Washington State 2023 Session is a Wrap
The 2023 session of the Washington State Legislature adjourned sine die just after 10:00 p.m. Sunday evening, April 23rd, after 105 days of fast-paced action. This session marked the first year back in person since 2020, and featured 30 newly elected, or promoted, legislators across both chambers and both parties. As a result of the 2022 elections, Democrats expanded their majorities in the House to 57-41, and in the Senate to 29-20. All told, over 1,600 bills were introduced between the two chambers, with nearly 500 adopted and expected to cross the Governor’s desk for enactment.
Top issues we followed this session:
Operating, Capital, and Transportation Budgets
The operating budget compromise between the House and Senate will spend a record $69.8 billion in the next biennium, an increase of 8.8 percent over the prior biennial budget. The budget came in $388 million more than the Senate wanted to spend, but $361 million less than the House originally planned. Major categories of spending include K-12 schools, prisons, and the state’s mental health system, as well as social services, wildfire response, and climate programs. The budget balances without general tax increases, instead relying on a variety of fund transfers from various reserve and dedicated accounts. The budget does assume approximately $1 billion in revenue from the state’s new tax on capital gains, which was upheld by the state Supreme Court in March. All told, the budget leaves $3 billion in the state’s reserve account. The spending plan drew strong criticism from House Republicans, causing it to pass the House on a mostly party-line vote, 58-40. It cleared the Senate with a more bipartisan 37-12 vote, owing to the Senate Republicans’ closer involvement in the development of that chamber’s proposal.
The adopted capital budget passed both chambers unanimously and spends $8.9 billion over the next two years, with primary investments including $717 million in environmental protection, addressing floodplain resilience, acquisition and restoration of habitat areas around Puget Sound, removal of fish passage barriers, and other Department of Ecology projects; $694 million in affordable housing projects; $613 million for a new forensic hospital at Lakewood’s Western State Hospital; and $588 million for K-12 school construction and seismic safety projects. Governor Inslee’s proposal to seek voter approval for $4 billion in bonds to construct affordable housing ultimately did not pass as part of the budget.
The agreed-upon transportation budget cleared both chambers the day before adjournment on a mostly unanimous vote. It plans to spend $13.5 billion over the next two years, with an emphasis on eliminating delays on highway projects, investing in the state’s ferry system, improving traffic safety, reducing carbon emissions, and transportation-related workforce recruitment. $5.4 billion is directed to highway projects, $1.3 billion to the ferry system, $1 billion for continued work on fish passage, and $2.6 billion to improve recruitment and retention efforts at the Washington State Patrol. The bill spends roughly $1 billion in Climate Commitment Act auction dollars on reducing emissions from the transportation sector.
Tax & Fiscal Policy
Although a variety of new taxes were proposed and discussed during the session, no new taxes ultimately passed into law. The proposals included two recommendations of the state’s Tax Structure Work Group – a Texas-style margin tax, SB 5482, which would replace the state’s Business & Occupations Tax, and SB 5770, an inflationary increase in the growth factor that caps local property tax levies. In addition, a new “wealth tax” was proposed, HB 1473/SB 5486, which would have imposed a one percent tax on intangible assets above $250 million, and an “excess compensation” tax, SB 5767, which would have imposed a 7.5 percent excise tax on hospitals on the wages of their highest compensated employees.
The most hotly contested tax debate of the session was on a proposal to increase the state and local real estate excise taxes on property transactions. HB 1628 would have increased the existing maximum state tax from 3 percent to 3.5 percent on transactions above $3.025 million and allow local governments to charge an additional .25 percent tax on all transactions regardless of value. The bill was intended to raise about $200 million per year in additional funding for affordable housing. The concept survived until the final weekend of session, when it was clear there were insufficient votes to move ahead.
Notably, the adopted operating budget includes provisos that both reauthorize the Tax Structure Work Group to continue meeting on its recommendations, as well as a study of wealth taxes imposed in other countries or proposed in other states, with a final report due November 1, 2024 — signifying the issue is likely to return in future sessions.
The session’s biggest tax news came from a different branch of government, when the Washington Supreme Court upheld the constitutionality of the capital gains tax, declaring it to be an excise tax on the transfer of assets rather than an unconstitutional income tax. This cleared the way for collection of the tax to begin in April, as well as budget writers to include projected revenue in the operating budget.
Public Safety
A growing call for addressing rising crime and public safety resulted in several key debates right until the very end of session. SB 5352, a contentious bill rolling back a 2021 measure on the standard for law enforcement vehicle pursuits, ultimately passed and is headed to the Governor, who is expected to sign it. The bill allows for police pursuit of suspects upon reasonable suspicion, rather than probable cause, that certain crimes have been committed. The heavily negotiated final bill places a number of restrictions on a pursuing officer, including training and notification requirements, and requirements that a pursuit be terminated if certain safety issues are apparent.
