2019 Post-Session Survey

The recently completed legislative session ended on time April 28, with passage of a $52.8 billion state budget. To support an 18.3 percent increase in biennial spending, lawmakers adopted approximately $1 billion in new and increased taxes

The Legislature also lifted the cap on local property taxes adopted last year, making it possible for school districts to seek voter approval of property tax increases to support local schools. The budget includes increased spending for higher education and financial aid (paid for with increased taxes on service businesses), public employee compensation, mental health, and special education. 

We’re interested in your thoughts on the state budget and legislative session. Thank you for taking a few minutes to complete our brief survey.

Economic Outlook Survey

Economic uncertainty – across the globe and in our neighborhoods – has become commonplace early in 2019. Although our state has enjoyed nation-leading job and income growth, the murmurs of concern have mounted in many corners. As often as we hear announcements of new jobs, new stores, manufacturing plants, and restaurants, we hear that consumers and employers are losing confidence. Retail sales were down last December. 

Economists are revising their 2019 forecasts, saying growth is slowing. Nearly half of the nation’s  business economists anticipate a recession by the end of next year.

Expectations drive budgets, for families, businesses, and governments. The mechanics are simple. How much money do we think we’ll have? What are our spending commitments? Our priorities? What can we do without? How much should we hold back for emergencies? 

Over the last ten years, state spending has grown 44 percent. And revenue growth in our state has been among the strongest in the nation. Yet, many lawmakers are now calling for new taxes and higher spending.

Against this backdrop, we want to know your thoughts on the state economy. Do you expect continued growth? Are we headed for a slowdown?

 

WA Retail Association identifies counterintuitive effects of cigarette tax hike

Washington Retail Association president Jan Teague has an insightful op-ed in the Everett Herald, pointing out the likely consequences of a 50-cent hike in the state cigarette tax.  The tax won’t raise the money proponents expect; it will boost the tax burden of lower-income households; it will encourage smuggling and tax evasion; and, it will have a substantial negative impact on small businesses.

Teague concludes:

 Taken together, the impact on small businesses and the effect on lower-income households make the proposed cigarette excise tax increase a bad idea that could weaken the fragile economic recovery and put retail jobs and families at risk.

Many, probably most, Washingtonians want to discourage cigarette smoking. Higher taxes, they think, may do the trick. But the evidence, as we’ve noted before, suggests the strategy has serious shortcomings. Teague’s op-ed should be read in its entirety. 

Coincidentally, the Wall Street Journal today carries an op-ed making much the same point

Of the 32 state tobacco tax increases that went into effect between 2009 and 2013, only three met or exceeded revenue projections, according to industry data.

Caution flags…

Getting to ‘yes’ on the state budget as time runs down on regular session

House Appropriations Committee chairman Rep. Ross Hunter recently assessed the challenges ahead in resolving the differences between the House and Senate budgets. 

The Senate and House are in pretty significantly different places. The top level difference is only about a billion dollars, but the underlying differences are much greater than that. We need to come to agreement by Wednesday the 22nd to be able to get the mechanical part of the process completed if we’re to finish on the 26th, the 105th and final day of the regular session.

Just nine calendar days remain, then. To get a good sense of the differences between the chambers, read this Washington Research Council brief comparing the spending plans. Some key differences from the brief.

  • The House-passed budget increases spending by more than $5 billion over 2013–15.
  • The Senate-passed budget increases spending by more than $4 billion over 2013–15.
  • Policy changes in both budgets increase spending for public schools by over half a billion dollars.
  • Neither budget funds I-1351’s $2 billion class size reductions for grades 4–12.
  • The House spends $45 million more than the Senate on K–3 class size reduction and adds more funds for counselors and family engagement.
  • The House freezes tuition, the Senate reduces it.
  • The Senate spends over $40 million more on higher education.
  • The House funds collective bargaining agreements; the Senate provides a general wage increase.
  • Both houses add funds for employee health care premiums.
  • The Senate saves $50 million by reducing spousal health benefits and the Medicare subsidy for employees.
  • Both budgets fund the I-732 cost-of-living adjustment.
  • Both budgets reduce spending on non-DSHS human services.

Hunter’s right. The bottom-line dollar differences are rarely as significant as the policy differences. And the major difference that doesn’t show in the comparison of spending plans is the House’s reliance on tax increases to fund a higher level of appropriations. The WRC says it’ll have an analysis of the tax package soon.

Reports on the first “five corners” meeting of the four legislative caucus leaders with the governor suggest some of the tension likely to mark negotiations. 

Republican leaders claimed the governor issued what amounted to a veto threat unless they raise taxes. Inslee’s office and the budget chief for House Democrats called that nonsense, saying the governor merely made his bargaining position clear.

The Seattle Times also provided a link to Inslee’s talking points

It looks like the various players are still planting their flags in the ground. But if they’re going to close the gap by the end of the regular session, they’ll have to move quickly.

