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Don’t Let the Talking Points Fool You: Senate Republicans’ Budget Proposal Is a House of Cards

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
The state budget is not just a statement of our values. It is also a foundation and framework for delivering the everyday services that benefit us all – like ensuring everyone has the opportunity to thrive, making sure we have clean water to drink and air to breathe, and keeping school buses and fire trucks running each day. Republican leaders in the state Senate have proposed a two-year spending plan that would profoundly weaken that framework by slashing vital investments that help Washington’s communities and people prosper – and by failing to come up with the revenue needed to fund schools and other key priorities. Their plan would turn the state budget into a house of cards, at risk of collapsing at the first sign of a slowdown in the economy. And the human cost in terms of the well-being of Washingtonians would be staggering.
 

Building a responsible and sustainable budget requires lawmakers to take steps toward fixing Washington’s upside-down tax code, which taxes middle- and lower-income households at significantly higher rates than those at the very top of the income scale. Yet the proposal from Republican leaders in the state Senate offers no meaningful reforms to the state’s flawed tax code.

Far from raising the substantial new revenue needed to fully fund education and protect the programs that help Washingtonians who are struggling to make ends meet, their “levy swap” proposal would actually reduce overall property tax resources for schools in our state. It would also be deeply inequitable, raising taxes on millions of lower- and middle-income homeowners and renters in the Puget Sound region.

What’s more, Senate Republicans actually propose creating or extending nine tax breaks, totaling $13.5 million in giveaways in the 2017-2019 budget cycle.

Rather than working to flip our tax code right-side up and improve our quality of life, Senate Republican leaders propose a state budget that nominally balances, but only with the help of unsustainable gimmicks, such as:

  • Forcing future lawmakers to make deep cuts to non-K-12 investments – such as health care, child care, job training, safe communities, and other important investments – by dedicating all future revenue growth to maintaining K-12 spending and property tax cuts.
  • Draining $700 million in reserve savings from our state’s rainy day fund, the budget stabilization account, which is an essential backstop that prevents severe disruptions in funding for our most important services during recessions and other state emergencies. And Senate Republican leaders offer no plan to replenish it.
  • Sweeping $63 million from Temporary Assistance for Needy Families (TANF) to pay for other unrelated budget items. TANF is an essential resource for families trying to get back on their feet. This proposal would take much-needed resources out of programs that help the people who have the hardest time making ends meet and dole those resources out for other investments. 

As shown in the chart below, the budget proposal from Senate Republicans would boost state funding for education, but at the expense of essential investments in Washingtonians’ economic security and in community development and trust. Within those categories are programs that are essential to many Washingtonians – programs like TANF, Housing and Essential Needs, state retirement contributions for first responders, and the programs we all count on to protect our legal rights. Thousands of Washingtonians’ lives would be severely and negatively affected by these cuts – and in many cases, they are the people who are already struggling just to get by every day.

(Click on graphic to see enlarged version.)

Senate budget 2017 graphic

 

 

 

 

 

 

 

 

 

 

 

 

The proposed changes to funding, according to the major value areas laid out in the Budget & Policy Center’s Progress Index framework, are detailed in the sections that follow.

EDUCATION

The McCleary Supreme Court case’s school funding mandate has been the most prominent issue in the legislative session so far – and for good reason. Excellent schools are one of the foundations of a thriving economy, and the legislature is facing a deadline for fully funding those schools. While the Senate’s proposed budget increases K-12 education funding by $1.8 billion, or by 7 percent, it makes huge cuts to early learning – slashing $36 million from child care programs. This is because the Senate doesn’t actually raise the necessary new revenue to fund K-12 education, despite the speaking points that make it sound otherwise. The proposals include:

  • Undermining the foundations for high-quality early learning, especially for low-income children and families. The Senate plan would limit access to Washington’s Early Childhood Education and Assistance Program – our state’s preschool program that serves families living in poverty – by eliminating 3 year olds from the program and not adding any new slots over the next two years despite 23,000 unserved eligible children in the state. It also guts Early Achievers, our state’s key resource for early learning professionals to access coaching and tools to provide high-quality early care.
  • Repealing voter-approved education initiatives. The budget would repeal initiatives 1351 and 732, measures passed by Washington voters to reduce class sizes and fund teacher cost-of-living raises. Refusing to implement voter-approved teacher cost-of-living raises is out of step with the goal of fully funding K-12 education.
  • Overhauling the current school funding formula to change the way state disburses money to schools throughout the state. Even though the plan would require sizeable and commendable new investments in K-12 schools, the Senate has proposed to pay for its plan with a levy swap proposal that would actually reduce property tax resources for schools compared to the current system.
  • Prioritizing STEM and medical education over the needs of struggling working families. The Senate’s budget provides some increases in the higher education budget. But these investments would come at the expense of the lowest-income working families: $47 million is ransacked from WorkFirst – Washington’s job training and assistance program for families with young children who are trying to get back on their feet – to pay for them. Lawmakers should not be pitting working the needs of families against those of people seeking higher education opportunities.

