Ballot Measures

“Son of 1053” would continue to exacerbate budget woes

Michael Mitchell — 2012-01-17T16:55:18Z

Earlier this month Initiative 1185 (Son of 1053) was filed with the Secretary of State’s office. The initiative would extend the onerous supermajority voting requirement of I-1053 – a requirement that has repeatedly prevented the adoption of sensible policies needed to address our ongoing economic problems.

Due to the supermajority requirement, our public health, education, and other economic structures have been cut by at least $10 billion over the last three years, while unproductive tax breaks have remained completely intact. Like I-1053, I-1185 would extend the mandate that all tax increases be subject to either a public referendum vote or pass a supermajority (two-thirds) vote in both houses of the legislature.

For policymakers, the supermajority requirement works as a significant roadblock to finding responsible solutions to our severe budget shortfalls. The two-thirds mandate allows a small minority of lawmakers to block legislation needed to prevent economically damaging cuts to critical public services, at the expense of the well-being of state residents.

The imbalance caused by I-1053 has prevented the state from scrutinizing ineffective and costly tax breaks while directly leading to the enactment of over $10 billion dollars of cuts threatening our state's economic security, k-12 and higher education systems, and investments in health care.

Hampering policymakers from responsibly raising revenues directly jeopardizes our investments in safe neighborhoods, access to quality education, and supports for middle and low-income working families.

Extending the supermajority requirement will only work to prolong our state’s slow economic recovery, as thousands of working families lose access to child care, individuals with disabilities are cut off from critical financial supports and over 20,000 adults are left without job search and training assistance.

Limiting our state lawmakers with the supermajority requirement is irresponsible, and serves only to limit future opportunity for all Washington residents.

I-1107: Claim that candy tax includes food items is misleading

Andy Nicholas — 2010-10-29T21:51:00Z

Though proponents of Initiative 1107 claim that the measure would repeal taxes on “food and groceries” they have yet to support that claim. This year policymakers appropriately extended the state sales tax to purchases of candy using a common, multistate definition. Doing so helped our state to avoid unacceptably sharp cuts to basic public priorities like health care and education.

To back up the misleading claim that I-1107 would eliminate taxes on common groceries, proponents often argue that the definition of candy used for sales tax purposes in Washington unfairly includes typical food products. But proponents of I-1107 have not been able to point to a single non-candy product that would commonly be considered food or groceries.

Instead, they point to so-called “energy” bars and “yogurt-covered” fruit products, which are now taxed under our state and local sales taxes. However, from a nutritional perspective, these products are no different from candy and are appropriately taxed as such in our state. These products are described more fully below.

“Energy” bars

Recent radio and TV advertisements in favor of I-1107 feature a product called “Belly Timber,” which is now taxed along with other candy products under our state and local sales taxes. While Belly Timber is marketed as an organic “survival bar,” the nutrition labels below show that it has more calories, total fat, and saturated fat than a comparably-sized Snickers candy bar.1,2 The labels also show that Belly Timber has about the same amount of carbohydrates as a Snickers bar.

Similar problems exist with other so-called “energy bars.” Though marketed as nutritional supplements for athletes, many of these bars contain more calories, sugar, fat, and carbohydrates than standard candy bars.3

“Yogurt-covered” products

Proponents of I-1107 also trumpet yogurt-covered raisins, complaining that they are unfairly defined as candy under our state sales tax. Yet once again, a closer look at the nutritional value of these products greatly undermines this argument.

In fact, so-called “yogurt-covered” products are really oil-and sugar-covered products with minor amounts of powdered milk. (see the complete list of “yogurt” coating ingredients.) As a result, yogurt-covered raisins have considerably more calories, fat, and sodium compared to regular raisins.4

Given these facts, it is entirely reasonable that Washington’s multistate definition of candy includes energy bars and so-called yogurt-covered products.

View the following schmudget post for a deeper analysis of the misleading claims made by proponents of I-1107.

For information on other ballot measures, view our Initiatives Summary page.

Endnotes

1. Nutritional information on Belly Timber was obtained from the product website at http://www.bellytimberbars.com/Nutritional_analysis.html.

2. Nutritional information on Snickers was obtained from peertrainer.com at http://www.peertrainer.com/DFcaloriecounterB.aspx?id=5624

3. More information available at Consumer Reports Health, and kidshealth.org.

4. It's Not About Nutrition, "Is Yogurt-Covered Really Yogurt?" March 2, 2010, http://itsnotaboutnutrition.squarespace.com/home/2010/3/2/is-yogurt-covered-really-yogurt.html

Budget Growth Claims Lack Context, Belie Deep and Painful Cuts

Andy Nicholas — 2010-10-26T16:35:58Z

Introduction

Despite the claims made by proponents of I-1107 and I-1053, the size of our state government has actually declined since the late-1990s. That’s particularly true after the more than $4.3 billion in painful cuts to essential public services like health care and education the state has made in response to the Great Recession. The situation would get much worse if voters approve I-1107, which would repeal modest and mostly temporary tax increases enacted earlier this year to prevent even more damaging cuts to these and other important public priorities.

