Inslee’s Budget Invests in Housing and Climate via Capital Gains Tax, Cap-and-Trade

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Inslee's budget would fund two electric ferries, potentially serving runs like this one to Seattle. (Photo by Doug Trumm)

Last week, Washington Governor Jay Inslee outlined a climate policy package to create a comprehensive climate program aimed to reduce the state’s emissions 30% by 2030. His office also unveiled its proposed 2021-2023 biennium budget that includes some more relevant climate and transportation dollars, and calls for a 9% capital gains tax to fund his priorities. Together, Governor Inslee makes a necessary but not necessarily bold effort to reduce the state’s greenhouse gas emissions and invest in affordabe housing–plus some other urbanist interests.

The recommended climate package proposal offers two pieces of legislation. The first of the two bills is the Climate Commitment Act that would create a cap-and-trade program that funds climate investments. It would cap greenhouse gas emissions for the state’s largest industries, and the Washington State Department of Ecology (DoE) would ensure compliance and administration of greenhouse gas credits. Next is the Healthy Homes and Clean Buildings Act that would require new buildings to be zero-carbon by 2030, put the state on a path to remove fossil fuels from existing buildings by 2050, and create a heat pump and electrification program.

On top of those policy proposals, Inslee recommends $428 million of funding that is divided into transportation dollars, capital for energy efficient buildings, and an assortment of energy technology funds. Within the wider budget are additional nuggets of funding for issues on transportation and housing.

Transportation Funding

Center stage of the climate package is the Governor’s $190 million proposal to further electrify the state’s ferries. Washington State Ferries consumes the most diesel fuel of any entity in the state–also making it a major emitter of carbon and pollution. The push also doubles as an ecological matter, as electrification of ferries virtually eliminates engine noise and vibration that can harm orcas, a federally-listed endangered species.

Totaling $318 million over four years, the proposal would specifically convert the MV Tacoma to hybrid electric, build a second Olympic-class (144-car) hybrid electric ferry, begin investments for a third, and construct three terminal charging stations. This investment builds upon 2019 funding for electric conversion of a Jumbo Mark II vessel, construction of a new Olympic class vessel, and authorization for the MV Tacoma conversion.

The MW Tacoma (Courtesy of the West Coast Ferries Forum)

Next, $3.25 million is suggested to forward a Pacific Northwest high-speed rail line. The funding will go toward establishing a coordinating entity with representation from Washington, Oregon, and British Columbia. This is in line with recommendations from a Washington State Department of Transportation (WSDOT) report, laying out the framework for a regional high-speed rail authority that The Urbanist reported on.

Other transportation funding with the climate package includes electrification of land and water vehicles with $35 million for transit electrification, $5 million for maritime decarbonization, and $1.5 million for promoting electric vehicle (EV) benefits and incentives. Transit electrification and EV dollars will be prioritized to low-income communities that suffer most from air pollution, and additional dollars establish an Environmental Justice Task Force. There’s also a $2.85 million proposal for the DoE to implement a clean fuel standards program.

Outside of the climate proposals that Inslee distinguished, there are recommendations for $20 million for bicycle and pedestrian infrastructure, bike and pedestrian safety grants, and safe routes to school. There’s an additional $5 million for the Regional Mobility Grants program. Part of a $160 million bond investment is recommended for the Public Works Assistance Program to provide low- to no-interest loans to local governments to repair, repair, or rehabilitate bridges and roads. Lastly, $724 million of continued support of culvert removal is put forward. This is a part of the estimated $3.3 billion estimate to meet a court order that requires 90% of potential fish habitat open by 2030, another joint transportation and environmental project.

Housing

Just short of a fifth of Washington’s carbon emissions are from residential and commercial buildings, so significant dollars are being invested to reduce this energy usage with energy efficiency investments. Last week’s climate brief notes $141 million for cleaner buildings in the proposed capital budget. The brief highlights $55 million to weatherize and support energy efficiency investments for 7,000 low-income residences, $66 million to retrofit more than 200 public buildings, and $20 million to shift fossil-fueled equipment to heat pumps and other electric equipment.

