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Changes to Retirement System - a Solution in Search of a Problem

Michael Mitchell — 2012-05-09T23:10:44Z

Due to a new law that changes the state retirement systems, nest eggs will shrink for many teachers, child protection caseworkers, parole counselors and others who deliver vital services for modest pay. This is despite the fact that their pensions are adequately funded and sustainable. The changes will also require all public-service workers and the state to shoulder higher costs unnecessarily.

In what is clearly a solution in search of a problem, the new law makes two significant changes for public employees hired during or after May 2013:

Stiffer early retirement penalties – Those who retire before age 65 will see their benefits reduced by 5 percent for each year they are short of the official retirement age. So a teacher with 30 years of service who retires at age 60 will have his or her monthly retirement allowance permanently reduced by 25 percent. The penalty was previously 3 percent.

Higher contribution rates – When estimating future pension liabilities and contributions, the state will start assuming its pension fund investments will earn less money than they have in the past. This will mean that both the state and public employees will have to contribute more money to retirement in a given year to ensure that pension funding targets are met.

Over the last 20 years the state pension trust fund has averaged annual returns of approximately 8.7 percent and has used a more modest 8 percent rate to estimate future liabilities and contribution needs. The new law gradually reduces the investment return assumption to 7.7 percent by 2017. That may not sound like a big change, but it will mean that currently employees will pay more today in higher contributions, yet receive a smaller future pension.

While touted as necessary to ensure the long-term health of our public retirement system, these changes ignore the fact that Washington has some of the most well-funded and well-run pension plans in the country.

By the state actuary’s estimates, Washington’s retirement system is already securely funded, with $1.02 in assets on hand to pay for every dollar of pension benefits employees have currently earned. According to the Pew Center on the States, only two states, New York and Wisconsin, boast higher funding ratios.

These pension changes will have real impacts for Washington families, asking long-time dedicated public employees to pay more into an already well-funded pension system while at the same time reducing the value of future retirement.

Budget Cuts Hurt Families’ Ability to Get Back to Work

Kim Justice — 2012-05-03T21:41:06Z

Investments that help Washingtonians find work and weather difficult financial times were cut far more deeply than any other public priority during the 2012 Legislative Session. Although these economic security investments represent the smallest share of the entire state budget (3.3 percent), they account for nearly half of all reductions to public services.

The largest single cut was $127 million from Temporary Assistance to Needy Families (TANF), which provides struggling families with child care support, job training, and help finding a job.

Some said that this cut was justified because the number of people accessing the program has declined, leaving unspent funds carried over from the previous year. But don’t be fooled— the needs of families have not decreased. In fact, the reason fewer families are receiving assistance is because restrictions to eligibility have been made over the past few years, forcing struggling families out of the program. For example:

Over 25,000 parents and children have lost services due to implementation of a 60-month time limit;
Over 8,000 fewer families received child care assistance at the close of 2011, compared to 2009, due to reduced eligibility;
Over 2,000 parents and children have lost assistance due to a reduction in the maximum amount of income a family can earn and still be eligible for the program;
Approximately 1,700 children who are cared for by relatives, live in immigrant families, have a disability or are being cared for by a legal guardian have been terminated from services due to new income restrictions. (1)

The Legislature could have chosen to reinvest the unspent funding to help families hardest hit by the recession, and improve the overall economy by getting people back to work. Instead, the bulk of the funds were used to balance the budget.

Some good news: a small portion of funding was used to readjust eligibility for child care. Eligibility was increased from 175 percent of the Federal Poverty Level (FPL) ($3,361/month for a family of four) to 200 percent FPL ($3,842/month); the state restored the maximum income assistance amount for larger families, and enacted other administrative changes that lessen barriers for families. However, this is just a tiny drop in the bucket of what’s needed to turn the economy around, get families back on their feet, and secure our future prosperity.

1. Caseload data from DSHS: http://www.leg.wa.gov/JointCommittees/LEWOTF/Documents/Apr232012/LegPictures.pdf and OFM forecasting division: http://www.workfirst.wa.gov/performance/measures/WorkFirstChartsJan2012.pdf

Final Budget Misses the Mark on Building a Strong Economy

Kim Justice — 2012-05-02T22:16:49Z

The budget that the Governor signed into law today misses the mark on strengthening the economy and meeting the public’s needs. Rather, it relies on accounting maneuvers and further cuts to investments that keep families economically secure.

