State Legislative Update – Operating & Capital Budgets

State Legislative Update – Operating & Capital Budgets


After passing a two-year operating budget hours before the July 1 deadline for a state government shutdown, the State Legislature turned its attention to passing the two-year capital budget, which funds public building projects across the state and is critical to architects who work on public projects. Ultimately, that budget was tied to a state Supreme Court decision on water rights known as Hirst. Unable to reach an agreement before the July 20 expiration of the third special session, legislators went home while key members continued to negotiate over Hirst. To date, the capital budget remains unfunded. More detail below.

Operating Budget

One June 30, the Legislature passed a two-year, $43.7 billion state budget that was signed by Gov. Inslee one hour before parts of the state government would have shut down. Lawmakers came to an agreement in the third special session called by the governor, one that they believe will satisfy a 2012 state Supreme Court order (the McCleary decision) which ruled the state was underfunding public schools in violation of its own constitution. As part of the deal, the state will earmark $1.6 billion in state property tax for education – a tax expected to hit areas with high property values especially hard. Other revenue will come from an expansion of online sales tax collections and from eliminating tax breaks on bottled water and extracted fuels. New spending was added for public schools and higher education, state worker pay raises, improvements to the state’s mental health system, the expansion of early childhood education, the creation of a new Department of Children, Youth and Families, a clean-air program that caps carbon emissions from a handful of businesses and improvements to the Department of Corrections IT systems.

Legislators from both parties were angered by Gov. Inslee’s veto of a tax break for manufacturers that House Democrats and Senate Republicans had agreed upon as part of the deal to pass the operating budget. This frustration added to the impasse over passage of the capital budget described below.

Capital Budget

After passing the operating budget, key lawmakers continued to meet to try to come up with an agreement to pass the two-year, $4 billion capital budget that funds public building projects in every legislative district across the state. While the projects and the amounts in the capital budget have long been agreed upon, Senate Republicans had earlier pledged not to pass the two-year capital construction budget without an agreement to address a 2016 state Supreme Court ruling on water rights known as the Hirst decision.


In Hirst, the court ruled that water is not legally available if a new well would impact a protected river or stream or an existing senior water right and changed how counties approve or deny building permits that use wells for a water source. The court held that counties need to scrutinize the availability of water and make permitting decisions – even for small wells – on their own rather than relying on the state Department of Ecology to do so. As a result, some counties have temporarily stopped some rural development – mostly in rural Republican districts – to figure out how to comply with these new obligations. In many cases, banks are refusing to lend to landowners who do not have a water permit for their properties.

Failed Negotiations

During the negotiations over Hirst, House Democrats reportedly offered a temporary two-year fix that would allow impacted property owners to move ahead with building projects – a proposal that Gov. Inslee supported – but Republicans wanted greater assurance and pushed for a permanent overturn the decision. One major stumbling block in the negotiations is the role the state’s tribes should play in the approval of new water projects. The tribes have long-supported Hirst, arguing that the protections it offers to fish and streams are essential.

AIA Washington Council argued strenuously for the passage of the capital budget and for decoupling it from the Hirst decision in order to get the budget passed. Many AIA members in key legislative districts reached out to their legislators in support of the capital budget and the building projects that are impacted across the state. Thank you to those who did so – your contacts are important to let legislators on both sides of Hirst know the impact that not passing the capital budget has on their constituents. In the end, however, Republicans felt that the capital budget offered the best leverage for getting a permanent fix to Hirst, and the negotiations stalled.


Earlier in the session, the Legislature passed a stop-gap capital budget totaling $330 million to keep some existing projects going and avoid layoffs of employees associated with these projects. Without an agreement on Hirst, however, all new capital budget projects and some existing projects will remain unfunded. Employees at the Department of Enterprise Services and other state agencies will be laid off. Democrats may be stalling the negotiations to wait for the special election in the state’s open 45th district senate seat, in Redmond. The Democrat in that race, Manka Dhingra, won the seat’s primary election in August. A general election victory by Dhingra would shift control of the Senate to the Democrats, which would allow them to pass the capital budget on a party line vote. However, 60 votes are required to actually fund the budget, so some Republicans will need to vote for it for final passage. In this scenario, the capital budget would not be approved until January at the earliest – when the new legislators take office.

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