stage we're at now that I just
mentioned? Well, you've done a great job of setting
it up, right? Every year. You kind of have to
wait until the revenue forecast comes out, which
happened on the 18th of last month. And what
is a revenue forecast exactly? And I should say
it's the revenue and caseload forecast. In Washington
State, we have a separately appointed position
that is independent that provides a revenue forecast
for the state for this biennium and the ensuing
biennium. And when you say independent, you mean
it's independent of the legislature? It's political.
Politically independent. So independent of the
legislature and independent of the governor of
the executive as well. Okay. So this is a standalone
position that essentially is responsible for
making these projections. Yes. Okay. That is
the financial projections, revenue projections
that the legislature then has to craft their
budget to. There's also a separate body that.
does caseloads which is the entitlement program
so think k -12 think medicaid things like that
where they provide an official estimate to the
legislature about how many students Right. And
how much each student costs or how many individuals
are going to be on Apple Health and roughly how
much those cost. So they take those numbers.
How many kids are we going to have in school?
And they can figure out what it's actually going
to cost to educate them for the next two years.
Same thing with, say, Medicaid recipients or
people who might be receiving other entitlements.
Maybe they're, I don't know, the foster program
or maybe they're in juvenile rehabilitation or
other programs like that. actual numbers of people
kind of dictate or are a really good indicator
of what your costs will be over a period of time.
Correct. Okay. And you know, what's really, what's,
what's interesting is there's a lot in the budget
that we don't see. We don't, we don't do what
you would call like zero based budgeting. We
don't start at zero. We started like the maintenance
level. And really what folks like you and I see
when we're talking about these program ads or
program additions, that's actually what's called
the policy level. So that's even beyond kind
of those mandatory adjustments based on caseloads
and the cost of those caseloads. So that's a
really interesting point that you bring up, too,
because really famously, several years ago, when
Governor Gary Locke was in office, he specifically
did implement a zero -based budgeting process.
That was probably before your time. I know it
was before my time. you look at government budgeting
processes, zero -based is one of the opportunities
that you have in front of you, right? It's zero
-based or growth -based or what you call maintenance
level, which is what we're typically doing here
in Washington State now. But in the past, it's
been done in different ways, and there are these
other ways that you can do it, correct? Yeah,
you're not going to believe this, but I was...
I'm old. That actually you probably believe.
You're like, no, I'm looking at you. I can tell.
And I've been around a while and you've been
around a while. So both of us are a little older
than we were when we first started. That's for
sure. My first job in Olympia. My first real
job was serving pizzas in Glacier National Park.
Oh, really? Yeah, yeah. Well, I had a paper route.
So my first job, not to digress, but you know
the Dairy Queen in Tumwater? Oh, yeah. Right
there across from Peter G. Schmidt Elementary
School. So that was my first job, my first real
job away from my family and whatnot. Place was
built. I was the drive -thru guy. Oh, love it.
Yeah. That was 1991, as a matter of fact. There
we go. So I started answering phones in the Locke
administration in 99. Oh, okay. And then... So
you were around for Gary Locke. I was. And then
I moved in the communication shop. And so I was
part of the team that spun the messaging on zero
-based budgeting. And not to push... It still
was mostly incremental. Which is what we have
now. It really, it wasn't, I mean, we really
didn't start from zero. Well, there are different
ways to do it, but it was quite, it was quite
famously kind of. Re -examining all of the things
that are otherwise unquestioned. It was one of
Governor Locke's trademarks at the time, right?
Yes. Around his fiscal responsibility policies,
implementing this zero -based budgeting system.
But you're saying it wasn't truly zero -based
like maybe a county would do. Correct. Okay.
Yeah. Interesting. Yeah. And I don't know where
you want to go or how it's flown. I don't want
to take over. So there's $4 billion being added
to these budgets at the maintenance level that
is, at this point, agreed upon between the House
and Senate, which we aren't even talking about.
Well, let's just explain to folks, since we brought
up the fact that the process starts with the
forecast, right? And we have the caseload forecast
and we have the revenue forecast. Now, budget
writers essentially... get that information,
right? And you mentioned maintenance level. So
that's kind of where they start, right? And then
they use those numbers from there. So explain
how that starts first, and then we'll get into
the others. So you have that information that
then tells you... Kind of like, what does it
cost to do this year what you did last year?
So that's really what the maintenance level is.
And so is that really the starting point for
the next budget? Yes. Okay. Yeah. And then how
does the caseload forecast factor into that?
So let's separate. let me just like, let me separate
just like, is that part of maintenance? Believe
it or not. There's like maintenance level one
and maintenance level two. And I don't know how
wonky you want to go, but, but, but, but maybe
not too wonky, but let's go into it for just
a second. Level one is just the pure. It's caseload
adjustments for entitlement programs. So it is
a population forecast for population dependent
services. Like, as I mentioned, K -12 is the
biggest one. Medicates the second, and then you
go into corrections and things like that. Right.
