OLYMPIA — Gov. Jay Inslee unveiled a $46.7 billion budget proposal Wednesday that fully funds public schools, provides state employees a raise, freezes college tuition and transforms the way the state cares for those with mental illness.

The blueprint, which covers two years of spending starting July 1, relies on $5.2 billion from new and higher taxes as well as reserves and transfers to balance.

Overall, it proposes nearly $8 billion more in spending than in the current state budget. The majority of those additional dollars are earmarked to tackle challenges of the McCleary school funding mandates and an ambitious reform of the delivery of mental health services.

Inslee vowed at a news conference to keep a laser focus on those issues in what will be “one of the most important legislative sessions in a long, long time in the state of Washington.”

About half the proposed budget is spent on elementary and secondary schools. The single biggest increase, $2.82 billion, is for salaries of teachers and other school staff as the state picks up the tab that many districts have been paying.

Other new spending items include:

• $732 million to cover pay raises for state workers and employees in higher education;
• A $146.2 million boost in the State Need Grant program to provide financial aid to an additional 14,000 college students;
• $56.7 million to community colleges and universities to keep tuition from rising in the next two years. This follows a tuition cut achieved in the last budget;
• $27.8 million to add 2,700 slots for children in the state’s Early Childhood Education and Assistance Program.

A day after revealing his plan for fully funding schools, Inslee on Wednesday detailed how he wants to redesign the mental health system to move hundreds of mental patients out of the state’s two psychiatric hospitals and into care facilities closer to their families.

Under his plan, the focus at Western and Eastern state hospitals would be caring for forensic commitments, those sent to the hospitals by courts. Meanwhile, most of those hospitalized as civil commitments, such as those involuntarily admitted for short periods of time, would no longer be sent to those institutions. Instead they would be cared for in new or expanded facilities, some run by the state, others by private firms.

His budget would add 1,000 beds in the next two years. These would be in a variety of settings such as skilled nursing facilities and adult homes. There’s money specifically for new “step-down” beds for state hospital patients who could be discharged but are not because they need help transitioning back into the community. Inslee said there are 170 such individuals today who could be released if such services existed.

Inslee’s plan also calls for building nine new state-run 16-bed behavioral health hospitals. These would provide acute psychiatric care in a locked facility. The budget envisions opening the first three in 2019 though no sites have been determined.

There’s also additional dollars allotted for operating crisis walk-in centers, treating those addicted to opioids and other drugs, and helping the homeless secure shelter. Inslee said state services must recognize the intersection of homelessness,substance use and mental illness.

“We’re not just nibbling around the edges. We’re transforming this system starting today,” he said. “All of us should care deeply about this issue because we know people in our families, in our neighborhoods, in our places of employment that face these challenges of addiction, of homelessness, of disconnection.”

The most contentious part of Inslee’s budget is likely to be the roughly $5.2 billion from new and higher taxes it proposes.About $4.4 billion would land in the general fund with most getting spent on public schools. The rest is headed for use in the separate capital construction budget.

Specifically, he wants to:

• Increase the business and occupation tax rate on services provided by accountants, attorneys, janitors, real estate agents and others. The current 1.5 percent rate would climb to 2.5 percent on July 1, 2017, raising an estimated$2.3 billion for the budget.
• Impose a new carbon tax of $25 per metric ton of emissions starting in the 2018 fiscal year. This would bring in$1.9 billion, with about half going to education and the rest to the capital budget for clean energy and transportation projects.
• Collect a new 7.9 percent capital gains tax on earnings from the sale of stocks, bonds and other assets above$25,000 for individuals and $50,000 for those who file jointly. The levy would begin in the second year of the biennium and would raise about $821 million in fiscal year 2019. Retirement accounts, homes, farms and forestry would be exempt.

Inslee also wants to axe the sales tax exemption on bottled water, require nonresidents from states with no sales tax, such as Oregon, to apply for sales tax refunds for purchases in Washington rather that receive them automatically, and end a tax exemption for extracted fuel used by oil refineries. Collectively these could produce $158 million in revenue.

And Inslee proposes to eliminate a revolving loan program for local governments known as the Public Works Assistance Account and steer the $253 million in loan repayments directly into the state general fund.

Leaders of the Republican-led state Senate issued statements sharply critical of the governor’s reliance on taxes to pay for his priorities.

Sen. John Braun, R-Centralia, the Senate’s lead budget writer, said even with those hikes “the governor still couldn’t find away to cut college tuition, reduce the cost to access state parks, expand Meals on Wheels programs for low-income seniors or offer more respite care for families of people with developmental disabilities.”

And Senate Majority Leader Mark Schoesler, R-Ritzville, said the governor’s proposal “ignores the constitutional requirement of a dependable funding source for public education by relying on a new and unproven tax on carbon and a highly volatile capital-gains income tax. His plan threatens the stability of Washington’s economy and would undermine families.”

Inslee, asked at his news conference about GOP concerns, said such criticism is healthy. He also said it isn’t possible to meet the state’s constitutional obligations for students and the moral responsibility for the mentally ill without new sources of money.

“That is just the fiscal fact unless you decide to sell the state parks, disband our veterans programs, defund the State Patrol and gut the mental health care system again,” he said. “We’re not going to do this.”

Inslee’s budget proposal serves as a conversation starter with lawmakers in the 2017 session. Majority Democrats in the House and Republicans in the Senate will each craft their own budget proposals. Lawmakers and the governor would need to reach an agreement on a new budget by June 30 to avoid a potential shut down of some state agencies.

The 2017 session begins Jan. 9 and is scheduled to last 105 days.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com Twitter: @dospueblos