Increasing our state’s resources, which would stimulate economic growth and promote jobs by strengthening our schools, transportation system and other assets that employers need, accounts for less than 1 percent of the solution to the $1 billion shortfall.

All told, only $6.7 million in new revenue was enacted this year. Policymakers curtailed an unproductive tax break claimed by large out-of-state banks and closed a loophole that allowed businesses selling roll-your-own cigarettes to avoid charging cigarette taxes. However, lawmakers also shortchanged future revenues by doling out or renewing a number of tax breaks for food processors, newspapers, movie companies and others, costing the state $19.8 million.

One-time transfers of funds and other accounting changes make up the biggest share of the budget solution (65 percent), with the largest portion coming from a change in the way tax collections are distributed to local governments. By distributing payments on a monthly basis, rather than daily, the state will get a one-time boost of $238 million.

Spending cuts make up about one-third of the budget solution. The Legislature avoided additional cuts to colleges and K-12 education, but approved cuts to health care, environmental protections, and services that sustain families during difficult financial times.

This continues policymakers’ misguided three-year trend of responding to the economic crisis primarily by cutting services that grow a strong economy rather than building a revenue system that supports a healthy workforce, sound roads and bridges, and other public priorities. As the graph below demonstrates, cuts have been 17 times greater than the amount of revenue generated through tax measures since 2009.

Such a strategy is as unwise as it is unsustainable.

Stay tuned to schmudget for more analysis on the final budget.

Dysfunctional Tax System Fails to Meet Modern Needs

Andy Nicholas — 2012-04-23T17:12:06Z

Part four in a series on Washington’s long-term fiscal challenges.

Washington’s outdated tax system is starving our state of vital resources desperately needed to invest in what it takes to create jobs and build a strong economy.

The amount taken in from state taxes, measured as a share of our state economy, has been steadily falling for the past couple of decades. In fact, since 1995 there has been a 30 percent drop. Without changes in the tax system, this downward trend won’t subside.

The major reason behind this decline is that Washington’s tax structure has not kept up with the changes in the state’s economy. It was built for a different time. For example, increasingly, the wealthiest Washingtonians make their money from capital gains, which the state doesn’t tax. In addition, the state sales tax – Washington’s largest revenue source – doesn’t reflect the massive shift in consumer spending patterns. When the sales tax took effect in 1935, people spent more on things than services. Today it’s the other way around, but the sales tax isn’t applied to most services – many of which didn’t exist when the sales tax began.

Elimination of the motor vehicle excise tax (MVET) through approval of Initiative 695 in 1999 made the decline even worse. Replacing the MVET with a flat, $30 vehicle licensing fee costs the state more than $800 million in annual resources.

In an era of so much social and economic upheaval maybe it’s natural to gravitate toward things that are traditional and familiar. But Washington’s 1930s-era tax system is making things worse. Difficult as it may be, we must acknowledge that Washington faces 21st century economic challenges that our quaint tax system simply can’t handle.

We can create a sustainable tax system that meets the demands of the 21st century global economy. Key reforms that would put Washington on the right path include modernizing the sales tax to include more consumer services and adopting a tax on rapidly-growing capital gains. These two options would help reverse the downward spiral of economic resources. In the coming year, adopting these changes would increase available state tax revenues by at least $800 million -- all of which could be invested health care, education, and other necessities proven to create jobs and promote prosperity.

Check out parts one, two, and three of this series for more information on Washington’s long-term fiscal challenges.

New National Report Highlights Weaknesses of Washington’s Tax Break Evaluations

Andy Nicholas — 2012-04-13T19:24:02Z

Washington gets a mixed assessment for its process of evaluating special tax breaks according to a new report from the nonpartisan Pew Center on the States.

The Pew study found that overall Washington ranks among the 13 states that are “leading the way” on tax break evaluations. Washington’s evaluation process was praised for evaluating the majority of state tax preferences over a 10 year period. However, our state received lower scores for the quality of its tax break audits.

Tax break evaluations don’t answer key economic questions

The report finds that effective audits should evaluate how tax breaks impact a state’s economy and the extent to which they create jobs. Many of the audits in Washington don’t provide such an assessment, which is why Pew gave Washington a lower score in this area. It’s important to note that answering these questions isn’t easy. As the study states:

“A core problem vexing states is that it is difficult to determine what would have happened but for the tax incentives. In some cases, they might cause companies to create jobs or increase investment, but they might just be offering public dollars to reward businesses for what they would have done anyway.”