Okay. And so it's just an adjustment. How many
people? And then depending on, and then for K
-12, you have a team. that works with the forecast
council to identify like a cost per student,
which is a massive model that includes, you know,
the cost of like gasoline for a school bus and
things like that and incorporates all those things.
And there's members that sit on those work groups
that include members of the legislature, a member
of the executive and like OSPI and things like
that. And you have a similar thing for Medicaid.
And then you, so then you have just the head
count and then you have what I would refer to
as like a, In the healthcare sphere, it's per
member per month, but you just have a dollar
amount that you then calculate per headcount.
Okay. So that's your case load maintenance level
adjustment. And is that maintenance level one?
And that's maintenance level one. Okay. So the
difference between maintenance level one and
maintenance level two is? Whether it's an entitlement
program or not, quite frankly. Okay. Then you
start moving on to say the... cost of employee
health benefit. Right. The cost of rents for
DNR or... or any other state agency in the buildings,
the cost of utility bills, things like that that
are more subjective, right? Do you have to rent
a building? Do you have to? There's things that
are slightly more subjective, but what you're
still trying to do is establish a shared understanding
of what is the cost of doing business this year
versus last year. But the difference is whether
it's an entitlement program or whether it's another...
agency or like state function that's current
law, but is not necessarily a mandatory program.
So it sounds like my maintenance level funding
goes up every year. For the most part. It usually
tracks with inflation to some extent. So when
you say maintenance level, I'm doing the same
things that I did last year, but I might be doing
them for more people and I might be doing them
at a higher cost because those conditions might
change as far as employee salaries or benefits,
utility costs, plant costs, the number of people
that I'm serving, right? Things like that. 100%.
Okay. And the state budget is not... It's different
than a county budget. I don't want to oversimplify
it. But at the end of the day, your largest expenditures
are in objects A and B, which for non -accountants
and non -budget folks, that's salaries and benefits.
And when you, you know, if you're at home and
you're looking at the cost of your healthcare
premiums, which went up. 10 % roughly kind of
statewide nationwide. Right. Then that's a big
cost driver. Right. And that's reflected in that
maintenance level too. Okay. So all of those
things go into maintenance level. So that's where
we start at is we look at what our caseloads
are and what our costs are to accomplish all
of those things. And that's. Kind of that starting
point. That's what goes on each of those line
items for each of those budget items. And that's
why we never see a budget proposal before the
final revenue forecast and final caseload forecast,
because it would be wasted effort almost. Okay.
Yeah. So once we establish our maintenance level
budget, then what happens? Then we started getting
into the policy conversation. Okay. And so, and
just for some context, I think you were just
looking at it, but we're, for this four -year
outlook, we're looking at budgets that are in
the mid... mid 70 billion to four years out landing
into the eighties. So for those who are listening,
who maybe are new to the budgeting process at
the state level, you just mentioned something
that I think is, is really interesting. So here
in Washington, we have a biennial legislative
session and we pass a biennial budget meeting.
It's a two year spending budget, but we have
a four year budget outlook. Yes. Explain to us
why that's in place and why it's important. Sure.
Well, you know, We have a biannual budget because,
you know, it's a legacy of states not being that
sophisticated. Sure. And some of our counties
do a biannual budget, too. They're all very sophisticated,
Paul. I didn't mean to say that they weren't
sophisticated. I was just drawing some similarities
between the two -year budget cycle at the state
level versus a two -year budget cycle at the
county level. So throughout. recent history throughout
my history um there's been various tools within
our either statutory environment or um no statutory
or that have been intended to kind of limit how
much spending can occur right some of you might
remember the 601 spending limit and that's a
reference to initiative 601 right which was um
how many years ago was that oh dear a lot yeah
i remember it though I'm sorry to say. Boy, why
do we keep coming back to these references about
how old we are? It would have been pre -2010.
Yeah, definitely. And so it would have been in
the aughts. You know what's great about a podcast
is I can have a... computer right in front of
me and I could just Google this. Click it up.
Yeah. Yeah. And so, and what that was, was it
was, it essentially said based on how much you
spend out of your general fund, which is equivalent
to the county current expense. So, so if I use
those terms interchangeably. 1993. Oh yeah. Long
time ago. Okay. And we were still operating under
it for a while then. And basically you could,
it had a fiscal growth factor based on how much
you spent. That's right. And there was always
ways to work around it. Because it was predicated
on how much you spent out of your, again, current
expense or general fund. But you could artificially
increase your general fund by rolling other funds
into your general fund. Or you could do fund
transfers. And there was all sorts of things.