ECONOMIC SECURITY

A community with a thriving economy fosters great jobs and supports working families, ensures stable and healthy housing for everyone, and provides economic opportunity for Washingtonians to meet their basic needs. The Senate Republicans’ proposal eviscerates the parts of our budget that make these values a reality for residents, particularly targeting those programs that relieve hardship among the lowest-income working people. This budget would cut funding for economic security by $132 million, a staggering 13 percent decrease from the amount necessary to maintain current services. Proposed changes include:

  • Cutting assistance for people with disabilities at risk of homelessness. This proposal would do away with the Housing and Essential Needs program that provides housing-related assistance to people unable to work because of disabilities. It replaces it with a new program that would only be available to people with dependent children, essentially eliminating services for seniors and single adults and all but guaranteeing an increase in homelessness. It also cuts another crucial program for people with disabilities – the Aged, Blind, and Disabled program – by limiting the time people can be on it to 36 months.
  • Ransacking resources from job training programs to plug holes in other parts of the budget. The proposal moves $63 million out of the WorkFirst program and uses the money for other unrelated purposes, such as replacing funding cuts to colleges and universities.
  • Pushing people off basic assistance and making it harder for new people to get on. TANF provides basic supports to families with children who are financially struggling. The Senate Republican budget would cut people off the program who have a disability, or people who are needed at home to care for a family member with a disability. It would also require new applicants to prove that they have been unable to find a job before applying for benefits, but it fails to provide necessary help to applicants in their efforts, such as providing for child care while parents are job-hunting. When other states have implemented similar procedural hurdles for families, they saw increases in hardship and spikes in homelessness.
  • Limiting options for working families to access child care so parents can go to work. The plan makes Working Connections Child Care, Washington’s largest child care subsidy program for families with low incomes, more difficult to access by changing eligibility requirements, capping enrollment, and creating more red tape for participants.

HEALTHY PEOPLE & ENVIRONMENT

Washingtonians enjoy clean air and water and an excellent health care system that supports the wellbeing of a vast majority of Washington’s residents. The state budget provides for those benefits by investing in public health clinics, climate protection measures, and mental health services. The proposal would increase funding in this area by only $75 million, a less-than-1-percent boost. The proposals include:

  • Failing to provide adequate investments in mental health services. Compared to the budget proposed by Governor Inslee, this budget falls short on the immediate investments to address safety and staffing issues at Western State Hospital – in fact, this proposal would close down two entire wards – and fails to make the investments needed to build a strong community system into the future.
  • Missing opportunities to invest in public health, and to safeguard against proposed federal cuts. As the federal government considers cutting back federal support for health care, it is alarming to see leaders in our state Senate propose underinvestment in our public health system and health benefits for state workers. The budget also threatens the health insurance coverage for tens of thousands of home care workers who support our vulnerable seniors and people with disabilities.
  • Threatening health care innovation reforms that are part of the Washington State Medicaid Transformation Project. This initiative is designed to help Washingtonians achieve better health outcomes, to reward high-quality care, and to curb health care costs in the state Medicaid program. The Senate’s budget would create a roadblock to continuing this initiative and to receiving the $1.5 billion in federal funds it was slated to receive.
  • Reducing investments in programs that are protecting our state’s air and water. The proposal fails to provide resources to adequately sustain work to clean Puget Sound, a clean-up project that is also facing a federal funding threat from the Trump administration’s proposed budget. And no state funding is provided to implement the Clean Air Rule, an effort by Inslee’s administration to reduce carbon pollution in our state. The proposal would also cut or fail to fund investments in restoring salmon and protecting habitat.

COMMUNITY DEVELOPMENT & TRUST

Good quality of life for Washingtonians includes safe communities to live in, access to beautiful parks and historical spaces, an open government that runs smoothly and efficiently, and the assurance of transparent and fair elections. This budget would undermine community development and trust by cutting current programs by $107 million, a 1.8 percent decrease from maintenance levels. The major changes include:

  • Failing to invest in tens of thousands of front-line workers, like nurses, home care workers, child care workers, highway maintenance workers, and other public employees by rejecting collective bargaining agreements already negotiated (with the exception of corrections workers and Washington State Patrol troopers and lieutenants). It also exacerbates ongoing issues with recruitment and retention throughout state government by mandating indiscriminate layoffs at state agencies. This would make it nearly impossible for our state agencies to deliver high-quality, timely services to the public.
  • Reducing resources for those who serve to uphold the law for all Washingtonians. Under this budget, state agencies that work to protect the legal rights of everyday citizens would see huge cuts. The Office of Civil Legal Aid would be cut by $10 million (36 percent) and the Office of the Attorney General, which represents our state in legal matters that benefit us all, such as lawsuits against the federal government, would be cut by $20 million (78 percent). The cuts to the Office of the Attorney General in ongoing funding would be temporarily replaced by shifting one-time resources from a lawsuit.
  • Reducing state contributions to retirement systems for first responders. Contributions to retirement systems are reduced by $159 million (a 74 percent reduction from maintenance levels), largely because of a $109 million cut to retirement contributions for police and firefighters.