Problems with “out-of-control spending” claims

Proponents of I-1107 and I-1053 often compare the amount Washingtonians are spending from all funds on public services in the current biennum with the total spent during the 1999-01 biennium. There are at least two serious flaws with their approach:

Big numbers, but no context: Each year, the cost of maintaining key public priorities grows along with economic and demographic trends. Because of this, the simple changes in state spending quoted by the I-1053 and I-1107 campaigns reveal little about actual changes in the overall size of our state government. Though their figures seemingly reveal large growth, they are meaningless without a basis for comparison. Rarely, if ever, do proponents show how their figures relate to economic growth or other factors – such as the rising population of seniors – that impact the costs of simply maintaining core public services in our state from year to year.
Growth figures inappropriately include federal funds: The figures cited by I-1107 and I-1053 proponents typically include state spending from all funds, including federal funds. It makes little sense to blame state legislators for federal spending choices. State policy makers could theoretically turn down the federal dollars, but that would mean our state could not afford to provide special education services, health care services for lower-income children and families, numerous public infrastructure projects, and so on. Turning down these funds would also mean that federal taxpayers in Washington state wouldn’t see any of the benefits of their tax dollars flow back to our state; their taxes would simply be used to subsidize services in other states and to pay for services administered solely through the federal government.

State spending growth in context

Given the problems described above, a more informative approach is needed to fully understand trends in state spending on public priorities. Such an approach involves: 1) Excluding federal funds and focusing solely on spending from state-only revenue sources – that is, spending that comes directly from state taxes and fees paid by Washington state residents and businesses; and 2) Placing state spending in the context of total state resources, or the size of the state’s economy.

Graph 1 shows that, as a share of our state economy, spending from state-only sources on education, health care, public safety, and other important services declined since the late-1990s. During the 1997-99 fiscal biennium, state spending stood at slightly more than 6 percent of total personal income – the metric commonly used by economists to measure the size of state economies. As of June 2010, state spending in the current 2009-11 biennium was projected to be about 5.4 percent of total personal income in Washington. This amount will likely decline even further due to the recently-announced 6.3 percent across-the-board budget cuts, however.

Recent cuts in services have been deep and painful

Though proponents of I-1107 and 1053 deceptively use their spending growth figures to minimize recent cuts in services, the truth is the impacts of those cuts have been great. In the current biennium, essential public priorities have weathered budget cuts totaling more than $4.3 billion. As a result, programs that ensure the health of our people and our environment have been cut by 9.3 percent (44,000 lower-income workers have been kicked off our state’s Basic Health Plan); investments in education and opportunity – from preschool to universities – have been cut by 11.3 percent; efforts to create thriving communities, such as public safety and economic development, have been cut by 7.3 percent; and the list goes on. In total, the current budget will spend 10 percent below the amount that would have been necessary to maintain our previous commitments to these and other core public services1.

Acknowledgments

The Budget & Policy Center gratefully acknowledges the support of the Annie E. Casey Foundation, Bill & Melinda Gates Foundation, Paul G. Allen Family Foundation, Marguerite Casey Foundation, Campion Foundation, and the Seattle Foundation. The findings and conclusions presented in this report are those of the authors alone, and do not necessarily reflect the opinions of these organizations.

Endnotes

1. Jeff Chapman and Andy Nicholas, “A Step Backward: The 2009-11 State Budget,” Washington State Budget & Policy Center, September 1, 2010.

Analyzing the claims: Share of state resources devoted to public services has actually gone down

Kery Murakami — 2010-10-22T17:08:01Z

Despite the claims being made by Initiative 1107 and Initiative 1053’s proponents, Washington actually devotes a smaller share of its resources to public services like education and health care than a decade ago. And given the magnitude of the recession, the state will likely continue to devote a smaller share of its economy to public services than before.

Typically, economists measure changes in government spending over time by analyzing how much of a state’s total personal income – or the sum of its collective resources – goes for public services. But as the graph below shows:

The share of our resources that are spent on education, health care, public safety, and other important services has actually dropped since the late-1990s;

As of June 2010, state spending in the current 2009-11 biennium is projected to fall to about 5.4 percent of total personal income in Washington – lower than the 6 percent share that went for public priorities the late-1990s.

This percentage will decline even further due to the recently-announced, 6.3 percent across-the-board budget cuts.

In other words, a smaller share of our collective resources is going to public priorities like educating our kids or providing health care than before.

And it is declining.

To read more about the issue, please see our policy brief.

Confused about all the initiatives on the ballot? Check out our summary.

Our Summary of the 2010 Initiatives

Kery Murakami — 2010-10-22T18:34:54Z

A look at this year’s ballot initiatives and their impact on Washington state.

Initiative 1107 would repeal mostly temporary taxes on non-essentials at a cost to the state;

Initiatives 1100 and 1105 would privatize the liquor system, which would also cost the state resources;

Initiatives 1053 would require a supermajority to raise taxes or fees, making it more difficult to take a balanced approach to dealing with our priorities;

Initiative 1098 would create a high-income tax to help fund education and health care;

Initiative 1082 would allow private insurers to sell workers compensation insurance, also at a cost to the state.