For those of you out there that are really interested,
go look up like Magic Money Machine, which was
a staff email that got leaked the last time they
used it. I think it was the Education Legacy
Trust account. Put in place. Anyhow, that ended
up going away. I think people call those accounting
gimmicks, actually. Tricks, gimmages. Gimmages?
Gimmicks. I feel certain gimmages is not a word.
I'm going to look that up, actually, while you're
talking. It's right under ginormous and irregardless.
How do you spell gimmages? So anyhow, the latest
evolution has been the four -year outlook. which
is a statutory requirement. It was passed by
the legislature. It was not passed by initiative,
which is something that sort of comes into play
this year, I think. And it requires the legislature
to have a final budget product that balances
or is sustainable over four years. And so it
does in many cases have a forcing function of
creating some restrictor or governor of how much
you can spend in the current biennium or the
ensuing biennium. So when they're building their
maintenance level budget for this year and for
next year, because it's a two -year cycle, they're
looking out at the next two years as well. at
both revenue projections and are they looking
at caseload projections also? Oh, 100%. Okay.
Which would make sense, right? Because they want
to make sure that what we're putting in the budget
now is at least sustainable for that two -year
period. It would seem that it would be even smarter
to try to look even further out, right? If you're
thinking about sustainability, but I have to
imagine that the further out you go, the less
reliable those... projections are going to be
because things change so much. Yeah. I think,
you know, any economic forecast over 18 months,
you could start arguing, but, and then you go
beyond that. I think so. You try to push the
five or six years and you start. really wondering
about how realistic it is. Yes. Yeah. I mean,
I'm, yeah, I'm, I'm wondering what like interest
rates on a home are going to be in five years.
Right. Yeah. So, so, but to your point, so there's
been a number socialized about the revenue problem
and it's been identified as 13 billion, give
or take, and I don't want to, I don't want to
spend too much time arguing or haggling one way
or another, but that that's a four year number.
And if you think about that as like imagine you're
like a kid playing with blocks and you're like
stacking blocks and you have like 10 blocks.
And in year one, you put one block. And in year
two, you put two. And year three, three. And
then year four. And that is a visual representation
of that $13 billion problem that is growing over
time. And is a creation of those inflation factors
stacking on each other. So really the problem
that we're trying to solve in year one and two
is around $5 billion, $6 billion, $5 billion,
like five. And then the problems in three and
four is more like nine. yeah and so that's when
you so that's where some of that tension when
you have to solve for four years comes in and
that's why you see some of these revenue packages
that have been introduced at the scale that they've
been introduced at. It's an interesting visual
that you bring. It brings to mind some of the
ideas or arguments around investing for retirement
and doing it at an early age because of compounding
interest. It builds up over time. But what you're
describing is exactly the opposite and it working
against you in this sort of budget outlook where
if you don't start addressing these issues now,
they become worse over time because they start
to pile on to one another almost the same or
really in the same fashion as, say, compounding
interest would. But maybe we could call this
compounding inflation, compounding caseload increases,
et cetera, et cetera. So that's where that four
-year outlook really becomes valuable in a process
like this. Yeah. I mean, when's the best time
to plant a tree, Paul? Yesterday. Yeah. Yeah.
But outside of yesterday, today. Yeah. Right.
Yeah. Sorry, Scamania. Shouldn't have mentioned
that. I think they appreciate it, actually. Okay.
Good. Good. Good. So that's kind of – I don't
know where we kind of want to go from there.
But, I mean, so those are the – that's the atmosphere
in which we're – like tackling this budget and
this budget challenge as it stands today is you
have what's really not a recession yet. No. But
an inflationary tension on the operating budget.
And you will see this play out in the media and
in the back rooms. you know, when you dig into
the numbers, the revenue forecast is giving you
4 % annually. And you'll hear a lot of talking
points about that and whether that ought to be
enough as we start having the tough votes around
whether you support revenue or not, or whether
you support the revenue proposals that are being
put forward. Well, yeah, I mean, I think that's
really an interesting point and one that we kind
of gloss over a lot because there's a difference
between, you know, cutting the budget and cutting
the budget from different perspectives, right?
We're talking about a state budget outlook that's
got a four -year outlook of $13 billion as far
as the deficit goes, but we're actually seeing
revenue still increase over that period of time.
Yes. Right? What we're seeing is that the revenue
is not increasing at the same level as the costs
are projected to increase, which is oftentimes...
what we feel at the local level as well but we're
much much much more constrained than the state
is right if if our counties were seeing year
-over -year revenue growth of four or five percent
i think they'd be very excited about that but
of course they're not for the most part because
we're dependent on different types of taxes and
we have growth limit factors that are much more
stringent on those on those revenue sources that
make up the majority of our revenue or our resources,
which of course is property tax. I don't want
to get into that today because we want to focus
on these budgets, but that is kind of the setting
that we're in, right? We are actually seeing
revenues still go up. We're not in a recession.
