The Democrats blinked first in the face of a Republican refusal to raise taxes and scaled back their budget proposal this week: They've dropped B&O surcharge extension, losing an estimated $500 million in new revenue and scaled back a proposal to close 15 tax breaks—down to seven, losing about $250 million in new revenue. 

The bottom line? They’re taking in $790 million less in revenue which translates into a $33.7 billion budget vs. the original $34.5 billion—which means less money toward the state Supreme Court's McCleary decision to increase K-12 funding by at least $1 billion. The Democrats originally proposed spending $1.2 billion on McCleary, but are now proposing $704 million. (They did add about $200 million to education funding beyond their $704 million McCleary earmark, by directing the money from closing tax breaks to other education services such as all-day kindergarten.)

So, the question on the table, now that the Democrats have made an offer: What do the Republicans want?

All session they’ve insisted on balancing the budget without raising taxes, relying on cuts and reforms to pick up the slack. A $308 million cut to human services, for example, counters the $887 million they’ve proposed for education spending.

Many of the savings the Republicans proposed in their original budget (we've yet to see their latest counter offer) have made both house and senate Democrats nervous. The $183 million cut to the Working Connections Child care program, for example, did not garner support from the senate Democrats who worked on the budget. Other cuts include $131 million from trimming down government inefficiencies (a proposal that has drawn ridicule from the Democrats and the governor's office for being nebulous, $127 million from moving 20,000 part-time public employees from state-funded health care to the new health-care exchange (which makes labor angry), and $40 million from reducing or eliminating cash assistance for elderly and disabled legal immigrants.

The Republican's budget shakes out to be $460 million less than Democrats' revised budget of $33.7 billion. The figures for a few budget areas, as compared to the 2011-13 budget, are here (with the Democrats doing less damage to core programs):

Employee Compensation: Republicans cut $454 million, Democrats cut $304 million
Financial Aid for Higher Ed: Republicans add $15.6 million, Democrats add $49.5 million
Early Learning and Child Care: Republicans add $7.4 million, Democrats add $52.4 million
Human Services: Republicans cut $308 million, Democrats cut $139.7 million
Health Care: Republicans cut $560 million, Democrats cut $574.4 million.

(Side note: Why, you ask, are bleeding heart Democrats cutting more on health care? Both the Republican and Democrats predicted health care premiums for the Federal Medicaid Expansion to be more expensive when the budgets were drafted in April. Recent figures show premiums to be more affordable, thus the more recent Democratic budget reflects more savings.)

A six-percent cap on non-education spending, which critics say is counterintuitive because it would indiscriminately cut social services that are key to education such as housing and children's health care.

As for the Republican reform mantra, we predict worker's comp and education reform will stay intact, while their full list—which includes things such reforms to Model Toxics Control Act (amending the voter-approved clean up account by giving companies access to the money), a six-percent cap on non-education spending (which critics say is counterintuitive because it would indiscriminately cut social services that are key to education such as housing and children's health care), and the establishment of defined contribution plans (rather than defined benefits) for public employees—are likely to take a back seat.

In summary, here’s what the Democrats now have on the table:

  • Forgetting about their proposal to extend the B&O tax surcharge
  • Eliminating seven tax breaks, down from an initial list of 15, now totaling $225.6 million dollars. They are: a preferential B&O rate for travel agents & tour operators; a preferential B&O rate for resellers of prescription drugs; a sales tax exemption on bottled water; the sales tax exemption for non-residents; an exemption for big oil companies for extracted fuel; a high technology research and development B&O Credit; and a  high-tech research and development sales & use tax exemption.
  • Six of these would go toward the Democrats  Education Investment Act for non-McCleary education spends such as $81.8 for the career & college ready program, $23.1 million for all-day Kindergarten expansion, $48.2 million for materials/supplies/operating costs, $16.7 million for alternative learning programs along $47.4 million for computer science and engineering slots at the UW, WSU and WWU, $5 million for the Opportunity Scholarship Fund, $2.5 million for Student Achievement Initiative, and $23.8 for general higher education funding. (The money from closing the non-resident break, about $50 million, would go into the general fund).
  • And spending $704 million on basic education to comply with the McCleary decision
  • New revenue, in addition to the $225.6 million from closing the seven tax breaks, would come from closing a tax exemption for phone companies worth $109 million and closing a loophole in the estate tax, bringing in $159 million.
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