Legislature, Inslee face financial and political dilemmas
Voters have sent very mixed signals about what they want and how to pay for it. Education, tax breaks and possibly taxes will be high on the agenda when the Legislature and new governor get to work.
The gazillion-dollar question: How much money does Washington's state government really need in 2013-2015?
The follow-up question: Where's that money gonna come from?
Those two questions could tie up the state Legislature for months. In fact, numerous other questions are spinning off from these two. Washington faces a complicated budget shortfall for 2013-2015 — the bulk due to the need to fix the state's education funding woes. That because the Washington Supreme Court ruled a year ago that the state is not meeting its constitutional obligation to adequately fund education — a problem that Gov.-elect Jay Inslee, legislative Democrats and legislative Republicans have different ideas on how to fix.
When the legislative session begins Jan.14, several factors will come into play as the Legislature deals with its latest budget crisis. Here is a rundown:
- Without considering any education matters, the state's 2013-2015 operating budget is expected to be in the $33 billion to $34 billion range with revenues initially expected to be about $900 million to $1.375 billion short of expenses. Inslee's proposed 2013-2015 operations budget has not been unveiled yet.
- Republicans and Democrats cannot agree on how much the state should do to meet the state Supreme Court's education ruling. Republicans are looking at roughly $924 million worth of education fix-it work in 2013-2015. Democrats are looking at $1.4 billion to $1.6 billion worth. Democrats want to tack on more money for teachers' and administrators' salaries than Republicans do. Plus they want to allocate more funds than Republicans to adding more class hours and high school credits. The Republicans' stance is that the Democrats want to spend more money than the Supreme Court requires. Inslee has not yet unveiled his education fix-it plan other than arguing that an improved economy can take care of the problem.
- Higher education lurks as another costly problem — one without help from a Supreme Court ruling. Tuitions are climbing and Washington students are being shut out from state colleges. Meanwhile, Rep. Larry Seaquist, D-Gig Harbor and chairman of the House's Higher Education committee, is working on an estimate of what the state needs extra to fix higher education. An actual figure won't be ready until mid-January, but Seaquist speculated it could be around $625 million.
Seaquist argued that higher education — four-year colleges, community colleges and tech schools — is a much-needed part of curing Washington's economic woes. And citing 2009 figures from the international-oriented Organization for Economic Co-Operation and Development, Seaquist contended Washington lags behind the world and the rest of the United States in post-high-school degrees. Many industrial nations have at least 40 percent of their young adults— ages 25 to 34 — holding post-high-school degrees with Canada, South Korea and Japan breaking the 50 percent mark. The U.S. figure is 40.4 percent and Washington's figure is 40 percent for that age bracket.
Seaquist finds it significant that 38.5 percent of Americans ages 55 to 64 have post-high-school degrees, while 44.6 percent of Washingtonians in the same age group have post-high-school degrees. Washingtonians in the 35-to-54 age brackets have post-high-school-degree percentages of 41.3 percent to 43.6 percent. Seaquist's bottom line to increase higher education dollars is that Washington's adults 25 to 34 are less likely to have post-high-school degrees than the state's older adults. This is the reverse of the trend in the industrial nations analyzed by the OCED.
- Rumblings are emerging about a possible need to add one extra 144-car ferry beyond the two already on the state's construction books. A 144-car state ferry is currently being built for $147 million.
- Legislative Democrats argue tax increases are needed. Inslee and legislative Republicans have ruled out any tax increases, although Inslee has not specifically ruled out eliminating tax cuts due to expire soon. If education gets top priority, that leaves health, social services, natural resources and corrections to absorb hundred of millions of dollars worth of cuts under a no-new-taxes approach.
Democrats have floated trial balloons of taxes on carbon emissions, capital gains, gum, candy and soda and a wholesale fuel sales. A 5 percent capital gains tax on more than the first $10,000 in earnings could raise $650 million to $1.4 billion a year. Expiring taxes that could be renewed include a beer tax, a hospital beds tax and a 0.3 percent business and occupation services surcharge — measures that could raise $650 million to $912 million a year.
- All sides are talking about closing some tax exemptions, with current proposals ranging between tackling yet-to-be named breaks that tally $63 million to $250 million annually. Republicans usually equate closing tax exemptions to raising taxes — a no-no in their political philosophy. And despite their rhetoric, Democrats have made few attempts in recent years to actually close tax exemptions.
