This week, we’re digging deeper into what $4.3 billion in cuts have already meant for our state’s priorities.

As a number of important decisions are made over the next few weeks, it will be important to remember how much we’ve already sharply reduced our priorities -- including state investments in maintaining our quality of life and future.

Next week, the Governor is expected to announce deep across the board budget cuts on top of what we’ve cut the last two years. In addition, voters in November will decide on a several ballot measures that could further reduce state resources and pile on even more budget cuts.

Today we look at what we’ve already cut from preserving:

Thriving communities

Public investments that maintain our state infrastructure and protect our natural resources create thriving communities. Public structures such as transportation, communications, justice, and the arts keep our state economy in motion, our neighborhoods safe, and our cultural life vibrant. To create thriving communities we will need to do more than address short-term needs. We will need thoughtful, long-term planning and sustainable use of resources.

Goals for the state budget that will help us achieve thriving communities include:

• Promoting balanced and sustainable economic growth;

• Protecting public safety and ensure equal justice; and

• Ensuring an efficient and transparent state government.

The budgets for agencies focused on these goals account for about 16 percent of the current NGF+FR* budget. In total, the budget for these goals has been reduced by $418 million (a 7.3 percent cut) in the current biennium (Figure 3B). The most significant cuts were in natural resource protection and public safety and justice, areas that are important to our quality of life.

Promoting balanced and sustainable economic growth

The current budget includes significant cuts in the state’s investment in natural resource protection, a key part of our efforts to promote balanced and sustainable economic growth. The NGF+FR* budget for natural resource agencies (not including the Departments of Ecology and Agriculture, which are considered under “Healthy People and Environment,” below) was reduced by $111 million (32 percent). $42 million of the total are cuts made to state parks that are offset with new revenue sources. Not including the cuts to state parks, total budget reductions are around 20 percent in this area.

These cuts include a 31.3 percent reduction to the budget for the Department of Fish and Wildlife, cuts that will directly affect the agency’s ability to manage wildlife, protect habitats, enforce laws that protect resources and endangered species, provide educational opportunities, and so on. Reductions to the Department of Natural Resources (14.9 percent) will likely affect forest management, natural area planning, and other key programs. (The Natural Resources budget also includes an $11.5 million increase in funding for emergency fire suppression.)

The Department of Community, Trade, and Economic Development was renamed and refocused as the Department of Commerce. The NGF+FR budget for the department was reduced by $55 million, (38 percent). However, this figure includes a number of general fund cuts that were offset by other sources of funding (such as the transfer of funding for the Homeless Family Shelter Program to the Home Security Fund) as well as a number of programs being transferred to other departments as part of the switch to Commerce (such as the transfer of the Emergency Food Program to the Department of Agriculture). There were, however, a number of significant cuts in programs that assist local government, provide important community services, and invest in economic development.

Protecting public safety and ensure equal justice

Budget cuts to public safety total $290 million (10.7 percent), including significant cuts to corrections and juvenile rehabilitation.

Juvenile Rehabilitation funding has been reduced by 13 percent ($30 million). Enhanced parole services for juvenile offenders convicted of crimes including manslaughter, robbery, and assault was eliminated. These services helped youth navigate issues with family, mental health, substance abuse, housing, and employment. Facilities, including the Maple Lane School and community transitional facilities, were closed. Other facilities will see significant staff reductions. Funding for juvenile courts was reduced.

NGF-FR* funding for the Department of Corrections was reduced by 10 percent ($190 million). Community supervision has been eliminated for many misdemeanant offenders. Programs designed to assist offenders’ reentry into society were scaled back. Sentencing policies have been altered and the use of home detention expanded. The budget also adopts recommendations to downsize and close certain correctional facilities.

The Governor is soon expected to make across-the-board cuts in response to the continuing recession. In addition, the passage of measures like I-1107 (which would repeal modest increases in non-essential items like candy, soda, bottled water and beer), or liquor privatization initiatives I-1100 and I-1105, would further imperil our ability to maintain thriving communities.

Further, I-1053 would allow a minority of legislators to cause gridlock and prevent our ability to take reasonable steps to support our communities.

Read the entire policy paper, "A Step Backward: The 2009-11 State Budget."