Budget debate turns to taxes: Are carbon, pot and income in the mix?

House and Senate budget negotiators will move swiftly to close the gap between budget plans separated by more than a billion dollars and a philosophical chasm. And that means that everything is again in play, as a series of articles today makes clear.

Carbon. The carbon tax proposed by Gov. Inslee, which recently received national attention, did not make it into the House budget (it was always unlikely to appear in the Senate’s plan). Yet, today, Joe Copeland writes in Crosscut that it may be back

House Environment Committee chair Rep. Joe Fitzgibbon, D-Des Moines, said Thursday that he, administration officials, House representatives and even representation from the GOP Senate caucus have been meeting almost daily to discuss the possibility of reviving the Inslee’s dormant proposal.

Publicola also has the story. And the Wall Street Journal reports on a national carbon tax proposal being pitched to conservatives. This is a debate worth watching.

Pot. While it’s not a lot of money in the scope the $38 billion state budget, marijuana taxes play a role in both chambers’ budgets. The Seattle Times reports today on the different budget approaches to pot money

The Republican-led Senate estimates the marijuana industry will generate about $296 million in the next two years. Save for $8 million a year for the Liquor Control Board and $6 million a year split among cities and counties, that money will go toward education funding…

The Democrat-led House budget expects about $270 million in marijuana revenue. About $7.4 million a year would go to the Liquor Control Board, $720,000 to fund studies and $6 million a year for cities and counties. The rest is distributed, by percentage, to a number of prevention, treatment and health-care programs.

There are other differences, also worth watching.

Income tax. While not on anyone’s agenda in Olympia this year (at least not publicly), the personal income tax remains the white whale of tax reform for many Washingtonians. Seattle economist Dick Conway argues for a 10.6 percent flat rate personal income tax on the op-ed pages of the Seattle Times today. 

That’s not to mention the capital gains tax, B&O tax rate increases, bottled water taxes, and more that are currently in the House budget plan. We’re approaching the anything-can-happen last days of the regular session, which can be the very definition of taxing times.

House Democrats unveil budget: 13% spending increase, capital gains tax, increase B&O surtax, more

The House Democrats have released their 2015-17 budget proposal, with more revenue specifics than many had anticipated. Melissa Santos and Jordan Schrader have the story. 

House leaders said their $38.8 billion spending plan, a nearly 13 percent increase over the last two-year budget, would meet key requirements of the state Supreme Court’s McCleary decision that ordered the Legislature to fully fund basic education in Washington by 2018.

Paying for it?

The House budget proposes enacting a 5 percent tax on capital gains, lower than the similar 7 percent tax on sales of stocks, bonds and investment properties proposed by Inslee. The tax – which would exempt most sales of primary residences and retirement funds – would raise about $570 million a year.

…Another major source of revenue in the House budget comes from increasing the business and occupation tax on services businesses such as doctors, lawyers and architects. An increase of 0.3 percentage points in the tax rates for those businesses would generate $532 million in new revenue in the next two years.

But Democrats insisted some small businesses would actually pay less under their proposal, which enlarges a tax credit to eliminate B&O taxes for an extra 15,000 businesses.

House Democrats also set their sights on ending seven tax breaks. Their budget would repeal a sales tax exemption on bottled water, limit sales tax breaks for Oregon residents who purchase small items in Washington, and get rid of tax breaks for travel agents, tour operators and resellers of prescription drugs, among others. Together, those tax adjustments would raise $384 million.

Details on the overall proposal are here. Here’s the budget bill. The capital gains tax, branded as “fair share tax,” is described here. The B&O changes are here. And the list of seven exemptions targeted for repeal, most of which have been seen before, is here. Although there’s not a carbon or cap-and-trade tax proposal included in this proposal, Rep. Reuven Carlyle, House Finance chair, says he wants that to be part of the coming discussion.

The public debate has officially begun. The public hearing on the budget plan is scheduled for Monday afternoon.

TNT asks the right question about pricey I-1351 class size initiative

The News Tribune editorial board asks, “Would voters still like I-1351 with tax included?” They suggest the outcome might be different, pointing out…

The more Washingtonians looked at Initiative 1351 last fall, the less they liked it.

Another look may be in the offing. The initiative’s price tag has played a role in recent legislative efforts to improve disclosure of the fiscal effects of ballot measures. The News Tribune sees merit in a referendum:

All the reasons that made this initiative a stinker last fall are reasons to give the voters another shot at it. Lawmakers can put the exact same measure on the ballot, but this time with a funding provision – an income tax, say, or an increment to the sales tax….I-1351’s supporters can hardly object to a referendum that includes revenues – unless, that is, they were trying to fool the voters last year into thinking they were getting a freebie.

The measure has complicated an already difficult education funding session, driven by the state Supreme Court’s McCleary decision. And if you’re still unclear that the decision’s about, it’s hard to be Sen. Joe Fain’s even-handed 57 second explanation.