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4 things you should know about funding Washington schools

The state's Joint Task Force on Education Funding has been meeting for months to figure out how Washington will fund K-12 education. Last week they presented some suggestions. Here's what they missed.
West Seattle High School

West Seattle High School Joe Wolf

On Monday, I reported on the latest efforts of the Joint Task Force on Education Funding, a bipartisan panel of legislators and citizens formed to address the Supreme Court's McCleary decision. The decision, delivered last year, found that Washington has failed in its constitutional duty to amply provide for the education of children in Washington state. The legislature, it was ruled, must develop a basic education program to meet that mandate — a program that is fully funded through "regular and dependable" tax sources. In response, the 2012 Legislature established the Joint Task Force on Education Funding.

The task force has been meeting since August and has just two more meetings scheduled before it completes its report to the legislature, which is due by December 31. At its most recent meeting on November 20, the panel's chair, Jeff Vincent, issued an invitation to business, labor, and education organizations to submit ideas for consideration. Since we, as taxpayers and citizens concerned about the education of future generations, are all stakeholders in this effort, our ideas, either in the form of public testimony at task force meetings or direct communication with members, should also help shape their report.

As one individual stakeholder who has been following the panel’s deliberations over the past four months, and the state tax structure debate for a much longer time, here are a few ideas they might consider when they draft their report.

  1. Focus tax and spending recommendations on the education budget and not the larger general fund budget.

The task force should not try to guess what the next and subsequent legislatures will be asked to fund and cut. Suggesting even token cuts in programs like health and human services is problematic, when cuts in those and other areas in the last two biennia have already been have been so significant and detrimental to those programs, totaling approximately $11 billion. Staff to the task force reviewed these recent budget cuts at the November 20 meeting.

The assumption that funding of other programs will continue at current levels is also questionable. If economic recovery begins to pick up speed, it can be expected that constituencies like higher education will push for a return to higher funding levels.

Then there is the uncertainty hanging over general fund revenue projections. At last week's meeting, the task force assumed that general fund revenue will grow annually by 4.5 percent. This may have been the average in the recent past, but we are now in a recessionary period and revenue growth will likely be much less. It's possible that revenue may even decrease, as it did in 2009 and 2010.

Developing economic and political issues in China, Europe and the other Washington could all result in decreased state revenues, as the Economic and Revenue Forecasting Council emphasized in a September report. The impending “fiscal cliff” and “sequestration” negotiations will have major importance to the state; particularly given the significant military component of Washington’s economy and our dependence on federal program grants.  

2. Describe in detail all important K-12 enhancements, including their costs, benefits and phase-in schedules.

The public will have to be sold on the need for increased education spending. This was reinforced by the comfortable passage of Initiative 1185, which re-established the super-majority rule for tax increases. The report should provide ample evidence that enhancements to current educational practices will actually improve educational outcomes, and that there will be tracking in place to ensure that progress is made.

This will be especially important for enhancements that go beyond what is already required, as defined by a 2010 bill (HB 2776) that defined basic education. Things like increased salaries, improved transitional bilingual instruction, and career and college readiness programs go beyond this definition.


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Comments:

Posted Tue, Nov 27, 9:36 a.m. Inappropriate

The author suggests a "successor task force" be tasked with evaluating a number of closely-circumscribed criteria, including:


- the burden of state and local taxes measured against personal income;

- the declining ratio of sales tax revenue to personal income;

"Personal income" means different things to different people. If employment income plus capital gains/dividend income is considered "personal income", then the ratio of sales taxes to it will seem modest. That is because around here pay rates for full-time employees in a number of public and private job categories are relatively high. In reality though, measuring personal income that way would mean the impact on the underemployed, the disabled, the retired, those between jobs, the lower three economic quintiles of families with dependent children, etc. of our very high and regressive state and local taxes -- especially the nearly ten percent sales tax rate -- will be grossly understated.

I'm also struck by how the author does not posit more progressive taxes, spending curbs, or systemic changes to the current education regime as subjects worthy for this proposed successor task force to consider. He also doesn't recommend studying best practices elsewhere and employing those. Those shortcomings are his m.o.; he was one of the co-sponsors of the regional transit authority enabling statutes in 1992. Sound Transit now is a financially-abusive debacle, in no small part because it was structured without due concerns being paid to aspects of good government such as accountability of leaders to people, progressive revenue sources, utilization of best practices the peers employ, financial curbs to prevent profligate and abusive spending, etc.

crossrip

Posted Tue, Nov 27, 10:08 a.m. Inappropriate

1.  For years the legislature has adopted policies that legislative fiscal leaders knew would lead to something like the McCleary decision.  Raising the levy lid every couple of years despite legal advice to the contrary.  Adopting an expensive new definition of basic ed based on a theoretical schools model.  Then pushing off funding for that new model into the future.  Making school districts subsidize programs that were legally the state's responsibility, such as busing kids to and from school.   The legislature has deliberately set up this funding problem, in part to convince the voters to give them more money so legislators can protect pet programs that would otherwise need to be cut.  It's a shell game and voters need to have all the info before making a decision about new taxes for K-12 funding.

