Washington state tax resources will fall $4.8 billion short of the amount needed to adequately fund schools, health care, child care, and other important investments in the next two years, according to new projections from the state Economic and Revenue Forecast Committee.
Some say we can cut non-education investments in order to free-up resources for basic education. In reality, policymakers must find new sources of revenue to make all the investments we need to support a strong economy in Washington state.
Today’s revenue forecast, which Governor Inslee will use to build his upcoming budget proposal, shows available tax resources will be $115 million higher than previously forecasted during the current 2013-15 budget cycle, and $272 million higher in the 2015-17 cycle.
While the growth in revenues is good news, the new resources are negligible in comparison to the additional spending needs required in the next two years. These include (see graph):
- Maintaining schools, health care, public safety, and other services ($1.9 billion): The cost to continue providing the same level of services grows year after year due to inflation, rising fuel and energy costs, increases in the number of kids in our schools, and changing demographics such as the aging of baby boomers.
- Legal obligations ($1 billion): The state is legally required to pay pensions, debt we owe on bonds that support infrastructure improvements, increases in health care costs for state employees, and cost-of-living increases for teachers (I-732), which were suspended in previous years, but are required by law going forward.
- Critical policy needs ($1 billion): Some policy decisions, which are at the discretion of the legislature, will be difficult to forego. For example, earlier this year the State Supreme Court ruled that detaining patients with mental illness in hospital emergency rooms is unconstitutional. In order to comply with the order, the legislature will need to increase capacity in treatment facilities. Additionally, collectively bargained agreements between the executive branch and employees will likely be on the table for lawmakers to consider. State employees have gone six years without a pay increase. Delaying any longer will adversely impact retention and the ability to attract workers.
- McCleary education investments ($2.2 billion): Lawmakers must invest billions more in K-12 education to comply with the State Supreme Court’s ruling in the McCleary v Washington case. According to estimates by the Joint Task Force on Education Funding, lawmakers should invest an additional $2.2 billion in the next two years to remain on-track to meet the 2018 full funding deadline.
- Initiative 1351 ($1.4 billion): Voters approved Initiative 1351 in November that will ultimately add over 25,000 school staff, including teachers, principals, counselors, librarians, grounds-keepers. There is some overlap with the already-enacted education reforms to lower class sizes in K-3, as part of complying with McCleary. Assuming lawmakers continue to phase-in McCleary investments, an additional $1.4 billion will be needed for I-1351.
All told, the state will fall about $4.8 billion short of the revenue needed to make these investments. While some claim we can cut our way to McCleary compliance, reality says otherwise.
Two-thirds of the budget is protected by either the state Constitution or federal laws and cannot be cut. The remaining third of the budget includes funding for community colleges and universities, public safety, nutritional assistance, help for people with disabilities, childcare, housing, services for foster children, and supports that help people find jobs. Severe cuts to these investments would do great damage to the state economy and would impose devastating costs on struggling families from Sequim to Spokane.
Rather than being distracted by math games that don’t add up, lawmakers should get serious about raising revenue.
This is Part 2 of a new blog series to reignite a conversation about poverty in Washington state.Access to nutritious food is fundamental to child and family well-being. When a family has enough food, kids do better in school, parents are less likely to experience stress, and the entire family is more likely to be healthy.
When families struggle to put food on the table, the well-being of both parents and children is put at risk. In Washington state today, one in five children lives in a household where hunger threatens the well-being of their family and the opportunity to reach their full potential.
It doesn’t have to be this way. We have many tools to keep children and families from going hungry in Washington state, and they can be strengthened so that no family has to experience the fear and stress of not having enough food.
One of the most successful public policies to fight hunger turns 50 this week-the Supplemental Nutrition Assistance Program (SNAP), known as the Basic Food Program in Washington state. The Basic Food program lifts tens of thousands of Washington children and families out of poverty and reduces hunger for millions more .