*This report focuses on the part of the state budget known as the “Near General Fund,” which in the current biennium includes the state General Fun and the Education Legacy Trust Fund. Also included is a newly created fund called the Washington Opportunity Pathways Account, which funds certain efforts in early learning and higher education. The combination of these funds is referred to here as the Near-General Fund plus Federal Recovery.

A number of decisions over the next several weeks will shape our state’s future.  First up are across the board budget cuts Gov. Gregoire is expected to announce next week. Then in November, voters will decide on a number of ballot measures that would further reduce state resources and force even deeper cuts.

It’s important to remember as we make these choices that additional cuts would come on top the $4.3 billion that’s already been slashed by the state over the last two years.

A post last week gave an overview of the damaging effects the cuts have already had on our state’s key priorities.

This week, we’ll dig deeper into each of those areas, beginning today with an examination of how the cuts thus far have impacted:

Education and opportunity

Let’s remember that broad access to education and opportunity is fundamental to the future of our state. Education opens doors to better job opportunities, higher wages, and greater job security. Success in today’s competitive, knowledge-based economy will require more than a basic education. Our children need schools that provide sophisticated, high-quality learning environments so they can graduate with the skills and knowledge to succeed in the global marketplace.

Goals for the state budget that will help us achieve education and opportunity include:

•    Investing in early learning;

•    Providing a high-quality education to all students;

•    Preparing all adults for meaningful careers; and

•    Cultivating opportunities for higher education.

 As shown in Figure 2A, the budgets for agencies focused on these goals account for just over half (51 percent) of the current NGF+FR budget.*  In total, the budget for these goals has been reduced by $2.2 billion (an 11.3 percent cut) in the current biennium (Figure 2B). These cuts will likely harm the quality of education for Washington’s students.

Invest in early learning

State investments in early learning have been reduced by $12 million (8.8 percent).  Aside from across-the board administrative cuts, reductions include those made to early learning apprenticeships, child care quality improvement specialists, and programs that provide support to parents, families, and caregivers.

Provide a high-quality education to all students

The NGF+FR* budget for K-12 education has been reduced by $1.6 billion (10.3 percent).

In 2000, voters passed Initiative 728, which established funding to help local school districts pay for specific quality improvements such as class size reduction, extended learning, early learning, and professional development. In the 2008-09 school year, schools were allocated about $458 per student for these efforts. In the 2009-10 school year, this amount was lowered to $131 per student before being zeroed out for 2010-11. In total, this means a reduction of $679 million.

Also in 2000, voters passed I-732, which provided a cost of living adjustment for education professionals. This spending has been eliminated for the current budget, a move that may diminish the state’s ability to attract and retain high quality educators. The total reduction equals $371 million.

While “basic education” funding is ostensibly protected by the state constitution, it was reduced by $375 million in the current biennium, primarily through pension rate adjustments.

A series of education reform efforts including programs to improve math and science learning, professional development, and others were suspended, eliminated or reduced, for a reduction of $98 million.

School districts with lower property wealth have a more difficult time raising sufficient school funding. A state program has been in place to equalize funding between rich and poor districts. Cuts in this area ($50 million) will have a disproportionate impact on those school districts least able to offset state cuts with local funding.

There were $11 million in other cuts in K-12 education.

Prepare all adults for meaningful careers and cultivate opportunities for higher education

The NGF+FR* budget for the state’s colleges and universities was cut by $588 million (15.2 percent). While cuts will be focused in non-instructional areas to the extent possible, there will be direct impacts on class sizes, course offerings, and student support services.

The cuts are partially offset by a $232 million increase in tuition, which is expected to increase tuition rates by 14 percent for four-year institutions and seven percent for community and technical colleges. An increase in financial aid funding was implemented to offset the increased tuition costs for lower income families.

$100 million in federal recovery funding was used to prevent even deeper reductions.

Even after these cuts, the lingering recession continues to jeopardize our investment in education. On top of the Governor’s across-the-board cuts, the passage of measures like I-1107 (which would repeal modest increases in non-essential items like candy, soda, bottled water and beer), or liquor privatization initiatives I-1100 and I-1105, would further imperil our state’s education system.