2.  The education of the state's children is our paramount constitutional duty.  There is plenty of money in the general fund to discharge that duty.  If new taxes are needed to sustain other important responsibilities as education funding is increased, fine.  

3.  Dick is a stalwart warrior in the fight to redistribute responsibility for supporting the community from the more productive/fortunate to those less so but finding more money to pay for court cases isn't the best place to try and live that dream.  Using school funding to achieve income redistribution goals could kill both efforts.  In Legislative Land, the perfect is the enemy of the good.

4.  Voters will have more respect for their government when they know that their leaders are honest with them.  I hope that respect will help them open their pocket books to pay for those services best delivered or funded by the community as a whole.

Posted Tue, Nov 27, 10:17 a.m. Inappropriate

Pardon my mental dyslexia. On #3 meant to say redistributing responsibility for community support from the less productive/fortunate to those more so. My bad.

Posted Tue, Nov 27, 10:31 a.m. Inappropriate

You might want to consider joining DAM, Mothers Against Dyslexia. I hear they do good work.

Djinn

Posted Tue, Nov 27, 10:33 a.m. Inappropriate

You've raised some good points, hopefully meaningful action will happen in Olympia that addresses them.

Djinn

Posted Tue, Nov 27, 9:36 p.m. Inappropriate

Hey Dick Nelson -- it would be great if you could post links to the best, most reliable data you can find relating to both “the burden of state and local taxes measured against personal income” and that purported “declining ratio of sales tax revenue to personal income”.

I'm not aware of good information on those topics. Presumably you think it exists.

Who has good data on sales tax burdens here? Post a link.

There is no standard for measuring "personal income".

As nobody has the particular data you identify you're just proposing a wild goose chase, right?

crossrip

Posted Wed, Nov 28, 7:26 a.m. Inappropriate

For the tax burden as a function of income, go to the state's alternative tax model. A link can be found at this Department of Revenue website:
http://dor.wa.gov/content/AboutUs/StatisticsAndReports/Default.aspx

For the sales tax revenue/personal income relationship, go to the state's Economic and Revenue Forecasting Council's September 2012 report. The data is in Figure 3.4 on page 58 of Chapter 3. The link is:
http://www.erfc.wa.gov/publications/documents/sep12pub.pdf

Posted Wed, Nov 28, 10:08 a.m. Inappropriate

That “state's alternative tax model” is an Excel program (here’s the link: http://dor.wa.gov/docs/reports/Tax_Alt_Model_2005_ver2.xls).

I could not get it to run on my version of that software. It supposedly allows users to change tax rates to model impacts in terms of “household income”, not the “personal income” statistic referenced in your article. Moreover, I couldn’t find any information there about how it defines and quantifies either “household income” or “personal income”. It is identified as a 2005 model, and if the sales tax rates have not been updated it would not reflect the increases in local sales taxes due to the hikes since then by both Metro and Sound Transit. I was unable to locate in that spreadsheet any information about what assumptions and variables were used to derive “household income” values.

I took a look at that state “Economic and Revenue Forecast” report you suggested. On pp. 57-58 it says this:

“Taxable sales as a share of personal income has been declining. Their share fell sharply
during the recession and has continued to fall through FY 2012. In that year, an estimated 34.4% of personal income was spent on taxable items, the lowest percentage on record.”

The term “personal income” is used in that report, and it refers to the Bureau of Economic Analysis figures (as is explained on page 31). That is a measurement of gross statewide personal income; as of 2Q 2012 the figure is 270 billion (2005$).

The information from that report does suggest that given the current high sales tax rates the incremental increases over the past decade are producing relatively lower gross revenue returns to state and local governments. That makes sense; when you penalize purchasing and take away ever-increasing amounts of peoples’ relatively modest discretionary spending power they’ll purchase less of the products and services subject to the high sales and use taxes state and local governments around here impose.

