Schmudget Blog

In final budget, lawmakers should take the best from House and Senate proposals

Posted by Kelli Smith at Feb 23, 2018 05:10 PM |
Filed under: State Budget, Capital Gains

The state House and Senate, both controlled by Democrats this legislative session, have proposed budgets that contain strong investments that would take steps toward ensuring that all Washingtonians have what they need to prosper. Lawmakers have the chance to enact much-needed new forms of revenue and make our tax code more equitable. There is no reason lawmakers shouldn’t include the best ideas from each proposal in their final budget. 

As they create this final budget, they should also take into consideration the fact that state investments in communities have still not reached pre-Recession levels. In fact, overall near general fund spending in each of these budget proposals is still below spending levels in the 2007-09 budget cycle, when adjusted for economic growth. At the end of the day, the state budget must reflect our values and meet the needs of our communities in a real way. 

Lawmakers should close the tax break on capital gains, reject new tax breaks

The House’s budget proposal includes a plan to close the tax break on capital gains, which would be a significant step forward in making our tax code more equitable. Washington’s tax code is completely upside-down: low- and middle-income households pay up to seven times more in state and local taxes than the top 1 percent do. A capital gains tax would affect fewer than 2 percent of the wealthiest Washingtonians – and only modestly at that. Further, revenue from a capital gains tax would diversify and strengthen our tax code, putting resources for important community investments within reach. Budget negotiators should include this common-sense proposal in the final budget.

They should also reject new tax breaks that siphon resources out of our communities and turn them into tax giveaways for special interests. A prime example of such a giveaway is the proposed rural manufacturer tax break, which is funded in the House’s budget. It’s a narrowed version of the flawed manufacturer tax break that Governor Inslee smartly vetoed last year. This tax break would cost the state millions of dollars a year that could be used instead to fund schools, help families put food on the table, or provide much-needed senior services. The bottom line is that right now is the time to clean up our tax code to invest in the priorities we all care about – not add more tax breaks.

Lawmakers should not use the rainy day fund to pay for property tax cuts 

While the details of the House and Senate proposals differ when it comes to the use of rainy day funds, both plans would raid our state’s emergency savings to pay out statewide, across-the-board property tax cuts. As we wrote when lawmakers raised the state property tax last year to fund schools, any reforms to the property tax should be targeted specifically to making the tax more equitable for low- and middle-income families. Across-the-board cuts just give higher-income households more tax breaks they don’t need.

More importantly, using the state’s emergency savings to pay for tax cuts is incredibly irresponsible under any circumstances – but especially so during good economic times when our state should be building up reserves, not drawing them down. The rainy day fund is an essential safeguard to fund the most critical foundations – such as safe hospitals, functioning schools, and responsive emergency services – when our state endures an economic downturn or a natural disaster. 

Instead of paying out property tax cuts to many households who don’t need it, lawmakers should think about the well-being of our entire state. That means ensuring we have the resources we need to invest in our communities now, and that we have reserves to weather emergencies.

The final budget should invest in Washington’s communities

Included below are snapshots of how successful the two budget proposals are at promoting the well-being of Washingtonians, using the Budget & Policy Center’s Progress in Washington framework

Education & job readiness

Our education system must have the resources to prepare all students – from early learning through higher education – for good jobs and jobs of the future. It should remove barriers to education and employment for communities of color. Here’s how the budgets stack up in terms of: 

K-12 schools. One of the most significant differences between the House and Senate proposals is that the Senate increases funding for K-12 teacher salaries by $778 million this budget cycle to comply with our state Supreme Court’s McCleary order by the 2018 school year. House budget writers opted to ignore the Court’s order and instead put off fully funding McCleary until next year, a choice that would leave teachers and students in limbo for yet another year. Budget negotiators should follow the Senate’s approach and fulfill their court mandate to fund schools now. Students – and their teachers – have waited long enough.

Both budgets would also increase funding for special education – a positive step toward ensuring that schools can provide a rich learning environment based on the needs of all of their students. 