Even so, other states have found ways to tackle the “but for” question. Oregon received high marks for both the scope and quality of its tax break evaluations. The study cited creative approaches taken by that state to assess the economic and jobs impact of several large state tax breaks.

Sunset dates necessary for transparency

Oregon was also praised for applying systematic expiration or “sunset” dates to most state tax credits. Sunset dates are important because they force state policymakers to balance the costs and benefits of state tax breaks against competing public health and education priorities on a routine basis -- an area where Washington needs improvement.

While audits provide useful information regarding the performance of tax breaks, policymakers in Washington state are not required to act on that information. As Bill Longbrake, Chair of Washington’s Citizen Commission for Performance Measurement of Tax Preferences, states in the report:

“It is a great process in terms of depoliticizing it, it is a great process in terms of providing really high-quality analysis and information, it is a great process in terms of involving public stakeholders and getting their views on the table, but it stops at that point […] There is nothing that requires the legislature to do anything other than receive the report and hold one hearing on it.”

As we’ve argued previously, applying sunset dates to most tax breaks in Washington would push lawmakers to act on the findings of state auditors.

The report, co-authored by Jeff Chapman, the Budget & Policy Center’s former Research Director, shows that Washington has made great strides in recent years toward better evaluation of tax breaks, but more needs to be done. Going forward, policymakers should apply routine sunset dates to most tax preferences and should give auditors the tools they need to provide more comprehensive assessments.

For more information read the entire Pew report.

Also check out our policy brief, “Every Dollar Counts: Why it’s Time for Tax Expenditure Reform.”

Tax Increases? Where?

Andy Nicholas — 2012-04-12T21:42:20Z

Yesterday’s state budget agreement might have left some with the impression that lawmakers eliminated scores of tax breaks, raising millions upon millions of dollars to preserve public health and education priorities. That simply isn’t the case.

All told, tax increases resolved only $250,000 of the more than $6 billion in revenue shortfalls encountered since the current budget took effect in July 2011, even taking account of what the Legislature did yesterday. During the same period, public investments in schools, health care, transportation, and other things that promote job growth and economic prosperity have suffered some $5 billion in harmful cuts (see graph below). (1) This lopsided approach has only worsened Washington’s long-term economic challenges.

Wait, didn’t policymakers just curtail a wasteful tax break for out-of-state banks? Yes they did. Limiting eligibility for that break to small banks (those that operate in fewer than 10 states) will generate about $14.5 million in the fiscal year that begins this July. They also closed a tax loophole for businesses that sell roll-your-own cigarettes, which will raise about $12 million.

Yet, since January 2011 lawmakers have also created or extended a number of other tax breaks for specific industries – ranging from fruit and vegetable processors ($6.7 million per year) to real estate firms ($1 million per year) to movie production companies ($3.5 million per year). They also established a permanent tax break for newspapers worth about $7,000 per year.

When all of the tax giveaways enacted since early 2011 are accounted for, net tax increases raised less than a quarter of a million dollars for the current budget, leaving important economic investments without desperately needed funding. In fact, if you drew a line to represent the proportion of new revenue over that period, it would be one inch long. A line representing spending cuts would stretch the length of five-and-a-half football fields.

To build a state that can compete in the 21st century economy, policymakers must support first-rate schools, affordable colleges and universities, and a healthy, productive workforce. Doing so will require us to generate new resources by eliminating wasteful tax breaks, modernizing our sales tax by including more consumer services and enacting a new tax capital gains.

1. Net tax increases resolved only $250,000 of about $6.3 billion in budget shortfalls encountered since the start of the 2011-13 fiscal biennium. Going forward, total tax actions enacted since early 2011 will result in a net annual increase of about $3.5 million.

Supplemental Budget: Worst of Cuts Avoided, Challenges Remain

Kim Justice — 2012-04-11T22:40:44Z

The Legislature concluded its second special session by passing a budget that spares kids and vulnerable populations from deeper cuts, but takes no steps to rebuild our economy.

Since 2009, the Legislature has cut over $10.5 billion from investments in health care, education, and resources people need to remain economically secure through a recession (see graph). This is the opposite of what is necessary for our economy to recover. While the worst of the cuts to these investments were avoided this time around, little progress was made to ensure future economic prosperity.