Nothing in that report bears on the financial impacts on individuals or families around here of the much higher sales and use taxes we’ve been paying compared with just twenty years ago – I assume that is the area of inquiry you suggest this new task force should look into when you refer to “the burden of state and local taxes measured against personal income.” The term “personal income” in that report refers to data unrelated to the extent to which our high sales tax rates are burdensome for individuals and families around here.

crossrip

Posted Thu, Nov 29, 9:19 a.m. Inappropriate

So Dick Nelson: mind if I ask you a question?

Yesterday I posted about that “Economic and Revenue Forecast” report you suggested. It indeed does show a “declining ratio of sales tax revenue to personal income”. That report also defines “personal income” as the aggregate amount of various types income everybody in the state now is taking in (as of 2Q 2012 the figure is 270 billion (2005$)).

Why do you think it would be appropriate for the new state task force you propose to consider how incremental increases in the high state and local sales tax rate people around here pay would produce relatively less revenue than previous sales tax hikes? Is it so the state would make sure to hike sales taxes by large enough amounts, or is it to illustrate why hiking sales taxes further would be inappropriate?

You aren’t tipping your hand on what you think about increasing regressive taxes for the state's education spending. I know you were a huge fan of high sales taxes in 1992; that’s when you co-sponsored Sound Transit’s enabling statutes. Has your thinking evolved since then?

crossrip

Posted Fri, Nov 30, 7 a.m. Inappropriate

. . . Why don't you suggest this proposed new task force identify progressive taxes? Do you have something against payroll taxes for example, where larger corporations would pay more? That could be used as a funding source for education -- it's how the greater Portland area pays for transit (unlike the 1.8% sales tax rate used here, which you had a big hand in shaping).

crossrip

Posted Sat, Dec 1, 12:11 p.m. Inappropriate

Repost of a comment I made 18 months ago in response to crossrip, again.

The commenter crossrip is correct that you have to think about the state and local tax burden to do any comparisons, but Seattle is an incredibly cheap place to live in terms of taxes.

Some context on tax burden in Seattle: In 2009 a family of 3 making $75,000 (around the 2009 median income of $67,468) has a combined state and local tax burden of around $4,915, or 6.6% of income. This ranks it 41st in the nation for tax burden of major metro areas at that income level.

Study on state and local tax burdens in metro areas
http://cfo.dc.gov/cfo/frames.asp?doc=/cfo/lib/cfo/09STUDY.pdf

OFM Data on median income:
http://www.ofm.wa.gov/economy/hhinc/medinc.pdf

Rep. Ross Hunter

Posted Sun, Dec 2, 9:33 a.m. Inappropriate


Thanks for posting.

You provided a dead link. That nationwide survey by staff of the District of Columbia you cite as gospel for your annual state and local tax impact on households in Seattle ( supposedly ~ $4,900) was taken down from its website.

I looked at that study when you linked to it 11 months ago, and noted then that there was no way to verify whether the full extent of the myriad state and local taxes here were reflected in that figure, or when/how that estimate was derived by some staffer at the District of Columbia.

I suggest you obtain much more transparent, current and verifiable information about the real impacts of state and local taxes on individuals and families around here. For example, you and your colleagues authorize Sound Transit and Metro to impose transit taxes targeting primarily individuals and families around here: 1.8% sales tax, car tab taxes, and a property tax for Metro. What do average- and median-income individuals and households pay every year in terms of those? I’ll bet you couldn’t point to data showing whether those figures are closer $400 or $700, although they might well be in that range. In Portland the average individual and family pays $0 in general taxes for transit.

In short, you’ve been hanging your hat on that DC study for some time now, and it has no indicia of credibility. If that’s the only baseline data for state and local tax impacts you have then you’ve revealed a fundamental flaw in our state’s government – it doesn’t know the nature and extent of the financial impacts it is causing.

Something else: the median household income figure for King County shown on that state OFM chart you cite is $66,000, lower even than the OFM’s 2006 figure. That’s quite a bit lower than the $75,000 figure you provide in your posting here.

Moreover, I’ll note that a more recent report from a Seattle “booster” organization is using a FAR lower median household income figure than what you use:

“Downtown per capita income in 2011 was $36,437, slightly higher than the citywide average. Average household income Downtown was $56,446 and median income was $34,966.”

http://downtownseattle.com/files/file/SOD2012_EconReport.pdf

crossrip

Posted Sun, Dec 2, 11:31 a.m. Inappropriate

I’ll show you how bogus and lowball your supposed $4,900 per year state and local tax impact on a household around here really is, Ross Hunter.

