Today the Economic and Revenue Forecast Council announced a meeting for tomorrow. The sole agenda item is to consider the timing of the next revenue forecast. Currently the next forecast is scheduled to be released on June 17.
In the past week bipartisan support has emerged to consider moving the June forecast up. Policymakers are concerned that the June date is too late as the Legislature continues to work to reach a compromise budget.
On Friday the Washington Economic and Revenue Forecast Council released the most recent revenue report. Revenue projections through 2017 have increased by $274 million. This raises the 2015-17 state budget to $37 billion.
Amid the good news was the stark reminder that the Legislature still must find a way to deal with I-1351 to lower class sizes – which would create an estimated $2 billion budget shortfall. Even if the Legislature suspends or even sends the initiative back to the voters, policymakers must still find a way to fund the McCleary decision.
This session policymakers moved the revenue forecast up a month in an effort to move the budget process along. The next revenue forecast will be released in June.
On Thursday Governor Inslee released his proposed 2015-17 Operating and Capital budgets. The budget – Book 2- reflects the Governor’s focus that “after more than a decade of cutting vital services and neglecting obligations,… it is time to start reinvesting in Washington”. The budget proposes a mix of spending cuts, new revenue and reserves to pay for education and services.
The Governor also submitted, as required by law, a budget – Book 1 – that would provide for a balanced budget within existing revenues.
Governor’s Proposed Biennial Operating Budget
The Governor’s proposed budget – Book 2 – invests $2.3 billion in education. Under his proposal the budget would provide funding to reduce class sizes statewide for kindergarten through third grade, meet the state’s commitment to fully fund basic education, make major investments in early learning, target investments to increase student success and boost graduation rates and freeze resident undergraduate tuition.
The budget also makes a number of other investments:
The budget proposes tax and revenue changes ($1.4 billion) in combination with reserves and reductions to support the biennial operating budget. The budget uses $450 million from reserves and includes $211 million in General Fund spending reductions. Finally the proposal maximizes federal funds and shifts general fund costs to other fund sources to save an additional $212 million.
Among the tax and revenue changes is a new capital gains tax ($798 million) on the sale of stocks, bonds, and other assets to increase the share of state taxes paid by the wealthiest taxpayers, new revenue from a market-based carbon pollution reduction plan ($380 million), and a repeal of a sales tax exemption for trade-ins valued over $10,000 ($105 million).
Higher Education
The Governor’s proposed budget freezes tuition for undergraduate, resident students for the biennium. No additional dollars are provided to offset the tuition freeze. The Governor will also introduce legislation to: (1) return tuition setting authority to the budget, (2) eliminate differential tuition, (3) repeal negotiation of Higher Education performance plans, (4) repeal publication of the 60th percentile global challenge states comparisons, and (5) amend financial aid mitigation provided with tuition setting authority so that any institution that exercised tuition setting authority above levels assumed by the legislature in 2011-13 and 2013-15 will continue to provide the financial aid mitigation.
In addition the budget makes an investment in math and science for each of the public baccalaureate institutions and the CCTCs and provides compensation at 3% and 1.8% for classified, professional, and faculty employees. The proposed funding only recognize the general fund portion. The remaining funding to support the compensation request is presumed to come from tuition but the budget prohibits increases in resident undergraduate tuition. This is also reflected in the health benefit increase. The budget also makes a handful of specific investments in other programs including the health professions, ocean acidification, and renewable energy.
Finally the budget maintains current funding for the State Need Grant and increases funding for the College Bound Scholarship program to recognize caseload increases.
It is worth noting that the Governor’s proposed budget without new revenues would result in a 10% reduction to higher education.
Evergreen
Under the Governor’s budget tuition would be frozen for undergraduate, resident students for the biennium at Evergreen. No additional investments are made to the College to offset the tuition freeze.
In addition the budget invests in math and science at Evergreen and provides compensation at 3% and 1.8% for classified, professional and faculty employees. The funding levels for compensation only recognizes the general fund portion, or just over a third of the cost. The remaining funding to support the compensation request is presumed to come from tuition but the budget prohibits increases in resident undergraduate tuition. This would require institutions to fund the rest from institutional dollars. For Evergreen this is $1.82 million. This split is also reflected in the health benefit increase. Evergreen would need to provide an estimated $169k.
Finally the budget requires Evergreen to report on STEM outcome measures, provides funding for several Washington State Institute for Public Policy studies in Evergreen’s allocation, and retains budget language in support of the Longhouse.
It is worth noting that the Governor’s proposed budget without new revenues would result in a 10% reduction to higher education, this would be a reduction of $2.13 million annually to Evergreen.
Capital Budget
Governor Inslee also proposed a biennial capital budget for higher education. The Governor provided funding for several projects across higher education. This includes funding for three projects at Evergreen – Lecture Hall Renovation Construction, Lab I Basement Construction funding, and Seminar I Renovation Predesign. The budget also provides authorization to purchase the Tacoma Campus property.
In addition the budget includes funds to support facilities preservation, minor works, and preventative facility maintenance and building system repairs.
Next Steps
The Governor’s budget is the first of many budgets that will be released to address the 2015-17 biennium. While the Governor’s budget is the first step in the budget development process, there will be at least four more legislative budgets to review as the legislative session progresses.
