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With Big Shortfalls Ahead, Gubernatorial Candidates Should Focus on Broken Revenue System

Posted by Kim Justice at Jun 12, 2012 12:00 PM |
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By Kim Justice and Andy Nicholas -- As the candidates for governor head into their first debate, they should be telling Washington voters how they will reverse the state’s course of consistently failing to come up with the resources needed to make needed investments in education, health care, and public safety.

The bottom line is that without reform Washington state is headed for sizable shortfalls in the next four years, ranging from $1.6 billion to $3.4 billion.

While we would all like to believe that future revenue projections will be enough to rebuild our state and put people back to work, the facts are clear: the troubled economy is only part of our problem. The rest comes from the fact that Washington has what’s called a structural deficit — year in, year out we don’t take in enough money to meet our needs because we haven’t created a tax system that can do the job.

As the graph below shows, revenues will continue to fall short of meeting our needs for the foreseeable future. 

STD 2014-17_2


At a minimum, revenue will fall $850 million below needs in the next biennium (FY 2014-2015), based on existing revenue estimates from the State Economic and Revenue Forecast Council.

Beyond 2015, budget shortfalls according to three different scenarios for revenue growth are as follows:

  1. Optimistic: revenues grow by 6.2 percent each year, the average rate of growth during the last economic cycle from 2002-2007 (following the dot-com bust recession).
  2. Moderate: revenue grows by 4.7 percent each year, the average rate of growth from 1995-2000 (economic expansion of late 90s).
  3. Pessimistic: revenue grows by 2.5 percent each year, the average rate of growth over the last ten years.

In the wake of the worst recession since the Great Depression, unprecedented service cuts have cost more than  70,000 people their health coverage, brought college tuition increases as high as 16 percent per year, and launched a law suit confirming that Washington state is failing to meet our constitutional obligation to fund basic education.

To get people back to work and build a strong economy, it takes first-rate schools, affordable colleges and universities, and a healthy, productive workforce. Washington needs a revenue structure built to do the job. That means eliminating wasteful tax breaks, modernizing our sales tax to include more consumer services and taxing capital gains of the wealthiest three percent of Washingtonians.

The estimates in this analysis are preliminary but conservative. In the coming weeks, we will refine our analysis and update it to include revised revenue forecasts from the Economic and Revenue Forecast Council.

Spending is based on enacted budget for FY 2013, adjusted by Consumer Price Index for Seattle/Tacoma/Bremerton and annual population growth. Where available, population growth for specific populations was used. Spending includes estimated costs of Basic Education Reform/ HB 2776. Revenues assume 1% are dedicated to Budget Stabilization Account each year.

 

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