Initiative 1107:

The measure would repeal the extension of the sales tax to candy, gum, and bottled water, along with an excise tax on carbonated beverages.

Analysis: The approval of these taxes was pivotal to preventing even deeper cuts this year. Their repeal would significantly reduce state resources for important priorities like education and health care. Indeed, the fiscal gap faced by the state in the next three years would grow by some $272 million. The likely result? More cuts.

It’s important to note these taxes are mostly temporary and quite common around the county.

Learn more

Initiatives 1100 and 1105

The two initiatives would dramatically change the state’s liquor system and would cost the state millions for public investments. Though different in many respects, both I-1100 and I-1105 would eliminate all state-owned liquor stores and the state’s centralized distribution center. These measures would instead allow liquor to be distributed through private wholesalers and be sold at grocery and convenience stores.

Analysis: Both initiatives could significantly reduce state resources in coming years:

Under both I-1100 and I-1105, privatizing retail and wholesale liquor sales would cost the state more than $70 million per year in state markup revenues;

I-1105 would also repeal all existing state taxes on liquor, which generated about $220 million in fiscal year 2009. Only a small portion of these revenues would be replaced by new taxes on distributors and retailers;

I-1105 would require the state Liquor Control Board to propose a new per-liter liquor tax to the Legislature. But nothing in I-1105 requires lawmakers to act. Additionally, should I-1053 pass, the proposed tax would have to be approved by a supermajority (two-thirds vote) in the Legislature or by a vote of the people;

The state Office of Financial Management (OFM) estimates that I-1100 would have a five-year cost to the state general fund of $115 million-$123 million. OFM estimates that I-1105’s five-year cost would be $513 million-$547 million.

Learn more

Initiative 1053:

Tim Eyman’s latest measure would reinstate a requirement that tax increases, no matter how small, be approved by a supermajority in the Legislature or by a public referendum vote.

Analysis: The supermajority requirement would allow a small minority of lawmakers to block any revenue proposal. It would make it virtually impossible for legislators to take a balanced approach to Washington’s ongoing economic problems. The result would likely be more damaging cuts.

Learn more

Initiative 1098

The measure would reduce taxes for homeowners and small businesses while providing additional resources for education and health care through a new tax on high incomes.

Our analysis: I-1098 would enact important long-term reforms to our state’s inadequate revenue structure. The proposed tax on high incomes would generate about $2.9 billion per year for Washington state. About 55 percent ($1.6 billion) of the revenue would be spent on improvements to Washington’s education system. Another 15 percent ($393 million) would be used to lower property taxes for homeowners and businesses. The remaining revenues would be spent on new funding for health care ($686 million) and lowering B&O taxes for small businesses ($259 million).

Learn more

Initiative 1082

This measure would allow private insurers to sell industrial insurance policies (also known as Worker’s Compensation) in Washington state. The insurance covers the costs of medical care, and missed time at work for injured workers. It also provides a pension for those who are unable to return to work as a result of a serious injury.

Analysis: OFM identifies a range of potential costs – including lost premium payments from state employees, higher administrative and oversight costs for the state Office of the Insurance Commissioner and the Department of Labor & Industries, and legal costs associated with higher numbers of rejected injury claims. That adds up to $202 million over the next five years in lost state resources.

Learn more

The Washington State Budget & Policy Center does not take positions on initiatives.

Analyzing The Claims About I-1107

Andy Nicholas — 2010-10-21T22:19:02Z

Proponents of Initiative 1107 are making a number of claims about the recent taxes on candy and other non-essential products that were enacted earlier this year to prevent deeper cuts in state priorities. In this post, we analyze these claims:

The claim that the definition of candy is too complicated and is harmful to businesses is misleading and out of context;
The argument that the legislature applied new taxes to meat and vegetable products, but didn’t apply these taxes to similar products from other states or countries, ignores key facts; and
The claim that the taxes enacted earlier this year harm Washington’s economy runs counter to mainstream economic theory.

The claim: The definition of candy is too complicated and is harmful to businesses.

Analysis: Misleading. Proponents fail to put the issue in context.

Proponents of I-1107 claim that the definition of candy, used to administer the sales tax in Washington, is too narrow and is difficult for businesses to comply with. They note that the current definition of candy excludes products with flour resulting in some sweets not being defined as candy. Proponents fail to mention a number of positive aspects about the way candy is defined – including the fact that the definition arose from a multistate effort to reduce tax compliance costs for businesses.

The definition of candy is part of a broader effort to reduce costs for businesses: For sales tax purposes, the definition of candy used in Washington was developed by businesses and state tax policy specialists from around the country as part of the Streamlined Sales and Use Tax Agreement (SSUTA). Under SSUTA the 23 participating states (including Washington) have agreed to adopt a uniform set of sales tax base definitions and to develop statewide sales tax databases, containing comprehensive information on taxable products and state and local tax rates by zip code. These provisions, among others, are designed to help large Internet and mail-order businesses collect and remit state and local sales taxes.