Some key facts about SNAP—known as the Basic Food Program in Washington state—include (see infographic below):
- Basic Food is both efficient and effective. Due to its flexible funding structure, Basic Food responded quickly to increases in need during the Great Recession and currently reaches one in six Washingtonians. The rate at which benefits are under or overpaid is only 2.4 percent in Washington state. The net loss to the state or federal government is therefore significantly less than losses due to unpaid income taxes, which occurs at a rate of 15 percent .
- Basic Food puts money back into the state economy. By ensuring children and families don’t slip through the cracks, Basic Food dollars not only provide a boost to the local economy, they also save the state from having to pay for the long-term cost of letting people go hungry.
- Basic Food’s success can be enhanced by strengthening the program. Benefits are meager, particularly for the 15,000 lawfully present immigrants that benefit from state funded food assistance. The food assistance provided to these families is 25 percent less than families that qualify for the federally funded program. Restoring the benefit rate to 100 percent of the federal benefit would pay huge dividends for immigrant children and their parents. We can protect more children and families from hunger by building on the success of Basic Food and strengthening other programs in our anti-hunger toolkit for children and families. Community Eligibility, for example, provides free school lunches to all students attending high poverty schools and Breakfast After the Bell ensures that students have access to nutritious breakfasts in places and times that work best for kids.
Fighting hunger is just one of the many stresses low income families in Washington state face. Families need access to other basic needs as well, like affordable housing, transportation, quality education, and healthcare. In the coming weeks, we will continue to look at the opportunities present in our current mix of programs and demonstrate how a two generation approach to addressing poverty can create a prosperous future for all Washingtonians.
The Budget and Policy Center staff would like to thank Linda Stone, Food Policy Director, and Adam Hyla, Communications Director, from the Children's Alliance for their contributions to this post.
This is Part I of a new blog series to reignite a conversation about poverty in Washington state.
In Washington state, an alarming number of children – two in five – live in families that find it difficult to make ends meet. When such a high share of children lives with economic hardship, it is a sign not of individual failure but of a deep-rooted crisis in our economy.
The good news is we can fix it.
Economic security is fundamental to the well-being of children and families. When basic needs are met and families can save for the future, they are more likely to be safe, stable and healthy, the benefits of which ripple throughout communities and the economy. Conversely, when economic hardship is widespread and families struggle to make ends meet, our communities and economy cannot reach their full potential.
Poverty today is rooted in the challenges of an economy that is not working for parents and children. Numerous factors are responsible:
- High income inequality and stagnant wages. Since 1979, workers have increased their productivity by 52 percent, but their wages only gained 3 percent and overall compensation just 8 percent. During this same time period, the top 1 percent of Washingtonians experienced income gains of 222 percent, while everyone else has seen just a 14 percent increase (1).
- Unaffordable child care and housing. A single parent with two kids could spend over $1800 for housing and child care in Washington. Since the three most common jobs in our state pay about $1800 a month in total, this presents a real challenge for children and families.
- A tax system that takes a bigger share of income from the poor than the rich. Low income families in Washington state pay upwards of 17 percent of their incomes in state and local taxes. The top 1 percent of Washingtonians pay 3 percent of their incomes.
- Crumbling roads and other battered infrastructure. Washington state relies on the people who are least able to pay to sustain our revenue system, which, as it turns out is not sustainable at all. As a result, all areas of our state budget have been impacted, from roads and bridges to public health infrastructure and education.
The status quo is unacceptable. It is high-time we invest in solutions that create an economy that works for all Washingtonians. Investing in two generations – children and their parents – is a critical step to getting us there.
The well-being of children is dependent on the well-being of parents, and vice-versa. When a family has their basic needs met and can invest in their future, everyone benefits.
In the coming weeks, we will highlight how policies and programs can support two generations for one future where everyone has the chance to prosper.
Source: (1)Labor productivity and wages: BP&C and EPI analysis of unpublished total economy data from Bureau of Labor Statistics, Labor Productivity and costs program; employment data from Bureau of Labor Statistics, Local Area Unemployment Statistics; and Bureau of Economic Analysis, State/National Income and Product Accounts public data series. Income inequality: Economic Policy Institute (2014) The Increasingly Unequal States of America: Income Inequality 1917-2011.
