What Gregoire's late embrace of education taxes means

Surprisingly, the business community could be the key to deciding whether the state follows the lame-duck governor's well-spoken advice.
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Gov. Chris Gregoire at a 2011 event in Seattle.

Surprisingly, the business community could be the key to deciding whether the state follows the lame-duck governor's well-spoken advice.

When Gov. Chris Gregoire on May 2 signed the much-amended state budget, she had some blunt words for public education supporters, including the two leading candidates for governor.

Gregoire, who has not exactly been the strongest proponent of new tax revenue during her two terms, seemed to have experienced an epiphany on taxes after approving more than $11 billion in cuts since 2009. Her remarks didn’t get much attention in the news media. So here’s how she expressed her new position, with strong verbal emphasis that can’t be easily conveyed in excerpted quotes:

We cannot properly fund our schools, our colleges, our universities, and early childhood education in this state without more money….There is simply not enough money in our current revenue stream to keep up with the cost of educating our young people so they can compete in the 21st century.

And in response to a reporter’s question, she had equally strong words of advice on taxes for the two candidates who are vying to succeed her. Both Jay Inslee and Rob McKenna have said that a new tax source for education is not needed.

McKenna has suggested that discretionary funding for social programs can be reduced to fund education, and that “attrition” (retirement) should be allowed to further shrink the state’s workforce. Inslee believes that as the economy recovers more tax revenues will be generated that can be applied to education. He has proposed a jobs plan to put people back to work. McKenna would spur economic growth through reform of regulations and small business tax relief. Both McKenna and Inslee say that money can be found through greater program efficiencies, especially in health care delivery. Both think ending some tax breaks will provide revenue.

Responding, Gregoire didn’t mince words:

In 2013-15 (the next biennium) based on the legislation we passed, the price tag for K-12 education alone will be approximately $1 billion.  So to think that the legislature can cut $1 billion — they’ve already cut $11 billion over the last three years – without destroying the safety net…. The idea that we are going to turn the economy around in a split second and get $1 billion projected, there is absolutely nothing in terms of a forecast that would suggest that to be true…We have to have a long-term sustainable source of funding.

She was equally animated and pessimistic on the potential for revenue by just ending tax breaks: “I gave them (legislators) a list as long as the moon, and what did they get me? Just one — for $18 million. They can’t get the two/thirds vote.”

And the governor clearly had taxpayers in mind:

The state of Washington has got to step up and understand: we are not going to meet our constitutional mandate for K-12 education, our moral mandate for early learning, and our economic mandate for higher education, if we are not going to look at new revenues.

Although the press corps didn’t ask the next obvious question — who should we look to for leadership in finding new tax revenues? —Gov. Gregoire volunteered that the joint task force established by House Bill 2824 will be instrumental.

HB 2824, sponsored by Rep. Deb Eddy, D-Kirkland, was introduced and passed late in the first special session, and signed by the governor on May 2. The bill established the task force to make recommendations for fully funding basic education programs, taking into account the requirements of two bills passed in 2009 and 2010, which redefined basic education and restructured the K-12 funding formulas. The Eddy bill also repealed Initiative 728 approved by voters in 2000 that had the purpose of increasing student achievement by reducing class size.

The 2010 bill enhanced funding of basic education over eight years in four areas:

  • K-3 class size must be reduced to 17 students per teacher, beginning with the schools with the highest poverty students.
  • The minimum allocation for maintenance, supplies, and operating costs (MSOC) must be increased.
  • Funding for all-day kindergarten must continue to be phased in each year until full statewide implementation is achieved.
  • Funding for a revised formula for pupil transportation must begin and be fully implemented.

The task force, which is composed of four members of the House, four members of the Senate, and three individuals appointed by the governor, must report to the Legislature by Dec. 31, 2012.

This will clearly be a daunting assignment given the partisan and ideological divisions in the legislature, particularly the Senate, the very short time frame, and the significant amount of new revenue required.

Since the bill requests recommendations for education funding, it doesn’t have a fiscal impact other than the revenue that might have been spent to implement I-728. But the bill report indicates that the estimated cost of implementing the four enhancements in the 2010 bill, based on future enrollment and inflation projections, will be approximately $1.6 billion in FY 2018, or roughly $3 billion per biennium.

In its McCleary decision, the state Supreme Court called for Washington to amply fund basic education by means of “dependable and regular tax sources.” The court is clearly holding the Legislature responsible for selecting one or more taxes that are sufficient to fund an expanded K-12 budget in a way that will not be subject to the uncertainty that has required a patch work of cuts, budgeting gimmicks, and short-term revenue proposals submitted to voters.

Such a tax source or sources could also be sufficient to fund higher education at levels prior to the Great Recession. Buying back the cuts to higher education that were made in the last three years would require about $1.25 billion more per biennium.

But finding the new taxes and selling a tax package to the voters will require leadership that has not been seen for some time.

It may seem counterintuitive, but the logical place to look is in the state’s business community even though it has been long on rhetoric about education being the key to economic growth and jobs in the new economy, but short on effective action.

The state’s leading business organizations have been mostly reticent about even considering new taxes. The Washington Roundtable keeps finding new reasons to oppose a state income tax, while the Association of Washington Business thinks the supermajority for raising taxes (and ending tax breaks) should be enshrined in the state constitution.

And the two largest businesses, Boeing and Microsoft, seem to be content in making token contributions to the Opportunity Scholarship Fund while accepting hundreds of millions in state tax breaks.

However, it should be possible for the governor to find new voices representing the state’s diverse economy, leaders who are not associated with these traditional and hidebound political players.

One possible candidate might be venture-capitalist Nick Hanauer, who chastised the Democratic leadership for not opening the door for charter schools. Hanauer, who co-founded the League of Education Voters, obviously has a deep interest in improving our education system beyond the issue of charters.

And smaller businesses could provide a representative who would bring important perspectives. The Main Street Alliance representing small retailers took a stand in favor of “responsible investments in education.”

There are likely to be other very qualified candidates with business experience for the three public slots on the education funding task force. They should apply to Gregoire’s office as soon as possible.

Service on the task force should be viewed as both a challenge and an opportunity. The challenge will be to find tax sources that are both adequate to meet the education funding needs and that do not increase the current tax systems’ unfair treatment of low-income families and small and startup businesses. Hopefully they will improve overall tax equity.

The task force is also an obvious opportunity for younger business managers to demonstrate their leadership skills in solving the state’s most pressing issue. And who knows — in the process show that they might have what it takes to be a future governor.


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About the Authors & Contributors

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Dick Nelson

Dick Nelson is a former Washington State legislator. He currently contributes to the public debate on state and local fiscal issues through research and commentary. As when he was in the legislature, he prefers the Democratic Party.