More validation of the contributions of charter public schools from Stanford Center for Research on Education Outcomes

Washington’s charter public schools received very good marks in a recent research report from the Center for Research on Education Outcomes (CREDO), Stanford University.

The findings of this study show that on average, charter students in Washington State experience annual growth in reading and math that is on par with the educational gains of their matched peers who enroll in the traditional public schools (TPS) the charter school students would otherwise have attended. When we looked at school-level comparisons, we found important variation in performance. Two-fifths of charter schools had students showed academic progress that was significantly better than their local district options in math. In reading, three-fifths of the charter schools outpaced their local options. The analysis also reveals little differences in performance for students when examined by race/ethnicity groups or for students in designated student support programs. Specifically, English language learners enrolled in charter schools experience significantly higher learning growth that those enrolled in traditional public school settings.

The Seattle Times editorial board says,

This gold-standard research study from Stanford University’s Center for Research on Education Outcomes, should halt efforts to shut down Washington’s charter system.

The ST reported on the study last week.

CREDO researchers note the difficult path followed by charter public schools in Washington, emphasizing the importance of the new research.

The need for evidence about charter school performance is especially strong in Washington State, where charter schools have been fought over for more than a decade. Washington’s initial charter school law, Chapter 28A.710RCW, was originally enacted by public referendum with Initiative Measure No. 1240 and approved by the voters in the November 2012 general election. The first enabling law was passed in 2014, but met quickly with legal challenge. The Washington State Supreme Court, in League of Women Voters V. State of Washington, issued a decision on September 4, 2015, that invalidated the law in its entirety. The 2016 Legislature passed E2SSB 6194, which re-enacted the prior charter school law with amendments. The amended bill became law as Chapter 241, Laws of 2016, without the governor’s signature. The new law was again challenged; in October 2018 the Washington State Supreme Court upheld the law as valid. With the legitimacy of charter schools no longer inquestion, their impact on their students’ education takes on a more central focus.

The ST editorial has it right: It’s time for the critics of the law to stand down. Focus instead on making sure students in all public schools – charter and traditional – are receiving the education they need to thrive.

Business taxes in Washington remain well above U.S. average

Washington businesses are taxed more heavily than businesses in most other states, according to a Washington Research Council analysis of data prepared for the Council on State Taxation by Ernst and Young.

The WRC writes,

The upcoming legislative session will feature discussions about whether new revenues are necessary; inevitably there will be legislative proposals to increase business taxes. According to a report from the Council on State Taxation, businesses in Washington paid 50.1 percent of state and local taxes in 2017, well above the U.S. average of 43.7 percent. Additionally, Washington businesses paid $5,700 in state and local taxes per employee, the seventh highest amount in the country and 16.3 percent more than the national average.

Washington businesses pay more in business and occupation (B&O) taxes than businesses in other states do in income taxes, on average. B&O tax revenues have increased by more than the other major state taxes since 2000 and Washington businesses pay more in sales and property taxes than they do in B&O taxes. Overall, compared to other states, Washington businesses face a tax burden that is significantly above average. Further, the size of the burden varies from city to city within Washington.

The following WRC chart shows that B&O revenues have grown at the fastest rate of all major taxes since 2000.

The Research Council points out,

Washington raises more money from the B&O tax than other states do from their corporate income taxes (WRC 2018). Further, of the three top state tax sources in Washington (sales, property, and B&O), B&O tax revenue has increased the most on a percentage basis since 2000. B&O revenue has grown 106.3 percent, compared to 85.7 percent for all state taxes (DOR 2018).

Businesses do not only pay the B&O tax, however. They also pay sales and property taxes, as well as a host of other taxes at the state and local levels. 

A useful measure of the business tax burden, one not often referenced, is taxes per employee. This WRC chart breaks out that dimension.

The WRC report also shows the per-employee tax burden by state. 

…Washington ranked seventh highest nationally in state and local business taxes per employee in 2017. They were $5,700 in Washington, 16.3 percent above the U.S. average of $4,900.

Again, as the Research Council writes, business taxes are likely to feature heavily in the 2019 session, with the governor already proposing hefty increases. This valuable report should inform and temper the coming debate.

State Supreme Court declines direct review of Seattle income tax. Next stop, state appeals court.

The state Supreme Court yesterday chose not to take up Seattle’s controversial income tax.  

The Seattle Times reports that the city will continue to press its case.

…City Attorney Pete Holmes said the city wouldn’t be giving up.

“While we felt the state Supreme Court was the most appropriate forum to address the constitutional issues we hope to resolve in this case, we’re happy to first take our arguments to the Court of Appeals,” Holmes said.

