Schmudget Blog

Revenue Package Not Built to Last Over the Long Term

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


Property Taxes

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

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

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

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

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

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

Tax Breaks

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

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

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

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

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

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

Missed Opportunities

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

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

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


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

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


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

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

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

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

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

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

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

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

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

Last-Minute, Makeshift Budget Misses Opportunity to Fix Upside-Down Tax Code

Posted by Kelli Smith at Jun 30, 2017 01:05 PM |
Filed under: State Budget, State Revenue
Statement by Executive Director Misha Werschkul:
Legislative leaders have agreed to a spending plan to fund state services for the next two years – and as such, they may avoid a state shutdown – but they have left a lot of important work undone. Notably, lawmakers have passed up an historic opportunity to address our state’s broken tax code, and instead have relied too much on unsustainable fund transfers and budget gimmicks that will threaten the economic strength of the state in the future. The budget deal includes some investments in critical programs, but it falls short of meaningfully strengthening many of the state’s most important long-term investments.

Instead of creating a budget that enacts much-needed revenue reform, lawmakers have cobbled together a budget that makes progress toward fulfilling a mandate from the state Supreme Court to strengthen our K-12 schools. But the final budget agreement does this by relying too heavily on irresponsible accounting tricks, like drawing down the state rainy day fund and shifting funds between accounts, that will leave the state on shaky ground in future years. 

Lawmakers propose to raise new resources for schools with a small increase in the state property tax. But it is disappointing that no actions were taken to offset higher property tax bills for lower- and middle-income homeowners and renters who, under our current tax code, pay up to seven times more in state and local taxes as a share of their incomes than the richest Washingtonians. In addition to the property tax changes, lawmakers agreed to eliminate wasteful tax breaks – including the bottled water sales tax exemption and a sales tax break for oil refineries – and close off legal loopholes that allow out-of-state businesses to avoid paying sales taxes and business taxes. But they also added or extended 13 other tax breaks that will take money out of communities in favor of special interests and leave fewer resources for future investments. Now is the time to clean up the tax code to clear out wasteful tax breaks, not add more.

Central to legislators’ budget negotiations was compliance with the state Supreme Court’s order to fund public schools by the end of this legislative session. The school funding plan included in the final budget deal overhauls the state’s teacher pay system and will invest an additional $7.3 billion in public schools over the next four years. It remains to be seen whether the compromise will be sufficient to satisfy the court’s order to amply fund public education. 

It appears that severe cuts to many important priorities that improve the lives of Washingtonians with low incomes may have been largely avoided. If so, that’s a good start. However, the deal doesn’t do enough to strengthen many of the programs that allow people with middle and low incomes to thrive – and in particular many people of color who, because of systemic racism, are denied equal access to opportunity. Unless state lawmakers take significant steps toward reforming our tax code to enact equitable and sustainable revenue sources, meaningful improvements to community investments will continue to be difficult. 

If lawmakers can get the budget signed by the governor in time, they may narrowly avoid a state government shutdown; but either way, the result is a makeshift budget that doesn’t address the unsustainability, inequity, and inadequacy of our tax code. Especially with the threat of huge federal cuts on the horizon, state lawmakers must ensure the budget protects the wellbeing of Washingtonians. 

In 2018, lawmakers will have another chance to lift up Washington’s communities and build a brighter future for our kids. To do that, they’ll need to get serious about cleaning up our tax code to raise state resources in an equitable and sustainable way.  

Stay tuned for more-detailed analysis from the Budget & Policy Center after our full review of the budget. 

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State Revenue Forecast Doesn’t Change the Facts: Washington State Needs Equitable New Revenue

Posted by Kelli Smith at Jun 20, 2017 01:45 PM |
Filed under: State Budget, State Revenue
Statement from the Washington State Budget & Policy Center:
The updated state revenue forecast, which projects a small increase in the amount of tax resources available to fund schools and other priorities in the coming years, should signal to lawmakers that it’s time to get to work on cleaning up the state’s flawed tax code. Failing to do so would make it impossible for lawmakers to amply fund schools without forcing harmful cuts to health care, higher education, and other investments that promote a strong state economy and thriving communities.

Lawmakers in Olympia have until June 30 – just 10 more days – to finalize the state budget before state agencies are forced to begin shutdown procedures. A state government shutdown would put thousands of Washingtonians at risk of losing access to child care, public health resources, and job supports, and it could cause interruptions to business, environmental protection, and utility services. That’s not even to mention the loss of income for state workers during the shutdown.

With the latest revenue forecast, lawmakers now have all the information they need to come to an agreement on a budget that invests in strong communities. The Washington State Economic and Revenue Forecast Council’s final revenue forecast for the fiscal year (which ends on June 30) projects state tax revenues will increase over the next two years by just $80 million (less than 0.2 percent of the current budget) relative to the previous forecast – a mere blip on the state budget radar. 

