Schmudget Blog


New Forecast: Big Boost in Resources for Schools, But Revenue Still Stuck at Recession Levels

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst

The latest Washington state revenue forecast confirms that the revenue measures enacted during this year’s legislative session, in conjunction with the growing economy, will generate some $6.1 billion in new state resources for schools and other community investments over the next four years. After years of gridlock in Olympia over raising new revenue to fund schools, it is a significant victory for Washingtonians that lawmakers were finally able to come together in 2017 and make needed investments that will benefit all our communities. To ensure the well-being of those communities now and in the future, lawmakers must strengthen and build upon these kinds of gains. If they don’t take steps to clean up Washington’s tax code, these new and much-needed resources for our most important priorities could rapidly evaporate in the coming years.

The Economic and Revenue Forecast Council now projects a boost of $2.4 billion in state revenue over the 2017-19 budget cycle, a nearly 6 percent increase in revenue since the previous forecast in June. Almost $2.1 billion of that revenue growth comes from revenue bills the legislature enacted earlier this year as part of the state’s ongoing effort to fully fund education under the state Supreme Court McCleary case, including: a new state property tax; an extension of the sales tax and business tax to out-of-state online retailers; and the closure of several wasteful tax breaks. 

The Council also projects a $3.7 billion uptick in revenues during the following 2019-21 budget cycle, most of which is also attributable to the new taxes enacted this year.

These critical new resources will help ensure great schools for our kids in the short term. Nevertheless, in order to protect these and other essential resources for our communities over the long term, lawmakers still need to address the fundamental structural problems with our state’s upside-down tax code – in which the people with the least pay the most in state and local taxes as a share of income. As the chart below shows, even after accounting for the impact of the new taxes enacted this year, state tax collections will remain mired at 2009 (the lowest point of the Great Recession) levels for the foreseeable future. After adjusting for economic growth, tax resources in 2021 are projected to remain virtually unchanged from 2009 levels. 

[Click on graphic to enlarge.]

Sept_2017_revenue_forecast

Without action, the gains in funding for schools and other priorities achieved this year will likely erode after 2021. That’s because a damaging law that arbitrarily suppresses state property tax collections, which is suspended for the next four years as part of the legislature’s school funding “fix,” is scheduled to be reinstated in 2022. As we wrote in our amicus brief to the Washington State Supreme Court, and summarized in this recent post, this Tim Eyman-backed revenue restriction systematically starves schools of adequate funding year after year. And once it goes back into effect, it will quickly erase much of what lawmakers achieved this year in making necessary investments in kids and schools.

The bottom line is that lawmakers can – and should – build on the progress they made this year. If they want to ensure sustainable resources that enable our communities to thrive, lawmakers must look to the future and act now to secure our state’s well-being, not just this year or next, but for many years to come. Our Accountable Washington revenue reform proposal offers a common-sense path toward creating an equitable tax code that adequately supports schools and other investments that benefit us all.

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New Census Numbers: To Build Thriving Communities, Invest in Removing Barriers to Economic Security

New data released by the U.S. Census Bureau shows that there is some good news when it comes to poverty rates and access to health care in our state. At the same time, the data shows that many Washingtonians – in particular, some communities of color, women, and people with disabilities – still face barriers to economic security. The numbers make it clear that to build thriving communities, our policymakers must invest in priorities that remove obstacles to prosperity for Washingtonians.

First the good news: Last year, the poverty rate in Washington state declined slightly to 11.3 percent from 12.2 percent in 2015. And between 2013 and 2016, the rate of people with health insurance increased to 94 percent from 86 percent.

The fact that fewer Washingtonians are living in poverty is likely due to economic growth and a low unemployment rate. And the insurance rate is more evidence that the Affordable Care Act has been extremely effective in ensuring more people can afford to have access to a doctor and preventive health services.