SSUTA helps small in-state businesses compete with large out-of-state businesses: Small in-state businesses are required to charge sale taxes on taxable sales in Washington, putting them at a competitive disadvantage to out-of-state mail order and internet retailers that are able to avoid collecting sales taxes. The SSUTA helps level the playing field between in-state and out-of-state retailers by making it easier for the larger businesses to charge sales taxes on Internet and mail-order purchases from in-state customers. See here for more information on the Streamlined Sales Tax Agreement.

Washington is hardly alone in using the SSUTA definition of candy: At least eight other states – Iowa, Kentucky, Minnesota, North Carolina, North Dakota, New Jersey, Rhode Island, and Tennessee – currently tax candy under the SSUTA definition.
The SSUTA candy definition prevents taxation of non-candy products: By excluding products that contain flour, the SSUTA definition of candy ensures that bakery products and confections -- like scones, cookies, rolls, and other products that are generally not considered to be candy – are not subject to state sales taxes.
Actions are being taken to help small businesses comply with the new taxes: To help small businesses identify taxable candy products, the Department of Revenue (DOR) has developed a searchable on-line database containing over 12,500 different products. The database is available on the DOR website.

The claim: The legislature applied new taxes to meat and vegetable products, but didn’t apply these taxes to similar products from other states or countries.

Analysis: Misleading. The legislature simply clarified two small business tax preferences earlier this year to ensure they achieve their intended purposes. Under state and federal law, Washington cannot levy state business taxes on out-of-state manufacturers that have no physical presence here.

Proponents of I-1107 argue that the legislature placed new taxes on meat and vegetable products this year. They further argue that these taxes are unfair because they only apply to businesses located in Washington State. This ignores or misrepresents the following factors:

No new taxes on processed foods were enacted this year: Early in 2010, the legislature clarified and narrowed two Business & Occupation (B&O) tax preferences, originally intended only for meat packers and companies that can or preserve fresh fruits and vegetables. Due to vagaries in the law, businesses whose products contained only minor amounts of meat or preserved fruits and vegetables were able to claim these preferences, even though the intent of the preferences was not to benefit these businesses. The expanded preferences cost the state more than $4 million per year in foregone tax revenues. To reclaim these resources, this year lawmakers clarified and narrowed both preferences. As a result, a small number of businesses will no longer be able claim these preferences (often referred to as “tax subsidies” by economists) and will be required to pay the same B&O tax rates that similar businesses pay. For more information on these preferences read the following schmudget post.
The U.S. Constitution prohibits Washington State from levying similar taxes on out-of-state manufacturers: Under state and federal law, Washington is barred from levying B&O taxes on firms that do not have nexus (a firm connection) with the state. State law mandates that out-of-state manufacturing firms must own property or have employees or agents working here in order to be subject to taxes on activities conducted in Washington. This means that the state cannot levy taxes on a meat or vegetable processing business located in another state if that business has no employees or property in Washington. That does not necessarily mean out-of-state manufacturers of processed foods have an advantage over in-state business, however. That’s because:
Products from out-of-state businesses are still subject to wholesaling and retailing B&O taxes in Washington: While Washington cannot tax businesses located in other states, products from these businesses are subject to wholesaling and retailing B&O taxes here. Additionally, out-of-state businesses are subject to state taxes in the state(s) in which they are located. It’s also important to note that other states are similarly prohibited from taxing production activities that occur exclusively in Washington.

The claim: The taxes enacted earlier this year harm Washington’s economy.

Analysis: False. The modest revenue package enacted earlier this year prevented economically-damaging cuts to essential public services.

Proponents argue that the taxes targeted by I-1107 should be repealed because they are harmful to Washington’s economy. Again, they fail to place this issue in the proper context. Mainstream economic theory indicates that state tax increases enacted during a recession prevent further economic damage by preserving core public services vital to the state’s overall well-being.

Budget cuts are more harmful to state economies than tax increases during a recession: When budget shortfalls occur, mainstream economic theory suggests that a “cuts-only” approach is the most economically-damaging choice state policymakers can make. During the recession of the early 2000s, Nobel Prize-winning economist, Joseph Stiglitz, and Peter Orszag, former Director of the Congressional Budget Office and the Office of Management and Budget, wrote that large budget cuts produce the most drag on state economies during a recession – reducing overall demand in the economy on a dollar-for-dollar basis. At the same time, Stiglitz and Orszag found that state tax increases reduce economic activity by a lesser extent because some of the money used to pay the additional taxes comes from residents’ savings or from out-of-state taxpayers. As a result, tax increases used to preserve public services – as was done in Washington – is the most sensible course of action for state policymakers. This view has been endorsed by more than 20 economists and public policy experts here in Washington. For more information, read the 2000 report from Stiglitz and Orzsag.

UPDATE: I-1098 Would Fund Improvements in Health Care and Education, Cut Taxes for Homeowners and Small Businesses

Andy Nicholas — 2010-10-13T19:04:31Z

Initiative 1098 offers Washingtonians an opportunity to enact important long-term reforms to our state’s inadequate revenue structure. The measure would reduce taxes for homeowners and small businesses while providing additional resources for education and health care through a new tax on high incomes.