We're seeing growth in the economy. It's just,
it's not growing as fast as the projected expenses
are growing, right? In testimony in front of
the Ways and Means Committee this year, I actually
said, welcome to being a County. Yeah. Cause
it's a lot tighter than it has. I'm not sure
how well it hit, but, but, but no conceptually
you're spot on. And again, the numbers are different.
The obligations are different, but you're right.
You know, we're looking at a. In the last 25
years, roughly, since the 1 % cap on property
tax was put in place by the legislature in a
special session after the initiative was thrown
out. That's right. Just to be clear. Initiative
747. We've been at 1%, and don't quote me on
this, but inflation's been about 3%. Plus or
minus over the 25 year history. There were times
when it was actually negative, but there were
times when it was as high as eight or 9%. So
a little bit more. Yeah. So, so well, recent
history, but, but, you know, and so that's kind
of that gap and tension we've been operating
on. Right. Yeah. So the other part of this, of
course, is the state really hasn't seen this
type of budget forecast for your outlook for
many years, not really even since the great recession,
there was a little blip, you know, during. COVID,
but that was just a perceived or anticipated
blip. It actually never manifested, right? In
fact, revenues continued to grow at much faster
rates than they thought they would during that
period of time. So the last time the state has
really been in this situation where they've really
faced anything as daunting as a four -year budget
outlook as the one that they're facing now was
really during the Great Recession. 2009. I was
here. You were here. I had just transitioned.
I was part of the budget team. At then -Governor
Gregoire's office, I was doing corrections and
Department of Health, substance abuse, things
like that, part of the human service portfolio.
And we were sitting around a room with the governor,
and the governor was like, you know, you would
put a cut forward and say, well, here's a cut
we could do. And the governor was like, who are
you? Because the governor wanted to know. And
you'd be like, well, I am a person here in the
country legally who needs kidney dialysis on
a regular basis to function. And if we do this
cut, I'll only be able to get it in the emergency
room. And that was kind of the level of detail
and, you know, the level of reductions we were
looking at. And so that was specific to, like,
what were some of the state -only programs that
we were – oh, I don't want to get – I don't want
to get us too far, but this is part of me trying
to trick Paul into going for, like, 45 minutes.
I love it. It's not going to happen. But every
state operates a Medicaid plan. OK. Yes. And
for the most part, there are things that are
and just at a high level, there are things that
the federal government will match what you do.
And then some states like Washington also provide
additional benefits above and beyond, which are
called state only. So so we provide more service
and we only use state dollars to support those.
So so when you're starting to make cuts, those
are the things you look at first, because if
you because really this is a general fund problem.
So if you cut a state only problem, you're going
to save. $50 million in general fund, and you're
going to cut $50 million of service. If you cut
something that's got a match dollar, you're going
to save $50 million in general fund, and you're
going to cut $100 million in service, roughly.
Because you're going to lose that federal support
as well. Correct. Yeah, those are the dollars
that you always want to try to protect. Yeah.
So you were still in Governor Gregoire's office,
but then you quickly, at some point, During the
Great Recession. January 1st, 2009, I started
at WASAC. Okay. And January 1st, 2009, I also
started at WASAC as a member. So we actually
came together at the same time. I don't think
we realized that, which is neither here nor there.
But we both remember what it was like then. Yes.
And how difficult it was for counties and how
difficult it was for the state. And I just want
to bring this up because... What we're facing
now is dramatically different, at least in the
initial budget proposals, because back then counties
were a target. All local governments were a target.
The state was cutting left and right state shared
revenue all the way down the line for all kinds
of programs. Public health, for instance, was.
gutted, both at the state and the federal level.
A lot of our other shared revenues, you could
name them, PILT funding, transportation funding,
any of those planning dollars that we were getting
for meeting obligations on a statewide level
or on a local level. excuse me, on a local level,
all of those were on the chopping block and many
of them were cut. And it seemed like year after
year after year, we were just fighting more and
deeper cuts. This year with these budget proposals
and this financial outlook, there's a lot of
support in these budgets for counties, a lot
more than what we saw. 20 years ago during the
great recession, not quite 20 years ago, 16,
15 years ago. It's okay. During the great, during
the great recession. It's like the it's as if
this legislature is taking a completely different
view. And honestly, these budget proposals from
my point of view have, after having reviewed
them and lived through, you know, the previous
great recession, these are actually really good
for local governments. Yeah. So for the listener
out there, Maybe plural listeners. There's only
two or three. Don't worry about it. I don't believe
this desk is made out of wood, but I am desperately
going to ask Paul to find some wood and knock
on wood. Well, because we're still a long ways
away. Because this is a hundred percent certain
the high water mark. Yeah. For everyone. I agree.
