The headline in The Seattle Times "State spending on track to rise, despite budget cuts" is a misleading way of looking at the state budget situation. If you’ve been following the budget debate, you know that both the Senate and House budgets propose deep cuts to education, health care, economic security, and so on.

State spending – from money the state collects --would actually fall under the two budget proposals. The article adds anticipated federal aid to state spending in order to reach the conclusion that the budget would increase.

However one treats the federal aid, the budget proposals would result in deep cuts across the budget, cuts that would come on top of the $3.6 billion in cuts made last year.

There are increases in spending in some areas. Most (over 70 percent) of the increases are maintenance-level changes. These are changes that are due, not to the creation or expansion of new programs, but to just adjusting to changing costs. When the Governor signed a balanced budget into law last year, it included assumptions about the number of people who would need health care coverage, the number of kids who would be enrolled in schools, the price of providing various services, and so on. Some of those assumptions turned out to be incorrect, primarily because the economic outlook has been worse than expected. Adjusting for those changes is generally considered as part of the maintenance-level budget and is not considered budget cuts or increases.

Aside from the maintenance budget changes, there are modest spending increases in both budgets. The largest items include a mandated correction in how the state calculates clinic reimbursements and reversals of cuts to nursing homes and adult day health in response to lawsuits.  The Times article points out one of the few areas where budget changes represent a significant change in the state’s commitments: sending unemployed workers to train at colleges for jobs in high-demand fields. This is spending that is both badly needed and woefully inadequate when compared to the demand. That’s a policy choice, but one that’s hard to argue with.

The bottom line is that neither the federal dollars nor the revenue increases are enough to fully offset the effects of the Great Recession. However, these sources of funding will help stave off other disastrous cuts such as those contained in the Governor’s first budget – the ones she said she didn’t have the conscience to adopt.

Both chambers of the State Legislature have now passed revenue measures needed to maintain basic public services like health care and education while the economy recovers.  

While these packages are an important step toward addressing our economic problems, both are insufficient given the scale of the current crisis.  The current Senate proposal would generate about $890 million in new resources while the House proposal would increase revenues by $680 million -- $70 million less than the earlier version approved by the House Finance Committee.  It's important to note that even under the larger Senate proposal, revenue increases would account for only 10 percent of total actions taken to close the $11.7 billion shortfalls in the FY2009-11 biennium.

The proposals

The Senate approved its proposal, SB 6143, last Sunday (March 7th).  Last night, the House passed a completely different version of SB 6143.  The table below provides an overview of the Senate and House proposals. To view a pdf of the table, click here.

Common Elements

Both versions of SB 6143 would limit or eliminate large exemptions and loopholes.  These include: Repealing the direct sellers' B&O exemption and retroactively fixing the Dot Foods case; adopting economic nexus (for more information see the schmudget post "What is 'Economic Nexus' and Why Do I Care?");giving DOR greater authority to reign-in abusive tax avoidance transactions; repealing the sales tax exemption on bottled water; and repealing a number of smaller exemptions and preferential tax rates.  Both measures would also increase the cigarette tax, though the House version would raise more money by increasing taxes on other tobacco products as well.

Senate Proposal

The Senate proposal would raise a total of $890 million. In addition to the exemptions and loopholes in common with the House version, the Senate proposal includes two temporary general tax increases: a 0.3 percentage point increase in the state sales tax ($313 million); and a 0.25 percentage point increase in the B&O tax rate applied to service industries ($170 million).  

The Senate measure also includes the Working Families Tax Rebate (WFTR) -  a rebate program for lower-and moderate-income families based on the Federal EITC.  (For more information on the WFTR, click here.)  Along with a number of smaller actions, the Senate proposal would also extend the sales tax to include coal used at coal-fired electricity facilities.

House Proposal

Overall, the House approach would generate about $682 million in new revenues in FY2011.  The current House proposal relies heavily on limiting or eliminating tax exemptions and preferences such as capping a deduction claimed by banks on interest earnings from first home mortgages. It would also extend the sales tax to include candy and custom software, and would repeal the exemption for nonresident shoppers.  The measure does not include any general sales tax or B&O tax increases -- a key difference with the Senate proposal.