The proposed tax on high incomes would generate some $2.9 billion per year in additional resources for Washington State. The graph below shows how the new revenue would be spent.

As the graph shows, about 55 percent ($1,600 million) of the revenue would be spent on improvements to Washington’s education system. Another 15 percent ($393 million) would be used to lower property taxes for homeowners and businesses. The remaining revenues would be spent on new funding for health care services ($686 million) and lowering B&O taxes for small businesses ($259 million).

For more information on I-1098, see the following collection of reports from the Economic Opportunity Institute.

For information on other measures to appear on the November ballot see the following Budget & Policy Center reports and schmudget posts.

In Perspective: The Potential Cost of I-1107
I-1107 Would Repeal Common and Reasonable Taxes
I-1107 Could Imperil Efforts To Maintain Public and Environmental Health
I-1107 Would Restore Wasteful Business Tax Preferences
I-1053’s Supermajority Requirement is Excessive and Unreasonable
New OFM Analyses Show Potential Costs of 2010 Initiatives
2010 Initiatives Could Impact Public Services

New Census Data Show Importance of Public Health Insurance Programs

Andy Nicholas — 2010-09-24T18:19:33Z

The state-level health insurance data released by the U.S. Census Bureau last week vividly highlight the growing importance of public health programs in our state. At a time when thousands of Washingtonians have lost employer-sponsored health insurance, the data show that public health insurance is providing a crucial backstop for workers and families as the economy recovers. Yet, while the need for state-sponsored health insurance has grown rapidly throughout the recession, policymakers have enacted deep and painful cuts to these services in the current biennium. A new round of cuts announced last week will weaken our public health infrastructure even more.

The graph below shows that share of Washingtonians (population under 65) covered by employer-sponsored health insurance declined by 3.6 percentage points from 66.6 percent in 2006-07 to 63.0 percent in 2008-09. The availability of state-supported public health programs – such as Medicaid, Apple Health for Kids (S-CHIP), and the Basic Health Plan – has enabled many Washingtonians to continue receiving care, however. During the same period, the share of the population accessing public health insurance increased by 2.3 percentage points from 13.2 percent to 15.5 percent.

As the graph shows, public health programs in Washington have been particularly important in preserving coverage for children. Before the recession, about 24.8 percent of children in Washington were covered by public health insurance. By 2008-09, that share had grown to 34.2 percent – an increase of 9.4 percentage points.

Now more than ever, workers and families in Washington are in need of public health services. But new, across-the-board budget cuts announced last week will substantially weaken our state’s ability to maintain this important support system – which has already weathered cuts amounting to 10.6 percent in the current biennium. (For more information, see the latest Budget & Policy Center Policy Brief, A Step Backward: The 2009-11 State Budget.)

Furthermore, several initiatives slated to appear on the November would substantially reduce state resources in the current year and coming years, forcing even deeper cuts in public health and other vital state systems.

Note: Next week, the Census Bureau will release more detailed state-and county-level statistics on poverty, health insurance status, and host of other statistics. Stay tuned to schmudget.

New OFM Analyses Show Potential Costs of 2010 Initiatives

Andy Nicholas — 2010-08-12T16:45:56Z

This afternoon, the Office of Financial Management (OFM) released fiscal impact estimates for all six of the citizen initiatives slated to appear on the November Ballot. Their analyses show that four of these initiatives would likely reduce state resources in the coming years, greatly hampering our ability to maintain key public priorities like health care and education while the economy recovers. Initiative 1098, on the other hand, would generate new resources for health care and education via a new tax on high incomes while lowering taxes for homeowners and small businesses.

Initiatives shown to be harmful to public priorities include:

Initiative 1082 (Net state impact indeterminate, but likely negative): This measure would allow private insurers to sell industrial insurance policies (also known as Worker’s Compensation) in Washington State. For injured workers, industrial insurance covers the costs of medical care, missed time at work, and provides a pension for those who are unable to return to work as a result of a serious injury. Under the current system, large employers are allowed to provide their own industrial insurance – that is, they “self-insure” – while most other employers purchase public, or “State Fund” insurance through the Department of Labor & Industries (L&I). Due to a number of unknown factors, the net cost of I-1082 to the state is yet unclear. However, the analysis from OFM identifies a range of potential costs – including lost premium payments from state employees, higher administrative and oversight costs for the Office of the Insurance Commissioner and L&I, legal costs associated with higher numbers of rejected injury claims, and others – which add up to $202 million over the next five years. The analysis found that revenues from additional insurance premium taxes, business & occupation taxes, and fees paid by new private insurers would amount to only $61 million-75 million over the same period.
Initiative 1100 (5-year cost to the state General Fund: $115 million-123 million): Initiative 1100 would privatize the sale and distribution of liquor in Washington state, allowing hard liquor to be sold in grocery stores, convenience stores, and other retail outlets. The Office of Financial Management estimates that I-1100 would cost the state some $51-57 million in the coming 2011-13 biennium due to lost liquor liter taxes and sales taxes, state liquor store profits (markup revenues), sales of state lottery products at state liquor stores, and other factors.
Initiative 1105 (5-year cost to the state General Fund: $513 million-547 million): Like I-1100, I-1105 would privatize the sale of hard liquor in Washington State. There are several key differences between the measures, which are explained more fully in following policy brief. Notably, I-1105 would repeal all taxes currently levied on liquor, along with profits (markup revenues) from state liquor stores. According to OFM, the loss of these revenue sources and others would cost the state $181 million-195 million in the coming biennium. It is important to note that I-1105 would instruct the Liquor Control Board to develop and present to the legislature a new per-liter liquor tax designed to recoup this lost revenue. (Nothing in the measure requires the legislature to act on this recommendation.) However, OFM is required to base their estimates on existing state law; they are not allowed to assume or anticipate future legislative changes.1
Initiative 1107 (5-year cost to the state General Fund: $352 million): This measure would repeal a portion of the revenue package that was enacted earlier this year to prevent painful cuts in numerous essential public services. Specifically, the measure would repeal common and reasonable taxes on candy, gum, bottled water, and soda, and would reopen two wasteful business tax loopholes. Should these taxes be repealed, OFM estimates the state would lose $55 million in the current fiscal year, and another $218 million in the coming 2011-13 biennium.