In addition to meeting the minimal requirements of McCleary, budget writers should ensure that the final budget contains ample funding for services that we know give students the best access to opportunities. These include investments such as Breakfast after the Bell – an essential step toward ensuring that kids who may otherwise show up to school hungry have access to breakfast each school day. The Senate budget contains some funding for the program, but more is needed in the final budget. This is a moral imperative: kids can’t focus on learning when they’re hungry. The final budget should also include additional funding for family involvement coordinators and guidance counselors, as proposed by the House, to ensure that students have the resources they need outside of the classroom. 

Early learning and child care. Both the House and Senate propose small but important new investments in the state’s home visiting program, which has proven effective at providing in-home resources related to infant care, child development, and parenting skills. While this is a step in the right direction, state lawmakers should commit to expanding access to affordable child care and fully funding high-quality early learning to serve more kids from low-income families. 

Higher education. The House budget proposes a substantial new investment of $158 million over the next four years in the State Need Grant, our statewide financial aid program, which would eliminate the long-standing waitlist of eligible but unserved students by 2021. This would be a remarkable step forward to put higher education within reach for thousands of students from low-income families and ultimately strengthen Washington’s workforce. The final budget should take the House’s approach.

Healthy people & communities

Our state should support vibrant communities that allow Washingtonians to lead healthy lives and better connect to and participate in the economy. Here’s how the budgets stack up in terms of: 

• Health care. In last year’s budget, lawmakers assumed millions of dollars in unrealistic health care and pharmaceutical cost savings in order to make the budget balance. Those savings predictably did not materialize, so both plans would restore funding to those areas to make up the difference. 

Both budgets include an increased reimbursement rate for doctors who provide care for kids from low-income families, as well as increased funding for behavioral rehabilitation service providers who deliver intensive, comprehensive care for kids with high-level behavioral health needs. 

Both budget proposals also include important funding that would expand health care access to Washingtonians who are citizens of Compact of Free Association (COFA) nations – the Republic of the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau. Citizens of COFA nations are legal residents of the U.S. who work, pay taxes, and serve in the U.S. military – but are ineligible for Medicaid health care coverage. The final budget should take the Senate’s approach of fully funding this investment. 

• Behavioral health. Both House and Senate leaders propose increasing funding for Western State Hospital to comply with federal safety and quality requirements, and they both propose additional investments in community behavioral health treatment services. These are steps in the right direction to improve the quality and accessibility of behavioral health care across Washington’s communities.

Effective & accountable government

The state government supports the foundations of our communities. Our public institutions should efficiently and reliably ensure that all Washingtonians can meaningfully participate in our democracy. 

Both budgets include funding to help people access essential public services, such as: enhancing our state’s emergency 911 system, streamlining how people access family law courts, and strengthening resources for Washingtonians with low incomes who need civil legal help. In addition, the House plan includes funding for economic development, such as a small business innovation exchange, which would support small businesses owned by women, veterans, and people of color. These are critical services that should remain funded in the final budget. These programs not only have significant impacts on the people who use them, but they also make all of our communities stronger.

Economic security

All Washingtonians should have access to employment opportunities, living-wage jobs, and financial security and stability; and they should be economically secure in the face of a financial emergency.

Both budgets smartly propose to strengthen services for Washingtonians with low incomes by restoring cuts made in recent years to grants for people with lower incomes who participate in WorkFirst, State Food Assistance, and Refugee Cash Assistance programs. The final budget should include those investments, plus proposals by House leaders to expand eligibility for the Housing and Essential Needs program, which provides housing-related assistance to people unable to work because of disabilities. It should also raise asset limits for low-income Washingtonians who receive public assistance, as proposed by the House.

The House and Senate budget writers have until March 8 to finalize their budget. With opportunities for new revenue and a number of good ideas on the table, they should be able to come up with a spending plan that will benefit all of Washington’s communities into the future. 


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House budget smartly proposes capital gains tax, but ignores Supreme Court’s order to fund schools this year

Posted by Melinda Young-Flynn at Feb 20, 2018 07:03 PM |
Statement from Executive Director Misha Werschkul

In their just-released budget proposal, House Democratic leaders revealed a plan that would improve equity in our state tax code by closing the capital gains tax break enjoyed by 2 percent of the wealthiest Washingtonians. We applaud the House’s move toward a more balanced tax code, but there are some drawbacks to the plan – including putting off funding teacher salaries another year and drawing from the state’s rainy day fund – which could threaten the long-term well-being of our communities.