Here’s a Foster Pepper lawyer estimating in 2008 that the sales tax impact on a family here of the ST2 .5% increase would be $138 each year ($69 x 2):

“For families with a median household income of $64,000, that breaks down to about $69 per year for each adult.”

http://seattletimes.com/html/opinion/2008214199_opin30propone.html

The current sales tax rate around here is 9.5%, so that would mean the median family pays $2,622 in sales taxes each year (in 2008 dollars - the actual annual sales tax hit number is higher now, due to inflation). Foster Pepper is one of Sound Transit's outside law firms, and it would have actual tax revenue data.

Here’s the current property tax bill for the owner of a $398,000 home in Seattle:

https://payments.kingcounty.gov/metrokc.ecommerce.propertytaxweb/RealProperty.aspx?Parcel=0JIo9gWqepzIw2g5apSa1A%3d%3d

The 2012 tax bill for it is $4,250.

For the family with that average-value home with the average sales tax amount calculated above they thus would pay $6,872, just in sales taxes and property taxes.

The average family in King County owns 2 cars, on which they pay a TBD tab tax, a Metro tab tax, a Sound Transit tab tax, and a state tab tax . . . call it $90 for each vehicle. That takes the state/local tax impact each year to $7,052.

Now let’s add in state gas taxes and state alcohol taxes, for another $300 per year. We’re at $7,352.

Now we can add it the amount of state and local B&O; taxes local businesses pass on for services and products provided to the average family, and the taxes paid to state and local governments for utilities (NOT the utilities fees themselves . . . I won’t add those in). Those will takes us to $8,000 per year in state and local general taxes paid by the average family . . . FAR higher than the $4,900 figure you are taking as gospel (the one from some flaky report from a Washington DC municipal government staffer).

Disagree with any of my sources or calculations?

crossrip

Posted Sun, Dec 2, 10:01 p.m. Inappropriate

Here's a better link. This is to the 2011 report. I'm sorry I posted without checking the links. I should know better.

http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/Nationwide%20Comparison%202011.pdf

The information on how they compute the sales tax is on page 6 of the report. The relevant text is here:

The sales tax burdens included in this study are based on information from the 2011 Bureau of Labor Statistics Consumer Expenditure Survey (CES). The CES provides data on consumer expenditures for different income categories. For example, the CES data provide average annual expenditures on items such as food at home, food away from home, apparel and services, health care and transportation. The expenditure data and the tax rates of cities are used to determine the sales tax that these expenditures generate. The state and local general sales tax rates in each city are reported in Table 7, page 22.

The sales tax rate they use for Seattle is 9.5%, including the Sound Transit increment. They break it down as

State: 6.5%
City: 1.0%
County: 0.2%
Transit: 1.8%

I would urge you to read the methodology section. It seems reasonable to me, and I'm not enough of an economist to compute this stuff on my own. To compare across cities they use a standard basket of goods purchased and assumptions about behaviors at different income levels. For a family of 3 making $75,000 in 2011, this study ranks Seattle 36th in the nation. For the same family making $100,000 Seattle ranks 42nd, falling to 43rd for a family making $150,000.

The study is mandated by Congress, and co-sponsored by the federation of tax administrators. One would assume that they would object if it was a random project. I've been referred to this study a number of times by different people involved in looking at economic issues in Washington.

The conclusion that can be drawn from it is that it's about average to be a low-income person in Seattle, but significantly under average to be a moderate to high income individual. This is not an unreasonable conclusion in a state with a very regressive tax structure and a low to moderate tax burden overall. For this you should look at Tax Foundation numbers http://taxfoundation.org/state-tax-climate/washington - they rank our tax burden at 9.3%, or 29th in the nation.

Posted Mon, Dec 3, 11:19 a.m. Inappropriate

Thanks for responding.

1. [Washington has] a very regressive tax structure and a low to moderate tax burden overall. For this you should look at Tax Foundation numbers http://taxfoundation.org/state-tax-climate/washington - they rank our tax burden at 9.3%, or 29th in the nation.

That “Tax Foundation” paper shows a Washington per capita income figure of $45,854 and a state/local tax burden of 9.3%:

http://taxfoundation.org/article/washingtons-state-and-local-tax-burden-1977-2010

The figure given there for total state and local taxes paid in Washington is $4,261. The figure for taxes paid per capita to the state of Washington is $3,088, and the taxes paid per capita to other states is shown as $1,173.

