New OFM Analyses Show Potential Costs of 2010 Initiatives

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.