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.
New Census data released today shows that Washington state was one of a handful of states where poverty increased between 2012 and 2013, while median income remained stagnant. The new numbers shed further light on the state’s uneven economic recovery and should serve as a call-to-action for lawmakers.
Washington state, New Jersey, and New Mexico were the only three states to see an increase in the total number of people living in poverty. Washington state-specific data include (see fact sheet):
- One in seven people (14.1 percent) live below the poverty line. This is up from 13.5 percent in 2012. For a family of three, the poverty line is defined as earning less than $19,530 per year.
- Child poverty remains stuck at 18 percent. The total number of children living in poverty was largely unchanged in 2013, except for children under five who experienced a small decline.
- Median household income remained stagnant. Median household income did not change between 2012 and 2013, but is still lower than it was before the Great Recession, which ended five years ago. However, the richest 5 percent of Washingtonians saw their earnings increase by 6 percent in 2013, while low and moderate income families experienced little, if any, growth (1).
The latest numbers are shocking, but not surprising given the high – and growing – degree of income inequality in Washington state. Lawmakers should be very concerned – an economy that works for such a small share of the population is not a recipe for long-term social and economic progress. If median income continues to stagnate while the costs of higher education, medical care, housing, and child care outpace inflation, more Washingtonians will struggle to meet basic needs (see fact sheet).
Rising poverty and stagnant incomes do not have to be a permanent part of the economic landscape. An equitable economy that gives everyone the chance to get ahead is the only path forward to keep Washington state a place where individuals, families, businesses, and communities can thrive.
Policymakers should pursue the following strategies to support an economy that works for all Washingtonians:
Raise wages for workers. Research shows that raising the minimum wage, combined with earned income tax credits (EITCs), provide significant boosts for working families earning modest wages. In addition, EITCs – like Washington’s yet-to-be funded Working Families Tax Rebate (WFTR) – are also the most powerful anti-poverty tool that we have.
- Invest in policies that support 21st century workers and their families. Recent health insurance enrollment data is a prime example of how these types of investments can help children and families in our state. Policymakers can further these trends by expanding and strengthening early childhood education, job training, and efficient transportation.
- Stop taxing poor people at a rate higher than any other state. Washington state has the most upside down tax system in the nation. Low income families pay a far greater share of their income in taxes than the highest income families – in fact, the poorest families pay 6 times more than the richest 1 percent. Relying on those with the least ability to pay to keep our revenue system going is neither responsible nor sustainable.
Reducing income inequality and poverty is possible if lawmakers establish a shared goal to make it happen. The cost of doing nothing is too great and puts the future of our children, families, businesses, and the economy at risk.
(1) Data analysis of income gains by quintile provided by Dr. Jennifer Romich with the University of Washington’s West Coast Poverty Center.
Census data released today shows that the number of people without health care coverage in Washington state (960,000) remained unchanged between 2012 and 2013. The new data, however, is not recent enough to capture the impact of Washington state’s implementation of the Affordable Care Act (ACA), which has enrolled over a half million people since the close of open enrollment earlier this year.
Washington state lawmakers were smart to embrace the ACA. As a result of our state’s decision to expand Medicaid and create a state-based Exchange, Washington Healthplanfinder, 552,000 Washingtonians were able to access affordable health care this year.
Next year’s Census data will begin to show the benefits of expanding health care coverage under the ACA in Washington state, but other national data collection efforts are already giving a preview. Data from the Centers of Disease Control show the national rate of uninsured is at its lowest since the late 1990s, and the Congressional Budget Office projects an additional 12 million people will become insured by the end of 2014. The CBO also reports that the ACA will decrease the federal deficit even more so than initially projected.
In response to today’s Supreme Court ruling in the McCleary case, executive director Remy Trupin issued the following statement:
With today’s ruling, attention now turns to the upcoming legislative session, one of the most important in recent memory.
The State legislature has been held in contempt for the first time in its history and the Court made clear that failure to pass a budget and plan for achieving full funding of basic education by 2018 will result in sanctions or other remedial measures. The message to lawmakers is this: act in 2015 or face a Court that has just issued its last warning.
As our amicus filing articulated, there is no responsible way to meet the funding requirements of McCleary without raising new revenue. We were encouraged that Justice Johnson referenced our brief during the contempt hearing on September 3rd, questioning the value of the hundreds of tax breaks on the state’s books when matched against the priority of educating our children.
Closing wasteful tax loopholes is a good place to start. In the coming months, we look forward to working with lawmakers and advocates to advance the full range of revenue solutions needed to ensure prosperity for all our kids.