Initiative 1351, a citizen initiative that will appear on the November ballot in Washington state, would increase the number of teachers, librarians, nurses, and other workers employed at schools, far exceeding the current staffing benchmarks required under McCleary (the Supreme Court ruling for basic education funding adequacy). The measure would require $1.4 billion in additional spending in the next two-year budget cycle, bumping the gap between our resources and spending obligations up to about $4.4 billion. While investing in our kids’ future is a smart decision, I-1351 makes it clearer that doing so will require new revenue.
In 2009 and 2010 lawmakers enacted reforms to K-12 education, which now form the basis for meeting the State Supreme Court’s order to fully fund basic education in the McCleary case. Under the reforms, schools must have a minimum number of teachers, principals, counselors, and other staff. And class sizes in kindergarten through third grade are to be lowered to no more than 17 students per class by the start of the 2017-18 school year.
On top of those reforms, I-1351 would provide over 25,000 new school staff by:
• Further lowering class sizes for high poverty K-3 schools (those in which more than 50 percent of the students are eligible to receive free and reduced-price lunches) to 15 students per class;
• Lowering class sizes in all grades above 3rd grade (see Figure 1);
• Increasing the number of librarians, principals, counselors, and other non-instructional staff in schools; and
• Adding additional district-wide staff such as grounds-keepers and maintenance workers.
What it would cost
Once fully implemented, which would be required by 2018, Initiative 1351 would cost approximately $3.8 billion per biennium above the amount necessary to fund the McCleary reforms.
Just in the next biennium, lawmakers would need to invest about $1.4 billion towards I-1351, in addition to the $2 billion installment needed for McCleary. The Office of Financial Management estimates the cost of I-1351 at $2 billion next biennium, based on current law. However, phased-in funding for McCleary, as recommended by the Joint Task Force on Education Funding, calls for an investment of $560 million in 2015-17 to lower class sizes in kindergarten through third grade. This partially overlaps with the requirements of I-1351, leaving the balance to fund I-1351 at approximately $1.4 billion.
Education investments, both for McCleary and I-1351, would come on top of funding that will be needed to maintain the same level of services currently being provided and meet other legal obligations, like paying pensions and debt. That all adds up to a significant challenge going into the next budget-writing session, where our revenues could fall short of our spending needs by $4.4 billion (see Figure 2).
It is important to note, that these estimates do not include funding needed to increase teacher salaries, which the Supreme Court described as “a significant area of underfunding by the state.”
Without an identified revenue source, I-1351 leaves it up to the legislature to determine how it will be funded. The sheer enormity of the gap between our resources and funding needs means that there is no escaping the need for new revenue. Funding I-1351 and meeting McCleary without additional revenues would be impractical. A cuts-only approach would decimate health care, child care, community colleges and universities, and other investments kids need in order to succeed in the classroom.
Testimony: Boeing Should Guarantee Good Jobs and Investment in Washington State in Exchange For Massive Tax Breaks
On Friday, September 19, 2014 the Budget & Policy Center's Senior Fiscal Analyst, Andy Nicholas, along with Thomas Cafcas, a Researcher with Good Jobs First, testified before the Citizen Commission For Performance Measurement of Tax Preferences about tax breaks for the aerospace industry in Washington state. Below is the video of the event and the written testimony Andy submitted to the Commission.
Good afternoon Mr. Chair and members of the Commission. Thank you for giving me the opportunity to testify this afternoon.
For the record, my name is Andy Nicholas. I am the Senior Fiscal Analyst at the Washington State Budget & Policy Center, which is an independent, non-profit research organization that focuses on building a just and prosperous future for all Washingtonians.
We strongly support the Legislative Auditor’s recommendation for policymakers to establish minimum performance goals, such as specific job retention and creation targets, for Washington state’s aerospace tax breaks.
Like most Washingtonians, we are proud of our state’s aerospace legacy. We are also proud to be the home of dynamic, cutting edge companies like Boeing and its many suppliers and partners. To ensure our aerospace investments benefit Washington state, it is critical that policymakers properly structure incentives to reward businesses for creating new jobs here.