The state Senate Republican leaders take a page out of the book of Republicans in the other Washington – making deep cuts to the very investments that people throughout our state rely on, and across every area that we use to measure progress. It would be particularly stark for the people who are struggling to make ends meet. And it also includes a host of irresponsible and unsustainable financial stunts that add up to a budget that would collapse under its own weight.

A solid budget framework is the foundation for a strong economic future for Washington and its people. The Senate Republicans should rework their budget with an eye toward strengthening our state’s communities and the foundations that support them.

Lawmakers Must Protect the Wellbeing of Children, Families, and People with Disabilities

Posted by Julie Watts at Mar 23, 2017 01:50 PM |

Senate Republicans have revealed their new budget plan to be a house of cards – a budget with a weak framework that threatens the foundations of a strong economy. The deep cuts they propose to state-funded programs that protect the wellbeing of Washingtonians would hurt our state economy and be devastating to children, families, and people with disabilities. 

This proposal from state Senate Republicans adds insult to injury in the context of the federal policy proposals we’re seeing out of Washington, D.C. President Trump’s budget proposal would leave our state on the hook for coming up with an additional $458.6 million for the next biennium. And Congressional Republicans’ plan to repeal the Affordable Care Act would result in up to $2.5 billion in proposed cuts to our state’s health care.

Unfortunately, the Washington state Senate Republicans’ budget proposal, like President Trump’s, cuts programs that help hardworking people and support those who have been left behind in our economy. If lawmakers care about having thriving communities in our state, they should reject this proposal and instead look at investing in building a strong and vibrant middle class. When lawmakers ensure everyone in our state can pay for necessities like food on their table and a roof over their heads, our economy and our communities are stronger.

Washingtonians with Low Wages Would Have a Greater Likelihood of Falling Behind

The budget would cut $63 million from WorkFirst – Washington’s assistance and job training program for families striving to move out of poverty. The Senate Republicans would account for $17 million of that funding by forcing out of the program parents who have disabilities, people who are required to be at home to care for disabled children or adults, and who are over the age of 55. Studies show that when this group of people leave the program, they have significant barriers to working and seldom get additional help.

The WorkFirst program is funded by both federal and state dollars that are supposed to be used to help low-income parents and their children. The Senate budget proposal would take $47 million of the money they cut from the program to backfill cuts they’re proposing to higher education. The remaining $16 million would be moved into the state’s general budget to pay for other programs that don’t provide for low-income families. 

What’s more, the Senate budget proposal would put a harmful provision in place that would require people applying for WorkFirst to demonstrate they have been engaged in a job search before they can apply for public assistance, without providing them with any child care or other work support assistance to engage in that search. When other states have implemented similar procedural hurdles for families, they saw an increase in hardship and spikes in homelessness.

In addition, the Senate Republican budget rejects the negotiated collective bargaining agreements for most public sector workers and fails to invest in tens of thousands of frequently low-wage front-line service workers like child care workers, home care workers, employees at state hospitals, and social workers. Our research shows that investing in these workers is not only good for families and state services, but that it also provides a boost to local economies across Washington state.

The Wellbeing of Washington’s Families and Kids Are at Risk

Washington’s Working Connections Child Care (WCCC) is a key program for ensuring Washington kids have a solid foundation for early learning and care. Washington families pay, on average, 36 percent of their incomes in child care. Finding affordable child care is especially challenging for parents with lower incomes. WCCC helps them with the costs of child care so they can go to work. The Senate Republican budget would freeze enrollment in WCCC at 31,000 kids. This would force many families onto a waiting list, given that the state has projected enrollment will reach 33,000 as early as this spring.

The budget proposal would also make it harder for families to keep their child care while looking for work if they lose a job and have trouble finding a new one. It also creates more red tape by requiring participants to pursue child support enforcement in order to receive the subsidy.

It is important to note, however, that the budget proposal does offer one good recommendation for saving money on the WCCC program. It would extend the amount of time one of the parents in a family receiving WorkFirst could stay at home with their child, from when the child is age 1 to when they are age 2. Lawmakers expect this would save $19.8 million in WCCC. Of course, while this change is commendable, the money saved should be kept in the WCCC budget rather than being funneled from that program to plug holes in other parts of the budget.

More Washingtonians Would Be in Danger of Poverty or Homelessness

Although the Senate Republicans assert in their budget that they make investments to protect people with disabilities, they actually propose harmful cuts to people with disabilities who are at risk of homelessness. The budget would cut $49 million from the Housing and Essential Needs program, which provides housing-related assistance for people unable to work because of disabilities.

The budget would also cut $3.7 million from the Aged, Blind, and Disabled program by applying a 36-month limit for people to be in the program. The intention of the program is to provide temporary assistance for people while they apply for federal disability benefits. However, the application process often takes more than three years, and the state would leave people to fend for themselves until their federal benefits come through.