These initiatives would drain our state of essential resources at a time when the economy continues to wreak havoc on the state budget. When policymakers gather in January to develop our state budget for the coming 2011-13 biennium they will face a projected $3 billion imbalance between the needs of our state and available resources to pay for those needs. These initiatives would make our budget situation far worse and could force legislators to enact deep and painful cuts in important public systems like child care, education, health care, and public safety.

Another measure to appear on the ballot this November, I-1098, would cut taxes for homeowners and small businesses while generating additional resources for health care and education by establishing a new tax on high incomes (over $400,000 for couples; $200,000 for singles). Today’s analysis from OFM shows that I-1098 would net more than $1.6 billion per year for these important priorities.

For more information on I-1098, I-1100, I-1105, and I-1107, read the Budget & Policy Center’s latest policy brief.

1. Initiative 1053, another measure to appear on the November ballot, would reinstate a requirement that all tax increases be subject to a public referendum vote or a supermajority vote in the state legislature. If approved, I-1053 would make it much more difficult for lawmakers to enact the per-liter tax developed by the LCB.

I-1107 Would Restore Wasteful Business Tax Preferences

Andy Nicholas — 2010-08-02T17:08:36Z

Initiative 1107 would repeal several common taxes on nonessential items like candy and soda. The measure would also reopen two wasteful business and occupation (B&O) tax loopholes that were closed during the 2010 legislative session.

To help generate additional resources, this year lawmakers narrowed two tax preferences that were expanded by a recent State Supreme Court ruling. In 2005, the Court expanded a preferential B&O tax rate of 0.138 percent, which was originally intended only for processors and wholesalers of perishable meat products (meatpackers). The Court’s decision allowed companies whose products contain only minimal amounts of meat — i.e. canned chili — to claim this preference. The ruling also expanded a B&O exemption, which originally was intended only for companies that preserve fresh fruits and vegetables, to encompass products with similarly small amounts of preserved fruits or vegetables.1

This year, policymakers clarified and narrowed these preferences to conform to their original intent. Initiative 1107 would re-expand these preferences at a cost to the state of nearly $9 million in the coming biennium.

For more information on I-1107 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

1. The exemption for canning and preserving fruits and vegetables is scheduled to expire in 2012. Companies that claimed the exemption will then be eligible to receive a preferential, 0.138 percent B&O tax rate.

I-1107 Could Imperil Efforts To Maintain Public and Environmental Health

Andy Nicholas — 2010-08-02T16:46:45Z

Initiative 1107 would repeal several common taxes on nonessential items like candy, soda, and bottled water. Eliminating these essential sources of revenue could jeopardize efforts to maintain and improve public and environmental health, however.

There are significant social costs associated with the growing consumption of candy, soda, and bottled water. Soda and candy have been linked to the rising obesity epidemic in the United States.1 The production of bottled water significantly contributes to global warming while discarded bottles clog streams, rivers, and other natural habitats.2

One of the benefits of taxing unhealthy or environmentally damaging products is that the taxes encourage consumers to make healthier long-term purchasing decisions. In King County, consumption of candy and bottled water could slow by as much as nine percent in the coming years, due to the extension of the sales tax to these products. Purchases of soda, which was subjected to a smaller tax increase, are likely to slow by a smaller degree.3

Revenues from the taxes targeted by I-1107 are deposited into the state’s general fund, which is used to support numerous important programs, including those designed to improve public and environmental health. For example:

Under the 5930 Program (named after Senate Bill 5930 enacted in 2007) the Department of Health receives about $20 million per biennium in order to develop and implement strategies to reduce obesity and other chronic diseases, increase vaccinations, prevent the spread of communicable diseases like E. coli or Salmonella, and improve public health via other initiatives.4
The Department of Ecology’s (DOE) Air Quality Program protects public and environmental health by monitoring air quality and regulating pollutants from motor vehicles, manufacturers, agriculture, and other sectors of the economy. Fifty-nine percent (about $19 million this biennium) of the funding for this program comes from the general fund.5
Fully 83 percent ($32 million this biennium) of the funding for DOE’s Water Quality Program — which is responsible for preventing and cleaning up water pollution — is provided through state general fund. This program also ensures that the public has access to accurate information about water quality in Washington State.6

All of these programs are vulnerable to being severely cut or eliminated in the coming biennium. Initiative 1107 would further impede the state’s ability to address public and environmental health problems.