However, under current law aerospace companies can claim Washington tax breaks while shipping jobs out-of-state, undermining the central goal of these incentives. You may recall that in January 2014, just two months after the latest round of aerospace tax breaks were approved by policymakers, Boeing began to ship thousands of Puget Sound-based engineering jobs to California and other states.
To prevent further job losses and more wasted resources, we recommend amending these incentives so that only those businesses that invest in Washington state and create new jobs here are able to benefit from them. Going forward, this would help ensure that the legislature’s specific goal for these tax breaks, which is “to maintain and grow Washington’s aerospace industry workforce” is achieved.
This can be accomplished by building in better safe guards that would allow the Department of Revenue to deny or recoup tax break dollars from businesses that ship aerospace jobs out of state. Policymakers could also restructure these tax breaks to ensure they more accurately reward the desired activity – creating good jobs here in Washington state. This could be done by converting the current preferential business and occupation (B&O) tax rates applied to aerospace activities into credits that are allocated on a per job basis – $2,000 per job, for example.
Although, current law includes some accountability provisions, they are not sufficient. For all the billions of dollars in state tax breaks aerospace companies will claim in the coming years, there are no guarantees that total aerospace employment will grow as result.
You may hear that job guarantees and accountability measures would be too onerous for businesses to comply with. However, as my colleague Thomas Cafcas from Good Jobs First will discuss in more detail, job guarantees and accountability provisions are commonly built into tax breaks in other states. Furthermore, such commonsense transparency measures have not been overly burdensome for businesses that benefit from tax breaks offered in other states.
The Legislative Auditor’s analysis of these tax breaks vividly shows the dangers of continuing Washington state’s aerospace subsidies without adding more robust accountability provisions. The Auditor modeled three potential scenarios related to the effectiveness of these tax breaks. The third scenario, which assumed Boeing accepted state tax breaks but failed to create new jobs in Washington state, resulted in nearly 5,000 jobs lost and billions of dollars in squandered resources. That could be Washington’s future should policymakers fail to add specific job creation targets and better safeguards to our state aerospace tax breaks.
In sum, we are proud of Washington’s aerospace legacy and we support smart investments that strengthen and grow our bonds with Boeing and other members of the industry. However, in exchange for the large public investments we make in aircraft manufacturing and design, requiring Boeing to uphold its end of the deal with job creation and investment guarantees is not too much to ask. To that end we strongly support amending these tax breaks to include specific job creation targets, as recommended by the Legislative Auditor. To improve the effectiveness of these tax breaks, we also support adding accountability measures to the law that would deny tax breaks to companies that ship jobs out of Washington state.
Again, thank you for giving me the opportunity to testify this afternoon. I would be happy to answer any questions you may have.
Today’s updated Washington state revenue forecast projects tax revenues to increase relative to previous forecasts by about $170 million for the remainder of the current 2013-15 state budget cycle and by about $140 million for following 2015-17 cycle. While the improved forecast is welcome news, the added resources will fall far short of the extra billions of dollars needed to maintain current investments and implement court-mandated improvements to schools in Washington state in the coming years.
To adequately fund basic education reforms policymakers will have to consider making sensible and equitable adjustments to the state tax system in order to generate the needed resources.
While opponents of taxes that support health care, community colleges and universities, public safety, and other investments argue that school improvements can be funded without tax increases, reality says otherwise.
The updated forecast projects state tax revenues will grow at an average rate of 4 percent per year through June 2019. However, just maintaining today’s reduced levels of public services, which were cut by more than $10 billion during the Great Recession, requires revenues to grow by at least 4.5 percent each year. And, that doesn’t account for the billions of additional dollars that must be invested in schools to improve basic education.
Despite recent improvements in revenue projections, it’s important to note that state tax revenues remain far below pre-recession levels, once the costs associated with rising fuel and energy prices and other factors of inflation are taken into account. As the graph below shows, as of June 2014, revenues remained about $900 million below 2008 levels. They aren’t projected to fully recover until 2017.