The House version of SB 6143 largely resembles HB 3191 -- the revenue package that was passed by the House Finance Committee on March 2nd.  The new proposal contains a few important differences with HB 3191, however. Unlike the earlier version, the current House proposal would not limit the B&O exemption on investment earnings from nonfinancial firms.  Nor would it extend the sales tax to janitorial services.  While the new version partially compensates for these omissions by expanding the scope of services subject to the B&O surtax, the current House proposal would raise about $70 million less than the earlier measure.

The Senate Ways & Means Committee passed a revenue package today that would raise nearly $900 million to fund education and health care. While the overall level of the package is similar to the version proposed on February 23rd, there are differences in the components.

Major pieces of the previous proposal not included in the version passed by the committee today include:

1. Repealing the sales tax exemption for trade-ins;
2. Capping the B&O 1st mortgage deduction at $100 million; and
3. Limiting the sales tax exemption for fertilizer to organic fertilizers.

These three provisions were relied upon in the previous version to raise about $168 million.

The package passed by the committee today contains new provisions. The most significant include:

1. A temporary B&O surcharge on service businesses;
2. Extending the sales tax to bottled water.

The B&O surcharge would temporarily raise the B&O on those service business currently taxed at 1.5 percent to 1.75 percent. The proposal would also double the small business tax credit for businesses subject to the surcharge. On net, it would raise about $171 million. (The House revenue package raises $22 million by raising the B&O on a much smaller subset of businesses.)

The proposal also follows the House’s lead by extending the sales tax to water, raising $30 million.

In total, under the Senate proposal, revenue increases would account for only 10 percent of the total solution to the FY2009-FY2011 $11.8 billion shortfall (see below).

The interactive graph below allows you to look up the number of people currently enrolled in Basic Health in your county, the number of people that have been disenrolled since January 2009, and the number of people on the Basic Health waiting list. Simply select your county (or "statewide") from the drop down selector.

Basic Health is the only source of affordable health insurance for 70,000 Washingtonians, most of whom are working but have no access to employer-provided care. While Basic Health is a core part of the state's health care safety net, it falls far short of the need. Over the last year, budget cuts have eliminated coverage for over 35,000 people while a sour economy has dramatically increased the need for the program. As a result, the waiting list for Basic Health has grown by over 90,000 people and is now larger than total enrollment.

While the Governor's Book 2, the Senate, and the House Ways and Means budgets all preserve Basic Health, they all rely on passing revenue increases (and federal funding in the case of the House). Without moving quickly on revenue, Basic Health remains in jeopardy. And none of the proposals deal with the enormous and growing unmet need for the program.

Two weeks ago, Governor Gregoire released a revenue proposal that includes new taxes on bottled water and carbonated beverages.   The Governor’s proposal combines a tax on bottled water of one cent per ounce at wholesale with a tax on carbonated beverages at five cents per 12 ounces at wholesale.  These taxes would generate about $230 million in badly needed resources this year. They would also aid other policy objectives. However, the Budget & Policy Center recommends a slightly different tax structure for these products – one that would do even more to promote public and environmental health.

The Hidden Costs of Packaged Beverages

Under current market conditions, the prices consumers pay for packaged beverages like bottled water, soda, and other beverages do not reflect their total costs.  

Bottled water and other packaged beverages take a heavy toll on the environment.  Empty bottles and containers wind up in landfills or as litter, clogging our streams, rivers, and other natural habitats.  In addition, a great deal of energy is expended to create and transport packaged beverages to local stores and markets.  As a result, canned and bottled drinks significantly contribute to global warming.1  

Similarly, sugar-sweetened beverages like soda are a major contributor to the growing obesity epidemic, particularly in children.  The New England Journal of Medicine recently reported that, “a prospective study involving middle-school students over the course of two academic years showed that the risk of becoming obese increased by 60% for every additional sugar-sweetened beverage per day.”2  

 Excise taxes on tobacco products and alcohol are designed to reflect costs associated with damaged public health.  But no such taxes are currently levied on packaged or sugary beverages, even though they too damage the environment and public health.

Using Excise Taxes to Improve Public & Environmental Health

The Governor’s proposed excise taxes on bottled water and carbonated beverages are a good step toward addressing two important objectives: Generating additional resources needed to maintain services in the short-run; and encouraging consumers to make healthier and more environmentally-conscious long-term purchasing decisions.  However, BPC offers a slightly different approach to taxing these beverages.  The elements of this approach include:

1. Extending the sales tax to include bottled water;
2. Enacting a $0.0025 (1/4 cent) per ounce environmental tax on all packaged beverages; and
3. Enacting an additional $0.005 (1/2 cent) per ounce excise tax on sugar-sweetened beverages.