The Washington Legislature will convene on January 12 to begin its work to develop a biennial budget. Over the next 105 days, the House and Senate will hold work sessions and public hearings on the gubernatorial proposed budgets as well as the budgets put forth by each chamber before finalizing a conference budget.
This morning the Washington State Economic and Revenue Forecast Council released the February revenue forecast.
The forecast shows that the biennial budget will experience a slight increase in revenues – $30 million – compared to the last forecast in November.
General Fund collections are expected to total $33 billion for the current biennium. The forecast for the 2015-17 biennium also increased by $82 million. This includes a projected increase of $51 million from marijuana production and sales, the first time this item has been included in the forecast. The total General Fund for 2015-17 is expected to be $35.7 million for the 2015-17 biennium. The initial forecast for 2017-19 projects a total of $38.7 billion.
Though the forecast shows the state moving in a positive direction, the news was mixed. The Office of Financial Management stated that revenue collections had not grown enough to trigger an automatic 1 percent pay increase for many state employees. The 2013-15 state budget included language that reflects current collective bargaining agreements with unions which would trigger a 1 percent salary increase as a result of increased state economic activity. The February forecast would need to be at least $200 million higher than what was forecast in September 2012. Revenue growth only increased by $11.7 million over this period.
The next revenue forecast is scheduled for release in June.
Yesterday Governor Inslee released his plan to raise money for K-12 schools to respond to the Washington State Supreme Court decision to fund basic education.
The heart of Governor Inslee’s plan focuses on closing seven tax exemptions to provide for $200 million additional funds to support basic education.
The plan would target the additional funds towards two specific areas within basic education:
The funds would come from closing seven tax exemptions that the Governor proposed to close in 2013. The plan would repeal or refund:
The Governor’s plan will now go to the Legislature for consideration.
This morning the Washington Economic and Revenue Forecast Council met to hear the latest revenue projections for the state.
According to State Economist Steve Lerch the combined effect of a recovering economy and tax changes approved by the Legislature this past session are expected to generate $368 million in additional revenue for the biennium. Approximately $123 million is due to actions taken by the Legislature with regard to tax breaks and tax reforms.
In addition the forecast predicts an additional $342 million in new revenue for 2015-17, the majority of which ($249 million) is due to legislative and other non-economic factors.
Lerch stated “There has been little dramatic change in the economy since our last forecast and we continue to expect a slowly improving economy…While we still anticipate an expanding housing market, higher mortgage rates and home prices will slow activity relative to our June forecast.”
Late yesterday the Washington House passed a revenue package over to the Senate with a vote of 50-47.
Five Democrats joined Republicans voting against a $900 million revenue package.
The package which would raise funds for education over the next two years sets up the House’s position in budget negotiations which are expected to continue through May.
This afternoon the Washington House Finance voted along party lines to approve a $900 million tax package.
The package, originally slated at $1.16 million, was scaled back. The package moving forward no longer extends the temporary tax surcharge on beer that was adopted in 2010. In addition insurance agent services, janitorial services, and stevedoring services (shipping containers) were removed from the list of repealed tax exemptions.
The largest component of the revenue package that is now headed to House Rules is HB 2038 which would permanently extend a B&O tax surcharge that would otherwise expire in June. In addition the package either levies taxes not in effect today or would not still be in effect after June including the elimination of tax breaks for bottled water, travel agents, and high-tech research and development. As passed the bill would bar a referendum but not an initiative challenge.
Several amendments were proposed by the minority to remove additional elements of the revenue package, but were not passed. It is expected that some of these amendmetns would likely return when the bill goes to the floor later this week.
Yesterday the Washington Economic and Revenue Forecast Council released the March economic and revenue forecast.
The forecast is essentially flat. Which is good news these days. According to the report Washington is projected to take in an additional $59 million more than expected in the current fiscal year and $19 million less over the next biennium. Overall policymakers have approximately an additional $40 million to incorporate into their budget discussions.
This is good news given concerns expressed in the last few weeks about impacts on state revenue given the automatic federal budget cuts, known as sequestration, earlier this month.
Though this is a small break in what has been a stream of bad news over the last few years, it is important to note that policymakers still face a substantial budget challenge for the next two years. The Legislature must make up a shortfall of $1.3 billion and make some form of investment in basic education required by the McCleary ruling.
With the revenue forecast out, the next big step in Olympia will be the release of proposed biennial operating and capital budgets. The Senate is expected to come out with their proposed budget in the next two weeks, followed by the House. The Governor is expected to release budget priorities, not a full budget, next week sometime.
This morning the Washington State Supreme Court released their ruling, 6 to 3, on the constitutionality of Initiative 1053 which passed in November.
According to the Secretary of State’s Office Voter’s Guide, Initiative 1053 as passed during the general election required that “legislative actions raising taxes must be approved by two-thirds legislative majorities or receive voter approval, and that new or increased fees require majority legislative approval.”
Today’s ruling strikes down Initiative 1053 as unconstitutional arguing that the Washington Constitutuion controls the majority needed for tax increases and the Constitution only requires a majority of the members of the Washington House and Senate.
To reinstate a two-thirds requirement for tax increases would require an amendment to the Washington Constitution. An amendment to the Constitution requires a two-thirds vote of both chambers of the Legislature.