After three special sessions and with one day to spare before a government shutdown, lawmakers finally approved a budget today. It increases funding for schools, early learning, worker pay and benefits, mental health services, support for struggling families, and other much-needed services. While it’s certainly laudable that the investments are robust, it’s nevertheless essential to note that lawmakers are relying on inadequate long-term revenue sources to sustain them. In so doing, they are missing a timely opportunity to make our tax system more sturdy and equitable.
Over the next two years, nearly $4.5 billion more will be injected into our economy, compared to the previous two budget years. The increased funding helps keep up with increases in our population and inflation, while also meeting the needs of vulnerable Washingtonians and making required investments in K-12 basic education, among other things. The resources to make these investments come largely from projected increases in revenue, a funding surplus from the previous budget cycle, fund transfers, and new revenue from closing or narrowing tax breaks.
- Increased mental health services: Approximately $100 million is added to increase mental health services and address deficiencies in access to treatment that have left many people confined to hospital emergency rooms while they await care.
- Progress on basic education: $1.3 billion moves us closer toward fully funding basic education, as required by our state constitution and the McCleary court case. This funding will reduce class sizes in K-3 and expand all-day kindergarten. An additional $740 million is included as part of maintenance-level expenses to cover the basic operating costs to run a school (Maintenance, Supplies, and Operating Costs).
- Support for workers: Nearly $800 million supports public workers by funding agreements for increased pay and benefits and by providing teachers a cost-of-living increase (called for by Initiative 732) and an additional increase to reach parity with state workers.
- Improvements in early learning: $158 million funds big advancements in the quality and availability of early learning education for children. This includes funding the Early Start Act, maintaining current preschool slots and adding 1,600 more, and allowing families receiving Working Connections Child Care to be eligible for child care 12 months at a time – thereby avoiding disruptions to care if they face job or income changes.
- Increased college access: $113 million is provided to help lower tuition costs at all public colleges and universities by five percent in the 2015-16 school year. In addition, as of the 2016-17 school year, state universities (University of Washington and Washington State University) must lower tuition an additional 10 percent, and regional universities (Western, Central, and Eastern Washington Universities), Evergreen State College, and applied baccalaureate degree programs at community colleges must lower tuition by an additional 15 percent.
- Support for struggling families: $9.6 million is provided to restore a previous cut to food assistance, and $30 million partially restores a cut to cash assistance for families receiving Temporary Assistance for Needy Families.
- Re-prioritized tax break spending: Lawmakers close or narrow four unproductive tax breaks, allowing $162 million in revenue to be spent on more important priorities.
Amid the emphasis on tuition decreases, an important story is being overlooked: The fact that lawmakers neglected to address the backlog of students who qualify for the State Need Grant but can't access it due to a lack of funding. This puts higher education out of reach for many students with low incomes who can only afford college with the help of financial aid. In addition, although it’s great that there is a partial restoration of cash assistance to parents receiving Temporary Assistance for Needy Families, lawmakers also cut $50 million from the program. This will make it harder for many families to get the support they need to get back on their feet and into stable employment during times of hardship.
Ultimately, the folly in the final budget agreement is that it doesn’t focus on the long term. It fails to enact enough new, sustainable revenue to protect its investments – thereby protecting our state’s economic security – in the years to come. In education, where the bulk of new investments are made, new spending vastly outweighs new revenue. In fact, only $1 of new revenue is raised for every $17 dollars spent on education (see graph).
While $162 million in new revenue is added through the closure of four wasteful tax breaks, an additional ten breaks were created or extended, costing $36 million.
Lawmakers missed a major opportunity to fix our broken revenue system and level the playing field for those with lower incomes who currently pay the most in state taxes. The Governor and House budget-writers proposed a capital gains tax that would have generated significant resources to protect the future stability of our investments. It would have impacted only the wealthiest Washingtonians – fewer than 35,000 – while taking a big step toward making our revenue system more equitable.