At the same time, the Legislature and Inslee have made job creation another high priority, a venture that usually uses tax breaks to attract new businesses. In fact, Inslee wants to create short-term tax breaks for to start-up biotech and information technology ventures, plus tax credits for aerospace manufacturing and research businesses. "All the tax incentives that Gov. Inslee passes in 2013 will be seen as loopholes in 2015," said Richard Davis, president of the conservative-leaning Washington Research Council at a Dec.13 conference in Seattle held by the more liberal-leaning Washington Budget & Policy Center.
- Democrats are looking at shifting $300 million in school transportation costs to the House's and Senate's transportation committees, which would make their jobs harder in putting together transportation funding packages that are frequently cited as job-creation vehicles.
- So far, a few hundred million dollars worth of budget cuts have popped up in a couple Democrat proposals — with no actual details on what would be trimmed. "I think the low-hanging fruit was taken care of years ago. All that left is the coconuts," Davis said.
The total budget shortfall will likely be $2.5 billion to $3 billion, speculated Rep. Ross Hunter, D-Medina and the House Democrats' chief budget writer, at the Dec. 13 conference. He said filling in the budget shortfall without finding new revenue sources is impossible. "You can't do it," Hunter said.
Meanwhile, the political landscape has changed in the Legislature, which will affect the upcoming budget battles.
First, a two-thirds majority is needed in both the Senate and House to pass a tax increase. Tax-unfriendly Republicans make up more than one-third of each chamber, making tax increases almost impossible. However, the Washington Supreme Court is expected to rule soon on whether that two-third's majority requirement is constitutional. If it is unconstitutional, Democrats would theoretically be able to pass tax increases with simple majorities.
But two Democrats — Sens. Rodney Tom, D-Bellevue, and Tim Sheldon, D-Potlatch -— formally joined the Senate's 23 Republicans to create a formal 25-member alliance and a one-vote anti-new-tax majority in the Senate. That sets up a potentially huge rift in dealing with the state budget woes between the Democrat-controlled House and the Republican-oriented Senate.
For its part, the House has just split its Ways & Means Committee into two separate committees. Former Ways & Means chairman Hunter will chair the new House Appropriations Committee. Rep. Reuven Carlyle, D-Seattle, will chair the new House Finance Committee, which will be in charge of finding new revenues.
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Comments:
Posted Mon, Jan 7, 7:11 a.m. Inappropriate
Rep. Carlyle did have a specific list of tax exemptions ( loopholes) he wanted closed, 251 of them. Of course he wanted them to be considered for closure in 2017...so how much of an emergency does he really consider it? How serious are his fellow Democrats who held majorities and the Governors mansion? The evidence would suggest, not very.
http://seattletimes.com/html/politicsnorthwest/2017414111_rep_carlyle_introduces_bill_to.html
Posted Mon, Jan 7, 10:22 a.m. Inappropriate
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On his blog, Carlyle recently wrote: "Washington state ranks 28th in the nation in combined local and state tax obligations. At 9.3 percent of income, according to the generally conservative, but well-respected Tax Foundation, it is easy to make a policy case that this is not a wildly unreasonable burden.
The “Tax Foundation” is well-respected in business circles that push taxing policies with heavy regressive taxes – taxes that fall on individuals of modest means most heavily. Moreover, it is reprehensible for Reuven Carlyle and his colleagues to cite that particular T.F. study as a basis for establishing taxing policy in this state.
Ross Hunter – another of state legislative leaders on budgeting and financing, posted a series of comments in the following Crosscut thread beginning on December 1 last year:
http://crosscut.com/2012/11/27/education/111664/dick-nelsons-suggestions-education-reform/
He and his colleagues start by presuming that the average household makes $75,000 per year, and they structure their taxing policies based on that terribly-flawed presumption. The real number is closer to $50 K, and given the real unemployment and underemployment figures there are increasing numbers of individuals and families with less household income than that:
http://seattletimes.com/html/soundeconomywithjontalton/2019938310_the_trouble_with_washingtons_u.html
Part of what that Times story notes is this:
In the third quarter of 2012, Washington posted one of the worst U-6 unemployment rates in the nation, 17.1 percent. U-6 measures the "officially" unemployed, plus part-time employees who want but can't find fulltime employment, as well as discouraged workers.