Further, I-1053 would allow a minority of legislators to cause gridlock and prevent our ability to take reasonable actions to educate our children.

Read the entire policy paper, "A Step Backward: The 2009-11 State Budget."

*This report focuses on the part of the state budget known as the “Near General Fund,” which in the current biennium includes the state General Fun and the Education Legacy Trust Fund. Also included is a newly created fund called the Washington Opportunity Pathways Account, which funds certain efforts in early learning and higher education. The combination of these funds is referred to here as the Near-General Fund plus Federal Recovery.

This afternoon, the Office of Financial Management (OFM) released fiscal impact estimates for all six of the citizen initiatives slated to appear on the November Ballot.  Their analyses show that four of these initiatives would likely reduce state resources in the coming years, greatly hampering our ability to maintain key public priorities like health care and education while the economy recovers.  Initiative 1098, on the other hand, would generate new resources for health care and education via a new tax on high incomes while lowering taxes for homeowners and small businesses. 

Initiatives shown to be harmful to public priorities include:

• Initiative 1082 (Net state impact indeterminate, but likely negative):  This measure would allow private insurers to sell industrial insurance policies (also known as Worker’s Compensation) in Washington State. For injured workers, industrial insurance covers the costs of medical care, missed time at work, and provides a pension for those who are unable to return to work as a result of a serious injury.  Under the current system, large employers are allowed to provide their own industrial insurance – that is, they “self-insure” – while most other employers purchase public, or “State Fund” insurance through the Department of Labor & Industries (L&I).  Due to a number of unknown factors, the net cost of I-1082 to the state is yet unclear.  However, the analysis from OFM identifies a range of potential costs – including lost premium payments from state employees, higher administrative and oversight costs for the Office of the Insurance Commissioner and L&I, legal costs associated with higher numbers of rejected injury claims, and others – which add up to $202 million over the next five years.  The analysis found that revenues from additional insurance premium taxes, business & occupation taxes, and fees paid by new private insurers would amount to only $61 million-75 million over the same period.
• Initiative 1100 (5-year cost to the state General Fund: $115 million-123 million):  Initiative 1100 would privatize the sale and distribution of liquor in Washington state, allowing hard liquor to be sold in grocery stores, convenience stores, and other retail outlets.    The Office of Financial Management estimates that I-1100 would cost the state some $51-57 million in the coming 2011-13 biennium due to lost liquor liter taxes and sales taxes, state liquor store profits (markup revenues), sales of state lottery products at state liquor stores, and other factors.
• Initiative 1105 (5-year cost to the state General Fund: $513 million-547 million): Like I-1100, I-1105 would privatize the sale of hard liquor in Washington State.  There are several key differences between the measures, which are explained more fully in following policy brief.  Notably, I-1105 would repeal all taxes currently levied on liquor, along with profits (markup revenues) from state liquor stores. According to OFM, the loss of these revenue sources and others would cost the state $181 million-195 million in the coming biennium.  It is important to note that I-1105 would instruct the Liquor Control Board to develop and present to the legislature a new per-liter liquor tax designed to recoup this lost revenue.  (Nothing in the measure requires the legislature to act on this recommendation.) However, OFM is required to base their estimates on existing state law; they are not allowed to assume or anticipate future legislative changes.1
• Initiative 1107 (5-year cost to the state General Fund: $352 million):  This measure would repeal a portion of the revenue package that was enacted earlier this year to prevent painful cuts in numerous essential public services.  Specifically, the measure would repeal common and reasonable taxes on candy, gum, bottled water, and soda, and would reopen two wasteful business tax loopholes.  Should these taxes be repealed, OFM estimates the state would lose $55 million in the current fiscal year, and another $218 million in the coming 2011-13 biennium.

These initiatives would drain our state of essential resources at a time when the economy continues to wreak havoc on the state budget.  When policymakers gather in January to develop our state budget for the coming 2011-13 biennium they will face a projected $3 billion imbalance between the needs of our state and available resources to pay for those needs.  These initiatives would make our budget situation far worse and could force legislators to enact deep and painful cuts in important public systems like child care, education, health care, and public safety. 