Yet the numbers also reveal that despite economic growth, far too many residents of Washington face barriers to economic security, especially people of color, women, and people with disabilities. In fact, the poverty rate for some communities of color in Washington is nearly two to three times that of whites. Systemic barriers are impacting many people’s ability to put food on the table and pay for their housing. For example:

  • Twenty-seven percent of American Indian/Alaska Natives, 23 percent of Blacks, 20 percent of Native Hawaiian/Pacific Islanders, and 19 percent of Latinos live in poverty.
  • The difference between what men and women earn also got bigger, not smaller. In 2015, women earned 67 percent of what men earned; in 2016, women lost ground and now earn 65 percent of what men earn.
  • One in four working age Washingtonians with a disability live below the federal poverty line, compared to one in ten adults without disabilities. 


Further, when looking at the data over a longer time period, they show those facing the greatest hardship are not reaping the benefits of economic growth. In fact, more people in Washington are living in deep poverty – below 50 percent of the federal poverty line, which is less than $10,080 a year for a family of three in 2016 – than in 2006. The number of Washingtonians living in deep poverty grew by 17 percent between over the last decade (See figure below).

(Click on graphic to enlarge)

Washingtonians in Deep Poverty

Our economy and our communities will be stronger when everyone is able to not only to make ends meet, but also to have a better future – and when lawmakers act to undo systemic and institutional barriers that prevent people from having equal access to opportunity.

While it is good news that there is declining poverty overall and greater rates of health insurance coverage in our state, the new Census numbers nevertheless underscore that too many people are still facing financial hardship. In order to build thriving communities, lawmakers in our state need to make investments that enable all our residents to thrive. Further, federal policymakers must protect essential health care coverage – pushing back against continued efforts to repeal the Affordable Care Act – and they must protect programs that ensure that when people hit hard times, they don’t go without the basics.

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Why It’s Time to Ditch Washington’s Harmful Property Tax Restriction

Posted by Andy Nicholas at Sep 01, 2017 12:55 PM |

All of Washington’s kids deserve great schools, but the hard truth is that too many of them will remain saddled with under-resourced K-12 schools as long as a damaging law that arbitrarily suppresses state property tax collections remains on the books. This law starves Washington’s schools of adequate funding – and children of color have been disproportionately harmed by the chronic lack of investment in schools that it has created.  

That’s why our organization, in partnership with the Equity in Education Coalition and three state legislators, has submitted an amicus brief to the Washington State Supreme Court focused on this damaging law. Our brief demonstrates to the court – as the justices are in the process of ruling whether the legislature has fulfilled its duty to amply fund schools under the McCleary case – that this law should be struck down as an unconstitutional barrier to funding the great schools our kids deserve. 

First enacted in 2001 with the passage of Tim Eyman’s Initiative 747 (and later reenacted by the legislature after I-747 was struck down by the state Supreme Court), the restriction significantly weakened the state property tax, which is a major source of funding for Washington schools. The restriction arbitrarily caps annual growth in state property tax revenues to 1 percent (or the rate of inflation, whichever is lower) plus the value of new construction. Given that the annual costs to recruit and keep excellent teachers, purchase up-to-date computers and other classroom technologies, and buy other important resources grow faster than the law allows state property tax revenues to grow, the restriction has effectively drained billions of dollars in resources from our local schools over most of the last two decades. It will continue to do so if it’s not significantly reformed or taken off the books.

As shown in Figure 1 from the brief, from 1992 to 2000, the period of economic expansion immediately before the restriction was enacted, the state property tax was a robust and stable source of funding for our schools, growing at nearly the same average annual rate as property values. But our property tax revenue foundation grew much weaker after the restriction was enacted in late 2001. While property values grew at an average annual rate of 10 percent between 2002 and 2009, state property tax revenues grew by only 3.4 percent per year on average during this period.

[Click on graphic to enlarge.]

Harmful_Prop_Tax_Restriction_1

The property tax restriction took an especially large toll on school funding in the wake of the Great Recession. Although the Recession nominally ended in early 2009, its lingering effects caused property values to decline for several years afterward, bottoming out in 2013.

The construction boom that followed led to a rapid turnaround, with property values growing by 7 percent per year on average between 2013 and 2016. But again, the restriction did exactly what it was designed to do: it held property tax revenue to an average growth rate of only 2.1 percent during this period, preventing our schools from reaping any meaningful benefit from the booming recovery. 

