The legislature convenes today (Nov. 28) to deal with a $2 billion shortfall needed to balance the state’s biennial operating budget. Along with an all-cuts supplemental budget, Gov. Chris Gregoire has recommended a temporary one-half percent increase in the state sales tax to “buy back” cuts to education, the social safety net, and offender programs.
The governor has probably suggested the only viable option to legislators — who have been slow to react to official predications of continuing revenue shrinkages — to forestall major cuts to several essential programs.
In asking for new revenue, the governor is effectively challenging both political parties to set aside their ideological differences and come to the aid of the state at a time of deep fiscal distress. Her message is directed at Democrats who see the sales tax as a major contributor to the state’s distinction as having the nation’s most regressive tax system, and to Republicans who view all new taxes as a drag on the economy.
The referendum bill, which she has recommended be considered in a March special election, would raise $494 million over the next three years. If approved by voters, the sales tax proposal would prevent a further $160 million cutback in state support for higher education and a $152 million reduction to the state’s K-12 school levy equalization program. It would also prevent cuts in teacher salaries resulting from shortening the school year by four days, a $100 million buy back.
Additionally, the tax measure would preserve services to people with developmental disabilities and in need of long-term care. And it would cancel early release of offenders and reductions in community supervision.
The linchpin for Republicans and even some Democrats in supplying votes needed to place a referendum on the ballot may be levy equalization, a relatively large budget cut that impacts “property-poor” school districts across the state. Those districts are often in smaller towns.
Gov. Gregoire gave a passionate defense of her proposals in a presentation to media, predicting that voters will support new revenues that are precisely targeted.
Although divided on the proposed sales tax, the public seems to be paying close attention. A KING5-TV statewide poll taken last week immediately after the governor’s press conference indicated an even split, 47 percent yes, 47 percent no, leaving only 6 percent undecided or in other categories (KING didn't provide a breakdown of those responses in the web story about the poll).
The governor suggested two other revenue packages that could be used in whole or in part to offset other cuts which she has prioritized. The smaller package, consisting of regulatory changes and fees totaling $59 million, could be enacted by simple majorities in both houses.
Another, a set of new taxes and tax break changes, would raise $282 million but would require two-thirds supermajority votes in both legislative chambers. But the governor indicated that she was “not optimistic” that the legislature would approve it. It would tax the “windfall profits” of large oil companies and financial institutions, repeal the sales tax exemption for purchases by non-state residents, and limit the tax deduction for interest earned by banks on first mortgages. In addition, new taxes would fall on “luxury” vehicles and gambling winnings. And cigarette smokers would experience yet higher taxes.
In producing the $282 million package, the governor reviewed 147 revenue-raising alternatives across a range of taxes, tax breaks, and fees. But only nine were chosen. The reasons for winnowing the list down to only a few have not be disclosed, but the governor said she will share the details of the selection and vetting process with legislators.
One can only speculate as to the political calculations that went into the governor’s choice of a sales tax increase. As she pointed out, the statewide sales tax was last raised in 1983 during Gov. John Spellman’s administration, from 5.4 to 6.5 percent. Although the state’s fiscal problems in that period were difficult, the recession was not as deep and as long-lasting as the current one.
Earlier, during the administration of Gov. Dan Evans, the sales tax rate was raised three times from 4 percent to 4.6 percent. The last increase, in 1976, was continued for three years, reverting to 4.5 percent in 1979.
So, one selling point is to remind legislators and voters of the depth of the current problem, and that two Republican governors championed tax increases, and legislators of both parties supported the need for revenue in earlier recessionary periods. Another is her promise that the increase will not be permanent and will end in 2014, when she believes the economy will be back on its feet.
Also, one tax may be easier to defend in a short election campaign than a number of desperate tax break changes, each of which has a protective constituency ready to raise numerous issues in arguing for their preservation. And the one-month special session doesn’t give legislators much time to hold hearings and vote on a repeal of tax breaks when they must first make tough budget decisions.
The legislature has established a systematic approach to reviewing tax breaks, but it is a process that doesn’t lend itself to quick work. The Citizen Commission for Performance Measurement of Tax Preferences has set out a 10-year schedule of reviews, and the Joint Legislative Audit and Revenue Committee is plodding through it. The budget writing committees could have expedited the process by identifying breaks that are ineffective and the least defensible, researching the costs and benefits, and holding hearings following the last special session. But that didn’t happen, and the result is that only five tax breaks out of hundreds made it into the governor’s list.
We will soon know if the legislature has a different approach. Some budget writers, like Sen. Ed Murray (D-Seattle) who chairs the Ways & Means Committee, have indicated that the voters need to be asked to approve revenues. But Murray cautions that finding even a majority of votes in the Senate to refer a tax measure will be difficult.
Although a few rank-and-file Republicans have indicated a willingness to consider tax increases, their party’s leadership has remained adamantly opposed to any tax increase. This was the clear message from House Minority Leader Rep. Richard Debolt (R-Chehalis) who issued a statement saying that the governor was attempting to “exhort a tax increase out of the voters.”
And after the November revenue forecast indicated a further $122 million drop in revenue, Sen. Joe Zarelli (R-Ridgefield), the Ranking Minority Member of the Ways & Means Committee, said:
The goal should be to come out of the upcoming special session and (2012) regular session with an ‘all-priorities’ budget, meaning a dollar isn’t spent unless it’s tied to a priority of government. The best way to get there is by putting reforms before revenue — better yet, enact reforms before there is serious discussion about increasing revenue.
Zarelli is one of 16 Washington state legislators, all Republicans, who have signed Grover Norquist’s “No Tax Increase Pledge”. Norquist heads Americans for Tax Reform, which advocates the scaling back of government at all levels — federal, state, and local. Norquist’s long reach is exhibited by a letter addressed to our state legislators urging that they not follow the governor’s recommendations, which was sent on the very next day after their release.
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