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State Budget Battles: What’s in it for Construction?

As this year’s legislative session in Olympia heads into the home stretch everyone’s attention is on the budget. There are three distinct biennial budgets crafted by the Legislature – Operating Capital and Transportation – and each one has impact on construction and the politics among the three is very much intertwined.

The main issues for construction right now are:

Operating Budget: The Operating Budget itself does not have much of an impact on construction; however the Legislature is often tempted to lift funds from construction accounts in order to plug deficits in the Operating Budget. And that’s the situation we are in now: The budget bill passed by the House would divert the Real Estate Excise Tax (REET) revenue stream from the Public Works Trust Fund into the general budget. In the past the Legislature has raided funds from the Trust Fund which helps local governments build vital infrastructure projects. But with this move the House is not “merely” making a one-year raid on the trust fund; it is seeking a permanent diversion of the revenue stream. AGC is strongly opposed to permanently diverting this revenue stream.

Generally the House Democrats’ bill fills $4.4 billion of the state’s $5.1 billion shortfall through a combination of cuts use of reserves and privatization of the state’s wholesale liquor operation. It does not include any new tax revenue that would require a two-thirds vote under Initiative 1053. The budget cuts $4.4 billion in spending including $482 million to higher education and $362 million by ending automatic cost-of-living increases for state employee retirement plans. It also saves $1.2 billion by not funding two education initiatives that increase teacher pay and reduce class size which was widely expected. Significant revenue increases are assumed through the raising of various fee and permit amounts. Those bills are emerging now.

Capital Budget: Still very fluid the Capital Budget proposed by the House will depend on the negotiations and machinations involving the Operating Budget. Ultimately the amount of money available for capital projects will depend on how much is needed for the general government operations budget. The House proposed plan is a bit larger than the Governor’s proposal at $3.1 billion with about 45 percent or $1.39 billion financed with bonds. The proposal is able to accomplish this by some “undedication” of previously dedicated funds freeing them up to be included in the debt-to-revenue calculations which determine the State’s Debt Limit.

As previously noted the House Operating Budget would transfer the REET revenue stream to the Operating Budget – but the Capital Budget proposal also assumes spending those funds. Obviously that is a major detail that will have to be ironed out.

In support of the Capital Budget AGC is helping the Washington Construction Industry Council (WCIC) – an umbrella group that includes AIA NAIOP Master Builders and more – prepare a public information campaign to emphasize the importance and economic development benefits of capital investments by the State of Washington. Consisting of media letters-to-the editor and Op-Ed material the thrust of the effort is to support the adoption of a meaningful Capital Budget and to help protect against raids of that part of the Budget which would transfer funds over into general government spending. Click here to view one of the resources being used to make our point. Several AGC members have sent letters to their local papers and at least one has already been published (thanks Dan Lincoln Lincoln Construction). AGC’s Director of Government Affairs Rick Slunaker is currently president of WCIC.

Transportation Budget: Both the House and Senate bills provide for an $8.9 billion spending appropriation for the 2011-2013 biennium. Both budgets had to make up for a drop of $170 million for the 2009-2011 supplemental and the next two year biennial budget. Both budgets continue the commitments to finish the projects listed in the gas tax increases including completion of the Alaska Way replacement with the bored tunnel; and the continuation of the SR 520 floating bridge. There are differences between the two budgets which will have to be reconciled in conference committee; including a key public-private-partnership study which is included in the House budget but not in the Senate version. Chairs and Ranking Minority members of House & Senate Transportation Committees have been meeting regularly; conference compromise bill is anticipated to be released soon.

With some reductions the Transportation Budget is in relatively good shape for now but the long term issue is the fact that gas tax revenues are on a downward trend. The Transportation Committees are currently considering legislation that could raise nearly $162 million per biennium by increasing a variety of fees such as driver examination and vehicle title fees. Many of these transportation-related fees have not been increased for several years.

These bills House Bill 2053 and Senate Bill 5925 would direct about half of these funds to the State Patrol and ferry system and about half to construction particularly urgent preservation and maintenance projects at the state and local levels. The bills have only recently been introduced but will receive serious consideration. AGC supports these measures.

For more information on the budget bills contact Rick Slunaker at 360-352-5000.

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