The Senate budget would additionally cut $5.4 million from the State Food Assistance Program, which provides food stamps to legal immigrants not eligible for the federal Supplemental Nutrition Assistance Program. It also eliminates several housing and shelter programs including Young Adult Shelters, Homeless Student Stability Program, and the Young Adult Housing Program.

The Senate Republican plan places the entire state on shaky ground. The deep cuts to the many programs that help our communities thrive and secure the wellbeing of all of our residents are simply unacceptable – especially when considering the fact that they are in addition to potential cuts we could see to federal funding for key state programs. We cannot make progress as a state when our legislators allow members of our communities to fall behind. The state legislature can and should do better for the future of our state and its people.

Tax Reform Can’t Wait, New Revenue Forecast Shows

Posted by Kelli Smith at Mar 16, 2017 03:30 PM |
Filed under: State Budget, State Revenue
By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst 
 

All too often, certain lawmakers in Washington state who are ideologically opposed to creating a more just and sustainable tax system have leaned on positive revenue growth predictions to justify avoiding their obligation to fund schools and other investments that benefit all Washingtonians. Today’s projected uptick in future state tax resources is negligible compared to what we actually need to build thriving communities in every corner of our state in the years ahead. These projections should not be an excuse for these lawmakers to continue kicking their responsibility to fully fund schools down the road.

State tax revenues are now projected to come in $313 million higher than previously anticipated in the coming 2017-2019 budget cycle, according to the latest forecast from the state Economic and Revenue Forecast Council. But going beyond the headline, a deeper analysis shows that, without action to fix Washington’s flawed, inequitable tax code – by taking important steps that include ending the tax break on capital gains and reforming our property tax system – available resources will remain at untenable recessionary levels.

As the graph below shows, total state tax revenues actually declined by 15 percent between 2001 and 2016, after adjustment for economic growth. They dropped significantly during the last recession and have remained nearly flat since then. And revenues are projected to decline by an additional 7 percent from current levels by 2021.

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Revenue_Collections_2001_to_2016

Today’s small increase in projected tax collections for the coming years represents less than 1 percent of the amount of funding needed simply to maintain our existing commitments to early childhood education, clean air and water, public safety, and other priorities. The increase is insignificant relative to the billions of additional dollars in funding required by the state Supreme Court to ensure Washington’s kids get the high-quality schools they deserve.

It’s worth noting that these state revenue projections will also not offer any meaningful buffer against the extreme cuts to federal funding proposed by the Trump administration that would devastate many programs here in our state.  

The truth is that today’s forecast means lawmakers won’t have anywhere near the resources needed to help our state’s communities thrive for generations to come. Those resources can only be generated if lawmakers show the boldness of vision required to finally fix Washington state’s tax code.

Washington Should Invest in Thriving Communities Instead of Paying Out Special Interest Tax Breaks

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
To support the foundations that make ours one of the best states to call home, Washington state’s tax code should reflect who we are – a state known for innovation and a commitment to creating thriving communities for everyone. But right now, our state tax code misrepresents our values. It is riddled with nearly 700 tax breaks. And while not all of them are bad, many of them benefit only the most powerful and do little to strengthen our economy.
 

Wasteful tax breaks are depriving our communities of billions of dollars that are instead being funneled to large corporations and special interests that have manipulated the tax code in their favor. Those special interests are receiving money that our state could be collecting and investing in public priorities that benefit us all, like schools, utilities, and emergency services. 

To support the well-being of our state and its people, lawmakers must take long-overdue steps toward cleaning up our tax code so that it serves all Washingtonians and secures revenue to fund important state programs. They can do that by getting rid of budget-busting tax breaks. 

The Budget & Policy Center’s revenue reform plan, Accountable Washington, proposes closing or narrowing 21 of the most wasteful and outdated tax breaks in the code, which would inject $1.1 billion into our communities in the 2017-2019 biennium. They are detailed below.

Narrow the tax break for big oil extractors. Fuel used by manufacturers or extractors in the process of manufacturing or extracting at the same plant is exempt from the use tax. This tax break was originally enacted to benefit the timber industry, but today, it primarily benefits the oil industry. Curtailing this exemption would end the tax break for all fuel extractors, except on fuel from wood byproducts, also known as “hog fuel.”  

Repeal the sales tax break for nonresident shoppers. Residents of states where there is no or low sales tax – primarily Oregon, Alaska, Montana, and certain Canadian provinces – may make purchases in Washington without paying the sales tax. This exemption was originally enacted to make Washington’s border businesses competitive with neighboring states. However, the majority of exempt purchases from qualifying nonresidents occur in King County, which isn’t a border county. That suggests this break is wasted on tourists who would shop in Washington with or without it. 

