Reality Bites: Revenue Forecast Shows Economic Growth Won’t Fund Basic Education Reforms
This morning’s revenue forecast for Washington state shows that economic growth will not generate the additional tax resources needed to fund basic education improvements mandated by the State Supreme Court under the McCleary decision.
In order to meet the full funding obligation by 2018, lawmakers need to invest an additional $2.3 billion to schools in the next two year budget cycle. Yet, the latest forecast from the state Economic and Revenue Forecast Council (ERFC) projects revenues will increase by a mere $80 million in the coming 2015-17 budget cycle, compared to the previous forecast.
At the current rate of growth, state revenues are barely keeping pace with the costs of maintaining existing levels of education, health care, public safety, and other important investments. Lukewarm growth in the economy will not produce the billions of additional dollars required for basic education reforms.
The graph below shows that in the current fiscal year, state tax revenues are projected to be nearly $1 billion below 2009 levels, after adjustment for rising fuel and energy prices and other factors of inflation. Revenues are not projected to reach pre-recession levels until July 2017.
The bottom line is that policymakers need to look at reforming Washington state’s flawed, 1930’s era revenue system in order to build the kind of education system our children will need to compete in the global economy of the 21st century.
Closing tax breaks, as Gov. Inslee has called for, would be a good first step. Beyond that, enacting a new tax on capital gains, which are profits from the sale of corporate stocks and other high-end financial assets, would build a more robust and adequate revenue system in the long run.