The budget debate has begun. As we wrote last week, the official state revenue forecast again lifted estimates of anticipated tax collections. The Washington Research Council took a close look at the forecast, writing,
Notably, the property tax is driving the increases. The September forecast had assumed that 2019 assessed values would increase by 7.4 percent, but the ERFC now has access to the actual assessed value data, which show that values will increase by 10.9 percent. So the forecast of property tax receipts is increased by $57 million in 2017–19, $259 million in 2019–21, and $287 million in 2021–23.
Meanwhile, Revenue Act taxes (retail sales and use, business and occupation, public utility, and non-cigarette tobacco products taxes) are now estimated to be lower than in the September forecast.
The WRC also noted a slight improvement in budget outlook, hedged by a caveat.
Additionally, the ERFC adopted a new budget outlook. It is based on today’s revenue forecast, and it provides preliminary carryforward and maintenance level spending estimates for 2017–19, 2019–21, and 2021–23. It shows unrestricted NGFS+ ending balances of $1.633 billion in 2017–19, $689 million in 2019–21, and $221 million in 2021–23.
…The new ending balance estimates give legislators a bit more to work with than anticipated in April. But the outlook does not include the costs of the collective bargaining agreements negotiated for 2019–21, as they have not yet been determined financially feasible or approved by the Legislature. (A Senate Committee Services presentation to the Senate Ways & Means Committee earlier this month noted that the 2019–21 agreements would cost $1.9 billion over four years.)
The Lens reports some see the revenue boost as justification for tax cuts in 2019.
Washington Policy Center Government Reform Director Jason Mercier says the surplus revenue calls for an ease in Washingtonians’ tax burden. “With the state Supreme Court having signed off on the legislature’s McCleary plan and state revenues continuing to increase substantially, lawmakers should now provide tax relief with a sales tax cut. When it was first imposed in 1935, Washington’s sales tax rate was 2.0%. It is currently at 6.5% and has not seen a rate reduction since 1982.”
Mercier recommends reducing the tax rate by .25 percent. “A larger sales tax cut could be enacted via a trigger mechanism tied to any large revenue increases resulting from the new U.S. Supreme Court online sales tax ruling. Combined with federal tax cuts, this court ruling will likely have a significant impact on state revenues.”
Lens reporter TJ Martinell adds,
Mercier’s argument was recently cited by Senate Minority Leader Mark Schoesler (R-9) during an interview with TVW’s Austin Jenkins. “If you look at this, there’s always a hue and cry for more taxes even though revenue grows. Why don’t we take some of the growth and lower the sales tax, which tends to be the poster child for some of these think tanks that (say) your sales tax is too high?”
Still, sustained revenue growth cannot be assumed.
Washington Roundtable Vice President Neil Strege told Lens that the state should “make sure that you’re keeping an eye on potential economic downturn at some point in the future. Economic expansions don’t last forever. This one is going to come to an end sooner rather than later.”
…Strege’s advice is “let’s not get too excited. As you’re making revenue and spending decisions, just keep an eye on the fact that at some point we’re going to have a recession. You have to be prepared to deal with the consequences of not having that revenue anymore.”
The Research Council previously wrote that Washington would face fiscal challenges were there to be a recession in the next biennium.
Jerry Cornfield writes in the Everett Herald that some are contending that a $50 billion biennial budget still isn’t enough.
As things stand now, Democratic Gov. Jay Inslee and the Democrat-led majorities in the House and Senate will have $50 billion to parse out in the 2019-21 budget they must adopt next year. That’s without touching the state’s $1.63 billion in cash reserves or $1.6 billion rainy day fund.
But — and you knew this was coming — they say it’s not enough.
The price of maintaining the same level of government-funded services is going up as the state’s population grows. And a few bills, like those tied to education funding and the McCleary case, are still getting paid off.
Already this year Inslee and Democratic leaders are openly expressing a desire to find new streams of revenue because there is more to cover than simply what in Olympiaspeak are known as the “carryforward” and “maintenance” level expenses of government.
One thing not to be overlooked, though, is that the state tax system seems to be working pretty well right now.
While there is talk by some state officials of reducing taxes while implementing a capital gains income tax, Association of Washington Business Tax and Fiscal Policy Director Clay Hill told Lens that at the end of the day the surplus revenues “show the basic fundamentals of our tax structure is sound. We think our tax structure is working for Washington, and our strong economy is proof of that.”
“The question from AWB’s perspective is ‘what is can the lawmakers do to keep our record of economic growth growing strong, and how can we expand it to all parts of the state?’” he added.
Sounds like the right question to us.