Apply the sales tax to consumer services. Washington’s sales tax mostly applies to tangible retail goods, such as cars and appliances. It also applies to many “nondurable” goods such as toothpaste and other hygiene products. That worked pretty well back in the 1930s when consumers spent most of their incomes on these kinds of products. But, as the chart below shows, consumers today spend the majority of their income on services not covered by the sales tax. It makes sense to modernize our tax code to reflect this economic reality. Applying the sales tax to consumer services, such as spa treatments, financial advice, and cable and satellite TV packages would accomplish that. 

(Click on graphic to see enlarged version.)

 2017_03_14_consumption_chart

Close the sales tax break on bottled water. Our state’s sales tax applied to bottled water until 2008, when Washington joined a multi-state effort to conform to a single set of sales tax standards, which excluded bottled water. Since then, this exemption has left millions of dollars on the table each year. Not to mention the negative effects on the environment: Not only does packaging and transporting bottled water contribute to global warming, but empty plastic bottles are also notorious for filling landfills and clogging waterways. Policymakers can reapply the sales tax to most purchases of bottled water while ensuring it remains untaxed for people who don’t have access to potable water.

Close the sales tax break on candy and gum. Washington state has a broad-based sales tax. While there are valid sales tax exemptions for some consumer goods, including many grocery items, there is no compelling economic reason why candy, gum, and baked confections should have a tax exemption. Applying the sales tax to these items would generate significant new resources and make the sales tax more broad and sustainable in the long run. 

Eliminate a business tax break for large online retailers. Retailers that have employees and properties located in Washington state pay business & occupation (B&O) taxes on the goods they sell to Washingtonians. However, large online retailers with no employees or offices located in Washington don’t pay any B&O taxes – even though they sell millions of dollars in goods to customers located here. This loophole can be closed by adopting an “economic nexus” approach for the B&O tax. Under this rule, any business that makes at least one quarter of its total sales to customers in Washington state, or that has at least $267,000 in sales here, would be required to pay B&O taxes on their in-state activities. 

Narrow the tax break for trade-in vehicles valued over $10,000. Under current law, the full value of a vehicle trade-in to a dealership is exempted from the state sales tax. We propose limiting this exemption to the first $10,000 of trade-in value. The Citizen Commission for Performance of Tax Preferences notes that this tax break doesn’t stimulate enough additional sales to replace the lost sales tax revenue. Further, the average vehicle traded in at a dealership is valued at $7,500, which means many trade-ins would remain exempt under the proposed $10,000 threshold.  

Eliminate the preferential tax rate for prescription drug resellers. Businesses that warehouse and resell prescription drugs pay a B&O rate that is less than a third of the standard rate for wholesaling. Even though this preference was passed to lure prescription drug wholesalers to relocate to our state, the preference is now available to all drug resellers who do business here, including those operating out-of-state warehouses. This preference no longer serves any purpose except to provide giveaways to prescription drug companies. 

Close the public utility tax break for interstate trucking and rail hauls. Transportation businesses that begin or end their trip outside of Washington state are not taxed on any of their income generated from activities here. Repealing this exemption would subject such businesses to the public utility tax for income received while in the state. 

Eliminate B&O tax breaks that no longer serve us, including for industries such as international investment management services and banking facilities, travel arrangement services like those provided online, and soda sellers. These industries get a break on their B&O taxes even though there’s little evidence that they benefit state or local economies.

The full list of tax breaks we propose to narrow or close can be found in the table below. 

(Click on graphic to see enlarged version.)

Tax Breaks Table

When our state gives away money to big oil, international investment banking companies, and prescription drug resellers, it can’t use those dollars to invest in the things that benefit us all. It’s time for lawmakers to clean up these wasteful and outdated tax breaks and invest those resources into the things that provide the foundations for thriving communities – from schools to public health programs, and from parks to walkable sidewalks.

Senate Republicans' Plan Doesn't Amply Fund Schools, Puts Other Programs at Risk

The Senate Republicans' new plan to fund K-12 public schools continues to work within a framework that doesn’t raise additional revenue – a strategy that has proven ineffective at serving Washington's kids and that could force cuts to other important investments. To pay for the basics, including keeping excellent teachers and staff in our public schools, the legislature must inject more resources into schools than they have in recent years. Any plan to improve our schools must include additional new revenue, as well as a strong focus on equity, sustainability, and adequacy.

The Senate’s plan, called the Education Equality Act, features as its major funding source a new Local Effort Levy – basically, an increase to the statewide property tax of $1.80 per $1,000 of assessed value. As details about the plan emerge, however, it appears that the plan does not actually raise additional dollars for schools. That’s because the proposed statewide property tax increase is coupled with cuts to local property tax levies that currently fund a significant portion of basic education costs. As we’ve said in the past, levy swaps like this are schemes that change the source of the money flowing to schools but don’t actually make new investments in Washington’s kids.

As it is structured, the plan could deepen the shortfall in school funding because the plan does not pay for itself. It leaves a $1.4 billion hole in the 2019-2021 budget, for which its authors have yet to identify a source of funding. Promising to pay for education without identifying a funding source is a prescription for damaging cuts throughout the rest of the budget. And while the plan would dedicate future revenue growth to funding basic education, it would use any revenue growth in addition to the dedicated funds to decrease the new Local Effort Levy to a rate of $1.25. In short, the proposal is not only short on revenue now, but it is also designed to restrict revenue growth for schools and other public investments in the future.  