And okay. But it's a great place to start. compared
to where we found ourselves in the past when
facing similar financial outlooks. Yes. To the
legislature out there, if you're listening, we're
grateful. We're incredibly grateful. We really
are. I'm not joking when I say that. I mean,
it really, and I've said this in my testimony,
the support that they've shown local governments
in their initial budget proposals is very...
Um, welcome. It's very, uh, we're very grateful.
Like I said, for it, we're thankful, uh, for
it. We, we appreciate the trust that they placed
in us and I want to go over some of the details,
but then I want to talk about, you know, what
else we need to be worried about and what's to
come. Can we start there? Yeah, let's do it.
I might not know any of the details, but I mean,
so, so, so, um, we're kind of getting into this
rhythm and, and so, um, Just to go back, the
revenue proposals came out before the budgets.
Yeah. And the initial Senate revenue proposal
was roughly around $17 billion. Now, for the
listener, let's make sure they understand what
we're talking about here. So you get budgets.
Budgets are bills just like any other bill. Budgets
are probably the single greatest policy. bill
out there, right? Because where you spend your
money, where you put your resources is what you
really feel is important, right? I believe the
expression is you put your money where your mouth
is. Yes, exactly. And the budget is the single
largest policy bill. I thought you were going
to say it's the biggest mouth going. Well, it
speaks volumes. It does speak volumes. But what
you just mentioned are the revenue bills or the
revenue proposals. Now, these are different.
then the budgets, right? These are policy bills
that actually provide potentially new revenue
that then are considered as part of the budget
development process and are assumed in these
budget bills. Is that right? Yes. So the spending
level that is assumed in these operating budget
proposals is predicated on their corresponding
revenue packages. passing okay and this is this
is a key point that i think you're about to make
so listeners tune in on this one well i the senate
assumes 17 billion dollars of new revenue okay
over the next four years and where does that
come from um it uh it it comes from and when
you just the house is is roughly the same it's
a little bit smaller right okay it's around 15
they they both assume um that there is a new
tax on intangible financial assets. That's right.
What's an intangible financial asset? Do you
know? Yes. Financial intangible assets or the
financial intangibles tax, things like stocks,
bonds, et cetera. And you have to, according
to the budget proposal or the. Bill proposals,
you have to own a certain amount of those before
you actually qualify. Over $50 million. Oh, well,
I don't have to worry about it. For those of
you who don't know, Paul's wife is extremely
successful. She is very successful. I'm super
proud of her. There's no way we have $50 million
worth of bonds. He's close. He's close. No. He's
got two homes. We're not even close. He's close.
He's very close. Oh, I wish I were very close.
Very close. From the humble beginnings of serving
ice cream out of the Dairy Queen window to where
he is now because he married well. Right here
behind the microphone with you, Brian Inslow,
yes. Yeah, I am not close. So they both have
this tax on stocks and bonds. Yeah. And then
they both have another business tax. They do
it a little bit differently. The Senate has a
payroll tax, which is on earners over 100. It's
like the Social Security maximum. It's $176 ,100.
Yeah. Yeah. And so which is think. It's a 5 %
tax. Now, is that paid by the employer or by
the employee? Well, compensation is a negotiation.
That's true. But it's paid by the employer. Now,
the company also has to have a certain amount
of payroll. cumulative, right? I think it's a
$7 million payroll before they qualify. Yeah.
I think some counties have payroll. I think they
do. Yeah. And I think especially when you factor
in overtime for certain uniformed personnel.
Yeah. There's probably a pretty good chance that
those personnel and some of your higher paid
directors in certain departments are likely,
especially in our larger counties, to meet or
exceed that payroll level. So they potentially
could fall under. this tax as well. They could
and would. Yeah. Yeah. And, you know, not the
greatest optics for us to bring up how much.
public sector employees are being paid. Well,
I mean, in today's world, relative to everyone
else, that's actually not that large of a salary.
And I can't believe I'm saying that, right? But
when you think about the tech industry that's
out there and some of the other things that exist
here in Washington State, that's not that large
of a salary. Now, that's a great salary, right?
That's definitely an upper middle class salary.
That's probably a top 10 or top five. percent
salary in many communities if not even higher
um but when you talk about you know some of the
more uh urban areas seattle the greater you know
puget town metro area there's probably a lot
of people that are making that type of salary
i would think so yeah and to further the the
public like um uh University of Washington? Yeah.
WSU? Sure. I mean, University of Washington also
runs the hospital. Right. But there's a lot of
public institutions at the state level that would
actually have to pay this as well. It's not going
to hit teachers, even if you got... you've got
a master's degree, even if you've got 15 years,
even if you're coaching, you're probably still
not at 177. It would hit superintendents. I think
some of the top tier teachers are. I think they
top out around 180 or so. And the only reason
I know that is because my wife is very successful
in the education industry. Taller, better looking.