That’s why we have the most regressive tax structure in the country – the government heads around here live in a bubble and who they listen to, and take advice and Tax Foundation report statistics from, are corporate lobbyists and public employee union reps who represent nothing but fully-employed and highly compensated individuals who never enter the U-6 statistics.
Posted Mon, Jan 7, 10:22 a.m. Inappropriate
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Now we’ve got Carlyle in this story again citing that flawed T.F. study. Here is some of what is demonstrably wrong with it.
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
There’s no way to verify that the sources the Tax Foundation used are accurate or that they reflect the U-6 figure referenced above. Moreover, a more recent report from a Seattle “booster” organization gives a FAR lower per capita income figure ($36,500):
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
It’s fair to point out that Carlyle is using a report that lowballs the state/local tax impacts in Seattle: Seattle residents elected him.
Posted Mon, Jan 7, 10:24 a.m. Inappropriate
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The figure the Tax Foundation study gives there for total state and local taxes paid in Washington is $4,261. It says the amount of 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. There is NO amount shown for taxes paid to local governments. That’s a significant omission. Anyone want to try explaining it?
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.
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. A $398,000 home in Seattle is about the average value of a non-foreclosed s.f.d. in Seattle.
About 25% of that bill is due to a series of local ballot measures, plus we’ve got a countywide ferry district, Metro, and a countywide port that all impose property taxes. There’s absolutely no evidence that any of those local property taxes are reflected in the Tax Foundation’s supposed tax impact figure.
Likewise, the 1.8% local 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, and they are FAR higher than any. The true fiscal impacts on households around here of state and local taxes could not be captured by a statewide per-capita figure.
Let’s discuss the actual state and local sales tax impact on families around here. 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). That firm does Sound Transit’s financing work, so it has actual data, not the unverifiable estimates the Tax Foundation uses.
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 to that figure 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). That takes us to $8,000 per year in state and local general taxes paid by the average family. Using the DSA figure of $56,500 for average household income that shows a state/local tax rate on the order of 14.5%, not the 9.3% figure in the Tax Foundation report. That would put us at the top of the list of "state/local" tax burdens.
The state legislative leaders can’t cite that Tax Foundation paper enough times, and it is filled with flawed figures. We’ve got the most regressive tax structure in the country, and Carlyle, Hunter, and their ilk essentially are waving their middle fingers at middle class families now by overstating how much they make and understating how much they already are paying in state and local taxes.
Posted Mon, Jan 7, 12:02 p.m. Inappropriate
"Voters have sent very mixed signals about what they want and how to pay for it."
I suggest that for many long years the voters have been very clear and very consistent. It's not that they don't like and want government services, it's just that they don't want to pay for them. It's really quite simple. Why can't these fool politicians figure it out?
Posted Tue, Jan 8, 12:30 a.m. Inappropriate
It is not a mixed signal. There are 2 billion dollars a year in subsidy going to corporations, and business. So, there is your revenue without raising taxes. Don't call ending special tax deals raising taxes. It is not. So, no mixed signal; just politicians who pretend not to really notice about the subsidy.
I know it is the PR's meme that "citizens want; but they don't want to pay". That is all cute and all; but citizens know about the subsidy, and the sweetheart deals. How much are the 520 bridge tolling corporations (that's right corporation with an "s".) getting payed?
Citizens know that the money is being cronied away. So, there is no mixed signal; just a dishonest meme.
Posted Tue, Jan 8, 5:44 a.m. Inappropriate
And don't forget Christine's sweetheart gas tax deal and gambling compact with her tribal campaign contributors/overlords.
Posted Tue, Jan 8, 2:55 p.m. Inappropriate
Outsiders are influencing our goverment at all levels. Why on earth would someone spend millions of their own money to get elected to earn $150k a year? Unless?
Posted Sat, Jan 12, 8:52 p.m. Inappropriate
Jhande, we have to call ending tax exemptions raising taxes, because that's what the 2/3rds majority initiatives call them, and those initiatives were voted into place. Unless the Supreme Court rules the 2/3rds majority unconstitutional, ending those exemptions will take a supermajority in the Legislature. One tiny exemption was voted out last session, but in return, more were voted in.
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