“Whatever the outcome at the appellate court, either side will have the opportunity to petition our state Supreme Court for appeal.”

The Washington Research Council writes that the city’s case rests on shaky foundations.

The City of Seattle appealed directly to the state Supreme Court [after a Superior Court judge found that the tax was not authorized by the Legislature and that cities are prohibited by statute from imposing a tax on net income] in the hopes that the Supreme Court would address the constitutionality of income taxes. With yesterday’s order, the case will instead go to the Court of Appeals.

In a policy brief last year, we argued that Seattle should abandon the appeal: “There is, after all, a well-established process for changing the state constitution and state statute. It requires legislative action and voter approval; that is, the power of persuasion.”

Right. 

We’ve followed the issue from the beginning. See these previous posts for more context.

 

Study: Washington is one of 10 states that send more tax dollars to D.C. than they receive in federal spending

Earlier we wrote about Washington’s relative fiscal condition and federal aid, so it’s timely to share this recent Rockefeller Institute analysis of state balance of payments with the federal government. The Institute looks at how much each states’ taxpayers (business and individual) pay in federal taxes compared to how much federal spending the state receives. The difference is the balance of payments.

Washington is one of only ten states that send more cash to D.C. than the state receives in federal spending. (See the map above.)

Here’s how the report explains the calculations.

This “balance of payments” (BOP) analysis provides a close look at the effects of Federal economic redistribution policies on states, and offered here is a particular focus on New York and its standing relative to other states.

Some states receive far more in Federal spending than their residents and businesses pay through taxes, while other states give far more than they get. The Federal system concentrates grants and funding to states with highest poverty rates for their residents, like Federal grants to support programs of aid for the needy (Medicaid, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, etc.). Payments to individuals under the Social Security and Medicare programs are disproportionately concentrated in states with large elderly populations. States with large defense contracting sectors and more military bases get more Federal defense spending. Federal wages are disproportionately concentrated in states with a large Federal employment presence.

On the other side, receipts are generated primarily from taxes, the most significant of which is the personal income and employment taxes, which account for almost 75 percent of allocable Federal revenue. Logically, then, this Federal revenue is raised disproportionately from residents of states with more high-income individuals who pay taxes at the highest rates under the progressive Federal income tax structure.

Again, as we’ve said previously, fiscal federalism at work.

Governing magazine lists the states with a negative balance of payments.

Residents in Connecticut, Massachusetts, New Jersey and New York have some of the highest tax bills in the nation. They also pay thousands more in federal taxes than their state receives back in federal funding.

In total, 10 states are so-called donor states, meaning they pay more in taxes to the federal government than they receive back in funding for, say, Medicaid or public education. North Dakota, Illinois, New Hampshire, Washington state, Nebraska and Colorado round out the list.

The distribution always prompts some discussion. Should states receive spending back proportional to their contributions? Or, is the system working as it should, using the progressive federal income tax to fund social service and income support programs that states with higher concentrations of poverty could not afford to provide? 

What do you think? The RI report provides a lot of good data to inform the debate.

Session preview: Business writer sees challenges for employers in coming session

Business writer Bill Virgin identifies challenges Washington employers can expect in the coming legislative session.

…across Washington, business owners and managers brace themselves for what’s coming next.

It’s not challenging enough to run a business these days in Washington, with the usual issues of competition, technology-driven shifts, changing customer tastes, finding skilled workers, congestion and freight mobility, energy costs and trade disputes, not to mention the current worry that economic growth might sputter out. To those have been added government-driven burdens and directives – higher minimum wages and paid family and medical leave are the big-ticket items, but hardly the only ones – that make this region of the country an increasingly expensive place to operate.

He acknowledges,

…it could be worse, what with repeated efforts via initiative and legislation to impose some sort of tax on the production and use of fossil fuels (you know, the ones that do minor tasks like heat and light your home, power your car and run industrial processes). Those proposals have to date been thwarted, and in view of the substantial vote against the last initiative there appears to be little clamor to charge that (pardon the alt-energy allusion) windmill again, but there are still true believers who will argue that with just a little more persuasion voters can be made to see the error of their ways.

Then he runs down the now-familiar list of items on the 2019 legislative agenda, including a proposed capital gains tax, a 67% increase in the B&O tax on service businesses, and changes in the real estate excise tax.

He offers a worthwhile response to critics who say Washington’s tax and regulatory policies must be OK because the state economy is thriving.

The current success of the tech sector, however loosely that’s defined, certainly fueled economic growth in the region. But other sectors are struggling for reasons of their own (retailing) or related to the boom (industrial businesses dealing with high costs). Tech’s boom has papered over a lot of ills, and if the sector ever has another moment like the dot-com bust, that facade will be gone.

