Updated post: graph updated April 9, 2013

This morning, Governor Inslee unveiled a framework for addressing the gap between available state tax resources and what is needed to fund court-ordered improvements to schools and sustain existing investments. The Governor proposes to eliminate a number of costly and ineffective tax breaks. While this is a bold first step in the right direction, more revenue is needed to rebuild healthy, safe, and well-educated communities in Washington state. 

Key highlights of the Governor's proposal include:

New resources to support a better future for our kids

• A $1 billion down-payment is made towards meeting the requirements of the McCleary decision, to shrink class sizes, expand full-day kindergarten, increase class instruction time, and increase funding of basic operations for schools such as maintenance, supplies, and school buses. This is a modest investment towards the estimated $4.5 billion needed to fully fund education by 2018 (see graph below).
• Targeted investments give kids the resources and opportunities they need to grow and prosper, such as access to preschool opportunities for 3,000 more kids, and support to make sure that kids who are falling behind can catch up.

(For more information on McCleary and spending items in graph, see A Paramount Duty: Funding Education for McCleary and Beyond)

Health reform to support a strong middle class

The Governor’s proposal promotes a healthy workforce by restoring adult dental services and expanding Medicaid, which will help more than 250,000 Washingtonians gain health coverage.

Responsible revenue enhancements

To generate the additional tax resources needed to make these new investments, the Governor proposes to generate about $1.2 billion in new revenue for the upcoming 2013-15 budget cycle.

• Extending two temporary tax increases ($660 million): In 2010, policymakers adopted two temporary surcharges applied to breweries and businesses in the service industry to help maintain funding for schools, child care, health care, and other core public services during the worst part of the Great Recession. At the end of June, the fifty-cent per gallon increase in the beer excise tax and the 0.3 percentage point increase in the “service and other” business and occupation (B&O) tax were set to expire. The Governor proposes to make these increases permanent.
• Narrowing tax breaks ($565 million): As we’ve previously written, there are 640 tax breaks on the books in Washington state, many with little or no economic value. Governor Inslee proposes to narrow or eliminate 11 tax breaks – including a sales tax break on trading-in luxury cars, boats and other vehicles ($95 million); a sales tax break for certain nonresidents ($64 million); reducing a number of preferential B&O rates by 25 percent ($66 million); sales tax break on bottled water ($52 million); among others.

This is a good start, but more is needed to generate enough resources to provide a better future for all Washingtonians. Additional revenue could avert some of the cuts that harm our ability to build a middle class, such as cuts to WorkFirst, which helps families find and keep a job, and the elimination of assistance for people with disabilities. 

More analysis on the Governor’s proposal to come. Stay tuned to schmudget.

Our Executive Director Remy Trupin released a statement this morning on the Governor’s proposal. Read it here.

Remy Trupin, Executive Director of the Washington State Budget & Policy Center issued a statement in response to Governor Inslee’s proposal to close tax breaks to fund education.

“The best thing for legislators to do would be to end unproductive tax breaks and maintain much-needed revenue -- as Governor Inslee proposes – and then find additional revenue to fully fund the multi-year mandate for education as required by the State Supreme Court.

The Governor’s proposal would raise about $1.2 billion a year for education, a good start. However, a huge shortfall remains between the amount of revenue needed to maintain existing levels of public services and comply with court-ordered improvements to education -- $2.6 billion in the coming budget cycle.

Without a comprehensive approach to funding all areas of the budget, we will not be able to build the middle class and create jobs.

The Governor also recognizes that in addition to fully funding education, we need to focus on other areas that kids need to learn, grow, and thrive. To close the opportunity gap and ensure a better education for all children, our state must invest in early learning, protect programs that promote physical and mental health, help kids stay in school, and make sure that all kids have access to affordable higher education.

Today’s proposal is a good first step, but much more work remains.”

Join us for the next Budget Beat call - Friday, April 5th at noon. We will analyze the key components of Governor Inslee's budget proposal, which among other things closes certain tax breaks to fund education. We'll also take a look at the Senate Majority Coalition’s budget.

Register here. 

About Budget Beat

During the legislative session we've been hosting calls twice a month, on Fridays at noon, to bring you important updates from Olympia, timely policy analysis, and useful resources to keep you informed and help you make an impact. 

On each call we:

• Provide legislative updates and breaking news from Olympia
• Highlight a relevant policy issue or legislative proposal
• Encourage participants to share information, resources and upcoming events

Click here to register for the next Budget Beat call: Friday April 5th, noon to 12:30pm.

Check out our Budget Beat page with archives of past calls and additional resources.

House Bill 1723 would streamline and strengthen our early learning system, one of the best investments for Washington state's children, families, businesses, and the economy.

The bill is scheduled to be voted on in the Senate Committee on Early Learning & K-12 Education tomorrow, and would support:

• The academic, social, and emotional development of children.  The first five years of life are a critical stage of learning and development for children.  Investing in a strong early learning system increases the likelihood of them doing well in school, graduating from high school, and attending college. HB 1723 would expand high quality early learning opportunities for children, especially those from low income families. 

• Workforce development. Children who receive high quality early education develop skills that prepare them for work as adults.  A strong early learning system is increasingly recognized as the best workforce development program for states and countries. 

