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The biggest topic of conversation by far in Olympia over the last few years – in fact, the issue hanging over almost every decision the Legislature makes – is the state Supreme Court’s decision on education funding known as the McCleary case.

The court said the Legislature must “amply” fund K-12 education, that funding must be “stable,” and that it must be “uniform” in school districts around the state.

While the focus has been on the full-funding portion of the case, the uniform provision is the tougher one for legislators to deal with. The court said the heavy reliance on local levies is unconstitutional. The vexing question now is, which proposal fits into Olympia’s all-important math equation: 50 House votes + 25 Senate votes + 1 governor’s signature.

Line drawn in 2012’s sand
Since the court ruled that too much schools funding comes from local levies and that funding is unequal, many believe the simplest solution is a revenue-neutral “levy swap.” Local property tax rates would be lowered, while the state property tax would be raised to make up the difference. Legislators in both parties have proposed this idea.

One problem: Gov. Inslee campaigned against it in 2012.

Inslee not only rejected the idea, who used it in ads against Rob McKenna, saying the Republican wanted to raise voters’ property taxes. Editorial boards slammed Inslee’s ads, but he didn’t back down.

In fact, he’s still not backing down. While some observers expected Inslee to quietly acquiesce to the proposal once in office, Inslee criticized the idea again just a few weeks ago.

What’s the alternative?
Inslee and some legislative Democrats are still pushing for a capital gains tax, saying the revenue could be used to replace local levies. Many have pointed out that capital gains taxes are notoriously volatile, making it difficult to rely on the tax for important schools funding. That could pose problems for the “stable” leg of McCleary’s three-legged stool.

Inslee has also touted his carbon tax proposal as a potential source of education funding. The oddsmakers in Olympia think that idea is even less likely to pass than a capital gains tax this year.

Lawsuits and permitting battles have long been a favorite tactic of environmental groups trying to stop projects and businesses they don’t like. Politicians are starting to figure out, those same tactics can be used to appeal to voters and interest groups as well.

Seattle mayor Ed Murray has certainly figured that out, inserting himself into a lease agreement that his office has nothing to do with. That lease, between the Port of Seattle (a separate government from the City of Seattle) and Shell Oil to house a drilling rig at the port, is unpopular with environmental groups.

So Murray announced at an environmental fundraiser last week that the city is reviewing a long-issued permit for the port’s Terminal 5 to question whether the port is allowed to house a drilling rig. While the decision was no doubt met with cheers at the fundraiser, as the Seattle Times pointed out in a blistering editorial calling out Murray, it can’t be very reassuring to maritime businesses that add so much to Seattle’s economy.

Arctic work “happening regardless”
The Times noted that the Obama administration has signed off on the Arctic drilling project and “it’s happening regardless of where the ships go for staging and maintenance.” In a liberal city like Seattle, that reality is easily dismissed. What’s important is the symbolism of “making a stand.”

No doubt other maritime businesses are watching what Murray does next. In a fast-growing city with burgeoning tech and pharmaceutical businesses, the maritime industry is still a big part of Seattle’s economy. For the middle class voters Murray claims to stand up for, maritime jobs are stable and well-paying.

The Times asked the right question of Murray and the city:

Whether the decision holds up, it creates uncertainty. It signals to maritime companies that a lease with the Port may be targeted by the interests of local politicians — at the last minute, as vessels are en route to Elliott Bay.

How much of Seattle’s role in global commerce should be subject to city politicking?

No doubt that’s a question Murray doesn’t want to answer, but it’s an important one for businesses wondering if Seattle is a stable place to grow. The next politically unpopular business venture is just a protest away in a city whose government is willing to be whipsawed so easily by the political winds.

Lawmakers returned to Olympia Wednesday after a short break with one top mission in mind: come to a budget agreement and go home. And if a transportation package is part of the deal, so much the better.

The dueling budget proposals from the Republican-led Senate and Democrat-led House aren’t as far apart as some in recent years – about $1.5 billion. On K-12 education, the largest category in the state budget and the one voters watch most closely, the differences are small.

The Senate budget would raise state spending in the next two years by 12%, while the House budget would raise it 15%. The Senate budget has higher reserves and a slightly more comfortable 4-year outlook.

What’s left to negotiate?
The total proposed spending in the two budgets may not be worlds apart, but the approaches taken in the two budgets still reflect the differing philosophies of the two parties. The conditions may change year-to-year, but the end game is always the same: the sides will play chicken with each other while carefully counting the votes in caucus and figuring out what they’re willing to give up in negotiations.