The gap between state property tax collections and school funding has steadily ballooned under the restriction (see Figure 2). As part of their McCleary “fix,” lawmakers this year temporarily suspended the restriction to raise new state property tax resources for schools. However, it is slated to go back into effect in 2022. If this happens, the restriction will quickly erase most of the school funding progress achieved this year. In fact, the gap will rise to $27 billion in the 2025-27 cycle from the current shortfall of $16 billion.

[Click on graphic to enlarge.]

Harmful_Prop_Tax_Restriction_2

The property tax restriction has taken an especially heavy toll on kids of color throughout Washington. As our brief states, 

“The opportunity gap widened at an alarming rate following the imposition of the 1 percent revenue cap in 2002.  For example, between 2003 and 2015, Education Week Research Center found that while reading and math proficiency of Washington fourth and eighth graders improved overall, the gap between low-income students and their wealthier counterparts increased more than any other state in America.”  

While much more will need to be done to close the opportunity gap, eliminating the property tax restriction would free up resources needed to bolster opportunities for kids of color and kids from families with lower incomes in every corner of our state.

It’s important to note that while eliminating the restriction would allow property taxes to increase, lawmakers can take actions to ensure that lower- and middle-income households don’t wind up saddled with unaffordably high property tax bills. (Information about our safeguard rebate proposal and other equitable reforms to our property tax code, for example, is available here and here.)

The bottom line is the property tax restriction makes it even harder to sustainably fund Washington’s kids’ classrooms, which is particularly detrimental to children of color. All kids should have access to great schools with up-to-date textbooks, learning resources, and facilities – so that they can have the opportunity to thrive. That’s why we urge the Supreme Court to strike down this damaging restriction.

See the entire amicus brief that we submitted in partnership with the Equity in Education Coalition, Sen. Jamie Pedersen, Rep. Laurie Jinkins, and Rep. Gerry Pollet here.

And read the Seattle Times article about all of the amicus briefs submitted to the Supreme Court for the McCleary case here.

 

Final Budget Makes Progress on Community Investments – for Now

Posted by Kelli Smith at Jul 21, 2017 06:20 PM |
Filed under: State Budget, State Revenue

Washington state lawmakers have enacted a two-year budget that makes some strong community investments now, with plans for more of the same in the future. There are definitely some things in this budget to like: the historic paid family and medical leave program that will support families; the approval of collective bargaining agreements for the front-line workers who keep the state running smoothly; and investments in K-12 schools that will put much-needed resources into classrooms. And even though lawmakers failed to make significant progress in some areas of the budget, they did avoid making the draconian, harmful cuts that the Senate Republicans proposed earlier this year.

But because the budget relies on a short-sighted revenue plan and an assortment of one-time actions, like temporary fund shifts and tapping the state rainy day fund, these heightened   investments aren’t guaranteed to survive in the long term. Lawmakers must enact stronger revenue reforms in order to maintain the necessary investments in our state and our communities when they meet again in two, four, or ten years to write future budgets.

The changes to funding levels in the enacted 2017-19 state budget, broken down by the value areas in the Budget & Policy Center’s Progress Index framework, are detailed in the chart and sections that follow.

[Click on graphic to enlarge.] 

Final_budget_change_from_maintenance


COMMUNITY DEVELOPMENT & TRUST

To create thriving communities, Washingtonians should be able to count on having safe neighborhoods, beautiful public spaces to enjoy, and a state government that represents residents fairly and efficiently. The state budget accomplishes these goals by supporting Washington’s essential state workers, investing in our public spaces, and ensuring equal access to public institutions. Lawmakers increased funding in this area by $730 million, an increase of 12.1 percent. The budget: 

  • Values essential public workers. The final budget agreement ensures that the thousands of essential front-line workers in Washington, such as public health nurses, law enforcement officers, and long-term care providers, will be compensated according to the bargaining process established in our state. Lawmakers also maintained health insurance coverage for most public employees, including nurses at state hospitals, social service and public safety workers, and home care workers. It’s crucial that front-line workers have stable jobs that can support them and their families. The fact that lawmakers honored a fair and transparent process for compensating state workers also fosters trust in state government. Funding these agreements was a good move on lawmakers’ part.
  • Increases access to legal aid for Washingtonians with low incomes. The budget includes funding for 15 new civil legal aid attorneys over the next two years. This funding will increase access to legal help for low-income people to deal with issues such as job or housing discrimination claims or consumer finance protection. 