Actions taken by the Legislature at the close of special session include:

Spending cuts:

$295 million in cuts: Almost half ($127 million) of the reductions came from unspent funds in the Temporary Assistance to Needy Families program, which provides families with child care support and help finding a job. This funding could have been used to help families hardest hit by the recession, but instead it was mostly used to balance the budget.
Funding preserved: K-12 and higher education, support for people with disabilities, women’s health, and food assistance were spared further cuts.

$238 million shift in payments to local governments:

By waiting until the end of each month to distribute tax revenues to local jurisdictions, the state budget gets a one-time $238 million boost.

Miniscule revenue increases:

Actual tax increases amounted to about $26 million, from closing a tax breaks for out-of-state banks and sellers of roll-your-own cigarettes.
Policymakers also cut taxes by about $20 million. Tax breaks were renewed or extended for companies that process fruits and vegetables, server farmers, film companies, and shipping businesses.
Administrative actions -- such as selling the state’s liquor distribution center and offering an amnesty program for taxes owed on personal property – amounted to about $27 million in additional resources.

Change to four-year budgeting:

Requiring the Legislature to budget four years out could result in even deeper cuts to public priorities in the future because it fails to address the major reasons why Washington has a hard time meeting growing public needs: spending and revenue are not treated the same in budget decisions, and examining tax breaks is not part of the budget process. Click here to read more on this topic.

The Legislature missed out on the opportunity to enact smart reforms that would help create jobs and put the state on track to compete in the economy.. Key reforms include: extending the sales tax to more consumer services, enacting a tax on capital gains, and systematically reviewing the billions of dollars spent each year on special tax breaks.

Four-Year Budgeting: Unreliable Long-Term Forecasts Could Harm Public Priorities

Andy Nicholas — 2012-04-09T21:50:05Z

Part Three in a Series on Washington's Long-Term Fiscal Challenges

Without the ability to address Washington’s flawed revenue system, current proposals requiring the budget to be balanced over four years (instead of the current two year cycle) would force policymakers to cut important public health and education priorities over the long term. A major reason is that long-term revenue forecasts tend to be highly unreliable.

As we noted in parts one and two of this series, balanced state budgets are key to maintaining important priorities in the long run. However, economic uncertainty makes it extremely difficult for forecasters to develop reliable long-term revenue estimates.

The graph below shows that forecasters tend to be overly conservative when estimating revenue growth following a recession and overly optimistic during an economic peak. Following the “dot-com bust” recession of the early 2000s, the state Economic and Revenue Forecast Council (ERFC) under-estimated state tax collections by about $2.8 billion prior to the 2005-07 budget cycle.

Under current budgeting practices, it is entirely appropriate for the ERFC to be extremely cautious when projecting state revenues following a recession. However, under the proposed four-year balanced budget requirements this approach could harm public investments by creating a “ratchet effect.”

That means overly pessimistic forecasts would require policymakers to enact unnecessarily deep cuts to public health and education infrastructure in order to keep the budget balanced within the depressed revenue estimates. And, deeper-than-necessary cuts to these and other vital components of the state economy would greatly harm the state’s ability to recover following a recession.

The “ratchet effect” would be less severe if the legislature were able to raise additional revenues, which would increase the revenue forecast and mitigate the need for excessive cuts. Yet the onerous, minority rule requirement established under I-1053 makes it virtually impossible for the legislature to meaningfully increase revenues under current law.

Without the ability to address Washington’s flawed revenue system, proposals to mandate a four-year balanced budget would simply force policymakers to abandon our commitments to building a robust and vibrant state economy.

This is the third post in a series on Washington’s long-term fiscal challenges. Be sure to check out parts one and two. More to come.

New Revenue Bill: A Step in the Right Direction, Far from Balanced Approach

Tara Lee — 2012-04-06T19:56:11Z

A new bill in the state Senate (SB 6635) would generate additional resources to help address the roughly $1 billion revenue shortfall. While this is a positive development, the amount of additional revenue under consideration falls far short of what is needed to sustain basic public investments.

Senate Bill 6635 would narrow two costly tax breaks – a business tax deduction for out-of-state banks and a sales tax exemption on certain telephone services – while extending tax preferences for other industries. No fiscal note has yet been produced, but a rough analysis suggests the measure would generate $40 million to $50 million in additional tax resources in the coming 2013 fiscal year. (In comparison, the current House budget proposal would cut roughly $315 million from Washington’s core health and economic services).

