By Andy Nicholas and Kim Justice -- As policymakers grapple with a State Supreme Court mandate to invest billions of additional funds in Washington state schools, today’s lackluster forecast of state tax collections makes it abundantly clear that policymakers must get serious about reforming the state’s flawed, 1930s era revenue system. We cannot provide a prosperous future for our children and grandchildren unless we change our tax system.
Washington state tax collections are now estimated to grow by 2.8 percent in the budget year that begins in July, and by 4.6 percent and 4.5 percent in each of the two following years, according to updated projections released this afternoon by the state Economic and Revenue Forecast Council (ERFC).
In the next two-year budget cycle, resources will fall more than $2.5 billion short of projected spending on health and human services, environmental protections, higher education, early learning, and other key investments, as well as the next installment required to improve basic education under the State Supreme Court’s McCleary decision (see graph). (1)
The updated projections should come as a sobering reality check for some policymakers who have relied on unrealistic revenue growth expectations to dodge tough decisions about Washington state’s future. Earlier this year, these lawmakers put forward a damaging proposal to devote two-thirds of all future revenue growth to education. The proposal dubiously assumed that future revenue growth would be sufficient to fund court-mandated school improvements, which, by 2018 will cost at least $4.5 billion per budget cycle plus $1 billion for teacher compensation.
In reality, revenue growth won’t come anywhere close to meeting the needs of our state in the coming years. And we can’t afford to undermine the goals of the McCleary ruling by cutting deep into health care, child care, public safety, and other services that help kids succeed in the classroom. Today’s projections show that the widening gap between available tax resources and needed investments that promote a strong state economy can only be addressed by bolstering state resources.
(1) Projected additional spending needs estimated by the Office of Financial Management in communication sent via DSHS, June 3, 2014.
Executive Director Remy Trupin issued the following statement the State Supreme Court's recent order:
"Yesterday, the State Supreme Court found that the Legislature has failed, once again, to make meaningful progress toward fully funding education by 2018, as per the “McCleary” ruling. The inability of the Legislature to adequately act in the wake of McCleary is actually a symptom of a larger problem: we cannot make meaningful progress in our state – on education or anything else – until we raise new revenue.
Providing a quality basic education is the paramount duty of our state, but children need more than just K-12 to thrive. Early learning, higher education, environmental protections, health and human services, and transportation are all critical to a strong foundation of opportunity for all our residents and a strong economy.
Some have suggested that we must fund education first without new revenue but the math simply doesn't pencil out. Current revenues are projected to fall short of the amount needed to maintain existing levels of education and other public investments, let alone the $4.5 billion additional needed to meet McCleary and $1 billion more per year for teacher compensation.
After years of deep cuts that have diminished opportunities for kids and hurt our economy, it’s time for policymakers to take a hard look at fixing Washington’s state’s outdated and inequitable tax system. Closing wasteful tax breaks and taxing windfall profits from the sale of corporate stocks and other high-end financial assets, as 42 other states do, would be a good start.
It’s time to face reality. The solutions are there, we just need the political will. Hopefully the Court’s actions will spur the Legislature to act. Kids can’t afford any more delays."
An economic model frequently cited by some Washington state lawmakers to justify their opposition to tax increases distorts the impact of tax proposals on state economies, according to a new study from the non-partisan Institute on Taxation and Economic Policy (ITEP).
The report makes it clear the Beacon Hill Institute’s State Tax Analysis Modeling Program (STAMP), is rigged to exaggerate the benefits of tax cuts for large corporations and wealthy households and to minimize the benefits of state spending on universities and community colleges, infrastructure, public safety, and other investments that help build a strong state economy.
In Washington state, lawmakers have a mandate from the State Supreme Court to generate at least $4.5 billion in new tax resources per two-year budget cycle to improve basic education. To comply with the Court’s ruling, Governor Inslee and leaders in the House have put forward sensible proposals to close a number of wasteful tax breaks and extend a temporary business tax increase.
However, these proposals were thwarted by policymakers who would rather use the Court’s mandate as an excuse to eliminate other investments that ensure kids’ well-being and help them learn, such as health care and child care. The same policymakers cited STAMP-based projections that the proposed tax measures would do implausibly large damage to the state economy.
ITEP’s study conclusively shows that STAMP projections, and the “junk economics” behind them, are being used to short-change future generations of Washingtonians and should be abandoned.
According to the study, STAMP’s fundamental flaws include:
- An unrealistic economic foundation: The model state economies that STAMP uses to measure whether a particular policy is good or bad for employers, families, and workers bear little resemblance to reality. The model dubiously assumes that state economies are perfectly competitive at all times, meaning they never go through recessions, everyone who wants a job always has one, and corporations and consumers have equal amounts of knowledge about the safety and quality of all products on the market.