For more information on I-1107, read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

1. The New England Journal of Medicine, “The Public Health and Economic Benefits of Taxing Sugar-Based Beverages,” September 11, 2009.

2. Eric Sorensen, “Seven Wonders for a Cool Planet: Everyday Things to Help Solve Global Warming,” The Sightline Institute.

3. In King County, the combined state and local sales tax rate is 9.5 percent. The Department of Revenue estimates the price-elasticity of demand for candy, soda, and bottled water to be 0.9, https://fortress.wa.gov/binaryDisplay.aspx?package=27107

4. The Washington State Department of Health, the 5930 program, description available on-line at http://www.doh.wa.gov/PHIP/products/5930/overview.htm.

5. Washington State Department of Ecology, Air Quality Program, description available on-line at: http://www.ecy.wa.gov/air.html.

6. Washington State Department of Ecology, Water Quality Program, description available on-line at http://www.ecy.wa.gov/water.html.

I-1107 Would Repeal Common and Reasonable Taxes

Andy Nicholas — 2010-07-29T15:44:48Z

Initiative 1107, a citizen initiative slated to appear on the November 2010 ballot, would repeal the following recent tax increases on nonessential items:

A temporary extension of the state sales tax to bottled water.
A permanent extension of the sales tax to purchases of candy and gum.
A temporary excise tax on soda of two-cents per 12 ounces.

It is important to note that these types of taxes are quite common throughout the United States. The map below shows that Washington is one of 31 states that apply the state sales tax to purchases of candy. Among these states, 14 also apply the tax to bottled water. (Five states do not levy a general sales tax.)

In addition to Washington, six other states — Arkansas, Illinois, Rhode Island, Tennessee, Virginia, and West Virginia — levy selective taxes on soft drinks or soda.

The tax increases that would be repealed under I-1107 are part of a larger package of revenue enhancements that was enacted earlier this year. Without these enhancements, policymakers would have been forced to make unacceptably deep cuts in fundamental public services like health care and education. By eliminating the taxes listed above (in addition to reopening two wasteful B&O tax loopholes), I-1107 would cost the state some $250-$300 million over the next three years.

For more information on I-1107, read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

Liquor Privatization Initiatives Part 3: Potential Implications

Andy Nicholas — 2010-10-19T17:47:36Z

Editor's note: This post was written before OFM released official fiscal impact estimates for I-1100 and I-1100. For updated information on how these measures would impact the state budget view the following schmudget post: Update: Liquor Privatization Measures Would Impair Public Priorities.

Earlier this week, schmudget featured two posts about proposed changes to Washington’s liquor control system. The first post detailed our current, state-run liquor control system while the second explained the differences between Initiatives 1100 and 1105 – both of which would privatize the sale of hard liquor in Washington. Today’s analysis, the last of the series, discusses these measures' potential fiscal and social implications.

Uncertain impact on the state budget

The extent to which I-1100 and I-1105 would impact the state budget is yet unclear.1 A number of factors suggest that both initiatives could significantly reduce state resources in the coming years, however.

By privatizing retail and wholesale liquor sales in Washington, more than $70 million per year in state markup revenues would be lost under both I-1100 and I-1105. Initiative 1105 would also repeal all existing state taxes applied to liquor, which generated some $222 million in fiscal year 2009. A portion of these revenues would be replaced by a new six percent tax on gross liquor sales at the retail level and a one percent tax applied to distributors. At current liquor prices and sales volumes, these taxes would generate only about $44 million per year, however.2

To make up the difference (plus an additional $20 million per year over the next five years), I-1105 would require the Liquor Control Board (LCB) to develop and propose to the legislature a new per-liter liquor tax. It is important to note that nothing in the language of I-1105 requires the legislature to act on the LCB’s recommendation. Furthermore, should Initiative 1053 be approved by voters in November, the Board’s proposed tax would have to be approved by a supermajority (two-thirds) vote in the state legislature or a vote of the people. Under I-1053, the proposed per-liter liquor tax could be blocked by a small minority of lawmakers.

On the other hand, under both I-1100 and I-1105 the state would incur significant savings from shutting down the state liquor stores and the distribution center. The bulk of these savings would be realized as a result of laying off about 932 state liquor store and distribution center employees.3 In addition, the LCB would generate new revenues from the proposed liquor retailer and distributor licensing fees, and from additional B&O tax receipts. But it is not clear at this time whether total state savings would be large enough to offset the forgone markup and liquor tax revenues.