Instead, lawmakers decided to gamble on short-term fixes and to bank on the notion that the economy will continue to boom. This is the antithesis of wise, responsible investment, and it is setting us up to be woefully ill-prepared to weather any dips in the economy.
Again, while it is good news that the budget increases its investments, the reality is that those investments can’t actually come to fruition without a reliable, sustained source of revenue to pay for them. In 2017, it is likely that lawmakers will again be faced with the same issue that they faced this time. They won’t have enough revenue to fund the important programs that benefit all Washingtonians – from education to public safety to health services. The budget should be a tool that can secure the economic strength and progress of our state and its residents for generations to come. Right now, the budget is mainly a utilitarian tool to get us through the next two years. And even then, it’s shaky.
The Senate released a set of new proposals today that increase investments and add new revenue, but that still fail to provide the resources needed to sustain investments in the long run.
The three proposals introduced include a new budget proposal for the next two years, a plan to raise additional revenue by closing some tax breaks, and a contingency plan to avoid a shutdown by funding state services for the month of July. The Senate also advanced a bill that would create or extend 14 tax breaks worth $114 million in the coming budget cycle.
The Senate’s new version of a budget increases investments by $367 million above its previous proposal. Added investments include:
- An additional cost-of-living increase for teachers to align with the increase received by state employees;
- A nine percent increase in cash assistance that help parents on Temporary Assistance for Needy Families care for their families while looking for work;
- 12 months of continuous eligibility for Working Connections Child Care so families can maintain stability amid job and income fluctuations;
- Restoration of funding for food assistance that was previously cut.
These additional investments bring the Senate budget more in sync with the needs of Washingtonians and the priorities in the House budget. However, their plan to sustain investments over the long haul is a flop.
The Senate budget prioritizes education, investing over $2 billion in new funding to pay for K-12 basic education enhancements prescribed under the McCleary ruling, early learning improvements, and tuition cuts for middle-income students. Yet, new resources to continue these investments net out to a paltry $40 million (see graph).
The revenue proposals include:
Tax break reductions (Senate Bill 6138):
- Eliminating a sales tax break for large software manufacturers ($57.2 million): Software companies are currently able to claim a sales tax exemption on machinery and equipment they purchase for manufacturing software. The Senate proposal would eliminate this exemption for software companies with more than 40,000 employees that have been in Washington state since before 1981.
- Eliminating a preferential Business & Occupation (B&O) tax rate on royalty income ($31.4 million): Businesses that earn much of their revenue from royalties, including Microsoft and other corporations that receive royalties from licensing software, currently enjoy a preferential rate of 0.484 percent. SB 6138 would eliminate this preference and collect taxes on royalties at the standard 1.5 percent B&O rate for service-industry activities.
- Eliminating a B&O tax break for out-of-state wholesalers: Large, multistate wholesalers that do not have a physical presence in Washington are not required to pay B&O taxes, despite the fact that they do millions of dollars in business here. Yet wholesale businesses located in Washington do have to pay the B&O tax. Senate Bill 6138 would make progress on correcting this disparity by applying “economic nexus” standards, which are described more fully here, to wholesalers located outside of Washington state.
- Other revenue increases ($33 million): The Senate would also raise additional resources through various administrative actions such as spending revenues from unclaimed lottery prizes (SB 5681).
New or extended tax breaks (Senate Bill 6057 and others):
- Reinstating wasteful sales and B&O tax breaks for high-tech research and development ($73.5 million): Last year, policymakers wisely allowed a costly B&O credit and a sales tax exemption for high-tech firms to expire. An analysis by the Joint Legislative Audit and Review Committee (JLARC) found these tax breaks failed to create jobs. Senate Bill 6057 would bring these tax breaks back to life.
- Extending a B&O tax break for businesses that package and process food ($13.2 million): These businesses are currently exempt from paying the B&O tax. That complete exemption is scheduled to expire on June 30, 2015. SB 6057 would extend the exemption to 2025.