ECONOMIC SECURITY

All Washingtonians should have the opportunity to meet their basic needs, to have good jobs that support their families, and to have the chance to get ahead financially. These are the building blocks of thriving communities. When it comes to economic security, this budget made some historic progress. But it also included some disappointing cuts. Overall, the legislature cut investments by $5 million in this area, a decrease of 0.5 percent from current spending levels. The budget: 

  • Creates a historic paid family and medical leave program. This legislative session, Washington became the fifth state in the nation to pass paid family and medical leave, a significant step forward for workers and families across the state. The new program will make it possible for workers to take leave to welcome a new child, or to take care of themselves or a family member with a serious medical condition, without losing all of their income while they’re on leave. Countless Washingtonians will benefit from this historic and forward-thinking move. 
  • Helps families with low incomes make ends meet. Policymakers made improvements to WorkFirst, Washington’s assistance and job training program for families striving to move out of poverty, by partially restoring the program’s cash grant – which was cut by 15 percent in 2011 – with a 2.5 percent increase. That’s an additional $15 a month for a family receiving the maximum grant. Lawmakers also doubled the time – from 12 to 24 months – that parents can receive benefits while they’re getting post-secondary education. These are important advances for strengthening the program. However, the budget also called for cutting $36.2 million from WorkFirst and using it for other areas of the budget.
  • Expands options for child care for families with low incomes. The budget includes small increases for child care providers who serve kids in Working Connections Child Care (WCCC) – Washington’s child care subsidy program for families with low incomes. And it honors the collective bargaining agreement for in-home family child care providers, which will help more providers – many of whom are small business owners – keep their doors open and provide care to children across the state. The budget likewise doubles the amount of time at least one parent in the family receiving WorkFirst can stay home with their young children – from the age of 1 year to 2 years. But based on lawmakers’ expectation that this WorkFirst change will mean more parents stay home longer and fewer children need child care, the budget assumes a certain amount of savings. As a result, they cut nearly $15 million from WCCC. Even if these savings are realized, it would be better to reinvest those dollars in WCCC to strengthen it and ensure high-quality care for more families.
  • Postpones progress on addressing intergenerational poverty. The budget included a provision to create a new initiative to address intergenerational poverty, but the governor vetoed the provision because of a technical concern. He directed the Department of Social and Health Services to form a work group to come up with a plan to advance the initiative nonetheless.
  • Invests in collection of better data on children and families facing food insecurity in Washington state. The budget includes a provision requiring four state agencies to start reporting data on Washingtonians participating in federal nutrition assistance programs. This data will provide important information for policymakers to make more-informed decisions and to develop targeted policies to address hunger and food insecurity throughout the state.

HEALTHY PEOPLE & ENVIRONMENT

Washingtonians value access to clean air and water, as well as programs that support their health and wellbeing. The state budget supports these values by investing in environmental protection measures, broad access to health care services, and improvements to the quality of life of all Washingtonians, especially children and seniors. The proposal would increase funding in this area by $729 million, a 7 percent boost. The budget:

  • Invests in important behavioral health and senior services. The budget funds 96 new beds in walk-in centers for individuals in mental health crisis and provides targeted funding to address safety and capacity issues at Western State Hospital. Lawmakers also made crucial investments to strengthen long-term care services for seniors, including wage increases for home care workers and modest increases in reimbursement rates for long-term care providers. However, in the final enacted budget, legislators passed up some important investments that had been proposed in the House’s budget earlier in the session, such as larger increases to Medicaid reimbursement rates for behavioral health. 
  • Moves forward on a smart, big-picture health reform project. Lawmakers moved forward on the Medicaid Transformation Project, an important state-federal partnership that will bring in $1.5 billion in federal funding to improve health care delivery and lower costs for Medicaid. It will also offer cost-effective support for family caregivers and help individuals find housing and employment. 
  • Rejects a major, ill-conceived cut to family planning services. In their original budget proposal this session, the Senate Republicans had proposed a cut to certain family planning services in Washington state by 10 percent. In the final budget deal, lawmakers wisely avoided that proposed cut, opting instead to preserve access to health care for the women and men who rely on these important services. 
  • Establishes a unified Department of Children, Youth, and Families (DCYF). The DCYF will serve as a central agency to improve a broad array of outcomes for Washington’s children, from ensuring they have a safe family environment in their homes to providing them with high-quality early education. The creation of the new department – grounded in prevention, early learning, principles of racial equity, and accountability to child outcomes – is an important step toward improving the lives of Washington’s children and families. 
  • Makes incremental but inadequate progress on public health investments. The budget provides $12 million for foundational public health services, such as preventing the spread of communicable diseases, which are provided by the state Department of Health and county public health agencies. But this amount falls short of what’s needed to meaningfully address health inequities among Washingtonians and to modernize our state’s public health technology and equipment.
  • Changes the way adults on Medicaid access dental services. Instead of going to the dentist and having their fees paid through Medicaid, patients will now be required to use a managed care plan for their dental services. Because lawmakers anticipate that this switch will result in fewer dental-related emergency room visits for Medicaid patients, the final budget assumes $16 million in savings. But given the untested nature of this change, there is reason to doubt that those savings will be achieved. And if they aren’t, that will result in cuts to the program that will restrict access to dental care for people with low incomes. 
  • Maintains and improves some efforts to keep our air and water clean and free of pollution.  But this is done with the help of more than $20 million in unsustainable transfers to a separate account originally devoted to mitigating the spread of toxic chemicals. Additional funding was allocated to implement a new rule requiring oil refineries, power plants, and other industries to curb carbon dioxide emissions responsible for global warming and other forms of air pollution.

EDUCATION 

Funding education – particularly funding K-12 schools and compensating the educators and staff that keep schools running – was the main focus of this year’s legislative session. On that front, lawmakers made significant strides toward meeting their obligation to the Supreme Court per the McCleary decision. But it remains to be seen whether the court will accept their effort as satisfactory. Overall, lawmakers invested an additional $1.8 billion in education, from early learning to higher education, an increase of 7.6 percent from current spending levels. The budget: 

  • Increased funding for K-12 schools. Through this budget, lawmakers invested an additional $1.8 billion in state resources for K-12 schools as follows:
    • Teacher and staff compensation. The majority of new state K-12 spending will go toward increasing the amount of money the state distributes to compensate teachers and staff, as well as reforming the way our state divvies up those resources. The funding plan also includes a major change to how health insurance is provided for teachers and school employees. Essentially, school employees will now bargain their health care at the state level through a statewide coalition of school unions rather than bargaining at the local level. This change will need to be closely monitored as it is rolled out to ensure that health insurance coverage is not compromised. 
    • Enhancements based on the number of students in particular education programs. Under the current school funding model, additional resources are distributed to school districts based on the educational programs kids in the district need. This budget increases the resources districts will receive based on the number of students in certain programs, such as the learning assistance program, transitional bilingual program, or special education program – and it targets some of these resources to schools with high levels of student poverty. Lawmakers also included funding to expand dual-language learning opportunities in early learning programs and K-12 schools. This is a move in the right direction toward using evidence-based strategies to close the opportunity gap for children who are English-language learners, and it is an important acknowledgement of the benefits of bilingualism in schools.
    • Local levy reform. Finally, the plan restricts how much money school districts can raise through local levies, and what activities those levies can fund. Beginning in the 2019-20 school year, local levies may only be used to pay for certain “enrichment” activities – such as extracurricular activities. One possible consequence of this change is that, in some districts, it may make it difficult for schools to continue to deliver the same level of education to kids in particular programs considered basic education, such as special education. That’s because some districts are currently funding these programs with local levy dollars at levels above what the new state allocation will be. So it remains to be seen whether districts will be able to provide the same level of service under the new funding scheme.
  • Invests in early learning to prepare Washington’s kids for lifelong success. Legislators smartly expanded the Early Childhood Education and Assistance Program (ECEAP) – our state’s preschool program serving families with low incomes – by adding 1,800 new slots and protecting the quality of the program by increasing the rate ECEAP providers are reimbursed. But the budget falls short in some areas. It reduces funding for Early Achievers, which provides professional development for early learning professionals so they can provide the highest-quality care. Lawmakers also pushed out the date by which the state commits to serving all ECEAP-eligible kids – part of the landmark 2015 Early Start Act – from the 2020-21 academic year to the 2022-23 year. To advance the wellbeing of Washington’s kids and families, lawmakers should have kept the promises they made to provide ECEAP to all eligible kids by 2020.
  • Boosts financial aid for college students with low incomes. Lawmakers invested an additional $50 million in the State Need Grant, the chronically underfunded state financial aid program for students whose families make less than 70 percent of the median family income in our state. Estimates show that this increase will serve another 875 students per year, which will make a small dent in the program’s waitlist. 