In the past few years, lawmakers in Washington state have passively relied on revenue growth from the shaky economic recovery in order to make sluggish progress toward fully funding schools, per the state Supreme Court’s McCleary mandate. This approach has been both inadequate – the legislature is currently being held in contempt for failing to fully fund schools – and irresponsible, since most or all of the revenue growth will vanish when the next recession strikes. Today’s inconsequential revenue projection doesn’t change that.

As we wrote after the last revenue forecast in March, when adjusted for economic growth, state revenues have actually declined since 2001 and have remained nearly flat since the end of the last recession. This means Washington state is still funding many programs and agencies at levels far below what is necessary to serve our communities. Negligible growth in revenues is not enough to maintain current obligations, let alone enough to provide for stronger investments that help our state thrive. 

Lawmakers must take this opportunity to enact smart, long-term reforms by raising new revenue from equitable, sustainable, and adequate sources. They can start by closing wasteful tax breaks for corporations and by eliminating the tax break on high-end capital gains. Doing so would improve the wellbeing of our state and its people for generations to come, and begin to turn our upside-down tax code right-side up.


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State and Federal Proposals to Cut Funding for Women’s Health Would Decrease Family Economic Security

By Misha Werschkul, executive director
Building economic security for Washington's women is an essential component of creating a thriving economy in our state. Nearly 500,000 women and more than 20 percent of Black, Hispanic, and Native American women live in poverty in Washington. Many factors contribute to high poverty rates among women, and especially among women of color – including the gender wage gap, a disproportionately high percentage of women working low-wage jobs, and the lack of universal paid leave programs and child care supports. Access to health care– including high-quality pre- and post-natal care – and the ability to choose when and under what circumstances to start a family are also critical ingredients of family economic security.

Investments in the wellbeing of women are critical to any serious strategy to address inequality or reduce poverty. And investing in the full spectrum of women’s health services in particular is an important step toward strengthening the economic security of women and families.

The good news is Washington state has made significant progress in expanding health care access for women and in reducing unintended pregnancies. Under the Affordable Care Act, the number of uninsured women in Washington state has dropped to historic lows. And as the KIDS COUNT Data Center shows, Washington’s teen birth rate has fallen from 25 teen births per thousand in 2011 to 18 teen births per thousand in 2015. King County has the second lowest teen pregnancy rate in the country. Expanding health care and reducing unintended pregnancies is good for women and families, and it’s also cost effective for states.

However, this progress is being threatened. Recent federal and state proposals would pay for tax cuts for the wealthy at the expense of investments that support women and communities. In the next few weeks, we anticipate the release of the 2018 federal budget and a compromise 2017-2019 state budget, not to mention the U.S. Senate’s health care bill. Elected leaders must ensure legislation invests in programs that help promote economic security for women and families. 

Federal Threats

Washington’s women face a multitude of threats from federal proposals, ranging from the repeal the Affordable Care Act to President Trump’s 2018 budget proposal to the possibility of new regulations affecting birth control from his administration. Especially when combined with deep cuts to federal programs that disproportionately serve women and children – like housing and energy assistance, job training, and hunger relief – these cuts to women’s heath are a recipe for increased economic insecurity. Federal proposals include:

  • Cutting Medicaid – Federal proposals to eliminate the Affordable Care Act’s Medicaid expansion and make deep cuts to Medicaid would jeopardize health care for nearly one million women in Washington state (see graph below). In fact, women make up a majority of Medicaid beneficiaries and therefore face a disproportionate burden of proposed cuts to the program. Medicaid is a key support for women on multiple fronts: Working women who don’t have employer-sponsored coverage are able to get health insurance coverage through the Medicaid expansion; women of reproductive age rely on Medicaid for family-planning and maternity care services (importantly, Medicaid provides health care for nearly half of all pregnant women nationwide); and older women and women with disabilities are the primary users of Medicaid long-term services and supports. In addition, Medicaid serves women of all races and ethnicities in Washington. 

[Click on graphic to enlarge.]

Women girls medicaid enrollment


  • Defunding Planned Parenthood – Congressional Republicans have put forward multiple proposals to ban Planned Parenthood from receiving federal and state funds through the Medicaid program and to allow states to exclude them from the Title X family-planning program. These funds are currently used to provide family-planning and a wide range of critical health care services like cancer screenings to more than 98,000 low-income women and men at 32 health care centers in Washington state. Several of Washington’s Planned Parenthood clinics are the only clinic in their county that offers the full range of contraceptive health services, including longer-acting methods like intrauterine devices that are the most effective at preventing pregnancy. Defunding Planned Parenthood would jeopardize health care for thousands of low-income women in Washington state and increase economic insecurity as a result of unplanned pregnancies. 
  • Reducing coverage for newborn and maternity care and birth control – The Affordable Care Act repeal legislation from House Republicans removes the requirement for publicly funded health insurance to cover the full range of health care services, including newborn and maternity care. In addition, the Trump administration is considering rule-making that would remove the requirement for insurers to provide copay-free birth control. Both of these changes would mean that women who have health insurance coverage would have to pay more money out of pocket to get their health care needs met.