Already one group has been taking the relocation option – homebuyers who, looking for something they can afford, have been moving ever farther out. Most businesses can’t pick themselves up and move so easily. They find strategies to cope with the hassles and costs of operating where they are to reap the benefits – access to ports and airports, proximity to suppliers, customers or a pool of labor.

But those strategies don’t work indefinitely…

The provocative column raises points that lawmakers should consider in the coming weeks.

Washington’s fiscal condition compared to other states; role of federal aid shows another side of progressive federal income tax

Next week begins a legislative session poised to confront significant budget challenges (see here, here, and here). Washington’s not alone, of course. Other state legislatures will also be writing budgets this year, raising a question about relative fiscal health. How does Washington compare?

Emily Makings with the Washington Research Council reviews a pair of fiscal reports that provide answers to the question.

First, in the Fall 2018 edition of “The Fiscal Survey of States,” the National Association of State Budget Officers (NASBO) finds, “Compared to this time last year, state fiscal conditions show signs of significant improvement.” …Washington’s general fund expenditure increase from 2017 to 2018 was the nation’s 10th largest. Similarly, Washington’s general fund revenue increase from fiscal year 2017 to 2018 was the ninth largest in the country. Looking at 2019 budgets, Washington’s general fund expenditure increase ranks third highest, but Washington’s general fund revenue increase ranks just 35th highest. One reason for the low ranking on revenues is the property tax reduction for 2019 that was enacted last year.

And,

The second paper is the Volcker Alliance’s “Truth and Integrity in State Budgeting.” It “grades states’ success in pursuing transparent and fiscally sustainable procedures as they estimate their revenues and expenditures and attempt to keep them in balance.”

…The report’s grading system considers budget forecasting, budget maneuvers, legacy costs, reserve funds, and budget transparency for 2016, 2017, and 2018. Washington gets fairly good marks in 2018: A’s for budget forecasting and reserve funds, B’s for budget maneuvers and transparency, and a D for legacy costs.

We recommend her brief post to those concerned about relative fiscal strengths and concerns. She also examines recent budget maneuvers and their effects on reserves.

One aspect of state budgeting that often gets short shrift is states’ reliance on federal funding. The Tax Foundation has produced a map and blog post that helps put federal funds in perspective.

Notice, Washington ranks No. 38 if federal funds received as a share of general revenues. TF analyst Katherine Loughead writes,

States that rely heavily on federal grants-in-aid tend to have sizable low-income populations and relatively lower tax revenues. States with relatively lower reliance on federal aid tend to collect more in taxes and have smaller low-income populations, although some exceptions exist.

We bring this up as further evidence of the role fiscal federalism plays in state-local tax and spending policy. A WRC report released last year lays out the concept (we discussed it here). An excerpt:

We also point to a key principle of fiscal federalism (a theory allocating responsibilities among the three levels of government), which holds that redistributive tax policies are best enacted at the national level. Adding this dimension to the analysis leads to our third finding:

3. All state and local tax structures are regressive. But when the steeply progressive federal income tax system is considered, the overall federal-state-local tax burden is progressive in Washington and every other state, and the differences among thestates represent smaller proportions of households’ tax burdens.

Further buttressing the importance of fiscal federalism (and mitigating criticisms of Washington’s tax structure) is this.

With respect the observation made by Matthews that “redistributionist” policies are better handled on the spending side than through taxes, we previously wrote that Washington looks pretty good on that score. We cited a Governing magazine article that stated, 

In 2014, the nonprofit Federal Funds Information for States (FFIS) warned that fairness is just one feature of a good tax system. Others are adequacy, simplicity, transparency and ease of administration. For example, FFIS pointed out that while Washington ranks poorly in tax fairness, it puts more of its revenues toward programs that support low-income families.

“Sometimes the policies that satisfy one feature run contrary to another, making it important that a system be evaluated in its entirety rather than in a piecemeal fashion,” the group said. (Emphasis added.)

Revenues progressive federal income tax, then, are (in part) distributed to states to provide assistance to lower income households and individuals. That more of it goes to states with higher concentrations of people living in poverty is a further demonstration that the system is working as theory intends.

Seattle soda tax mostly paid by consumers. Surprised?

Seattle’s soda tax has generated a lot more money than anticipated. And nearly all that money has come from consumers, as everyone should have anticipated. The Seattle Times reports,

Nearly 100 percent of Seattle’s new tax on the distribution of sweetened beverages has been passed on to consumers through higher in-store prices, a new report estimates.