SB 5536, the so-called “Blake bill,” named for the Washington Supreme Court decision that largely decriminalized simple drug possession, was the last major debate of the legislative session, and after being brought up for a vote in the House, failed on a 43-55 vote, with numerous Democrats joining all Republicans in opposing. Under the bill that arose from the conference committee between the House and Senate, those found in possession of drugs would be mostly diverted into substance abuse treatment, although simple possession of illegal drugs would be upgraded to a gross misdemeanor. The conference report also included a statewide preemption of local laws on drug paraphernalia. The elevation of the offense to a gross misdemeanor appeared to be the stumbling block for House Democrats. With the Legislature’s failure to pass a bill, and with a previous session’s stop-gap measure expiring June 30th, drug possession will be decriminalized beginning July 1 unless regulated by local ordinances or unless, as is already rumored, the Legislature comes into a special session to adopt a fix.
Efforts were also highlighted this session to crack down on organized retail theft, although no substantive proposals emerged. SB 5160, a Republican-backed effort to create the crime of retail theft in the 2nd degree, made it as far as the Senate floor before fizzling early in session. SB 5259, a bill with bipartisan backing, would have created a retail theft task force and allowed a credit against the B&O tax for physical and safety improvements to retail establishments. It failed to emerge from committee.
Housing Policy
Addressing affordable housing supply was a key priority of both parties this session. HB 1110, the centerpiece housing legislation, passed both chambers and is before the Governor. This “middle housing” bill requires authorization of multifamily dwelling units in residential zoning areas previously limited to single family housing, and tasks the Department of Commerce with developing a model middle housing ordinance for use by local governments. HB 1046, increasing the area median income limits on public-financed, low-income housing developments to 80 percent as an effort to expand housing resources to lower-income households, has been signed by the Governor. Although not without controversy, the Legislature also passed SB 5412, exempting residential and middle housing development projects from permit-level review under the State Environmental Policy Act.
Governor Inslee’s proposal to ask the voters to issue $4 billion in bonds to construct affordable housing projects, despite widespread support from construction, design, and housing proponents, was never acted upon. Additional investments in housing projects were provided for in the adopted capital budget, albeit not to this level.
Environmental Policy
The session’s central environmental bill was the Washington Recycling and Packaging (“WRAP”) Act. HB 1131/SB 5154 proposed an ambitious series of complex regulatory structures governing producer responsibility for packaging and paper products, post-consumer recycled content requirements, bottle deposit standards, and amendments to solid waste management standards. Industry response to the bill was focused mainly on securing exemptions to definitions of producers and covered packaging materials, in an effort to better align with numerous applicable federal laws, as well as approaches emerging in other states addressing similar issues. As HB 1131 became the vehicle for moving the bill, on the eve of the first House of Origin cutoff, a competing striking amendment emerged which dramatically limited the scope of the bill in favor of data collection and feasibility studies. The striking amendment garnered substantial support in the House Democratic caucus and WRAP Act proponents, rather than see the limited version of the bill continue to move, requested that it be put down for the session.
The operating budget, however, does provide $500,000 for a study at the Department of Ecology in the interim to study ways to increase recycling, reuse, and source reduction rates, including an extended producer responsibility model. The study is to conduct a recycling targets study and carry out a community input process on the state’s recycling system, with a report due to the Legislature by December 1, 2023.
Data Privacy
After a few years of debates and inability to reach consensus on a comprehensive data privacy bill, the Legislature this session narrowed its focus to consumer health data. Described as part of the majority’s response to the federal Dobbs decision, HB 1155 was aimed at protecting the confidential health data of individuals seeking reproductive or gender-affirming care services, among others. Quickly, however, it became clear that the broad scope of covered health data, and the litigation-friendly enforcement mechanisms, gave this bill the hallmarks of a comprehensive data privacy bill that just happened to be covering health data. Industry led a session-long attempt to narrow the definition of covered data and limit the private right of action in the bill. When the bill passed out of the House initially, a couple moderate floor amendments were adopted in that regard, in particular, removing the per se Consumer Protection Act violation for private litigants. The Senate, however, rolled these House amendments back and the bill ultimately passed with a broad private right of action, attorney general enforcement, and wide coverage of included data. Of importance to the financial services and insurance industries, an early iteration of the bill contained an exception for consumer data already regulated under the federal Gramm Leach Bliley Act (GLBA), or privacy laws and rules implemented by the Office of Insurance Commissioner. This exemption remained in the bill through its final passage.