- Public investments are undervalued: Governments play a crucial role in state economies, employing workers and purchasing goods and services from businesses, which pumps significant amounts of money into the marketplace. States also maintain investments like education, healthcare, roads and other infrastructure that are vital to long-term economic growth. However, STAMP mischaracterizes government, treating it as an institution that merely redistributes tax dollars from one group to another. This enormous oversimplification greatly diminishes the economic value of state government in STAMP projections.
- Impact of taxes is overstated: By contrast, STAMP assumes even small tax changes are exceptionally bad for state economies. Workers, businesses, and consumers are assumed to be hypersensitive to state taxes, fleeing en masse at the first hint of a tax increase. As ITEP points out, a sizable amount of research shows individuals and businesses to be much less sensitive to taxes than STAMP suggests.
- Results that are out of line with history and mainstream economics: Not surprisingly, STAMP’s results frequently contradict predictions made be mainstream economists and models that use sensible assumptions. In Kansas, STAMP recently predicted a sizable income tax cut would create up to 42,000 new jobs in the state. However, since the cut was enacted in 2012, Kansas has trailed the nation in jobs, incomes, and the growth of registered businesses.
For more information read the entire report.
Yesterday, the Seattle City Council unanimously voted in favor of gradually increasing the city’s minimum wage to $15 an hour over the next seven years. The boost will benefit Seattle workers, their families, and our regional economy.
After four decades of stagnant wages, the vote is a bold step in the right direction. Due to the high cost of living, an individual or family living in Seattle and working full-time earning the current minimum wage of $9.32 an hour is unable to meet basic needs – such as housing, food, transportation, and utilities (see graph). People earning the minimum wage must forgo basic needs, or rely on government assistance just to make ends meet.
With a gradual increase to $15, workers will find it easier to meet basic needs over time. Individuals will benefit the most, eventually being able to move beyond the basics and save a little extra for a car, house, or education – purchases that build toward an economically secure future and strengthen the economy. Importantly, a minimum wage of $15 is still not a living wage for a parent raising children, but families will be able to meet a greater share of basic needs than before.
After decades of stagnant wages and a declining middle class, $15 an hour will benefit all of us. However, raising the minimum wage is one step within a broader strategy to invest in workers, rebuild the middle class, and strengthen the economy. Other strategies – including affordable child care and housing, paid sick and family leave, and transportation – are gaining traction nationally and locally, which would give workers and their families’ greater opportunity to prosper, the benefits of which would ripple throughout communities, businesses, and the economy.
More than 100 people joined us for a great conversation at Town Hall Seattle last week, "Addressing Equity, Opportunity, and Funding in Washington State's Education System."
The event, moderated by Paola Maranan of the Children's Alliance, was taped by TVW. You can watch it here.
Many thanks to our panelists for an interesting and thoughtful discussion.
- Rep. Ross Hunter, Chair of the House Appropriations Committee
- Shawn Lewis, Education Funding Specialist, Washington Education Association
- Sharonne Navas, Director, Equity in Education Coalition
- Frank Ordway, Government Relations Director, League of Education Voters
Thank you to our sponsoring organizations: Centerstone; Children's Alliance; Community and Parents for Public Schools; Equity in Education Coalition; League of Education Voters; Progressive Majority; OneAmerica; SEIU 1199NW; SEIU 925; Somali Youth and Family Club; Statewide Poverty Action Network; UFCW 21; the Washington Bus; Washington CAN!; and Win Win Network.
Addressing Equity, Opportunity, and Funding in Washington State's Education System
Thursday, May 29th at Town Hall Seattle, 7:30 p.m.
School funding and improving educational outcomes for all our kids are some of the most talked about – and contentious – issues in the state, and will be for years to come.
Tomorrow night we are hosting an important and timely conversation with some of the key voices in the debate as we unpack the State Supreme Court’s McCleary decision and what it means for the budget and our kids. In particular, we’ll look at options for better funding education and the importance of addressing equity issues from early learning through college.
Joining us for the conversation will be:
- Rep. Ross Hunter, Chair of the House Appropriations Committee;
- Shawn Lewis, Education Funding Specialist, Washington Education Association;
- Sharonne Navas, Director, Equity in Education Coalition;
- Frank Ordway, Government Relations Director, League of Education Voters;
- Paola Maranan, Executive Director, Children's Alliance (moderator).
In 2012 the State Supreme Court ruled that the state was failing its paramount constitutional duty of funding basic education and ordered the legislature to increase school funding by 2018. Estimates indicate that the legislature will have to come up with at least $4.5 billion in new education funding to meet the decision.
Two years later, how much progress has been made? How will the state meet is funding requirements for education while also making other critical investments in the state budget? How can we strengthen the entire educational pipeline to ensure better outcomes for all our kids? What is the opportunity gap and how can we better address it? At the event, we’ll begin to unpack some of these crucial questions.
We hope to see you tomorrow night at Town Hall Seattle.
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