Long-term costs

It is possible that the consumption of hard liquor would increase significantly under both I-1100 and I-1105. There are currently 316 state liquor stores and contract liquor stores in Washington. An analysis conducted by the Washington State Auditor’s Office found that the number of retail stores selling hard liquor could grow to as high as 3,357 under a privatization scheme similar to the ones proposed in I-1100 and I-1105. The Auditor’s office also found, based on comparisons with states with privatized systems, that the consumption of hard alcohol in Washington State could increase by nearly 15 percent in the coming years.4

A sharp increase in the consumption of hard liquor in Washington could entail significant long-term social costs. Under I-1100 or I-1105, the state could face increased costs associated with diminished public health and law enforcement — due to higher rates of drunk driving, illegal liquor sales to minors, and other alcohol-related crimes. These costs would begin building at time when Washington continues to struggle to meet basic public needs while recovering from the Great Recession.

For more information on I-1100 and I-1105 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

1. On August 10, 2010, the Office of Financial Management (OFM) will release official fiscal impact estimates for all initiatives slated to appear the November ballot.

2. Washington State Budget & Policy Center calculations based on gross sales forecast data from the Washington State Liquor Control Board. Revenues based on gross sales less taxes and discounts. If current taxes are included, revenues would be roughly $64 million per year.

3.Washington State Auditor’s Office, “State Government Performance Review: Opportunities for Washington,” Revised January 2010, http://www.sao.wa.gov/AuditReports/AuditReportFiles/ar1002726.pdf

4.ibid.

Liquor Privatization Initiatives Part 2: I-1100 and I-1105

Andy Nicholas — 2010-10-18T21:04:30Z

Yesterday, schmudget featured a description of Washington’s current, state-run liquor control system. Today’s post examines two initiatives to appear on the November 2010 ballot – Initiatives 1100 and 1105 – that would privatize this system, allowing hard liquor to be sold in grocery stores, convenience stores, and other retail outlets.

I-1100 vs. I-1105

Table 1 highlights the different ways in which I-1100 and I-1105 would alter the current liquor control system in Washington State. As the table shows, both measures would privatize the wholesale and retail sale of hard liquor in Washington. This means that the state Liquor Control Board (LCB) would be required to shut down all state liquor stores and the distribution center. Instead, private wholesalers and retailers — which could include grocery stores, convenience stores, and other types of retail establishments — would be allowed to distribute and sell hard liquor to consumers, as they are currently allowed to do with beer and wine.

A prime beneficiary of I-1100 would be large or “big box” retailers that are able to buy and sell large quantities of retail goods at heavily discounted rates. The measure would effectively eliminate the three-tier system by repealing the uniform price requirement, the prohibition against bulk discounts, and other provisions of state law governing the sales of alcoholic beverages. As a result, big box retailers would be able to sell hard liquor, beer, and wine to consumers at lower prices compared to their smaller competitors.

Initiative 1105, on the other hand, would advantage beverage distribution companies. Rather than dismantling the three-tier system, the measure would expand it to include sales of hard liquor. The measure would retain the uniform price requirement and the prohibition against bulk discounts for purchases of beer and wine (bulk discounts on hard liquor would be allowed). As result, retail prices of alcoholic beverages would likely be higher and more uniform under I-1105 relative to what they would be under I-1100.

Tomorrow’s post will discuss potential long-term costs associated with increased consumption of hard liquor, along with the uncertain impact these measures would have on overall state resources.

For more information on I-1100 and I-1105 read the latest Budget & Policy Center policy brief, “2010 Initiatives Could Impact Public Services.”

Liquor Privatization Initiatives Part 1: Washington's Current Liquor Control System

Andy Nicholas — 2010-07-26T22:19:46Z

Initiatives 1100 and 1105 would dramatically change the manner in which hard liquor, beer, and wine are distributed and sold in Washington State. Both measures would privatize Washington’s liquor control system, allowing hard liquor to be sold at grocery stores, convenience stores, and other retail establishments. Today’s post explains our current, state-run liquor control system. Future posts will examine the differences between I-1100 and I-1105 and how they could impact state resources in the years ahead.

The current liquor control system

In Washington, the state Liquor Control Board (LCB) acts as the sole distributor and retailer of hard liquor. This means that the LCB purchases liquor directly from manufacturers or importers and distributes it to the 161 state-owned liquor stores and the 155 contract liquor stores via the state’s centralized distribution center.

Beer and wine, on the other hand, are primarily sold via private wholesalers and retailers under the current system. For regulatory purposes, the LCB divides the beer and wine industry into three activities, or “tiers” – manufacturing, wholesaling, and retailing. Under this three-tier system, manufacturers and distributors are required make each of their products available to all retailers at a uniform price. They are also barred from offering bulk discounts to retailers that purchase large quantities of a particular beer or wine product. These regulations and others prevent retailers from exerting undue influence over manufacturers (or distributors) and vice versa.

Alcohol-related revenues

In fiscal year 2009, sales of alcoholic beverages generated about $333 million in revenue for Washington’s state and local governments. The graph below shows that the largest share of this revenue ($222 million) was derived from taxes applied to hard liquor. Markup revenues, or profits from state liquor stores, accounted for the next largest share of alcohol-related revenues ($69 million). The remaining revenues were generated from taxes applied to beer and wine ($31 million), and other sources ($11.3 million).

For more information on I-1100 and I-1105 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”