SB 6635 would:

•    Narrow a business tax break for out-of-state banks: Under current law, banks are allowed to deduct interest payments they receive from 1st home mortgages from their state Business and Occupation (B&O) taxes. The bill would limit eligibility for this deduction to banks that operate in fewer than 10 states.
•    Eliminate a sales tax exemption on certain phone services: Payphones, local residential calls, and calls from cell phones made by out-of-state residents are currently exempt from the sales tax. SB 6635 would repeal this exemption.
•    Extend a B&O exemption for fruit, vegetable, seafood processors: A B&O exemption for companies that process fruits, vegetables, and seafood products is currently set to expire on July 1st of this year. These businesses will then be eligible to receive a preferential B&O tax rate of 0.138 percent. The bill would extend the exemption through July of 2017.
•    Enact larger B&O tax breaks for newspapers: SB 6635 would provide a preferential B&O rate of 0.365 percent for newspapers. That rate would fall to 0.35 percent after July 1, 2013. Under current law, different B&O rates are applied to various activities related to newspaper publishing. The activity of printing a newspaper currently receives a preferential rate of 0.2904 percent while publishing a newspaper online is taxed at the ordinary rate for service businesses of 1.8 percent. The bill would consolidate these activities into single new category taxed at 0.365 percent, which would then fall to 0.35 percent at the end of the 2013 fiscal year.
•    Codify an exemption for shipping and cargo companies: Historically, the state Department of Revenue (DOR) has not collected Leasehold Excise Taxes (LET) from companies that lease publicly-owned cranes and docking facilities to unload cargo. After reviewing this activity, however, the Department recently announced these activities are subject to the LET. SB 6635 would create a LET exemption for these companies.

SB 6635 is a good first step in addressing our flawed revenue structure through closing tax breaks and loopholes. However, with proposed deep cuts to essential public services such as healthcare and economic services, now is not the time to extend and enlarge other tax preferences.

House Approves Revised Budget as End of Special Session Looms

Kim Justice — 2012-04-06T19:04:13Z

With just four days left in this special legislative session, policymakers are still divided over how to address a roughly $1 billion revenue shortfall for the remainder of the 2011-13 budget cycle. Yesterday, the House passed its revised budget proposal; the Senate's proposal awaits approval.

While they take different approaches, neither proposal adequately addresses Washington’s flawed revenue system, the dominant cause of the state’s long-term fiscal challenges.

Key differences between the proposals include:

Ending fund balance-- both proposals leave money in reserve

House budget - $335.7 million
Senate proposal- $437.4 million

Cuts -- both proposals cut millions of dollars from investments in Healthy People & Environment, Thriving Communities, Education and Opportunity, and Economic Security (see graph below).

House budget- cuts $315 million.
Senate proposal would make deeper cuts of approximately $530 million.

Shifting payments

The Senate proposes to skip a $143 million pension payment for retired state employees.
The House budget adopts a procedural change in how local government taxes are distributed, resulting in one-time savings of $238 million in the current budget cycle.

While the current budgets under consideration may enable legislators to wrap up their work for now, the long-term structural problems with our revenue system remain. As a result, subsequent budget cycles will result in the same challenges and deeper cuts.

Out-Dated, Flawed Revenue System Creating Long-Term Fiscal Challenges

Andy Nicholas — 2012-04-02T19:32:12Z

Part Two in a Series on Washington's Long-Term Fiscal Challenges

Maintaining Washington’s core health and education investments requires that policymakers adhere to disciplined yet rational budgeting practices. As we wrote last week, it would be counterproductive to impose greater restrictions on the state budget process without giving policymakers access to all of the tools needed to create a sustainable budget – including the ability to address Washington’s flawed revenue system. Without changes to Washington’s outmoded tax system, the state will face years of increasingly dire fiscal challenges.

Regardless of how the current budget stalemate is resolved, Washington will face enormous fiscal problems in the years ahead. The graph below shows that under current law revenues are projected to fall $1.5 billion short of the amount needed to sustain our existing commitments to health care, education, services for the elderly, and other key public systems in the coming 2013-15 budget cycle. Absent major reforms, this gap – often referred to as the “structural deficit” – is projected to grow to $2 billion in the following 2015-17 cycle.