• Working families.  The cost of child care is often as much, or more, as a mortgage or rent, making it unaffordable for many families.  When parents receive Working Connections Child Care (WCCC), our state’s subsidized child care program, they are more likely to work and meet the basic needs of their family, often without additional state assistance. HB 1723 would increase the subsidy rate for WCCC, improving quality in the early learning system and making care more accessible and affordable for working families (see graph).
  

Senior Policy Analyst Lori Pfingst will participate in a Women's Funding Alliance Town Hall discussion "Fresh Perspective: Women Lead a Changing World," on Wednesday at 7 p.m.

She will discuss the progress women and girls have made in Washington state, major changes underway, and the challenges that remain to create a better future for our state.

Other panelists include:  Sandra Jackson-Dumont, Deputy Director for Education and Public Programs and Adjunct Curator at Seattle Art Museum;  Ada Williams Prince, Policy and Advocacy Director of OneAmerica;  Kristin Rowe-Finkbeiner, Author, Executive Director and CEO of MomsRising; and Jennifer Stuller, Author, Co-founder and Programming Director of GeekGirlCon.

For more information and to buy tickets, visit the Women's Funding Alliance website here.

As the Legislative Session progresses all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.

Although more needs to be done, there have been several encouraging developments, including:

• Eliminating the supermajority vote barrier: Earlier this month, the State Supreme Court struck down the law that required a supermajority – two-thirds vote - for tax increases. Among other problems, the supermajority law allowed a small handful of lawmakers to block any attempt to rein in special interest tax breaks.
• Unanimous Senate support for greater tax break accountability: Senate bill 5843 would require most new tax breaks to include key transparency requirements – including a sunset date, a clear purpose and policy goals, and specific performance metrics to help state auditors gauge its effectiveness. This bill was passed unanimously by state Senate earlier this year and is waiting for action in the House Finance Committee.
• A Disciplined House Finance Committee: All of the transparency and accountability tools in the world would be useless without a commitment among policymakers to foster accountability. With the newly reconstituted Finance Committee, leaders in the House of Representatives are doing just that. The Finance Committee has shown discipline, passing far fewer tax breaks than the Senate Ways and Means Committee and requiring all newly proposed tax breaks to include sunset dates and performance metrics.
• Governor to propose narrowing tax breaks for education: Governor Inslee has announced that he will unveil a strategy for funding education that includes eliminating or narrowing unproductive tax breaks, which have in the past compromised the state’s ability to invest in schools.

Over the last two decades, policymakers have dramatically increased their use of tax breaks to further various legislative goals. As the graph below shows, the number of tax preferences on books has nearly doubled since 1990, rising to 640 from 333 over the last 23 years.

But, unlike direct spending on schools or health care services, tax breaks don’t have to go through the biennial appropriations process, despite the fact that they cost the state a large amount of money. This makes it easier to enact tax breaks and difficult to balance against competing public priorities.

History has shown that most tax breaks are poor mechanisms for achieving policy goals, but they have remained popular with policymakers. According the Institute on Taxation and Economic Policy:

“Administering spending programs through the tax code allows policymakers to simultaneously claim that they are taking action on an important issue while also taking credit for cutting taxes, shrinking government, or deferring to the private sector. In reality, however, selectively shuffling around tax burdens leaves no less of an imprint on the economy than direct government spending.”

More reform needed

While recent developments indicate progress toward a more accountable tax break system, more aggressive steps will need to be made to ensure true accountability is achieved. Notably, policymakers should apply sunset dates to most existing state tax breaks – a reform that was proposed last year under HB2762. Such a reform would help policymakers evaluate tax breaks and balance their costs against the need to invest in schools, health care, and public safety.

By Andy Nicholas--The amount of tax resources needed to support schools, health care services, and safe communities in the coming 2013-15 budget cycle will be about $40 million greater than previously anticipated, according to today’s forecast from the State Economic and Revenue Forecast Council -- a positive revision of $60 million for the current biennium along with a $20 million drop in revenue for the upcoming cycle.

While today's numbers appear to be good news, it is important to note there remains a huge shortfall between the amount of revenue needed to maintain existing levels of public services and comply with court-ordered improvements to education -- $2.6 billion in the coming budget cycle.

Without new resources, it will be impossible for policymakers to develop a state budget that responsibly maintains these and other critical investments that create jobs and support a strong state economy.

The Great Recession and the sluggish economic recovery continues to drag down state revenue collections – a dynamic that continually plagues policymakers’ ability to adequately fund important public investments.

Although revenues will finally recover to 2008 levels by 2014 (see graph below), it’s important to note that fuel and energy prices and other factors of inflation have all grown since 2008, driving up the expenses related to heating classrooms, fueling buses and police cars, and other costs of maintaining public services.

Without sensible reforms to generate additional tax revenues, such as narrowing tax breaks and taxing high-end capital gains, state revenues will remain far below what is needed to maintain the schools, colleges, and health care investments needed to keep Washington state competitive in the 21st century global economy.

For more details on today’s revenue forecast, stay tuned. Next week we will be releasing our first edition of Revenue Review – a quarterly brief detailing current and historical revenue trends in Washington state.

Learn more this Friday with the Budget Beat 

Join us for the next Budget Beat call - this Friday, (March 22nd) at noon. Our guest is Rep. Ross Hunter, Chair of the House Appropriations Committee, who will help unpack the today's revenue forecast and explain its implications on the budget process.