Another measure to appear on the ballot this November, I-1098,  would cut taxes for homeowners and small businesses while generating  additional resources for health care and education by establishing a new tax on high incomes (over $400,000 for couples; $200,000 for singles).  Today’s analysis from OFM shows that I-1098 would net more than $1.6 billion per year for these important priorities.

For more information on I-1098, I-1100, I-1105, and I-1107, read the Budget & Policy Center’s latest policy brief.

1. Initiative 1053, another measure to appear on the November ballot, would reinstate a requirement that all tax increases be subject to a public referendum vote or a supermajority vote in the state legislature.  If approved, I-1053 would make it much more difficult for lawmakers to enact the per-liter tax developed by the LCB.

Initiative 1107 would repeal several common taxes on nonessential items like candy and soda. The measure would also reopen two wasteful business and occupation (B&O) tax loopholes that were closed during the 2010 legislative session.

To help generate additional resources, this year lawmakers narrowed two tax preferences that were expanded by a recent State Supreme Court ruling. In 2005, the Court expanded a preferential B&O tax rate of 0.138 percent, which was originally intended only for processors and wholesalers of perishable meat products (meatpackers).  The Court’s decision allowed companies whose products contain only minimal amounts of meat — i.e. canned chili — to claim this preference. The ruling also expanded a B&O exemption, which originally was intended only for companies that preserve fresh fruits and vegetables, to encompass products with similarly small amounts of preserved fruits or vegetables.1

This year, policymakers clarified and narrowed these preferences to conform to their original intent.  Initiative 1107 would re-expand these preferences at a cost to the state of nearly $9 million in the coming biennium.

For more information on I-1107 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

1. The exemption for canning and preserving fruits and vegetables is scheduled to expire in 2012. Companies that claimed the exemption will then be eligible to receive a preferential, 0.138 percent B&O tax rate.

Initiative 1107 would repeal several common taxes on nonessential items like candy, soda, and bottled water.  Eliminating these essential sources of revenue could jeopardize efforts to maintain and improve public and environmental health, however.

There are significant social costs associated with the growing consumption of candy, soda, and bottled water. Soda and candy have been linked to the rising obesity epidemic in the United States.1  The production of bottled water significantly contributes to global warming while discarded bottles clog streams, rivers, and other natural habitats.2

One of the benefits of taxing unhealthy or environmentally damaging products is that the taxes encourage consumers to make healthier long-term purchasing decisions. In King County, consumption of candy and bottled water could slow by as much as nine percent in the coming years, due to the extension of the sales tax to these products. Purchases of soda, which was subjected to a smaller tax increase, are likely to slow by a smaller degree.3

Revenues from the taxes targeted by I-1107 are deposited into the state’s general fund, which is used to support numerous important programs, including those designed to improve public and environmental health. For example:

• Under the 5930 Program (named after Senate Bill 5930 enacted in 2007) the Department of Health receives about $20 million per biennium in order to develop and implement strategies to reduce obesity and other chronic diseases, increase vaccinations, prevent the spread of communicable diseases like E. coli or Salmonella, and improve public health via other initiatives.4
• The Department of Ecology’s (DOE) Air Quality Program protects public and environmental health by monitoring air quality and regulating pollutants from motor vehicles, manufacturers, agriculture, and other sectors of the economy. Fifty-nine percent (about $19 million this biennium) of the funding for this program comes from the general fund.5
• Fully 83 percent ($32 million this biennium) of the funding for DOE’s Water Quality Program  — which is responsible for preventing and cleaning up water pollution — is provided through state general fund. This program also ensures that the public has access to accurate information about water quality in Washington State.6

All of these programs are vulnerable to being severely cut or eliminated in the coming biennium. Initiative 1107 would further impede the state’s ability to address public and environmental health problems.

For more information on I-1107, read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

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

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

3. In King County, the combined state and local sales tax rate is 9.5 percent. The Department of Revenue estimates the price-elasticity of demand for candy, soda, and bottled water to be 0.9, https://fortress.wa.gov/binaryDisplay.aspx?package=27107

4. The Washington State Department of Health, the 5930 program, description available on-line at http://www.doh.wa.gov/PHIP/products/5930/overview.htm.

5. Washington State Department of Ecology, Air Quality Program, description available on-line at: http://www.ecy.wa.gov/air.html.