Although it was clear this session would focus on health data, comprehensive data privacy proposals were introduced, most notably HB 1616, an industry-opposed version of previous “Peoples’ Privacy Act” bills. No action was taken.
Also in the individual data arena, bills to prohibit unsolicited automated commercial telephone calls (“robocalls”), HB 1051, and the unauthorized and harmful publication of personally identifying information (“doxxing”), HB 1335, both passed into law.
Social Insurance: Long Term Care, Workers’ Comp, Unemployment Insurance and Paid Family Leave
In the state’s new long term care program, despite a final report from the Long-Term Services and Supports Trust Commission recommending a range of policy changes to improve the program, no action was taken this session. The program is set to begin premium collection July 1 of this year. Only a few bills addressing the program were filed – HB 1011, repealing the program entirely, SB 5479, creating a referendum to the people whether to repeal the program, and SB 5639, prohibiting recertification of private opt-outs. None received a hearing.
In workers’ compensation, several bills passed to make changes to the system, some with considerable controversy. HB 1521 was introduced to apply a new statutory “duty of good faith and fair dealing” on self-insured employers, backed by steep fines and penalties for violations. As passed, the bill applies the duty to municipal self-insurers, as defined, and contains a “three strikes” provision whereby a covered employer could be removed from self-insurance for three violations of the duty in three years. HB 1068 overturns a Labor & Industries rule prohibiting the audio or video recording of Independent Medical Examinations, and gives workers the right to record such exams on seven days’ notice, as well as the right to have a third party witness accompany them to the exam. SB 5454 creates a new presumption of occupational disease for post-traumatic stress disorder for direct-care registered nurses. HB 1197 authorizes PhD-level psychologists for the first time to serve as injured workers’ attending provider for claims limited to mental health conditions.
In unemployment insurance, the primary bill enacted was HB 1106, a controversial measure expanding the reasons why a worker may voluntarily leave employment and still qualify for UI benefits. Specifically, the bill expanded the current voluntary quit pertaining to the death, illness, or disability of a family member by widening the range of family members to which it applies; created a new voluntary quit for involuntary shift changes, and for relocating to follow a minor child who moved outside the worker’s labor market.
In paid family and medical leave insurance, two important bills passed. SB 5286, establishing rates for the paid family & medical leave insurance program as a recommendation of the legislative task force established to provide financial stability for the program, was signed into law. SB 5586, providing employers access to a limited amount of claim information held by the Employment Security Department in order to help coordinate benefits, also passed and awaits the Governor’s signature.
Following last year’s landmark legislation creating a statewide regulatory structure for transportation network company drivers, including access to portable social insurance benefits, HB 1570 passed this session to expand driver access to unemployment insurance and paid family and medical leave, by incentivizing employers to furnish part-time work to drivers and by creating a pilot program whereby drivers could elect PFML coverage as self-employed individuals but be reimbursed by the company for their premiums paid into the system.
Finally, while HB 1632, a bill that would have studied the creation of a state-run retirement savings program for workers without access to employer-provided retirement benefits, did not pass, the operating budget appropriated $30,000 for the Department of Commerce to commission a study over the interim to look at the design and feasibility of such a program.
Labor & Employment
Labor and employment law was one of the most active policy areas this session, with dozens of proposals considered by the House and Senate labor committees, many of which with considerable business community opposition. A trend arose in which many of the proposals contained new or expanded private rights of action to enforce their various regulations or restrictions.
Among the bills creating or expanding a new private right of action, SB 5110 was proposed to allow employees to sue to enforce prohibited employment practices codified in RCW chapter 49.44, a catch-all chapter of laws, if those prohibitions did not otherwise have an enforcement mechanism. Examples of prohibited practices the bill would have addressed include genetic screening in employment, or accessing employee information who participate in an employee assistance program. The bill ultimately did not pass, but SB 5123, protecting job applicants from pre-employment screening on the basis of lawful cannabis use, passed and is set to be codified in RCW 49.44 without an enforcement mechanism, as did HB 1491, prohibiting employers from searching employee vehicles on employer premises. These new restrictions would have been subject to the cause of action in SB 5110.
HB 1320 also proposed a new cause of action to enforce an employee’s right to obtain a full copy of their personnel records, or a written statement for the reasons of discharge, within 14 days of request. The bill was controversial for its private right of action, its broad definition of personnel records, and its inflexible timelines for disclosure. It ultimately did not pass. In a similar vein, HB 1136 would have created a new cause of action for employees to recover unreimbursed expenses incurred for business purposes. It also did not pass.