- Reinstating a sales tax break for data centers ($12.5 million): Last year, policymakers wisely did not extend a sales tax exemption for equipment used in data centers, or “server farms,” past the current expiration date of July 1, 2015. SB 6057 would extend the expiration date on equipment to 2025.
- Enact or extend other tax breaks ($13 million): SB 6057 and other legislation would create or extend a number of smaller tax breaks, ranging from a public utility tax break for logging trucks to B&O tax breaks for aluminum smelters.
Without additional, reliable revenue, these investments are perilous and susceptible to collapse in the event our economy experiences any hiccups in the short term. In the long term, our inadequate revenue system will struggle to maintain investments – for our education system and the needs of Washingtonians and our economy.
With just one week left for the Washington State Legislature to pass a budget for the next two years, preparations are underway for a full or partial shutdown of state services that would harm tens of thousands of Washingtonians. Today, more than 25,000 employees are receiving furlough notices – just as they did two years ago when our state was in the same situation. Unless lawmakers agree on long-term, sustainable revenue solutions, these kinds of biennial shutdown threats are likely to become the norm. If they have the foresight and vision to take the long view in their budget decision making, though, they can prevent that from happening.
Into their second special session, the House and Senate remain at odds over investment priorities for the next budget cycle, which begins on July 1st, and how to pay for essential state services – from education to public safety – that benefit all Washingtonians. In its latest budget proposal released yesterday, the House would invest about $300 million more than the Senate and would close six tax breaks to generate additional revenue. The Senate makes its budget balance through short-term, Band-Aid fixes and gimmicks like transferring funds from other accounts and relying on unrealistic savings that they say can be accomplished in state government through Lean management. [Even the Office of Financial Management warned against relying on additional Lean savings.]
If a budget is not passed by June 30th, those 25,000-plus workers who are receiving furlough notices will be temporarily laid off without pay. What’s more, many state services that Washingtonians rely on will be pared down or cease altogether. As a large contributor to the state’s economy, a shutdown of public services would spell widespread disruption in the commerce and productivity of the state. And it would put the health and safety of Washingtonians in jeopardy across all 49 legislative districts (see table).
(Click on the image below to view the entire table)
Just some services that would be ended or scaled back:
- Students at public universities and community colleges will not have access to state financial aid programs for fall enrollment.
- All state parks will close before the Independence Day holiday weekend.
- Licensing activities for some businesses will be suspended, such as real estate brokers and appraisers, architects, cosmetologists, and employment agencies.
- Parents with low incomes will stop receiving Working Connections Child Care services that help them remain in the workforce. Assistance to help families with low incomes address one-time emergent needs – like shelter, food, or medical care – will also end (see table).
- Pregnant women with low incomes will lose their cash assistance (see table).
- Services for people in the Aged, Blind, Disabled program will end (see table).
- Supports that keep families intact and prevent out-of-home placement of children will end (see table).
- Vocational rehabilitation services that help individuals with disabilities gain employment will end (see table), and the Housing and Essential Needs program for people with low incomes who cannot work due to a disability will end on August 1st.
- New criminal offenders will be housed in county jails, and community supervision would end for all offenders except those supervised under an interstate compact.
Services that would continue (not a comprehensive list):
- Public colleges and universities will continue to operate using funding from tuition payments and other accounts that are not appropriated by the Legislature;
- Services that are funded with a federal match, such as Temporary Assistance for Needy Families cash assistance and Medicaid (until the state withdraws from the program);
- Unemployment benefits, pensions, and worker compensation payments;
- Care for people in state institutions, such as state hospitals;
- Foster care and emergency child protective services; and
- Services that are mandated by federal law or the Washington State Constitution.
Amid the urgency to pass a budget and avoid a shutdown, lawmakers should not rush to piecemeal, short-term patches. Instead, they should implement real, long-lasting solutions to sustain our children’s education, keep essential state services stable over the long haul, and invest in the important building blocks of a strong economy. To do that, they should not only adopt the House’s proposal to close tax breaks to generate additional revenue, but they should also revive the capital gains tax proposal.
