Schmudget Blog

New Forecast: Big Boost in Resources for Schools, But Revenue Still Stuck at Recession Levels

Posted by Kelli Smith at Sep 21, 2017 04:20 PM |

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst

The latest Washington state revenue forecast confirms that the revenue measures enacted during this year’s legislative session, in conjunction with the growing economy, will generate some $6.1 billion in new state resources for schools and other community investments over the next four years. After years of gridlock in Olympia over raising new revenue to fund schools, it is a significant victory for Washingtonians that lawmakers were finally able to come together in 2017 and make needed investments that will benefit all our communities. To ensure the well-being of those communities now and in the future, lawmakers must strengthen and build upon these kinds of gains. If they don’t take steps to clean up Washington’s tax code, these new and much-needed resources for our most important priorities could rapidly evaporate in the coming years.

The Economic and Revenue Forecast Council now projects a boost of $2.4 billion in state revenue over the 2017-19 budget cycle, a nearly 6 percent increase in revenue since the previous forecast in June. Almost $2.1 billion of that revenue growth comes from revenue bills the legislature enacted earlier this year as part of the state’s ongoing effort to fully fund education under the state Supreme Court McCleary case, including: a new state property tax; an extension of the sales tax and business tax to out-of-state online retailers; and the closure of several wasteful tax breaks. 

The Council also projects a $3.7 billion uptick in revenues during the following 2019-21 budget cycle, most of which is also attributable to the new taxes enacted this year.

These critical new resources will help ensure great schools for our kids in the short term. Nevertheless, in order to protect these and other essential resources for our communities over the long term, lawmakers still need to address the fundamental structural problems with our state’s upside-down tax code – in which the people with the least pay the most in state and local taxes as a share of income. As the chart below shows, even after accounting for the impact of the new taxes enacted this year, state tax collections will remain mired at 2009 (the lowest point of the Great Recession) levels for the foreseeable future. After adjusting for economic growth, tax resources in 2021 are projected to remain virtually unchanged from 2009 levels. 

[Click on graphic to enlarge.]

Sept_2017_revenue_forecast

Without action, the gains in funding for schools and other priorities achieved this year will likely erode after 2021. That’s because a damaging law that arbitrarily suppresses state property tax collections, which is suspended for the next four years as part of the legislature’s school funding “fix,” is scheduled to be reinstated in 2022. As we wrote in our amicus brief to the Washington State Supreme Court, and summarized in this recent post, this Tim Eyman-backed revenue restriction systematically starves schools of adequate funding year after year. And once it goes back into effect, it will quickly erase much of what lawmakers achieved this year in making necessary investments in kids and schools.

The bottom line is that lawmakers can – and should – build on the progress they made this year. If they want to ensure sustainable resources that enable our communities to thrive, lawmakers must look to the future and act now to secure our state’s well-being, not just this year or next, but for many years to come. Our Accountable Washington revenue reform proposal offers a common-sense path toward creating an equitable tax code that adequately supports schools and other investments that benefit us all.

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