SB 5417 was introduced to restrict employers’ ability to make workplace communications about political or religious topics, with “political” defined conspicuously to include labor organizing matters. The bill contained a new private right of action to enforce the restriction. It made it as far as the Senate floor but did not pass.
HB 1187 passed, creating a broad new legal privilege, on par with attorney-client, or doctor-patient, for communications between a union member and their union representative. Employer groups advocated for an exception to this privilege for civil actions in which the union member is a party and intends to rely on testimony or records of the union representative, but this change was strongly resisted by the bill’s proponents. The bill awaits the Governor’s signature.
After a bruising fight last session between business and labor over the regulation of ergonomics exposures in the workplace, a more narrow bill on this topic passed this session. SB 5217 overturns a 2003 citizen initiative prohibiting ergonomics regulation, and allows Labor & Industries to adopt one rule per year per industry, as defined by reference to industry codes and risk classes, when that industry has workers’ comp claims for musculoskeletal injuries and disorders at a rate two times or more the general workers’ comp system rate for such claims.
HB 1762 passed on the second-to-last day of the session, imposing major new regulatory requirements on employers with warehouse distribution centers, including a rebuttable presumption of retaliation for adverse employment actions, and backed by a robust new administrative enforcement process at Labor & Industries, including a new civil cause of action available to the Department.
Insurance
This was an unusually active session for proactive legislation successfully advanced by the insurance industry. HB 1060, allowing for the reorganization of domestic mutual insurance companies, passed without controversy into law, as did HB 1061, eliminating mandatory pre-licensing education for insurance producers, HB 1120, adopting the NAIC model regulation establishing the best interest standard for annuity transactions, and SB 5319, adopting the national model for issuance of pet insurance. HB 1266 passed, regulating and restricting the Office of Insurance Commissioner’s e-mail communications with licensed producers, as well as SB 5720, allowing commercial insurers, alongside residential insurers, to provide risk mitigation goods and services of a value up to $7,500 or 10 percent of annual premium.
Bills considered but not passed include HB 1811, allowing for consideration of extraordinary life circumstances in credit based insurance scoring, SB 5326, creating an online insurance verification system, and SB 5652, allowing registered tow truck operators a claim for reimbursement when called by public safety officers to clear a roadway. Other bills that did not make it out included SB 5053, requiring sublimit declarations on residential policies, and HB 1634, prohibiting insurers from considering dog breed in underwriting homeowner policies.
Financial Services
The session was favorable for banking and lending regulation, with just a few key bills passing, and no adverse proposals making it out. The primary bill passed was HB 1420, clarifying that the first in time, first in right rule of lien priority applies to all mortgages and deeds of trust, and undoing the Washington Supreme Court’s contrary holding in the 2022 Commencement Bank case, which applied the lien priority statute to construction loans only. The Department of Financial Institutions passed its primary request bill, HB 1370, protecting whistleblowers in the industry. Bills that industry monitored that did not pass include SB 5733, creating a B&O tax deduction for credit card interchanges, SB 5493, eliminating the B&O tax deduction for interest on first mortgages for certain banks, and SB 5509, creating a Washington State public infrastructure bank. DFI came out ahead in the final operating budget, with an appropriation higher than either the Senate or House original versions, funding new FTEs for their licensing and administrative services divisions.
Liability Reform
The primary lawsuit abuse proposal this session was SB 5059, providing for the accumulation of pre-judgment interest upon the accrual of a tort cause of action, as opposed to once a judgment on a suit is entered. Billed as the top priority of the state’s trial lawyers’ association going into session, the bill was resisted by a broad coalition of business, civil defense, public agency, insurance, and liability reform organizations. It was narrowly defeated in the Senate Ways & Means Committee at the first fiscal cutoff, and did not advance. The bill is likely to return next year for a third try by the trial lawyers.
An unusually titled proposal that arose early in session, SB 5090, “relating to tort actions,” was considered in the Senate Law & Justice Committee but never moved. It would have changed the rules for class action certification in cases seeking damages for statutory violations, increased standing for individuals to sue for statutory violations, and indexed statutory damage amounts to inflation.
HB 1618, which would have removed the statute of limitations on claims of childhood sexual abuse, both prospectively and retroactively, reviving past time-barred claims, was similarly stopped in the Senate Ways & Means, but not until it passed the House and the Senate Law & Justice Committee. The roughly $180 million per biennium projected cost for settlements from one state agency alone was too high a cost on the state for the measure to advance. The bill’s supporters have indicated they intend to pursue the measure again in 2024.
Interim and Next Session
The 2024 legislative session will convene on January 8th, and run for 60 days. During the interim, legislative committees will likely schedule work sessions around the state to consider issues of interest to members, and the full legislature will return in late September and November for assembly days, where more intensive session planning takes place.