6. Washington State Department of Ecology, Water Quality Program, description available on-line at http://www.ecy.wa.gov/water.html.

Initiative 1107, a citizen initiative slated to appear on the November 2010 ballot, would repeal the following recent tax increases on nonessential items:

• A temporary extension of the state sales tax to bottled water.
• A permanent extension of the sales tax to purchases of candy and gum.
• A temporary excise tax on soda of two-cents per 12 ounces.

It is important to note that these types of taxes are quite common throughout the United States.  The map below shows that Washington is one of 31 states that apply the state sales tax to purchases of candy. Among these states, 14 also apply the tax to bottled water.  (Five states do not levy a general sales tax.)

In addition to Washington, six other states — Arkansas, Illinois, Rhode Island, Tennessee, Virginia, and West Virginia — levy selective taxes on soft drinks or soda.

The tax increases that would be repealed under I-1107 are part of a larger package of revenue enhancements that was enacted earlier this year.  Without these enhancements, policymakers would have been forced to make unacceptably deep cuts in fundamental public services like health care and education.   By eliminating the taxes listed above (in addition to reopening two wasteful B&O tax loopholes), I-1107 would cost the state some $250-$300 million over the next three years.

For more information on I-1107, read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”

Earlier this week, schmudget featured two posts about proposed changes to Washington’s liquor control system.  The first post detailed our current, state-run liquor control system while the second explained the differences between Initiatives 1100 and 1105 – both of which would privatize the sale of hard liquor in Washington.  Today’s analysis, the last of the series, discusses these measures' potential fiscal and social implications.

Uncertain impact on the state budget

The extent to which I-1100 and I-1105 would impact the state budget is yet unclear.1  A number of factors suggest that both initiatives could significantly reduce state resources in the coming years, however.

By privatizing retail and wholesale liquor sales in Washington, more than $70 million per year in state markup revenues would be lost under both I-1100 and I-1105. Initiative 1105 would also repeal all existing state taxes applied to liquor, which generated some $222 million in fiscal year 2009. A portion of these revenues would be replaced by a new six percent tax on gross liquor sales at the retail level and a one percent tax applied to distributors. At current liquor prices and sales volumes, these taxes would generate only about $44 million per year, however.2 

To make up the difference (plus an additional $20 million per year over the next five years), I-1105 would require the Liquor Control Board (LCB) to develop and propose to the legislature a new per-liter liquor tax. It is important to note that nothing in the language of I-1105 requires the legislature to act on the LCB’s recommendation. Furthermore, should Initiative 1053 be approved by voters in November, the Board’s proposed tax would have to be approved by a supermajority (two-thirds) vote in the state legislature or a vote of the people. Under I-1053, the proposed per-liter liquor tax could be blocked by a small minority of lawmakers.

On the other hand, under both I-1100 and I-1105 the state would incur significant savings from shutting down the state liquor stores and the distribution center. The bulk of these savings would be realized as a result of laying off about 932 state liquor store and distribution center employees.3   In addition, the LCB would generate new revenues from the proposed liquor retailer and distributor licensing fees, and from additional B&O tax receipts.   But it is not clear at this time whether total state savings would be large enough to offset the forgone markup and liquor tax revenues.

Long-term costs

It is possible that the consumption of hard liquor would increase significantly under both I-1100 and I-1105.  There are currently 316 state liquor stores and contract liquor stores in Washington. An analysis conducted by the Washington State Auditor’s Office found that the number of retail stores selling hard liquor could grow to as high as 3,357 under a privatization scheme similar to the ones proposed in I-1100 and I-1105.  The Auditor’s office also found, based on comparisons with states with privatized systems, that the consumption of hard alcohol in Washington State could increase by nearly 15 percent in the coming years.4

A sharp increase in the consumption of hard liquor in Washington could entail significant long-term social costs.  Under I-1100 or I-1105, the state could face increased costs associated with diminished public health and law enforcement — due to higher rates of drunk driving, illegal liquor sales to minors, and other alcohol-related crimes.  These costs would begin building at time when Washington continues to struggle to meet basic public needs while recovering from the Great Recession.

For more information on I-1100 and I-1105 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”