Additional housing investment proposals in the recommended budget include:

  • $240 million in bonds for the Housing Trust Fund to build around 3,390 affordable and low impact housing units. It also includes rehabilitation loans that would help preserve around 1,000 housing units for low-income, vulnerable, and/or rural individuals and families.
  • $30 million in bonds for the Housing Trust Fund/United States Department of Agriculture-funded preservation to preserve 1,500 aging affordable housing units, including units at risk of returning to market-rate prices.
  • $70 million in bonds for the property acquisition flexible fund dedicated to eligible entities to acquire property like hotels for quicker conversion into shelters, permanent supportive housing, or transitional housing.
  • $50 million in bonds for enhanced shelter capacity. This would convert basic shelters to or create enhanced shelters. This could also be used for facility improvements such as laundry and bathrooms.
  • $10.2 million in bonds for the Health Housing Remediation Program to clean low- to mid-level hazardous sites to expand buildable land footprints and give develops more incentive to develop affordable housing.
  • $328 million for rental assistance. Half for the current biennium, and the other half to continue federal CARES Act rental assistance.
  • $17 million for foreclosure assistance. This would serve an increased number of homeowners expected to seek relief from foreclosures once federal moratorium on foreclosures and CARES Act protections expire.
  • $8 million for anchor communities to continue and boost investment into the program that aims to reduce youth and young adult homelessness to “functional zero”.

Clean Energy Investments

The last assortment of climate investments in the Governor’s proposed budget make up the $100 million in bonds for the Clean Energy Fund to support the 2021 State Energy Strategy. The fund program capitalizes the development, demonstration, and deployment of energy projects that support zero-emission technology. Nearly half of that funding has already been mentioned in this article with the proposed funding in next-generation clean buildings, transit electrification, and maritime sector decarbonization.

The energy strategy also funds $15 million of grid modernization projects to help implement the Clean Energy Transformation Act, a 2019 law that commits the state to a zero greenhouse gas emission electricity supply by 2045. The funding will help deploy distributed energy resources and smart grid technologies like microgrids that will help integrate those renewable and distributed resources.

Fifteen million dollars could go to research and development for new and emerging energy technology. Twenty million dollars is proposed for grants to nonprofit lenders to support clean energy projects by small businesses, nonprofits, multifamily homebuilders, and homeowners. The last $5 million of the fund is proposed for dairy digesters that capture methane emissions for natural gas and biofertilizer production.

Courtesy of the State of Washington

Funding and What’s next

To fund his climate and housing suggestions, Governor Inslee is calling for a capital gains tax and a narrowing of a tax loophole for existing bad debt deduction. Hoping to reduce the state’s regressive tax code, the proposed capital gains tax would apply a 9% tax to capital gains earnings above $25,000 for individuals or $50,000 for joint filers when it takes effect in 2022. The Governor’s Office estimates that it would primarily affect the most wealthy, and 1.9% of households in the first year.

Courtesy of the State of Washington

Now it’s up to the legislature that will start meeting in January to develop and pass a budget. After it’s signed by the Governor, the 2021-2023 biennial budget will take effect in July 2021. Now that it’s in the legislature’s hands, let your representatives know what you think of the budget and what you’d like to see in it.

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Shaun Kuo is a junior editor at The Urbanist and a recent graduate from the UW's Jackson School. He is a Seattle native that has lived in Wallingford, Northgate, and Lake Forest Park. He enjoys exploring the city by bus and foot.

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Daniel Thompson

The first rule in politics when it comes to global warming is to adopt timelines and goals when everyone is either dead or the politicians are out of office. For example, the State of Washington never came close to meeting its its 2006 carbon emission goals set for 2020 (except 2012 during the height of the recession), and the new goals are now 2035 and 2050. Inslee has claimed to be the nation’s most committed anti-carbon governor and yet carbon emissions have skyrocketed under his two terms. It took a court order to force the state to address its culvert problem for salmon it is still addressing.

