Economic Revenue Forecast Council (ERFC) member Rep. Ed Orcutt, R-Kalama, ended up voting, on technical grounds only, in favor of a motion he disagreed with – officially adopting the February revenue forecast with capital gains tax revenue assumed.
The capital gains tax assumption in spite of the fact that Douglas County Superior Court Judge Brian Huber ruled the capital gains tax adopted last year, Senate Bill 5096, is an unconstitutional graduated income tax. The estimated $731 million net reduction of near general fund resources over the four-year budget outlook is consistent with the capital gains tax revenue not assumed.
The state Supreme Court is widely expected to have the final say on the matter.
“While I think the motion is going in the opposite direction that I prefer to go, I do not want to leave staff without a clear indication of how to go,” Orcutt explained at the Thursday virtual ERFC meeting on budget outlook methodology. “With only five members here voting, I will vote in the affirmative on this motion to make sure that staff has a way to do it. But will also request that staff do the alternative outlook and make it available to anyone who requests it.”
The motion as such passed 5-0, with Orcutt joining fellow ERFC members Rep. Timm Ormsby, D-Spokane; Sen. Christine Rolfes, D-Bainbridge Island; Office of Financial Management Director David Schumacher; and State Treasurer Mike Pellicciotti in voting “yes.”
The motion was in danger of not garnering the supermajority five of seven votes required for passage, owing to the fact there were only five voting members present. Sen. Lynda Wilson, R-Vancouver, was absent, while Vikki Smith, director of the state Department of Revenue, recused herself for being named in the capital gains tax case Judge Huber ruled on.
The ERFC is responsible for overseeing preparation of general fund expenditure outlooks for future biennia. With the technical assistance of a State Budget Outlook Work Group composed of legislative and executive staff, expenditure outlooks are published within 30 days of enactment of the operating budget.
Gov. Jay Inslee signed the $64.1 billion supplemental budget into law later in the day on Thursday.
Orcutt originally made a motion not to include revenues from the capital gains tax consistent with the court ruling it was unconstitutional. Orcutt’s motion ultimately failed.
“I feel that with the court ruling putting that money in question, I think it would be wise for us to show people an outlook assuming that that money is not going to come in, and consistent with what the current court ruling is and forcing the legislature to look at what we would need to do in case the Supreme Court either rejects the repeal or basically rules with the lower court,” Orcutt explained.
Rolfes, however, objected.
“I would argue the opposite,” she said. “I would argue that we should continue to keep it in as it was in our adopted budget. And we have time before the next legislative session to readjust the budget if the…Supreme Court or an appeals court rules differently and we need to adjust accordingly. But I would recommend that we make this decision maybe in the fall.”
The OFM head and the state treasurer agreed with Rolfes.
“We don’t know what the Supreme Court may or may not do,” Schumacher said. “We will have to react to this and the changing revenue forecast and lots of other variables between now and when we get to make another budget, so I don’t know that we should pick and choose which things to make changes now, so I would vote ‘no’ on the motion.”
On March 25, the Attorney General’s Office filed a request for direct review with the state Supreme Court.
Pellicciotti argued that his vote was about “stability.”
“It is helpful to have stability over these next several months as we meet with our credit rating agencies,” he said. “And I think having that stability instead of going back and forth related to different court cases would be helpful. So I’ll be voting ‘no.’”
Last year, the Democratically-controlled legislature passed – and Gov. Jay Inslee signed into law – a capital gains tax aimed at the state’s wealthiest residents. The measure adds a 7% tax on capital gains above $250,000 a year, such as profits from stocks or business sales. Exceptions include the sale of real estate, livestock, and small family-owned businesses.