Well, all those things are true. Not taller,
thankfully, but definitely better looking. Are
you sure? Yes, I'm sure. Next time, LawSec members,
next time you see them, make them stand back
to back. With Paul's shoes off. I wear heels
when I'm around her. That's for sure. Yeah. I
can't believe I just said that on the podcast.
It isn't true. Why are we talking? They're called
lifts. Moving on. They're called lifts, not heels.
Moving on. Moving on. Anyways, so there's a payroll
tax on the Senate side. You said there's a different
business tax on the House side? B &O. Okay. On
businesses that make a certain amount. So we
already have a B &O tax. Is this an increase?
It's an additional percentage. Okay. All right.
And then... And then both chambers address property
tax. Okay. The House replaces the existing 1
% cap with a new 3 % cap. And then the Senate
has... replaces the existing cap with something
that's based on population growth and inflation.
Right. Okay. So, and you know, it's interesting
from a total revenue package, the property tax
in the first couple of years, just, it isn't,
it's in the billion dollar range. It's a smaller
part of their solution than one would think.
As we all know, the magic behind that is the
compounding of it. And so over time, it's very
important. But in the short range, it's a smaller
piece of their solution than I would have thought.
Well, and it's only a billion over the first
four years on the Senate side. It's actually
quite a bit less on the House side. And I think
that's because of the difference in the cap.
that the House has versus the Senate, right?
The Senate is just population growth plus inflation.
So I assume they probably assume the max potential,
I would think, versus the House that, of course,
they assume the max, but it was capped at 3 %
maximum growth. So for the House, it's only $50
million in 2026 and $150 in 2027 versus almost
$780 million over four years on the Senate side,
as far as their projection. Still very important
to us. Well, very important to us. Absolutely.
Yeah. No, without a doubt, that property tax
change is one that we've been supporting for
many years. Yes. And by the way, we're really
glad to see that in the revenue package as far
as a proposal. Incredibly grateful to the legislature.
Yeah. I hope they can continue to support it.
We hope so, too. And as long as we've been working
on it, it's the first time we've seen it introduced
in both chambers, I believe. I don't want to
say anything. Holy grail. Of some local governments.
Well, we're desperately trying to find a piece
of real wood in this office to knock on, but
absolutely. So how much of that is real and how
much of that is actually something that is practicable
and can be passed on? Because again, these budgets
spend money. The Senate has a billion and a half
new. for special ed right uh in in just in this
in in in the in one in the buy it's like it's
around three for the four year but yeah there's
definitely some some substantial increases um
education is is one area uh there's a big increase
in uh even more um housing dollars in different
programs um you know one of the programs i was
looking at on the house side they doubled the
investment in one of the housing programs went
from like 50 million to 100 million uh that's
not a small thing to do so there are some substantial
investments here that spend above that maintenance
level uh that we were talking about before so
i think you know i think the from a and i want
to be very clear how i say this from a like house
and senate Democratic caucus perspective, their
revenue packages poll well and have polled well,
and there's Elway polls and there's other things.
So I don't think I'm saying anything controversial,
but from that perspective, those votes poll well
with general polls or have historic, like as
the lead -in into this session, there was a lot
of reports when they were looking at this, there
was an Elway poll and some other things. And
so, But when you think about the practicality
of this version versus that version, there are
some challenges. The intangible assets one is,
I think, difficult to properly... factor in what
leakage. So for instance, we've talked about
this. Paul's a very wealthy man. Stop saying
that. He's got multiple residences. He would
simply just move his accounts to his - Offshore.
To his Austin house. Right. Right? This is a
facetious Paul they're talking about. He would
just hop in. I don't even, I think he has his
own. I don't even think he has net jets. I think
he has his own. But when you have those type
of resources available to you, Right, because
what you're talking about here is folks who have
those sorts of resources also are by far the
most mobile, right? They have the least impediments
in front of them should they want to. move those
assets somewhere else, or actually physically
up and move somewhere else. That is a theory.
There was interesting testimony about that. I
don't know if you watched the hearings on the
revenue bills yesterday. Yes. There's going to
be more on Thursday in the House. Interesting
that you say they poll well, because you wouldn't
know that by looking at the people who've signed
up. And the backlash you've seen from the business
community, which has been really vocal. Right,
and very... Not just vocal, but very public.