Extending the sales tax to purchases of bottled water would make the sales tax a more adequate and equitable instrument for financing public services.  While bottled water is currently exempt from the state sales tax, carbonated beverages are not.  Extending the sales tax to bottled water would ensure that consumers of packaged beverages are treated equally under the tax, irrespective of their preferences.  This action is included in House Bill 3191, a revenue proposal currently under consideration in the State House of Representatives.3

Enacting a new environmental excise tax on a broad array of packaged beverages (bottled water, soda, juice, etc.) would ensure that the price of consumers pay for these products reflects their total costs – including costs associated with environmental damage.  The Governor’s approach would also promote a healthier environment.  But her proposal would only levy taxes on bottled water and carbonated beverages.  Other environmentally damaging packaged beverages such as flavored teas, sports drinks, juice products, and others would escape taxation under the Governor’s proposal.

Finally, enacting $0.005 per ounce sugar-sweetened beverage tax on top of an environmental excise tax would help fight obesity by providing consumers with an incentive to avoid highly caloric, sugary drinks.  A key difference between a sugar-sweetened beverage tax and the Governor’s proposed tax on carbonated beverages lies in how the taxes would apply to diet beverages. Under the Governor’s proposal, diet and sugar-sweetened would be taxed at the same rate.  While this approach would encourage consumers to reduce their overall consumption of carbonated beverages, a tax that targets only sugar-sweetened beverages could be more effective at encouraging healthy purchasing habits.  Under a sugar-sweetened beverage tax, consumers of sugar-laden drinks would have a monetary incentive to switch to healthier diet drinks not subject to the tax.  (Diet drinks would still be subject to the environmental excise tax discussed above.) 

Compared to the Governor’s proposal, the structure above would generate even more resources and would provide consumers with a stronger incentive to make healthy purchasing choices in the long run.  A rough estimate based on data from DOR and Yale University’s Rudd Center for Food Policy and Obesity, suggests this approach would generate about $400 million in new revenues in the coming fiscal year.

1. Eric Sorensen, Seven Wonders for a Cool Planet: Everyday Things to Help Solve Global Warming, The Sightline Institute.

2. The New England Journal of Medicine, “The Public Health and Economic Benefits of Taxing Sugar-Based Beverages,” September 11, 2009.

3.It is important to note that extending the sales tax to bottled water would require a change in the Streamlined Sales and Use Tax Agreement (SSUTA).  The SSUTA is a multi-state compact designed to reduce compliance costs for businesses by providing a uniform set of sales tax base definitions across participating states.  For more information, visit www.streamlinedsalestax.org.

Note: This post has been updated to include information on higher education, support for families and children and for P-12 education.

The tables below make side-by-side comparisons between the four budget proposals--the Governor's Book One and Book Two and the proposals passed by the House Ways & Means Committee and the Senate. We'll continue to post tables for other areas of the budget.

Health care access and affordability

Care for people with long term health needs

Economic security

Support families and protect children

High-quality education (P-12)

Higher education

Each present a very different view of how to deal with the current economic and fiscal crisis. The Governor's Book One budget demonstrates the depth of the budget cuts we will face if we do not take a balanced approach, including revenue. The other three budgets avoid some of the deepest cuts--such as eliminating affordable health insurance coverage for 65,000 people--by raising modest revenue.

However, deep cuts remain even in the budgets that assume revenue increases. Both the Governor's Book 2 and the House budget will eliminate child care assistance for thousands of lower income working families. Both the Governor's Book 2 and the Senate budget make deep cuts in assistance for people who are temporarily unable to work due to disability. All three budgets suspend voter-approved funding for improving student achievement and make deep cuts in higher education.

Here's a side-by-side comparison of the three revenue plans proposed by the Governor, Senate Ways and Means Chair, and House Finance Chair.

The House proposal today ($758 million) is roughly the same size as what the Governor proposed previously ($759 million).  In total, Senate would raise the most money ($918 million).

All three would help preserve important education and health care programs, but to varying degrees, all three would still require deep cuts that will impact Washingtonians. For more details on the cuts contained in each proposal, see here.

As we've noted, even under the Senate proposal, revenue would only account for 10 percent of the total solution to the $11.8 billion deficit.

Click here for a printable version of the table.