The biggest sticking points:

• Capital gains income tax – House Democrats proposed a 5% tax on capital gains income (Gov. Inslee proposed a 7% tax in his budget). As a state without an income tax, Washington has never taxed capital gains before. The Senate remains unconvinced a capital gains tax is necessary.
• Carbon taxes – Saying that “legislators have an absolute goose egg when it comes to doing anything for the environment this year,” Inslee warned lawmakers before the special session that he expects some kind of action on his environmental agenda before adjournment. The largest part of that package is a cap-and-trade carbon taxing proposal. The Senate has shown little interest in the idea, and House Democrats, while more open to it, don’t seem to have the votes to pass it.
• Employee pay – Both the House and Senate included cost-of-living adjustments for teachers, but the House funded a more generous benefits package on top of that (teachers insist both budgets are inadequate). For state government employees, House Democrats stuck with union-approved percentage increases, while Senate Republicans want to give flat $2,000 raises. The Senate pointed out that this would help employees at the lower end of the pay scale more than the House’s approach.

The Legislature returns Wednesday for what everyone is hoping will be just one overtime session. With no agreements in sight on a budget compromise or a transportation package, legislative leadership threw in the towel early. Gov. Inslee quickly called a special session, but gave legislators a short break to regroup (and raise money for the special election in the 30^th District).

Special sessions have been the norm in recent years – and not only since the chambers had split control, starting with the Majority Coalition Caucus and now an outright Republican majority in the Senate. Legislators needed overtime sessions to complete their work in 2010, 2011, and 2012, when Democrats led the House and Senate, as well as 2013 when control was split (three Democratic senators joined with Republicans in 2012 specifically for the budget vote).

Open questions
While special sessions have been common lately, conditions are different than past years.

House: Speaker Frank Chopp has been in the situation before, but never with such narrow margins. With just a 51-47 Democratic advantage, Chopp can’t afford to lose more than one vote on the budget, nor can he release more than one swing district member from having to take a difficult vote.

The House passed on a carbon tax proposal earlier this year. Not enough members supported the idea, but leadership pledged to keep working on the issue. Has anything changed?

Senate: “Fiscal conservatives” led the Senate in the 2013 special session, with 23 Republicans and dissident Democrats Rodney Tom and Tim Sheldon forming a bare majority. Tom, who was Majority Leader, is now gone and Republicans have an outright 25-seat majority, with Sheldon adding his vote.

Some think the tax-averse Senate has the advantage in budget negotiations. Their approach – that state government doesn’t need new taxes – requires no changes to state law. Will they deal to get a transportation package? Few expect the Senate to have an appetite for a capital gains income tax or carbon taxes.

Governor: Gov. Jay Inslee supports higher taxes but is officially neutral on which taxes to raise. He has also said, though, that he expects action on his environmental priorities this year and wants a tax on carbon. Would Inslee really reject a budget deal and keep legislators in Olympia even longer to get it?

That may depend on whether or not the Senate is the only carbon tax holdout. If the House can’t get to 50 votes, that position would look more like intransigence.

Caucus leaders in Olympia are struggling to find agreement on a “go home” budget compromise. That struggle starts, elementally, with whether or not there is a budget crisis to resolve.

There is, Democrats say. Pent-up demands and the McCleary education funding ruling mean there is a need, right now, for tax increases. Republicans counter that, with state revenues expected to grow by $3 billion in the next budget cycle, state government has enough money to get by.

Democrats’ proposal has a throwback feel
Some of the Democrats’ tax proposals are decidedly new. Both House Democrats and Gov. Jay Inslee called for a tax on income from capital gains. That would be a new type of tax for a state that is one of nine without an income tax. Same goes for Inslee’s cap-and-trade carbon taxing proposal, which House Democrats did not include in their budget proposal.

Other ideas are a little more…recycled. Inslee and House Democrats aim to make the B&O “surcharge” on service businesses – instituted during the worst of the recession but allowed to sunset in 2013 – a permanent tax, for instance.

They also seek to end the sales tax exemption on bottled water. If that sounds familiar, it should. The Legislature previously taxed bottled water in 2010. It didn’t last long, though. That fall voters passed I-1107 by big margins, which repealed the bottled water tax, as well as new taxes on soda and candy.

Easier to target individual products?
With Inslee and House Democrats favoring a bottled water tax this year and Inslee seeking higher taxes on cigarettes and e-cigarettes, some see it as part of a prevalent trend: new taxes targeted at single products.

That approach goes against the philosophical belief of some that taxes should be broad-based and the burden broadly shared. It may be politically easier, though. Legislators know a general sales tax bump would be D.O.A. – better to target individual products whose customers are but slices of the electorate.

Hence the proposals to hike cigarette taxes and tax bottled water, to raise prices on soda and make beer customers pay more. The approach may be politically easier, but it has many businesses wondering if their product is next.

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