A couple of problematic incongruities jump off that page. There is no amount shown for taxes paid to local governments. That’s a significant omission. Also, the “per capital total state and local taxes paid in Washington” figure of $4,261 probably doesn’t include the extra taxing done in Seattle and King County compared to the rest of the state. Up above is a link to that 2012 property tax bill for a $398,000 home in Seattle (about the average value of a non-foreclosed s.f.d. in Seattle) for $4,250. About 25% of that bill is due to a series of local ballot measures, we’ve got a countywide ferry district and a countywide port that all impose property taxes, etc. Likewise, the transit sales taxes around here that were designed to impact families and individuals with the least economic wherewithal the hardest are significantly higher than in the rest of the state. The true fiscal impacts on households around here of state and local taxes could not be captured by a statewide per-capita figure.

2. I took a look at that new District of Columbia report, and here are a couple of comments on it:

-- Page 10 shows that property tax on a $400,000 s.f.d. in Seattle supposedly would be $3,886. However, the link I posted yesterday shows a 2012 property tax bill for a $398,000 home in Seattle for $4,250.

-- The state and local sales tax amount the report says the average-income three-person family in Seattle supposedly pays appears understated by a considerable amount. Here again is that Foster Pepper lawyer estimating in 2008 that the sales tax impact on a family here of the ST2 .5% increase would be $138 each year ($69 x 2):

“For families with a median household income of $64,000, that breaks down to about $69 per year for each adult.”

http://seattletimes.com/html/opinion/2008214199_opin30propone.html

The current sales tax rate around here is 9.5%, so that would mean the median family pays $2,622 in sales taxes each year. However, if you interpolate between the “$50,000” and the “$75,000” houshold income sales tax figures (on Pages 9 and 10 of the report) that DC report shows a sales tax burden figure of only about $1,350, or half of what that ST2 advocate estimated.

I can not explain why that report from the city of Washington DC is reporting tax impact figures here that are lower than what the sales tax and property tax figures in my posts in this thread show. With respect to sales tax impacts in particular there is a huge difference, and given the huge financial incentives that lawyer had in getting that ST2 measure passed I’m confident his figures understated the impacts on most households of a regressive tax hike of that magnitude. Moreover, the flaws with the Consumer Expenditure Survey (upon which this report’s sales tax impact estimates are based) lead to significant underreporting, and they are both numerous and profound. See, for example, http://www.nap.edu/openbook.php?record_id=13520&page;=95

The sales tax impact estimates in that city of DC report are based exclusively on the CES. Here’s just one of the recent papers referencing that survey and its manifest shortcomings:

“Most studies of consumer spending rely on the same error-prone dataset. The data came from the government's Consumer Expenditure Survey (CE), an in-depth accounting of how much households spend on various goods and services conducted by the Census Bureau on behalf of the Bureau of Labor Statistics. Portions of the CE produce reliable estimates, but the survey as a whole generates strange and increasingly unreliable estimates of total household spending. It consistently falls short of more reliable estimates from national accounts data - the broad measures gathered by the Commerce Department's Bureau of Economic Analysis.”

http://www.chicagobooth.edu/magazine/34/3/facultydigest/inequalityinspending.aspx

Rep. Hunter: you said several individuals recommended that city of DC report to you. Were they all lobbyists paid by transit-advocacy PACs, or PACs representing cities and counties in this state urging more taxing authority? That would explain why that report is being pushed on our state's legislators.

Any Crosscut readers think they can quantify, based on reasonable data sources, an estimate of how much sales tax a 3-person family around here with about $64,000 annual income would end up paying each year? The state apparently doesn’t make the effort to derive figures like that for the policy-makers – perhaps that should change.

Based on the documents to which you’ve alluded Rep. Hunter (especially that DC report) you should not be confident that in the Seattle area there is “a low to moderate tax burden overall”, other than what is being experienced by the top 10% of income-obtaining households around here.

crossrip

Posted Sat, Dec 1, 3:20 p.m. Inappropriate

Don't forget we elected those legislators who keep making decisions we do not like.

Posted Tue, Dec 4, 10:09 a.m. Inappropriate

That's not correct. Nobody elected the Sound Transit boardmembers who are legislating into existence an abusive financing plan calling for FAR more regressive tax impositions than needed for reasonable capital and operations costs. That board is controlled by political appointees. Didn't you know that?

No place else comes close to slamming individuals and families with a 1.8% sales tax for transit. The report from DC Rep. Hunter provided (link above) shows that ugly reality -- things are very different for people here, in a bad way.

crossrip

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