BILL REQ. #:  H-4213.2 

Read first time 01/23/2004.   Referred to Committee on Finance.

     AN ACT Relating to disallowing tax expenditures that exceed a specified limit; adding new sections to chapter 82.32 RCW; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The people of the state of Washington hereby find and declare:
     (1) Initiative 601 limits the growth of state expenditures to the growth rate of inflation and state population, but does not limit the proliferation of tax expenditures;
     (2) When the number of tax expenditures increases, the state faces a corresponding loss in revenue;
     (3) Those who do not benefit directly from tax expenditures either pay higher taxes to support essential government services or face cuts to these essential services;
     (4) The continuing increases in tax expenditures and the corresponding shift of the tax burden is contrary to the interest of the people of the state of Washington;
     (5) It is necessary to limit the growth of state tax expenditures in order to ensure adequate funding of essential services, including health care and education;
     (6) The current budgetary system in the state of Washington lacks stability. The system encourages overcreation of tax expenditures during surplus years resulting in crisis budgeting in lean years with resulting tax increases and cuts in essential services;
     (7) Local government tax revenues are adversely impacted by state-adopted tax expenditures which result in reductions of critical local services, such as police and fire protection;
     (8) It is therefore the intent of this act to:
     (a) Establish a limit on state tax expenditures that will ensure that the monetary value of state tax expenditures, as a percent of the limited general fund budget, does not exceed a reasonable amount;
     (b) Protect taxpayers who do not directly benefit from tax expenditures from paying higher taxes to support essential government services while retaining tax expenditures that have a clear benefit to low and middle-income families such as the sales tax exemptions on food and prescription drugs and property tax exemptions for senior citizens;
     (c) Ensure that the growth of state tax expenditures does not threaten adequate funding of essential services, including health care and education;
     (d) Ensure that local governments are not threatened by runaway growth in tax expenditures.

NEW SECTION.  Sec. 2   (1) The value of tax expenditures to the recipients due to the tax expenditures identified in section 3 of this act during a fiscal biennium shall not exceed seventy-eight percent of the projected state expenditure limit for that biennium.
     (2) For the purpose of the limit, the projected state expenditure limit is determined by the state expenditure limit committee under chapter 43.135 RCW. The department of revenue shall calculate the limit as soon as practical after each projection is issued. The department shall estimate the value of tax expenditures at the same times as the limit is calculated and recalculated.
     (3) If necessary, the department of revenue shall disallow one or more tax expenditures so that, in the department's judgment, the limit will not be exceeded for the current biennium. The department shall disallow tax expenditures in the order the tax expenditures are set forth in section 3 of this act, until sufficient tax expenditures have been disallowed so that the limit will not be exceeded. The department shall determine an effective date upon which each disallowance will begin. The department shall provide notice of the effective date to affected taxpayers, the legislature, and others as deemed appropriate by the department. The department shall give at least seventy-five days' notice of a disallowance that affects sales and use taxes collected by sellers, and the disallowance shall take effect only on the first day of January, April, July, or October.
     (4) The department shall make its best effort to administer the limit under this section while providing for an orderly process of disallowing tax expenditures. The department's estimates of tax exemption value, determinations of which tax expenditures are to be disallowed, and timing of the disallowances are final and may not be challenged in a court of law.

NEW SECTION.  Sec. 3   (1) The exemptions, exclusions, deductions from the base of a state tax, credits against state taxes, deferrals of state taxes, and preferential state tax rates allowed under subsection (2) of this section are the tax expenditures subject to the limit in section 2 of this act.

NEW SECTION.  Sec. 4   Sections 2 and 3 of this act are each added to chapter 82.32 RCW.

NEW SECTION.  Sec. 5   This act applies to fiscal biennia beginning after June 30, 2005.