They have the opportunity to use the budget to secure the economic strength and progress of our state and its residents over the next five, 10, 50-plus years. (Our Progress Index provides a roadmap for just how they can do that.) If they focus on how they can truly invest in our state and its people, rather than just trying to balance the line items for the next two years, think of the kind of state they could help create. At the very least, think how nice it would be if hardworking Washingtonians didn’t have to face the exhausting threat of a government shutdown every two years.
Today the House released its third iteration of a spending plan for the next two years, attempting once again to reach a compromise with the Senate. The plan nixes Washington state's best chance for a sustainable budget and equitable tax system: the capital gains tax.
In lieu of a capital gains tax proposal, the House put out a budget with no additional revenue alongside a proposal (House Bill 2269) to close or narrow six tax breaks, raising $356 million. The new revenue from HB 2269 is specifically dedicated to education and other services.
House Bill 2269 would:
- Close or narrow six wasteful tax breaks – including a sales tax exemption on bottled water ($40.5 million); a sales tax exemption for nonresident shoppers; a preferential business and occupation (B&O) tax rate for prescription drug wholesalers ($33.2 million); a sales tax exemption on fuel used by oil refineries ($29 million); a preferential B&O tax rate on royalties from software licenses ($31.3 million); and a real estate excise tax exemption claimed by banks when selling foreclosed properties ($73.9 million).
- Create a more level playing field for Washington-based businesses: Small businesses located in Washington state can’t avoid paying state sales and B&O taxes. Too often large multistate businesses are off the hook for these taxes, however. HB 2269 would make progress on correcting this disparity by applying “economic nexus” standards, which are described more fully here, to wholesalers located outside of Washington state ($45 million). It would also require some large internet retailers to collect sales taxes on purchases made by Washingtonians ($28.3 million).
- Increase penalties and administrative actions: HB 2269 would increase penalties for businesses that fail to pay their taxes on time ($17.2 million) and make other administrative changes to help reduce tax evasion ($8.2 million).
- Invest the revenue in education and other services: Under the bill, the revenue generated would fund a number of state priorities. Some of the investments include $152 million for an additional cost-of-living increase for teachers, $53 million to freeze tuition at public colleges and universities, and $24 million to add slots for early learning preschool.
The new budget, combined with the additional investments in HB 2269, invests about $300 million less than the budget put forward by the House several weeks ago.
Compared to the budget proposed on June 1st, the new proposals backslide on important investments. Under the new plans:
- Fewer children will be able to attend preschool. Additional funding will support about half the number of preschool slots, shrinking from 6,358 to 1,600;
- Fewer students will get financial aid to go to college. The House backtracks on a $53 million investment to allow more students to access financial aid through the State Need Grant;
- Adults and children will have a harder time accessing health care through Medicaid and the Children’s Health Insurance Program because investments in customer service and eligibility staff have been pared down;
- People with lower incomes will lose access to telephone and voicemail services under the elimination of the Washington Telephone Assistance Program, a program that ensures those Washingtonians can use the phone to access vital resources and emergency services;
- Fewer staff will be added to reduce foster care caseloads and respond to reports of child abuse and neglect within a timely manner;
- Students in K-12 public schools will not benefit from much-needed additional support from guidance counselors and other staff who advocate for children’s health, wellness, and engagement;
- English Language learners in K-12 public schools will not receive the additional instructional hours that our school system has identified that they need in order to participate fully in the classroom.
The revised plan continues to make it clear that new revenue is a must for making the budget sustainable and responsible. While the House has moved closer to the Senate’s version of the budget, the Senate remains rigidly opposed to new revenue.
The new House proposal to close wasteful tax breaks demonstrates the need to prioritize state resources for our kids and students. Without a capital gains tax, however, we can only get so far. Lawmakers should not abandon a capital gains tax, as it is a sensible and much-needed tool to raise long-term revenue and begin to even out our unbalanced tax system.