Expanding on a similar proposal from their counterparts in the Senate, House leadership proposes a nearly $1 billion withdrawal from the state’s rainy day fund to provide property tax cuts across the state for the next two years. As we noted in our response to the Senate’s plan, this is a short-sighted use of the state’s emergency savings, which are meant to help keep schools, hospitals, and other critical services running when the state experiences an economic downturn. The rainy day fund should not be used to pay for tax cuts – especially during these good economic times.

Moreover, while closing the tax break on capital gains is a significant step toward rebalancing our upside-down tax code – in which low- and middle-income Washingtonians pay up to seven times more in taxes as a share of income than the top 1 percent – dedicating that revenue to across-the-board property taxes is a missed opportunity to generate additional revenue to strengthen our communities. Higher-income households do not need more tax breaks. 

Instead, lawmakers should focus on investments that lift up Washingtonians with low and middle incomes who already pay more than their fair share of taxes to support the community investments that serve us all. They should also prioritize meeting the state Supreme Court’s deadline to provide critical support for teachers and students by the start of the 2018 school year. 

Lawmakers in both chambers have an opportunity to set our state on a path toward a stronger and more equitable tax code to fund thriving communities. Closing the tax break on capital gains is an excellent start. 


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Senate budget proposal makes key necessary investments, but paying for tax cuts with rainy day funds would undercut state’s long-term fiscal health

Posted by Kelli Smith at Feb 19, 2018 06:55 PM |
Filed under: Property Tax, State Budget
Statement from Executive Director Misha Werschkul 

The budget proposal just released by Democratic leadership in the Senate would strengthen investments in our communities, but it misses an important opportunity to begin to rebalance our upside-down tax code. Highlights of the Senate’s proposal include robust investments in key areas, such as providing nearly $900 million in additional funding to schools, an effort to finally fulfill the state’s duty per the Supreme Court’s McCleary decision, and strengthening investments in mental health. 

The Senate’s plan would also reduce the state property tax rate by 11 percent in 2019, which would result in about $400 million in lost revenue for the state. But instead of championing common-sense fiscal policies like closing the tax break on capital gains – which would generate over $700 million a year – to make up for that lost revenue, Senate leadership is proposing to draw down our state’s rainy day fund over the next several years to pay for the tax cut.

Providing across-the-board tax cuts without replenishing the lost revenue is ill-advised. And drawing down the rainy day fund – especially as our economy is booming – to pay for those tax cuts is fiscally irresponsible. The bottom line is that the rainy day fund represents emergency savings that our state will need to maintain schools, health care, and other critical investments when the next economic downturn inevitably hits. The House and Senate should reject this short-sighted approach and instead enact common-sense policies that will clean up our tax code and provide the resources we need to move forward as a state.


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Our testimony on House Bill 2967 and the need to close the capital gains tax break

Posted by Melinda Young-Flynn at Feb 16, 2018 02:54 PM |

Executive Director Misha Werschkul testified on February 16 at the House Committee on Finance in support of closing the tax break on capital gains in our state. Below is the testimony she prepared.

Misha cap gains testimony 2018Thank you Madame Chair and members of the committee for putting forward this proposal and for your commitment to promoting equity in our state tax code.

As you know, Washington state has the most upside-down tax code in the country – in which low- and middle-income households pay up to seven times more in taxes as a share of income than the richest 1 percent. The Budget & Policy Center supports closing the tax break on capital gains because:

  • It would take a first step toward rebalancing our tax code, by requiring the very wealthiest Washingtonians to pay a tax on profits from the sale of high-end financial assets. This proposal excludes middle-class investments like the sale of homes, farms, and small family businesses, as well as assets in retirement accounts or college savings accounts. As a result, fewer than 2 percent of the very wealthiest Washingtonians would be impacted by this proposal. This is a modest tax increase for the richest – only 1.5 percent of their incomes on average – but it would constitute a significant step forward in rebalancing our tax code.
  • It makes the tax code more sustainable. This is common-sense fiscal policy to provide new resources for the investments that help our communities thrive. This is not a new concept. Forty-one states have enacted capital gains taxes, and every one of those states has a tax code that is more equitable than Washington state’s. Because of our overreliance on a handful of relatively regressive taxes, our tax code also suffers from structural inadequacies. We’ve seen the effects of that structural deficit as we’ve grappled with how to fund public schools. Enacting a tax on capital gains would diversify our state’s revenue streams and make the tax code more sustainable in the long term.