There is certainly promise in raising additional school revenue through property tax reforms, as we have proposed. The Senate's plan would effectively nearly double the current state property tax rate. And it exempts the Local Effort Levy from the damaging 1 percent property tax levy growth limit, which is a positive step toward making the tax code more sustainable. But this plan should go further and get rid of the 1 percent levy growth limit altogether to allow property tax revenue to better keep up with the needs of our schools.

In addition, any reforms to the property tax should also include steps to fix our inequitable, upside-down tax code – in which Washingtonians with the lowest incomes pay seven times what the richest 1 percent pay in taxes as a share of income. The Senate's plan aims to more evenly distribute the tax code so that homeowners in every school district pay the same property tax rate, regardless of property values. But that doesn’t do enough to protect the thousands of lower- and middle-income homeowners and renters who would see higher property tax bills under the Senate proposal. The proposal should include a property tax safeguard rebate to ensure that property tax increases do not fall disproportionately on the shoulders of families who can’t afford it, no matter what part of the state they call home.

To learn more about the Senate Republicans' school funding plan, join our fiscal policy team for a Budget Beat webinar this Friday, February 3, at noon. And stay tuned for further analysis when more details about the fiscal impact of the plan become available. 

 

A Look at How the Governor’s Budget Invests in Progress

Posted by Kelli Smith at Dec 16, 2016 01:10 PM |
Filed under: State Budget, State Revenue
By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 

Washington state Governor Jay Inslee’s proposal for the upcoming 2017-2019 state budget would help move our state forward by improving health care services, funding great schools, investing in early learning, and taking big steps to make sure Washingtonians have clean air and water. His budget invests in progress for our state and its people, and that should be the aim of legislators when they gather in January 2017 to begin their work on crafting the state budget.

 

As we wrote previously, Inslee proposes to pay for much-needed investments in schools and in communities across Washington state with forward-thinking, equitable changes to the state’s tax code like a state capital gains tax. Ultimately, the revenue plan would generate $4.4 billion in new revenue in the coming two-year budget cycle. 

 

The chart below shows the new investments included in Inslee’s budget by the value areas included in our Progress Index framework. Major changes in each area are described below.

Click on image to enlarge.

2017_Gov_Budget_Change_From_Maintenance

Education

Education represents the largest area of new investment in the governor’s proposed budget. His proposal would increase funding in education by 15.3 percent ($3.7 billion). The bulk of new funding in this area would go to public K-12 schools and would increase base teacher salaries, reduce class sizes, and expand learning assistance and mentoring programs, among other things. Major changes to K-12 funding are detailed in our previous analysis. Other new investments in education include:

  • Making higher education more affordable: The proposal would keep tuition at universities, community colleges, and technical colleges at current levels – rather than allowing them to grow by up to 2.2 percent in the coming budget. It would also expand financial aid to an additional 14,000 aspiring students from families with low incomes.
  • Expanding opportunities for young kids to access high-quality early learning: The governor’s budget ensures that more than 2,700 more children have access to the Early Childhood Education Assistance Program (ECEAP). It would also provide state-funded early learning facilities with more of the resources they need to provide preschool education, and health and nutrition services.  

Healthy People and Environment

Inslee’s budget would increase investments that provide access to important health programs, protect public health, and keep our air clean and our water safe by 7.5 percent ($784 million). Major new investments in this area include:

  • Improving mental health services: In response to a federal lawsuit that found that conditions at Washington’s underfunded psychiatric hospitals are inadequate, the budget would add funding for additional staff and for other important changes to improve these hospitals and bring them into compliance. The budget would also make new investments in community mental health services.
  • Providing treatment to thousands of people living with hepatitis C: Nearly 6,000 people receiving health coverage through Medicaid would receive groundbreaking treatment to cure them of hepatitis C. Not only would increased access to treatment help stem the spread of hepatitis C, but it would also allow these individuals to lead healthier, more fulfilling lives.
  • Improving public health: The governor’s plan would provide a boost to local public health agencies to fight the spread of infectious diseases and to help communities remain healthy.
  • Fighting air pollution: Inslee’s carbon tax is designed to reduce carbon pollution – the major cause of global warming – in communities across the state. A large share of the revenues from the tax would be invested in clean energy infrastructure and technology needed to help Washington transition to a low-carbon economy. Inslee’s proposal would provide funding necessary to implement the Washington State Department of Ecology’s Clean Air Rule, which requires reductions in carbon emissions and other hazardous air pollutants.