Yes. Ads on television, ads on social media,
ads in the newspaper, right? Yeah. And I suspect
if new polling would indicate that there's been
shifts in opinions based on the work that they've
done. Sure. Yeah. Those things are influential
or they wouldn't do them, right? It would just
be a waste of money on their part. But they know
what everybody else knows, which is that sort
of information. Definitely. um can move the needle
on these on these issues for sure um but those
hearings you know were pretty contentious and
that that issue of mobility or you know the financial
or fiscal flight was actually addressed by quite
a few voters who said you know that's a myth
it just doesn't happen uh it you know etc etc
there were some who put themselves in the category
which again for the record i am not one of them
uh who would have to pay um that financial intangibles
tax and strangely talked about how they were
not only more than willing to do it, but were
looking forward to it. I don't know if I would
take that position if I were in that role, but
it was interesting the comments that some people
had to say about that. I mean, whenever we're
instituting a new... policy um whether it was
the capital gains tax whether it was uh whether
it was legalization of of cannabis there's always
projection and some uncertainty right i think
in this one and controversy and controversy i
think in this case this one feels perhaps maybe
more uncertain than than other things um well
every time that there's a revenue package that's
proposed yes The final one kind of shrinks, right?
There's always some retraction to what was actually
put out there. Here are all the options we're
considering. I think a lot of that is to test
the waters to see what sort of reaction they
get. And then they'll kind of take that feedback
and decide what to actually do. It's going to
be a negotiation. And there's where we get to
the rub of how will we fare? Yeah. as those revenue
packages get tightened up. Right. And the amount
of resources that are available become less and
less. Yes. I believe the expression is, you start
looking at the other animals a little differently
when the watering hole starts to dry up. Yeah.
That's a very brutal way to look at it, I think,
Brian. But I mean, the point is well taken, right?
At some point... You know, there are some decisions
that have been made in these budgets that are
difficult, right? But there are also new investments
and additional spending based on the priorities
of the budget writers and the legislators that
are, you know, that are making these decisions.
At some point, there's likely to be less revenue
than is being projected in these proposals. And
so what are the decisions that they're going
to make then? You know, it's the proverbial.
next shoe that's going to drop. Yes. And sometime
in the next few weeks, they're going to have
to come together and make those decisions. And
it will be interesting to see if local governments
are still in the, in the position that they find
themselves today. And specifically, obviously
from our point of view counties, right. Or if
there are additional sacrifices that we will
have to also deal with moving forward. Yeah.
So that's really the next step, right. Is yes.
That process. And, and, and to, And to give the
legislature credit where credit is due, when
you look at these balance sheets, there's a reason
why there's a lot of money left in reserve. Yeah,
billions, actually. Billions. And I think that
was by design. And I think a lot of that is based
on the fact that they knew that there's going
to be a negotiation moving forward. Well, how
much of that is based on that versus also some
of the uncertainty associated with what's happening
on the federal level and some of the cuts that
we're experiencing from... the federal government
and how those trickle down into the States. Right.
There, there was a big announcement just last
week about public health, public health services
and clawbacks of some of the grants and some
of the revenue that was given out during COVID.
Some of our public health departments are already
sending out notices of layoff to some of their
employees because they no longer have the funding
to support them. And that's not just happening
in Washington state, but nationwide nationwide.
There's discussion about removing the tax -free
status of municipal bonds on a federal level,
which would be massively impactful. There's discussion
about Medicare and Medicaid cuts as well. In
fact, I shouldn't say Medicare. I think it's
mostly focused on Medicaid, which, of course,
is how we fund. Apple Health here in Washington
state. And you start looking at those numbers
and what that could mean. Those can be pretty
substantial as well. So how much do you think
that kind of hold back in reserve of a couple
of billion dollars was looking at forward thinking
to these negotiations versus impacts from other
sources like the federal government? Yeah. Yes.
Like all the above to what you said. I mean,
I am so worried for like our rural hospitals.
One of the big cuts is to what's sometimes referred
to as the safety net assessment program, which
is a program where we... create like a drawdown
for for federal to to compensate hospitals for
the care that they do to the Medicaid population,
both outpatient and inpatient. And it was there
was a pretty significant reform under the Biden
administration that was keeping hospitals afloat.
And that was one of the things that was announced,
I think, last week as being pulled back. We already
saw some layoffs and like it was a valley. In
like the Kent area, like they let go of 100 people.
So to your point. And so I think that uncertainty
is built into these fund reserves. I think the
forecast even built in some uncertainty because
it took 500 million from kind of the. the first
two years and then 500 million from the next
two years. And I think some of that was front
loading uncertainty just to get ahead of it.
Interesting. Because otherwise jobs are okay.