Temporary Assistance for Needy Families (TANF) is a major pathway to employment for parents struggling financially, helping them to support their families while looking for a stable job. Yet over the past several years, even as the number of Washingtonians living in poverty has increased, the TANF program has been severely weakened. A new report from the Center on Budget and Policy Priorities highlights how the TANF program has fared in all fifty states since 1996, when it replaced Aid to Families with Dependent Children (AFDC) benefits. The findings are not pretty. TANF has been continually weakened, which is leading to devastating impacts for kids and families with low incomes.
The report shows that, in 1994, nearly 86 out of every 100 Washington families with kids who were living below the poverty line received AFDC benefits (see graphic below). This means that 86 percent of those Washingtonians had improved opportunities to lift themselves out of poverty when they fell on hard times. By 2009, just prior to the start of the recession, roughly 49 out of every 100 families whose incomes were below the poverty line were receiving TANF benefits. That number fell to 38 by 2012.
One in four kids in Washington face economic hardship during their childhoods. The stress of this can have lasting impacts on their health and well-being into adulthood. Given that just over 68 percent of TANF recipients in Washington state are children, strengthening this program should be a priority in budget negotiations. Kids do better when their parents do better, and programs like TANF help families struggling with economic hardship put food on the table and a roof over their heads while parents look for a job. It is not too late for lawmakers to take steps to stop TANF’s disappearing act in Washington state so all kids and families can have the right tools to get on the path toward economic security.
As the CBPP report shows, the decline of TANF is driven in no small part by cuts to state funding. In Washington state, for example, policymakers instituted harsh time limits that kicked off or locked out thousands of families at a time when our state was facing record levels of unemployment and rising poverty. This resulted in substantial declines in the TANF caseload. Policymakers have taken the so-called “savings” from these caseload declines away from TANF to balance the budget rather than reinvest in the weakening program, even as need increased. In addition, policymakers have reduced the already-meager cash grant by 15 percent, and overall TANF funding has been reduced by $610 million since 2011. All of these policy changes have severely weakened TANF’s ability to respond to increases in need.
Smart policy decisions can reverse this trend and strengthen TANF, thereby improving economic security for kids and families in Washington state. As budget writers continue negotiations in Olympia, it is imperative that they invest in families struggling to make ends meet by:
- Fully restoring the TANF cash grant that was cut by 15 percent in 2011 so that families can meet basic needs while parents look for adequate and stable employment. Restoring the cash grant to pre-recession levels would provide families with an additional $84 a month to buy essentials like diapers, housing, and food.
- Strengthening the TANF program through integrated policies that ensure long-term economic security for kids and their parents. This includes increasing job training, work supports, and education that leads to high-skill, high-wage jobs for parents and access to affordable, high-quality early learning opportunities for kids.
The most recent House budget proposal takes some important steps toward strengthening the TANF program, including a 9 percent increase in the TANF cash grant. Meanwhile, the Senate budget seeks to further reduce TANF funding by $50 million.
As they negotiate the final budget, policymakers must take steps towards making TANF the program it needs to be to ensure all kids and families can get back on their feet when they fall on hard times. An investment in TANF is an investment in the economic well-being of kids and families in our state.
This is Part 5 in our "Progress in Focus" series of blog posts highlighting the individual sections of the Progress Index. This post is focused on the healthy people part of the Healthy People and Environment section.
Everyone in Washington state should have the opportunity to live a healthy and productive life, with affordable options to obtain quality health care. While Washington state’s investments in healthy people are starting to pay off with the implementation of the Affordable Care Act (ACA), more needs to be done to keep our most vulnerable citizens safe.
Washington state invests 27 percent of its total operating revenue on programs that protect public health and the environment. With this investment, some significant progress has been made in recent years (see "At a Glance" table for a summary; and see the full Progress Index to review all the data we use to measure progress). Progress has been especially evident when it comes to the expansion of health care coverage. Since full implementation of the ACA began in 2014 with Medicaid expansion and the creation of the Washington Health Benefit Exchange, more than 700,000 Washingtonians have enrolled in these programs to gain affordable coverage.