REVENUE

To make smart, long-term investments in the most critical areas of the budget, lawmakers must enact revenue that is not only equitable, but that is also sustainable over the long term. Lawmakers did not do that with this budget. They decided instead to fund critical investments now with revenue that is unlikely to sustain investments in the future, and they covered the remainder with budget gimmicks. Overall, the revenue plan increases state general fund resources over the next biennium by a little over $2 billion. Lawmakers: 

  • Increased the state property tax and reduced local levies. It’s commendable that lawmakers provided new revenue to fund schools and other priorities, but the new property tax revenues they rely on are likely to diminish again once the damaging 1 percent property tax growth limit is allowed to go back into effect after 2022. 
  • Relied too much on accounting tricks to balance the budget. The other major tactic lawmakers used to balance the budget – a bevy of fund transfers and accounting tricks – will likewise put Washington’s future on shaky ground. To make the budget pencil out, they included gimmicks, like drawing down nearly $1 billion from the state rainy day fund. Funds originally devoted to cleaning up toxic sites, helping local governments improve roads and other physical infrastructure, and helping workers with children find and keep a job were also raided to support other investments. Lawmakers also relied on resources from federal funds that have not yet been secured – and that may be at risk given the massive cuts being proposed in the federal budget. A budget built on these kinds of temporary fixes isn’t built to last in the long term. Some of lawmakers’ laudable progress on community investments will be at risk in the future if they don’t take meaningful steps to reform the state’s flawed tax code. 

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Revenue Package Not Built to Last Over the Long Term

Posted by Kelli Smith at Jul 12, 2017 03:00 PM |
By Kelli Smith, policy analyst, and Andy Nicholas, associate director of fiscal policy
 
In a legislative session where the central question was how to come up with the billions of additional dollars required to fund schools now and in the future, lawmakers settled for a short-term revenue solution that will not sustain our schools and communities in the long run. While it’s good that there’s at least some new revenue to support our schools, much more needs to be done to fund our schools and strengthen our state economy well into the future. Lawmakers should have included more equitable and sustainable property tax reforms in the revenue package, and they should have removed more unnecessary and wasteful tax breaks.

 

Property Taxes

The property tax reforms that were passed by the legislature and signed into law by Governor Inslee are far from perfect, but they will generate much-needed new revenue for schools – at least in the short term. Under the enacted plan, beginning in January 2018, the state property tax will increase by about 80 cents to $2.70 per $1,000 of assessed value. This will generate about $1.6 billion in new revenue for the current 2017-19 budget cycle and about $2.5 billion in the following cycle.

This increase in the state property tax will be accompanied by a shift in how local school district property taxes are applied. Beginning in 2019, the new maximum local levy for a school district will be the lesser of one of the two following amounts: the amount raised by a tax of $1.50 per $1,000 assessed value or $2,500 per student in the district.