Housing starts to okay. Revenue collection has
been okay. Right. There wasn't, I mean, I'm not
saying there wasn't a reason to take money out,
but it did seem like getting, trying to get in
front of it. Well, and I don't want to further
complicate this more, Brian, but there's another
piece of this that you didn't mention that was
part of the revenue bills. And that's on the
Senate side. They actually, pull back the sales
tax. State sales tax is 6 .5%. They pull back
a half a percent to reduce the impact on the
average household at the retail store, whether
it's clothing or sporting goods or whatever it
may be. So that half a percent is actually booked
at, I think, a billion and a half dollars in
potential reductions in revenue. Now, that's
an interesting kind of trade -off, I think, is
what the Senate was trying to do, right? They
were trying to trade more... progressive i .e
tax the rich types of sources for you know reductions
in you know the average or or um uh you know
taxes on say you know that that are more aggressive
a little harder that sales taxes is a is is disproportionately
felt right right lower income household absolutely
so they were trading kind of back and forth how
long does that stay on the table How long is
that still realistically considered part of the
package if they start having to pull back on
some of these revenues and making deeper and
deeper cuts? So you're going to hate this answer.
Depends. Well, I mean, it's not surprising. So
here's why I say that. So in the Senate proposal
around property tax, there's some language around
requiring the local government to make a finding
of having inadequate. resources for public safety.
And why do we think they did that? Well, because
there's an emphasis on public safety this year.
There's a lot of pressure, I think, on the legislature
to make new investments in public safety and
law enforcement. I think that some of the previous
reductions that they've done in the last few
years have had kind of a negative impact, at
least on people's perceived public safety. And
so they want to see the legislature do something
differently there. Every single one of those
answers is wrong. Oh, it is. Okay. No, I'm kidding.
I love it when people come on the podcast and
say, Paul, everything you just said is wrong.
That sounded great. No, no. I actually think
those are all true. I am going to speculate.
Okay. I don't know if we have any, like if Mitch
can put any like graphics or like if we have
like sound effects for - You can't do graphics
on a podcast. Blatant. This isn't a YouTube feed
too? No. No YouTube feed. Some blatant sound
effects around when one of your guests is just
going to like delve into idle speculation. Idle
speculation. But I believe... Pure and complete
unsupported statements. I believe... No evidence
whatsoever. That I am going to engage in professional
malfeasance and suggest that it's about a ballot
strategy as well. Oh, okay. So that you ballot,
quote unquote, ballot proof your revenue proposal.
So then... If someone were to put a repeal of
the replacement of the 1 % cap with, say, some
other like a 3%, and it was then tied to public
safety, when you write on the ballot title, you
say, if you take this money away, you take money
away from public safety. That's my speculation.
And so... So kind of a... I mean, you say it's
a... ballot strategy but it's more of a marketing
strategy around a ballot issue i'm gonna just
say yes because of the same thing you're making
folks at home google pedantic so so so i think
i think it's conceivable that's sad that i don't
have to google pedantic no you deal with people
like me and josh and brad like every day i know
exactly your life you're like these guys So I
think it's conceivable that you, I'm going to
idly speculate that you might do something like
that with one of your business taxes. Yeah. Yeah.
And you have them, you have them in the same
piece of legislation, you have them tied together.
And if you repeal the, say hypothetically a payroll
tax passes, you repeal the payroll. And then
again, that's idle speculation, but I can see
that as part of a strategy of, of creating. sustainability
from a legal standpoint of your revenue. proposal.
Yeah. Well, it wouldn't surprise me if some of
the brighter minds in the legislature were thinking
the next step ahead. And I don't think we should
be surprised if some of these revenues do pass
if there aren't efforts to try to repeal them
as well. Well, Brian, I said that we were going
to be here for 20 minutes, and we've been here
for more than twice that amount of time. Every
time this happens with you with a podcast, it's
just so fascinating. And we get into the conversation.
And before you know it, we've lost. We lost.
We're down to one and a half listeners. We had
three. The other one and a half fell asleep halfway
through. I feel so bad. There's just a lot to
talk about here. And we could go on probably
easily for another hour or so, but I'm not going
to put the listener through that. I don't think
anybody loves their job as much as we love our
jobs. Oh, well. I hope others love their jobs
too. especially, especially our members. Sure.
But I mean, it's just, I mean, it's just, there's
just, it's, um, it's, you know, we get, we are
so plus that we get to represent who we get to
represent. Every day. To like interact on these
issues in a meaningful way. And it's, you know,
and it's. All right. Before things get too sappy.
All right. I get phone calls about how, well,
you know, whatever, Paul. Brian, thanks for being
here. I think there's a lot. There's a long road
to go yet on these budgets. I am excited for
the process. Kind of like, you know, I'm excited
to, I don't know, do something I don't really
want to do, but I want to see how it ends up
at the end of the day. Sure. but let's make sure
you come back after we get the final proposals
and let's do a little bit of a debrief on what
happened. Sure. Sounds great. Okay. I'd love
to. All right. Take care till then. All right.
Bye. Thanks for tuning in to County Connection.
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