That said, we believe that using the revenue from closing the tax break on capital gains to provide across-the-board property tax cuts is a missed opportunity to address the structural inadequacies of our tax code. Our state’s property tax is a core pillar of funding for public services like public schools. Higher-income households do not need another tax break. A better approach to promote family economic security is to enact targeted reforms to help low- and middle-income families and raise needed revenue to invest in schools, effective mental health services, and other areas. 

We encourage lawmakers to use revenue from closing the tax break on capital gains to:

  • Strengthen investments in schools and early learning, health care and mental health, work supports, senior services, or a host of other priorities that would provide a brighter future for all of our communities.
  • Fund the Working Families Tax Rebate to help keep working families out of poverty and take an additional step toward rebalancing the tax code; and/or
  • Enact a property tax safeguard rebate (or circuit breaker), a targeted approach to keeping property taxes from taking too large a chunk out of family budgets for low- and middle-income homeowners and renters.

Thank you for your work on this. We look forward to continuing the discussion.


State’s strong bump in projected revenue will allow lawmakers to devote more funding to schools

Posted by Kelli Smith at Feb 15, 2018 06:35 PM |

The state Economic and Revenue Forecast Council’s latest revenue forecast shows that lawmakers are within striking distance of meeting the minimum school funding requirements established by the Supreme Court’s McCleary decision. But even with positive projections, building the high-quality schools our kids and grandkids deserve without cutting other important investments will require lawmakers to go beyond the bare minimum. To fund schools – and ensure a brighter future for all Washingtonians – lawmakers still need to focus on fixing the state’s upside-down tax code. 

According to the forecast, revenues are up $628 million for the current budget cycle – a significant increase over past forecasts. And while that amount is not enough on its own to cover the Supreme Court-mandated cost of funding schools by the start of the 2018 school year, it does put a solution within reach for lawmakers. That is as long as they take reasonable steps to clean up the tax code.

In his supplemental budget proposal late last year, Governor Inslee recognized the need for additional resources to meet the McCleary shortfall by proposing to use money from the state’s rainy day fund now and replenishing part of it with revenue from a carbon-pricing proposal. While it’s not ideal to tap into the rainy day fund, this was nevertheless one reasonable way forward under the circumstances. With today’s positive revenue projections, lawmakers have more options on the table to ensure that all of Washington’s kids have access to an excellent education.

They should begin by cleaning up our tax code to generate resources to fund schools and other priorities. That means rejecting new tax giveaways to special interests and closing existing wasteful tax breaks, such as the tax break on capital gains – a $715 million annual giveaway to 2 percent of the wealthiest Washingtonians.

Washington’s school kids and teachers have had to make do with less for years while lawmakers have failed to provide adequate funding for schools. They have three more weeks this legislative session to make good on our state’s promise of an excellent education for every child. It’s past time for them to take meaningful steps to ensure they actually have the revenue to do so.


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President Trump’s budget won’t strengthen the economy. It will harm Washington state

By Misha Werschkul, executive director

President Trump’s 2019 budget does nothing to bolster the economic security of people with middle and low incomes – which is critical to create a thriving economy. Instead, his budget actually threatens the economic security of millions of Washingtonians who rely on federal programs to be able to pay for food on the table, a roof over their head, health care, and other basic needs. Further, it will have profound ripple effects on Washington's local economies. 

While this budget is largely symbolic, since the U.S. Congress just approved a two-year budget deal, these extreme proposals should not be ignored. They are an important signal of the president’s priorities. Many of the specific proposals included in the budget have been introduced before and could be incorporated in future budget proposals or stand-alone legislation this year.  