In many areas of the state, this change will result in significantly lower local school district levies compared to those currently in place. Those reductions will offset the overall increase in state property tax revenue. However, the full impact of this on state and local property tax resources that will be available to fund schools isn’t clear yet, because an official estimate of this local property tax reduction has yet to be released.

Although the property tax reforms will infuse some new investments in Washington’s schools, there are significant drawbacks to this plan. Thousands of lower- and middle-income households living in areas of the state with high property values will see a significant spike in their property tax bills. Even though many families living in areas of the state with low property values will see an overall reduction in their property taxes, there’s nevertheless good reason to think the plan will, on balance, make Washington’s tax code more inequitable. That’s a concern, considering Washington state already has the most upside-down tax code in the nation, with low- and middle-income households paying up to seven times more in state and local taxes as a share of their incomes than those at the top of the income scale.

Furthermore, because lawmakers failed to eliminate a damaging law that restricts property tax revenue growth to a maximum of 1 percent per year, the plan will not provide a sustainable stream of resources for schools past 2022. Since it first went into effect 15 years ago, the law has continuously starved communities of the resources they need to adequately support schools, public safety, and other core investments that serve all Washingtonians. Under the new plan, the law will be suspended for the next four years.

Lawmakers must work to permanently eliminate this cap. If they don’t, all the funding progress achieved this year will quickly evaporate once the 1 percent cap goes back into effect in 2023. And, because the costs of heating classrooms, operating police and fire departments, and providing health care services outpace the arbitrary 1 percent growth limit on property tax revenues, lawmakers will, once again, find themselves dealing with a funding crisis of their own making.

Tax Breaks

Lawmakers did wisely agree to close a few tax breaks. But when it comes to tax breaks, it was still one step forward, two steps back. Because this package also creates or extends 13 new loopholes (although the governor subsequently, and wisely, vetoed two of them).

An unnecessary sales tax break on bottled water was mostly eliminated; only people who don’t have access to potable water will still be able to claim it going forward. And a costly loophole was closed that allowed oil refineries to claim a sales tax break that was originally intended just for sawmills. Eliminating these breaks is a good move. It means more resources will be available for investments that benefit all of our communities.

Lawmakers also took sensible steps toward creating a more level playing field for small brick-and-mortar businesses located in our state. They closed off a large sales tax and business and occupation (B&O) tax break that has allowed businesses like eBay and Overstock.com to avoid collecting sales taxes from customers located in Washington state. Going forward, large internet retailers will now face strong incentive to begin charging sales taxes on purchases made by Washingtonians. If they choose not to do so, they will be required to provide detailed customer data to the State Department of Revenue, so it can collect the delinquent taxes directly from those customers. In states that have adopted similar laws, many companies have chosen to collect sales taxes rather than risk upsetting their customers by supplying their personal information to state revenue agencies.

By creating or extending more than a dozen new tax breaks, however, the legislature took major steps backward when it comes to cleaning up our loophole-ridden tax code. Our state already has nearly 700 tax breaks on the books. It does not need any new tax giveaways.

Governor Inslee wisely vetoed two of the most egregious new tax breaks. He refused to enact a wasteful B&O tax break for manufacturers that would have converted $39 million per year in revenues that currently support schools and other community investments into tax benefits for corporate shareholders and consumers that mostly live elsewhere. 

The governor also took a step to strengthen our state’s environment by vetoing a sales tax exemption on a coal-fired electricity-generating plant owned by a Canadian company (TransAlta) that is currently scheduled to shut down in 2025. The exemption would have applied to materials and equipment used to convert the coal plant to burn a different type of dirty fossil fuel, natural gas. Given the very real dangers that global warming and air pollution pose to the health of our communities, lawmakers should not be subsidizing any form of energy based on fossil fuels and should instead focus on transitioning to cleaner, more reliable energy sources.