The largest cause of this ongoing fiscal imbalance is a revenue system designed for a 1930’s era economy. While our state economy has changed significantly over the past 80 years, the tax structure has not kept pace with these changes. As a result, Washington’s revenue system has lost significant capacity to generate the resources needed to support our state’s growing need for education, work force development, health care, and other basic economic priorities.

Key reforms that would alleviate this imbalance include: extending sales tax to consumer services, enacting a new tax on capital gains, and integrating spending on narrow tax breaks into the state budget process.

This is the second post in a series on Washington’s long-term fiscal challenges. Don’t change that dial.

Eliminating Disability Lifeline Would Cost More Than it Saves

Kim Justice — 2012-03-29T20:13:04Z

A proposal to eliminate Disability Lifeline (DL) – a core support structure for people with short-term disabilities – would save the state little while imposing higher costs for Washington’s overall health care system.

Policymakers are currently working to address a roughly $1 billion budget shortfall for the remainder of the biennium. In part, the Senate proposes to address the shortfall by getting rid of assistance which helps thousands of individuals who cannot work due to a medical condition such as a physical disability or mental illness. Terminating assistance for people with disabilities is a bad idea. First and foremost, eliminating DL would put lives on the line by depriving over 15,000 people of needed basic medical care. Doing so would also represent short-sighted economic policy that would:

Result in the immediate loss of over $50 million in federal funds: In 2011, Washington state received approval from the federal government to begin early implementation of Medicaid expansion, a key component of health care reform that will extend coverage to childless adults with annual incomes up to $15,028.(1)Under the expansion, the federal government matches 50 percent of the costs to cover this population which includes the entire Disability Lifeline caseload.
Hinder the implementation and cost-effectiveness of health care reform: Beginning in 2014, Medicaid expansion under health care reform will cover the entire Disability Lifeline population, with the federal government paying 100 percent of the cost (gradually decreasing to a 90 percent match in 2020). If DL is eliminated before this reform goes into effect, we will have lost an opportunity to provide continuous coverage for a population that is extremely vulnerable. Breaks in coverage have the potential to lead to worsening health conditions and can make it more difficult and expensive to identify and enroll people once they leave the system of care.
Shift the cost to consumers and businesses: While state support for individuals with disabilities could go away, their health needs would not. Hospitals and clinics, the primary system of care for DL clients, would continue to serve this population, but most of it would be uncompensated. Recent estimates suggest that hospitals and clinics will lose an estimated $28 million and $39 million, respectively, if Disability Lifeline were eliminated (see graph below). (2) When the costs to cover the uninsured become substantial, they get passed on to consumers and businesses in the form of higher health care premiums and out-of-pocket costs. Current estimates show that the hidden or invisible cost of uncompensated care is about $1,017 per insured family per year. For individuals, the hidden cost is about $368.(3)

As budget negotiations continue to unfold, lawmakers should remember that Disability Lifeline is a necessary and smart investment that protects our most vulnerable, prepares us for health care reform, and reduces health care costs for all of us.

1. According to the law, Medicaid expansion covers individuals with incomes up to 133% FPL, however, there is an income disregard of 5%, making 138% a more accurate figure.

2. Estimates from Washington State Hospital Association and Community Health Network of Washington.

3. State of the uninsured: Health coverage in Washington State, Costs, Trends and Projections 2008 to 2014. Office of Insurance Commissioner, Dec. 13, 2011.

Read the Fine Print: Proposed Senate Budget Would Harm Families

Andy Nicholas — 2012-03-15T22:11:02Z

Members of the State Senate released a new budget proposal this morning to address the roughly $1 billion gap between available tax revenues and the amount needed to maintain core investments in health care, education, and other important public priorities. Despite claims that it would protect vulnerable Washingtonians, the Senate budget proposal would greatly damage vital structures that protect people with disabilities, vulnerable families and children, and our environment.

For example, the new Senate Budget would:

Eliminate medical assistance for people who are unable to work due to a severe mental or physical disability, cutting them off from the only resource they have to meet basic needs;
Eliminate vouchers that help people with disabilities maintain housing and purchase basic care items like toilet paper and soap;
Reduce Temporary Assistance for Needy Families (TANF) cash assistance by two percent and imposing a harsh 48-month lifetime limit on TANF recipients, further limiting families’ ability to meet their children’s basic needs while they work or try to find a job;
Eliminate food assistance for thousands of legal immigrant children;
Eliminate alcohol and drug abuse recovery services for 14,500 recovering addicts; and
Divert $67 million in funding away from efforts to clean up over 11,000 toxic waste sites that threaten public health and our major rivers, streams, and Puget Sound.