If politicians were serious about climate change, and understood the next few years will be very challenging when it comes to budgets and revenue, the state would adopt a carbon tax that applies to government agencies too, and has no exemptions. Ideally that tax would be revenue neutral because now is not the time to raise taxes when businesses are barely alive, and the state unemployment trust fund has to be replenished. A cap and trade plan has also been shown to work, except that it caps emissions at their current levels.

I-1631 could have been this tax, except it was littered with special interest exemptions for the largest carbon emitters, and created a multi-billion dollar “environmental” slush fund with no oversight. I-1631 was all about money, and had very little to do with carbon emissions. A pure carbon tax with no exemptions does not appeal to politicians because it doesn’t try to dictate society and does not reward special interests. It simply taxes and reduces carbon emissions, without all the ideology.

A 9% capital gains tax cloaked in global warming is nauseating to me. It is just so dishonest. If Inslee and the legislature want to raise taxes to spend the money then just say so. Is there any interest on earth anymore that has not coopted global warming for its own benefit? The tax would not survive a court challenge, and before then would be repealed through a referendum. The claimed revenue after all the exemptions, and the ability of very wealthy citizens to move before exercising their options or selling stock, would be much lower than predicted. There is just no way the citizens of this state will give this governor and legislature the power of an income or quasi-income tax.

Revealingly, although Inslee proposes the capital gains tax to fix our state’s regressive tax structure, according to him, he doesn’t identify which regressive tax will be offset by the capital gains tax revenue, because no tax will be reduced no matter how much revenue is raised from a capital gains tax. IMO if the the state is ever going to pass any kind of income tax by a constitutional amendment it will have to agree to a cap of total tax revenue to state GDP like CO does, but the Democrats will never agree to that at any level because an income based tax has nothing to do with offsetting regressive taxes; it has to do with raising additional tax revenue because the property taxes, sales tax, and other taxes are maxed out.

If carbon is the issue tax carbon, and let the economy figure it out during a real rule making process in which claims of carbon reductions are put to scientific testing to determine their tax. Exempt no one. Saving the planet is not the work of only some of us or one part of the economy.

I will say however I was glad to see the budget recognizes that true affordable housing needs public subsidies, rather than the mantra upzone the most expensive neighborhoods and build new construction and it will be affordable, at least in 30 years. That approach is great for the Master Builders Assoc. and large landlord trusts that no longer have to live in one of the dwellings on the property but terrible for the poor, but the poor are not as powerful a lobby as the MBA.

Finally, I think the state legislature is going to have to bail transit out, especially as transit is reimagined when working from home is better known post pandemic. Forget about regional rail; save the money for where transit can work, the few very urban areas with first/last mile access that requires frequency to work (and large park and rides everywhere else). I have my doubts about a ST 4 passing to complete ST 3 for some subareas just like ST 3 was needed to complete ST 2, so my guess is some subareas will need state help to complete ST 3, and Metro for frequency with the loss of commuter fare box revenue.

asdf2

When I first heard about this, I said surely there must be a mistake – that there must be a missing decimal point to make the rate 0.9%, not 9%. Turns out, there was no mistake.

Needless to say, a 9% tax is extremely high. Even if upheld in court, it would almost certainly be challenged in a referendum, and I doubt it would survive the court of statewide public opinion. Certainly not in a state that voted “no” on a state income tax 64-36 back in 2010[1]. Even in King County, the income tax didn’t pass. Anecdotally, I personally voted against it, in spite of generally voting for most tax measures on the ballot, and know others that did so as well.

[1] https://results.vote.wa.gov/results/20101102/initiative-measure-1098-concerning-establishing-a-state-income-tax-and-reducing-other-taxes_bycounty.html