On the heels of the passage of harmful new federal tax breaks that benefit the wealthy and corporations to the detriment of people with low and middle incomes, President Trump laid out a recipe for increased poverty, homelessness, and inequality. Specifically:

  • He again calls for repealing the Affordable Care Act (ACA) and drastically cutting Medicaid, putting health insurance for millions of Washingtonians at risk.
  • He calls for huge cuts in nutrition, housing, and other basic assistance for millions of Americans below or close to the poverty line, most of whom work for low wages, are elderly or have disabilities, or care for young children. For example, the president cuts nearly 30 percent over 10 years from the Supplemental Nutrition Assistance Program, which currently helps put food on the table for more than 900,000 Washingtonians.
  • He proposes deep cuts to the non-defense discretionary budget that funds education, scientific research, job training, and other core government functions. This would result in massive and unsustainable cost shifts to state governments.  

Instead of pursuing the policies proposed by President Trump, federal leaders should take common-sense steps to support families and grow the economy. They can do this by investing in high-quality job training and apprenticeships; increasing access to safe, affordable, dependable child care and care for family members with disabilities; and advancing policies that create jobs and raise wages for working families. 

For more analysis about this harmful budget proposal, see this statement from Bob Greenstein, president of the Center on Budget and Policy Priorities: "Trump budget offers stark vision."


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Lawmakers must reinvest in WorkFirst to restore the promise of basic support to families facing poverty

Posted by Melinda Young-Flynn at Jan 30, 2018 04:15 PM |
Filed under: Poverty, Economic Security
By Julie Watts, deputy director
We all want to live in a state where, when people fall on hard times, they don’t go without the basics – food, shelter, and necessities of daily life that allow them to look for jobs and get back on their feet. WorkFirst, Washington state’s Temporary Assistance for Needy Families (TANF) program, is the main way our state protects children and families from the trauma and debilitating effects of poverty.
WorkFirst not only provides basic assistance to families in crisis, but it also is supposed to ensure they can move out of poverty through job training, child care, mental health, and support services.(1)

However the program is headed in the wrong direction. As a result of harmful policy changes and budget cuts over the last decade, the program is serving a smaller portion of families in poverty than it was a decade ago. Lawmakers must make investments in WorkFirst to reach more families living in poverty and provide families with more help.

Today, WorkFirst helps only 25 families with children for every 100 living in poverty, down from 50 families for every 100 in 2008. (See graphic below.) The sharp, alarming decline in the number of families being helped by WorkFirst has been driven by dramatic cuts in funding. Since 2008, lawmakers have cut state funding for the program by 47 percent (adjusted for inflation), or $179.6 million, and used those funds to plug holes in other parts of the state budget.

Click on image to enlarge.


Further, beginning in 2010, the governor and the state legislature made changes to the program that made it harder for families who were playing by the rules and meeting program requirements to get extensions to time limits. The changes also punished whole families (including children) when a parent failed to meet program requirements and gave families less time to come into compliance before they are cut off the program. Policymakers also cut the amount of cash assistance families could receive even as the cost of living was rising.

These decisions had a far more damaging impact than anyone anticipated. They sent the caseload into a free fall that continues today.

State lawmakers should make sure any new savings in the WorkFirst program that result from fewer families being served are reinvested to serve more families this legislative session. They must make sure that when families fall on hard times in Washington, they don’t go without the basics.

For more detailed recommendations on how to improve WorkFirst, see our policy brief, "Reinvest in WorkFirst: How we can restore the promise of basic support to Washington families facing poverty." 

[1] In addition, a portion of the state’s WorkFirst caseload are “child-only” cases – children who are living with a family member other than their parents or children who are living with parents who are not eligible for TANF.



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Save the date!

Our Budget Matters 2018 policy conference will take place on November 13 at Seattle Center. john a. powell from the Haas Institute for a Fair and Inclusive Society is the keynote. Stay tuned for more details. 

Our policy priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance.

Testimonies in Olympia

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Watch our 2018 legislative session testimonies on TVW: