Four Important Budget Realities for the 2014 Legislative Session and Beyond

By Kim Justice

Introduction 

Without a major revenue shortfall to confront for the first time in six years,lawmakers might be tempted to breathe a sigh of relief and put past years of economic decline in the rear-view mirror. But a reality check is needed: now is not the time to get complacent. While the state’s resources are finally beginning their slow recovery, it’s not enough to fulfill both our current needs and our obligation to fully fund public schools, much less rebuild the investments that were lost during several years of deep budget cuts. 

There are four important budget realities that lawmakers must be aware of:

  1. Investments have failed to meet Washington state’s needs in recent years: Since 2008, state investments have failed to keep pace with the growing number of people living in the state, kids in the classroom, retiring seniors, and increased costs due to inflation.    
  2. It’s time to rebuild what was lost: Compared to pre-recession spending levels, a total of $25 billion was cut from the budget since 2008, harming the ability of Washingtonians to weather the economic downturn. Now is the time to rebuild investments to hire quality teachers, make college affordable again, restore full access to child care, and strengthen supports that help people live in a safe home and put food on the table.
  3. Full funding for public schools is essential: By 2018, the state must invest an additional $4.5 billion in K-12 public schools. Funding education is not just our paramount duty under the state constitution; it’s also the right thing to do for our kids and economy.  
  4. Economic growth alone isn't enough: While state resources are slowly recovering from the recession, the gains are not enough to fund education and keep up with important investments in health care and public safety. Without new revenue, the state will face an estimated $2.7 billion shortfall in the next two-year budget cycle. 

Investments have failed to meet Washington state’s needs in recent years

Since 2008, cuts have eroded state investments even though our needs have continued to grow.  In the last several years, for example, more baby boomers have needed long-term care services, more kids are in classrooms, and the cost of everything from health care to housing has gone up. Figure 1 illustrates the level state investments should be had they kept pace with our needs during the recession. Even without additional cuts, we will still be $6 billion behind the true cost to meet the growing needs of our state by the end of the next fiscal year ($11.6 billion behind for the biennium). That gap represents the difference between the level of our current investments compared to where they should be had the state consistently increased investments in proportion to rising costs and needs.(1)   

Figure1 budget facts

It’s time to rebuild what was lost

Spending has not kept up with the need for critical investments in health care, education, public safety, and supports that help get people back to work. 

Compared to pre-recession spending levels, investments have been reduced by a total of $25 billion since 2008 (see Figure 2 and Appendix Table A).(2) 

This has hampered our economic recovery and has hurt the ability of Washingtonians to weather the downturn.

Figure2 budget facts

An appropriate response to the worst recession since the Great Depression should be to rebuild what was lost, just as we would after any disaster, such as a flood or earthquake. In this economic disaster, many  young people lost the chance to get a college degree, families lost the ability to get ahead and do better for themselves, and the most vulnerable Washingtonians, including seniors and the mentally ill, saw support from the government dwindle.  

Washington state’s economy can be rebuilt from the recession, but only by re-committing to public investments. That means investing in quality teachers, making college affordable, and making sure that parents with lower incomes have the support they need to care for their children while maintaining a job.

Full funding for public schools is essential

The McCleary State Supreme Court ruling requires lawmakers to substantially increase funding to public schools. By 2018, an additional $4.5 billion per biennium is needed to meet this commitment. In 2014, lawmakers invested an additional $1 billion. While significant, much more needs to be done to meet the full obligation (Figure 3). Funding education is not just our paramount duty under the state constitution, it’s also the right thing to do for our kids and economy.  

Figure3 budget facts

Economic growth alone isn't enough 

Some claim a recovering economy will solve our state’s challenges. But the reality is state resources are not growing fast enough to keep pace with investments needed to increase opportunities and create good jobs for all Washingtonians. While revenues in the current biennium are forecasted to be higher than the previous two-year budget cycle, once adjusted for inflation, they are still well below pre-recession levels and will continue to be for the foreseeable future. 

Some parts of the economy are growing rapidly, such as the stock market, but Washington state is not benefiting from it because we do not tax income or the economic activity generated by the sale of stocks and bonds (known as capital gains). 

A report from the Center on Budget and Policy Priorities confirms that states that rely more on income taxes than on sales taxes are seeing a more rapid revenue recovery, and that a big component of the increase in revenue from state personal income is due to the sale of stocks.(3)

Our outdated and flawed revenue system has not kept pace with the economy in over a decade and if nothing is done, it will only get worse (Figure 4).  

Figure4 budget facts


Shrinking resources mean that even if lawmakers don’t make any new investments and instead simply focus on funding public schools, resources will fall an estimated $2.7 billion short in the next biennium.(4)   

There is no way that we can fully fund public schools without raising new revenue.  We cannot fund education at the expense of all other investments that keep Washingtonians safe and healthy, provide opportunities for young people to go to college, and keep our natural environment clean for generations to come  

Conclusion

Current revenue growth alone will not be enough to provide Washington state’s children with a quality education much less maintain minimal support for seniors, people with disabilities, and families struggling to find work. Much more needs to be done to rebuild the lost $25 billion in investments that support our economy and help families get ahead.   

This challenge is not one for lawmakers to shy away from. It will require bold action in the near term to set our state on the right course for decades to come. Reforming our broken revenue system and recommitting to investments will build a state where all future generations benefit from a rock-solid education, the opportunity to go to college, and an economy where everyone can prosper.

Acknowledgments

The Budget & Policy Center gratefully acknowledges the support of the Bill & Melinda Gates Foundation, Annie E. Casey Foundation, Paul G. Allen Family Foundation, Campion Foundation, Northwest Area Foundation, Stoneman Family Foundation, Washington Progress Fund, The Seattle Foundation and the generous support of individual donors. The findings and conclusions presented in this report are those of the author alone, and do not necessarily reflect the opinions of these organizations.

Endnotes

1. Methodology: The cost to keep pace with needs, or estimated Maintenance Level, is achieved by applying the average growth rate in NGFP in the last economic cycle from FY 2002 to FY 2008 (5.09%) to NGFP beginning in FY 2009 through FY 2015.

2. Ibid

3. McNichol, Elizabeth “States Should React Cautiously to Recent Income Tax Growth: April Surge Provides Opportunity to Invest in Infrastructure, Boost Reserves” Center on Budget and Policy Priorities, http://www.cbpp.org/cms/?fa=view&id=3972; Jun 13, 2013

4. Based on data from the January ERFC 4-year budget outlook and the estimated costs to keep on track with the phased-in funding plan to fully fund basic education by 2018, as estimated by the Joint Task Force on Education Funding;                                                             http://www.leg.wa.gov/JointCommittees/EFTF/Documents/JTFEF%20Final%20Report%20-%20combined%20(2).pdf;  http://www.erfc.wa.gov/forecast/documents/bo_20140128.pdf

Appendix Table

Appendix budget facts

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