(Click on image to view full graphic.)
Still, state investments in the health of Washington’s residents are nearly the same as they were in 2002. This compromises the state’s ability to make progress in other areas of health – notably, protecting our most vulnerable citizens. While the state is making some progress for children placed in the child welfare system, more needs to be done to ensure their safety and stability. And Washingtonians with mental illness are not as protected as they should be. For example, our Progress Index shows that:
- The rate of out-of-home placements – when children are removed from the care of their parents or legal guardian – has declined, from 7.2 per 1,000 children in 2008 to 5.3 per 1,000 in 2013. While rates of re-entry into the child-welfare system are also declining for children who have been reunited with their family or guardians, rates remain high compared to national quality recommendations.
- Although the number of psychiatric beds in state and community hospitals has rebounded to 2000 levels (12 per 100,000), too many people involuntarily committed for treatment for mental illness are being “boarded” in state emergency rooms due to lack of capacity. Psychiatric boarding in facilities that do not offer individualized psychiatric care is a practice the Washington State Supreme Court recently ruled as unconstitutional under the Involuntary Treatment Act.
As this legislative session continues into special session, lawmakers still have the opportunity to advance the health and well-being of all Washingtonians. But they need more revenue to do it. The House budget raises new revenue, most notably through its capital gains tax proposal, to invest more in mental health services and hire additional staff for the child welfare system. The Senate, on the other hand continues to shortchange the health and safety of Washingtonians who lack the resources or authority to protect themselves on their own.
Washingtonians deserve a state budget that lays a foundation of opportunity in all areas of their well-being, including their physical and mental health. To get there, our state must provide resources to help ensure all Washingtonians have access to the resources they need to be well.
A new budget put forth by the House moves closer to a compromise with the Senate, while staying committed to investing in Washington’s future. Unlike the Senate’s unsustainable, gimmick-ridden plan for funding improvements to schools, the House plan would ensure these investments remain sustainable in the long term by applying a modest 5 percent tax to capital gains.
Lawmakers have until the end of June to approve a two-year budget that begins on July 1. Now into a second special session, both the Senate and House have revised budget proposals that seek to inch closer to a final agreement. Compared to the budget that passed the House floor in April, the revised House budget:
- Raises about $917 million less in new revenue. The House has removed proposals for a 0.3 percentage point business and occupation (B&O) tax surcharge to service industry businesses, the closure of wasteful tax breaks, and a sales tax on some out-of-state internet retailers;
- Does not include $207 million to bring health benefits for teachers in line with state employees;
- Eliminates funding to provide breakfast for children with low-incomes during the school day, address the educational opportunity gap faced by children of color, and improve educational outcomes for foster children;
- Provides half the amount of funding ($30 million instead of $60 million) for scholarships to students pursuing a degree in science, math, technology, engineering, or health care fields; and
- Does not restore the cut to agencies that provide care to seniors and people with developmental disabilities.
While this revised budget backtracks on some important needs of Washingtonians, it retains core investments in education, health care, and the environment. For example, it still makes strong investments in early learning, provides $1.4 billion toward basic education reforms required under the McCleary ruling, and freezes tuition at colleges and universities while providing more financial aid to students in need. It continues to provide much-needed funding for state parks. It addresses unmet need for people with mental illness. And it increases cash assistance to families receiving Temporary Assistance for Needy Families (rather than making other program changes originally proposed like increasing housing assistance and changing income-eligibility requirements).Overall, the House budget invests $633 million more than the Senate budget (see graph).
What’s more, the House’s proposed tax on capital gains would raise about $550 million over the next two years. Raising this kind of new revenue is an essential feature of a sustainable state budget. It’s the only way to ensure that investments included in both the House and Senate budgets can be maintained in the future.