Economic security

Investments that promote an economy in which all Washingtonians can meet their basic needs and have opportunities to remain stable during a personal financial crisis or economic downturn would be increased by 6.7 percent ($66 million). Major new investments in this area include:

  • Removing barriers for people who need assistance to keep and find a job: Families that participate in the Temporary Assistance for Needy Families program, which provides child care, job training, and cash assistance to help parents with lower incomes find a job, would get a 7.5 percent boost in cash assistance, increasing the average amount to $659 per month. Cash assistance for people with lower incomes who are seniors, vision-impaired, or who have a disability would also be increased to $400 per month from $197 per month. Arbitrary limits that currently prevent thousands of Washingtonians from accessing these services would be eliminated.
  • Improving access to child care for working parents: The budget would take important steps toward improving access for child care through Working Connections Child Care by making increased investments in child care services and in higher pay for providers to help retain great child care workers.
  • Expanding access to supports for those who can’t afford higher energy bills: The carbon tax proposed by the governor, which would help fund schools, transportation, and low-carbon energy infrastructure projects, would increase the price of gasoline, electricity, and natural gas for many Washingtonians. To offset costs for those who can’t afford a significant increase in their utility bills, the governor’s proposal would make the Low-Income Home Energy Assistance Program (LIHEAP) available to 29,500 households that don’t currently qualify to participate in the program. LIHEAP reduces utility bills for lower-income households.
  • Reducing homelessness: Temporary rent assistance for homeless families with children would be expanded under the proposal. Other services and housing programs for families and individuals would also be increased. 

Community Development & Trust

Investments that increase Washingtonians’ safety, enhance public spaces that we all enjoy, and foster trust in state government would be increased by 5 percent ($318 million). Notable new investments in this area include:

  • Improving the democratic process through free and fair elections: The governor’s budget invests in upgraded technology to improve the accuracy of the state’s voter database and guarantee reliable and accessible voter registration.
  • Increasing access to the legal process for Washingtonians without the means to pay for it: The governor’s budget includes investments to increase capacity in the Washington State Office of Civil Legal Aid, which oversees the provision of legal representation for residents with low incomes in matters such as child custody, housing, consumer fraud, and elder abuse. The budget also boosts funding for the Office of Public Defense, which manages the provision of legal representation to residents with low incomes in criminal matters. 
  • Improving public and community spaces and promoting outdoor recreation: The proposal invests in maintaining and streamlining public access to clean and beautiful state parks, increasing prevention measures to protect Washington’s historic structures and campgrounds, and promoting outdoor play and environmental education among Washington’s youth.

To be clear, there are aspects of the governor’s budget proposal that require further analysis. For example, how would his plan addresses systemic racism as well as chronic underfunding of services and infrastructure in communities of color across Washington state? We will be working with partner organizations to assess these and other issues in our analyses of the governor’s proposed budget and the legislature’s proposed budgets in the weeks and months ahead.

But the vision for Washington that the governor’s budget proposal represents is a powerful framework for building the kind of thriving communities we all want to see in our state. As lawmakers include their own priorities when they gather in the upcoming legislative session to build the 2017-2019 state budget, they should embrace the boldness of Gov. Inslee’s proposal.

And for the Budget & Policy Center’s suggestions on how lawmakers can go even further when it comes to cleaning up our tax code, read the “What Else Needs to Be Done” section in our analysis on the governor’s revenue proposal.  

 

Governor Proposes Bold Plan to Invest in Kids, Clean Up Tax Code

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
Great public schools are not only the key to providing Washington’s kids with an opportunity for a bright future; they are also the foundations of a prosperous state. Governor Inslee’s revenue proposal offers a clear vision of how to fulfill the Supreme Court’s McCleary school funding mandate in a way that builds solid economic groundwork for generations to come.

Inslee’s bold proposal would boost investments in schools by $3.9 billion in the coming 2017-2019 state budget. This proposal makes the right choice: to prioritize investing in Washington’s children now in order to strengthen our state’s communities and economy in the future.

Investing in Great Schools 

With regard to K-12 public schools, the proposal would not only finish the job on McCleary, but it would also make additional investments in creating world-class schools. For example, his plan aims to:

  • Invest in educators ($2.7 billion): The governor’s budget includes funding to provide competitive wages to recruit and retain teachers, administrators, and classified staff – which is the most significant item that remains to be funded under McCleary. The plan will bring beginning teacher and staff pay up over the next two school years. It creates a new salary allocation model that will compensate teachers and staff not just for years of experience and degrees earned, but also for meeting professional development goals. The budget also seeks to provide teachers with opportunities for training, mentoring, and career advancement as well as with improved health benefits. Further, it will invest in training opportunities to recruit more teachers who represent communities that are often underrepresented, in particular bilingual teachers.
  • Close the opportunity gap ($867 million): The governor’s proposal would take steps to ensure all kids have equal opportunities to thrive, including nearly half a billion dollars to staff new, smaller kindergarten through third-grade classrooms. Plus it includes targeted investments in social and emotional health supports for students, a learning assistance program that helps struggling students from families with low incomes, and individualized support for foster care youth. 