It is important to note that this proposal would not impose further cuts on our K-12 or higher education system – which has already weathered some $4.9 billion in cuts since 2009. Yet, the cuts listed above are not necessary in order to preserve funding for education. All of these cuts could be averted by eliminating a handful of ineffective tax breaks, but not one tax break is eliminated or modified in the Senate proposal

Continuing down this path harms our long-term recovery efforts. The only way to build a truly sustainable budget – one that makes the necessary investments in our people, communities, and infrastructure - is to reform our flawed revenue system.

Want Sustainability? Reform the Revenue System

Kim Justice — 2012-03-12T21:13:49Z

Today is the first day of the 2012 special legislative session. The Governor called for an additional 30 days after lawmakers failed to agree on a state budget by the close of last week’s regular legislative session. At issue is the projected $1 billion gap between available resources and funding levels needed to sustain existing levels of health, education, and other public services.

Of the two budgets that were voted out of their respective chambers, the Senate budget would cause the most harm to vulnerable people, our children’s education , and our state’s economic recovery and future prosperity. Neither budget addresses the single most important factor in creating a sustainable state budget: reforming Washington’s flawed revenue system.

The Senate budget solution relies most heavily on cuts (see graph below), which eliminate medical care for people with disabilities, cuts more than $40 million from K-12 education, and does away with child care assistance for 4,000 parents. The Senate budget also contains a one-time funding shift by skipping a $133 million pension payment.

By contrast, the House budget makes a one-time funding shift of $340 million (38 percent of the budget solution) by shifting a payment to school districts from the current biennium to the next. Cuts make up about one-third of the House’s budget solution. Additionally, the closure of two tax loopholes—for out-of-state banks and roll your own cigarettes— account for 3 percent of the solution.

The fact is that neither budget is sustainable in the long-run. Sustainability cannot be accomplished through an approach that depends so heavily on cuts and one-time funding shifts. Reform of our revenue system is the single most important factor in building a sustainable state budget. Options that should be considered include a new tax on capital gains, strengthening the Rainy Day Fund, and bringing tax breaks in-line with the rest of the budget.

We released a statement this morning on the start of the special session, check it out here.

Session Ends; 800 Pound Revenue Gorilla Still in Room

Andy Nicholas — 2012-03-09T21:01:40Z

The 2012 regular Legislative Session came to close last night, culminating in an unresolved debate over which budget proposal is more “sustainable." The truth is that neither the proposed House nor Senate budgets would adequately fund investments in education, health care, or other core public priorities – not now and not in the future.

Why? Because neither proposal addresses the single most important factor in building a truly sustainable state budget: fixing Washington’s flawed revenue system.

Washington’s excessive reliance on sales taxes means we have a tax system that simply cannot generate sufficient resources to maintain our existing commitments to a high-quality education system and safe, healthy communities. The graph below shows that our state sales tax has steadily lost capacity to generate tax revenues needed to support basic public services over the last 40 years.

This flawed system cannot be addressed with Initiative 1053 (I-1053) in place, however. I-1053 mandates that any tax increase can only be enacted via a supermajority (two-thirds) vote of the legislature or a vote of the people. The onerous supermajority requirement means that a minority of legislators can block action needed to preserve funding for essential public priorities.

The limitations of I-1053 were prominently revealed last night when House Bill 2791 failed to pass out of the House of Representatives, even though a majority (51) of legislators voted to approve it. The bill would have eliminated a sales tax break for nonresident shoppers in order to provide additional funds to implement all-day kindergarten in Washington.

Today, the King County Superior Court is holding a hearing on whether I-1053 violates the state Constitution. Whatever the Court decides, we will remain locked in an unsustainable cycle of slash and burn budgeting until we break free of Initiative 1053’s formula for minority rule.

The bottom line is that we cannot cut our way to a sustainable budget. More cuts to our health, education, and other public structures would result in more damage to fragile economic recovery and the well-being of Washingtonians. Creating a truly sustainable state budget requires reforming our failing revenue system.