State Threats

Washington state legislators are continuing to negotiate the 2017-2019 biennial state budget in order to avoid a state government shutdown on July 1, 2017. This year, budget writers have an opportunity to clean up the tax code to make historic investments in ensuring every child in Washington has access to quality public education. However, the Senate Republicans’ approach is largely to protect tax breaks for wealthy special interests and fund investments in schools at the expense of other important priorities like child care and job training for low-income parents. 

The State Senate's proposals would also reduce state family-planning funding. On top of cuts being proposed at the federal level, state Senate Republicans propose a 10 percent reduction to state funds that provide family-planning services, which would result in reduced access to women’s health services.

Especially with federal threats looming, Washington state leaders should be doing everything possible to protect women and build on the progress that has been made in our state. 

Economic security and women’s health are fundamentally intertwined. If we want to have an economy that works for everyone, we simply can’t ignore women’s health. As federal and state policymakers develop new budget proposals, they must focus on advancing economic security by investing in the full spectrum of women’s health services. 


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New Report: Supplemental Nutrition Assistance Program Critical to the Wellbeing of Many Washingtonians with Disabilities

Posted by Julie Watts at Jun 14, 2017 06:25 PM |
According to a new report by the Center on Budget and Policy Priorities, the Supplemental Nutrition Assistance Program (SNAP) – which provides basic food support to people with lower incomes – helps 126,000 Washingtonians with disabilities secure a better quality of life and protect their basic health. The report underscores the key role SNAP plays in lifting people with disabilities out of poverty, helping them put food on the table, and contributing to a wide range of positive long-term health and economic outcomes.


What is a Disability

Far too many Washingtonians with disabilities are just one accident or mishap from financial catastrophe. SNAP plays a vital role in providing them with added financial security. Further, by ensuring they have the resources for adequate nutrition, SNAP offers them a key foundation of good health. Policymakers must protect this important program against funding cuts being proposed by Congress and President Trump.

Two out of five non-elderly individuals with disabilities in Washington state participate in SNAP. For them, it is an especially important resource because having a disability can make life more expensive and can make it harder to earn enough money to buy food and other necessities.

People with disabilities are more likely to live in poverty than those who don’t. In fact, as seen in the chart below, 33 percent of children with disabilities live below the federal poverty line in Washington state, compared to 21 percent of non-disabled children. And among 18 to 64 year olds, people with disabilities are twice as likely to live in poverty than non-disabled people. Given that this is the time of life when most people are in the workforce, earning income, and saving money, this data underscores how much harder it can be for people with disabilities to make ends meet without basic supports like SNAP.

[Click on graphic to enlarge.]

People with Disabilities are More Likely to Live in Poverty in WA

Despite the fact that SNAP provides important nutrition benefits to millions of low-income people with disabilities nationwide, President Trump has proposed shifting 25 percent of the federal cost of the program to states, which would cost Washington state an additional $363 million a year. Congressional House Republicans are also in the process of negotiating a 2018 budget resolution that will likely propose sweeping changes to SNAP, including cuts to overall spending and shifting costs to states. Among the other things the president and Congressional Republicans have proposed are:

  • The elimination of a small SNAP benefit (called the “minimum SNAP benefit”) that seniors and people with disabilities can qualify for in connection with other public supports. This modest amount of additional assistance is critical for people living in poverty.
  • Limits on the length of time people living in communities with high unemployment can receive SNAP. This is yet another challenge for people with disabilities who already have a difficult time finding work.
  • New fees imposed on grocers who accept SNAP benefits, which will result in many grocers opting out of the program. This will obviously make it harder for SNAP participants to find stores where they can use their food assistance benefits.

Not only will none of these proposals help people move out of poverty; they will actually increase hardship for working families and millions of Americans with disabilities.

SNAP plays a vital role in ensuring that many Washingtonians with disabilities can put food on the table and have an opportunity to move out of poverty. As Congressional budget writers in Washington D.C. sit down to figure out how they will allocate public resources, Washington state’s elected officials should ensure that all residents – especially those with disabilities – have access to basic supports like SNAP.

To find out more about how SNAP is a critical resource for many people with disabilities, read the Center on Budget and Policy Priorities’ report, “SNAP Provides Needed Food Assistance to Millions of People with Disabilities.”



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Document Actions

Our Seattle Policy Summit

You can watch our Budget Matters 2017 Seattle Policy Summit, which took place on December 6, online. The first part of the day (watch here) featured Washington State Lt. Governor Cyrus Habib and Race Forward President Glenn Harris. The second part of the day (watch here) featured Budget & Policy Center Senior Policy Analyst Jennifer Tran, and a panel of local leaders moderated by Michael Brown of the Seattle Foundation. 

Our Policy Priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance to build a better Washington.

Testimonies in Olympia

Misha TVW
We'll be in Olympia throughout the 2018 legislative session to testify in support of bills that advance our legislative priorities. Stay tuned for links to the testimonies of our policy analysts (as featured on TVW).