Making Progress Toward Cleaning Up the Tax Code 

To generate the additional resources needed to build a brighter future for all Washingtonians, Inslee proposes important steps toward cleaning up and rebalancing the state’s upside-down tax code – a tax code in which the people with the lowest incomes pay seven times more in taxes as a share of personal income than the richest 1 percent. These steps include:

  • Enacting a tax on high-end capital gains ($821 million): Capital gains, which are profits from the sale of corporate stocks and bonds and other financial assets, would be subject to a 7.9 percent tax. The first $25,000 ($50,000 for a married couple) in capital gains would be exempt from taxation. As we’ve written about extensively, capital gains are more heavily concentrated among the very richest households – which means the tax would almost exclusively affect only the richest 2 percent of Washingtonians. 
  • Eliminating six wasteful tax breaks ($320 million): The proposal would eliminate a sales tax exemption for cars valued at more than $10,000 when traded in to a dealership. (Only the portion valued at more than $10,000 would be subject to the tax.) A Real Estate Excise Tax exemption claimed by banks on properties sold at foreclosure would be eliminated. The sales tax would be extended to purchases of bottled water. (Bottled water sold to people who do not have access to potable water would remain exempt.) A sales tax exemption claimed by Oregonians and residents of other states or countries with low (or no) sales tax would be converted to a refund program in which individuals would have to apply for the exemption. A sales tax exemption claimed by oil refineries on fuel used to power their operations would be repealed. The business and occupation (B&O) tax would be applied to certain out-of-state retailers that avoid collecting sales taxes by exploiting a loophole in federal law. 
  • Resetting business tax rates on personal and professional services ($2.3 billion): In the mid-1990s, personal and professional services – such as cosmetic services, financial advice, music instruction, attorney services, and business consulting – were subject to a B&O tax rate of 2.5 percent. Policymakers have since reduced the rate to 1.5 percent, although it was briefly boosted to 1.8 percent during the Recession. Inslee would restore the rate to 2.5 percent, but would expand a tax credit for small businesses and raise the minimum amount of business income required to file B&O taxes to $100,000 per year. 
  • Enacting a new tax on carbon pollution ($1.1 billion): Carbon emissions – the major cause of global warming – from fossil fuel distributors and refineries, power companies, and energy intensive manufacturers would be subject to a new $25 per ton tax. About half of the revenue would be dedicated to schools; the other half would go to investments in clean energy, water infrastructure, transportation, and efforts to reduce costs to businesses and households with lower incomes.
  • Reducing property taxes for three-fourths of households and businesses statewide: About $250 million of the additional state tax resources from other parts of the governor’s proposal would be used to reduce local school district property taxes. Under the plan, residents living in 119 school districts (those with significant local property tax levies) would see their property taxes reduced. Even with these reductions, all school districts would receive significant overall increases in education funding. 

What Else Needs to Be Done 

While Inslee’s revenue reforms would make a dramatic step toward a better future for all Washingtonians, the governor and policymakers should also consider the following reforms to make even greater progress toward a more fair and sustainable state tax code: 

  • Create a more equitable and adequate property tax system: A law that arbitrarily restricts property tax revenue growth to 1 percent per year must be eliminated. In the current year, the result of this law is that more than $1.6 billion in resources that would otherwise be used to fund schools is being left on the table. The governor and policymakers should also consider a long overdue increase in the state property tax levy paired with new rebates to offset costs for middle- and lower-income homeowners and renters.
  • Fund the Working Families Tax Rebate (WFTR): Fully funding the WFTR, a Washington state version of the federal Earned Income Tax Credit, would reduce taxes for more than 400,000 hardworking families in Washington state. Doing so would also help alleviate the higher fuel and energy bills these households would experience under the proposed carbon tax. 
  • Apply a higher rate to the capital gains tax: Given the many investments needed to create a just and prosperous state, policymakers should consider generating more resources from the capital gains tax. Applying a rate of 9.9 percent – the highest rate applied to capital gains in Oregon – or higher would generate hundreds of millions of dollars in additional resources for schools and other priorities. 

We applaud the governor’s investments toward creating excellent schools that benefit our kids and thereby strengthen the future of our state for all of us. This proposal makes the kind of investments necessary to ensure that our kids are taught by qualified and engaged educators and that kids who need the most help have access to supports in and out of the classroom. The plan also prioritizes thriving communities by cleaning up the tax code and getting rid of wasteful tax breaks. When we invest in the foundations that benefit us all, we can help to create a better Washington.

Stay tuned for additional analysis about how the governor’s budget proposal as a whole would impact our communities. 

 
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Roxana_BMC_plenary_2016View the Budget Matters 2016 conference plenary, "What's at Stake in the 2017-2019 Budget: Funding McCleary and Beyond." Moderated by Ann Dornfeld of KUOW, the plenary features Nathan Gibbs-Bowling, the 2016 Washington State Teacher of the Year; Lew Moore of the Washington Research Council; Roxana Norouzi of OneAmerica; and Sen. Christine Rolfes. The plenary starts after an intro by Executive Director Misha Werschkul and an intro video by Gov. Inslee.