The report stares,

Key findings: Six months after implementation, this study finds that the tax on sugary beverages incurred by distributors is being passed through to consumers via higher retail prices of these beverages. This confirms the hypothesized result of the tax. (A separate study of the impact of the tax on beverage consumption is underway.)

On average, prices increased for nearly all beverages types subject to the tax.

In Seattle, averaging across all store types and beverage types, the price of beverages subject to the tax in Seattle increased by an average of 1.70 cents per ounce, over and above increases seen in the comparison area. Since the tax is 1.75 cents per ounce, this indicates 97% price pass-through of the tax on average.

Price increases differed by beverage type.

In Seattle, all beverages subject to the tax increased significantly in price, with the exception of the caloric flavor-syrup add-on at coffee shops. The average pass-through rate by beverage type for beverages subject to the tax ranged from 62% for bottled sugary coffee beverages to 111% for energy beverages. The average pass- through rate for soda was 102%.

Price increases in Seattle differed by store type.
In supermarkets and superstores: while the price of taxed beverages increased (with average pass-through of 86%), the price of non-taxed beverages did not increase significantly.

In grocery stores, drug stores, and small stores: the price of taxed beverages increased significantly, with an average pass-through greater than 100% (1.82 cents per ounce in grocery and drug stores and 1.80 cents per ounce in small stores). In these store categories, on average the price of non-taxed beverages also increased significantly. The price increase was 0.47 cents per ounce in grocery and drug stores and 0.77 cents per ounce
in small stores (which equals 27% and 44% of the size of the tax). In these types of stores, the price increases among non-taxed beverages appears to be due to increases in the price of diet soda, diet energy beverages, and to a lesser extent, bottled tea and diet sports beverages. The price of bottled water did not increase and, in the majority of store types, the price of milk also did not increase.

The ST explains how the tax flows down to consumers.

Seattle’s tax of 1.75 cents per fluid ounce, which took effect in January 2018, is charged to distributors of sugar-sweetened beverages. But the distributors can pass the tax on to stores and the stores can pass the tax on to consumers.

Of course they do. If the tax were designed to reduce consumption of sugary stuff, it would only work if it resulted in price increase to consumers. The Seattle tax led to Initiative 1634, which preempts local grocery and soda taxes (though it leaves Seattle’s soda tax in place). Voters overwhelmingly passed the measure last November.

Number of open jobs continues to exceed the number of unemployed job seekers; manufacturers work to close skills gap

Employers, as we wrote last week, continue to add jobs at an expectations-beating pace, leading to more workers entering the labor market in search of jobs. The Associated Press reports,

Last week’s blockbuster jobs report helped assuage concerns about the economy, as it showed that hiring reached a 10-month high in December.

The number of open jobs is still higher than the number of unemployed, a switch that occurred in March for the first time in the nearly 20 years that the government has tracked job openings. There were 6 million people were out of work in November.

That suggests employers are desperate to hire…

A persistent concern among employers has been finding workers with the training and skills required to do the job. The National Association of Manufacturers notes the concern and identifies steps manufacturers are taking to address it.

…due to an unprecedented skills gap in the U.S. workforce, the manufacturing industry is struggling to fill all of their open positions.

In some cases, manufacturers can’t find workers with the right technical and digital skill sets they’re looking for. In others, talented students are avoiding the manufacturing sector altogether due to outdated perceptions of what the industry has to offer. Regardless, nearly half a million manufacturing jobs remain unfilled as of last count, and The Manufacturing Institute’s and Deloitte’s 2018 Skills Gap Study found that this number is expected to grow in the coming years.

They cite programs offered by the NAM Manufacturing Institute to address the skills gap. 

In addition to the Institute’s work, manufacturers across the country are doing their own part in training the workforce of the future. GE Appliances, for example, launched a jobs program last year that offers opportunities for high school seniors to gain first-hand experience in the manufacturing industry; United Technologies boosted investments in 30 workforce training programs across the country; Boeing partnered with the National Science Foundation to invest $21 million in online training for critical STEM skills. These are just a few of the countless examples of what industry is doing each day to help solve the skills gap.

Manufacturers’ concerns are shared by small business. NFIB reports that while small business optimism remains high, worker shortages are a problem.

“Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects, said NFIB President and CEO Juanita D. Duggan.

The challenge is widespread.

A record 39 percent of small business owners reported job openings they could not fill in the current period. Sixty percent of owners reported hiring or trying to hire, but 90 percent of those reported few or no qualified applicants for the position. Twenty-three percent of owners cited the difficulty in finding qualified workers as their Single Most Important Business Problem.

Opportunities abound. Making sure workers have the requisite skills must be a top policy priority. We commend those employers that are taking steps to close the skills gap.