Missed Opportunities

In its revenue plan, the legislature missed some major opportunities to ensure the long-term economic strength of our state and to clean up the tax code. They should have eliminated the wasteful tax break on capital gains, which would have raised significant new resources for schools. But disappointingly, the tax break for those who profit from high-end financial assets remains on the books in this budget.

They also should have ensured their property tax plan took steps to improve the equity of our tax code and the long-term sustainability of our budget. In particular, they should have paired their property tax increases with safeguard rebates to offset the costs of higher taxes for middle- and lower-income homeowners and renters. And to dependably and amply fund schools for the foreseeable future, they should have eliminated the damaging 1 percent levy growth cap.

The bottom line is that the legislature’s work does not end here. There’s still a lot more to do to clean up the tax code and provide the kind of resources that make world-class schools and thriving communities possible.

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Governor’s Veto of Unnecessary, Short-Sighted Tax Giveaway Is the Right Move for Washington’s Future

Posted by Melinda Young-Flynn at Jul 07, 2017 05:10 PM |
Statement by Executive Director Misha Werschkul
 
The Washington State Budget & Policy Center applauds Governor Jay Inslee for vetoing part 2 of Senate Bill 5977, which would have reduced the business and occupation (B&O) tax rate applied to manufacturers that do business in Washington state. As we previously noted, this tax giveaway that was snuck into the budget at the eleventh hour without any transparency or accountability measures would have been a bad deal for our state.

 

Once fully implemented, this giveaway would have eliminated $39 million per year in funding that could have otherwise supported schools and other key investments that form the foundation of thriving communities and a strong state economy.

It is unacceptable that this bill didn't include any of the standard transparency and accountability provisions applied to other recently enacted tax breaks – such as applying ways to evaluate its efficacy or including an expiration date.

While some will argue not adding this new tax break to Washington’s tax code will hurt jobs, there is no reason to believe that reducing the B&O tax rate for manufacturers will have a perceptible impact on the strength of the state economy and job market.

Now is the time to clean up our state’s tax code, not add new tax breaks to the books. The governor has made a fiscally responsible decision at a time when our state has to be prepared to shoulder the costs of devastating potential cuts from the federal level and when investments in our communities should be the top priority. The rejection of this bad policy will ensure our state is better set up to be a great place to go to school, to work, and to build a business.

Three Reasons Why a New Tax Break for Manufacturers Is Bad for Washington State

Posted by Andy Nicholas at Jul 03, 2017 06:50 PM |
Filed under: State Budget, Tax Break

In the final hours of intense, behind-the-scenes negotiations over the recently enacted 2017-19 state budget, lawmakers in Washington state snuck in a major new tax break for manufacturers. This new tax break, which is one of 13 new or extended tax breaks included in Senate Bill 5977, would reduce the business and occupation (B&O) tax rate applied to Washington state-based manufacturers from the current rate of 0.484 percent to 0.2904 percent over the next four years. 

This Senate tax break bill is one of several bills that still need to be signed by Governor Inslee in order to become law. It is bad policy and it should not be enacted. Here are three reasons why:

  1. Once fully implemented, the new break will eliminate $39 million per year in funding that would otherwise support schools, health care, and other investments that form the foundation of a strong state economy. Structuring this tax break to gradually phase in allowed lawmakers to balance the state budget over the next four years. But after 2022, the mounting costs of this tax break will make it ever more difficult to balance the budget and adequately fund schools and other priorities.
  2. It includes no accountability to the public. It’s unacceptable that lawmakers neglected to apply any of the standard transparency and accountability provisions applied to other recently enacted tax breaks to this tax break – such as identifying a specific public purpose or goal, designating metrics to assess its success or failure in achieving those goals, or setting an expiration date.
  3. It will largely benefit shareholders and out-of-state consumers. The new tax break might allow manufacturers to very modestly reduce the prices of the goods they sell, but that would mostly benefit consumers in other states and countries where those goods are primarily sold. Manufacturers could also use the tax savings to pad their profits for the benefit of their own shareholders. Either way, that means millions of dollars in resources that would otherwise be used to support communities throughout Washington state will be diverted to other states and countries.
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