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The 2010 Supplemental Operating and Capital Budgets for Evergreen

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The Evergreen State College, along with every other state agency in Washington, is impacted by the 2010 supplemental budgets released today by the Legislature.  For Evergreen the impact is mixed, including both reductions and investments.

2010 Supplemental Operating Budget

The supplemental operating budget released earlier today makes a strong commitment to funding programs that financially assist college students.  The operating budget in combination with revenue legislation restores funding to the State Need Grant. This funding preserves grants for 285 Evergreen students that would have been ineligible under the initial cuts proposed in the Governor’s Book 1 Budget and maintains award amounts appropriated in the 2009-11 biennial budget.  The state work study program was also reduced by 30% but not eliminated. This minimizes the impact on 162 Evergreen students who would have lost this financial resource had the program been eliminated.

The challenges and difficulties of the 2010 legislative session are still evident in changes outlined in the supplemental budget for Evergreen.  A proportion of facility maintenance costs are shifted from the operating to the capital budget ($3.247 million).  These costs will be funded with trust land revenues appropriated in the capital budget rather than with state general fund appropriations.

State funding for Evergreen was reduced by $1.291 million. This does not include a further reduction in state appropriations of $568,000 to be achieved through compensation reduction actions (SB 6503).

Apart from these reductions, Evergreen received $637,000 to provide for an increase in the monthly employer contributions for state employee health benefits. This appropriation provides for a rate increase for FY2011 from $768 to $850.

In addition, Evergreen’s Washington State Institute for Public Policy (WSIPP) was appropriated $50,000 to provide research support to the Quality Education Council.

Finally, the budget transfers $164,000 from Evergreen to South Seattle Community College (SSCC) as a part of the transfer of the Labor Center from Evergreen to SSCC. The budget also provides that at least $119,207 for FY2011 be expended on the Longhouse and $103,146 expended on the Northwest Indian Applied Research Institute.

2010 Supplemental Capital Budget

The supplemental capital budget, like the operating budget, is a mixed bag for Evergreen. The upside is that the budget provides $125,000 for a feasibility study of the College’s Biomass Gasification Project. This investment makes the state a partner along with Evergreen students and the College who also provided $125,000 each to the study through energy-related fees and energy-cost savings.

The capital budget also reflects the shift from the operating to the capital budget ($3.247 million) of facility maintenance and operations costs.

Finally, the capital budget places greater reliance on Evergreen’s local funds, including the school trust and a portion of student tuition.

An Overview of the Operating Budget as It Relates to Higher Education

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The 2010 supplemental budget released this morning and likely to be passed by both chambers reduces funding for public services and programs by $755 million for the current biennium.

Among the reductions in the operating budget, higher education is impacted by both statewide changes and changes directed specifically towards higher education.

Statewide, the 2010 supplemental operating budget assumes $48 million in General Fund-State savings in the form of temporary state agency layoffs and management reductions (SB 6503). The Evergreen State College is reduced by a total of $568,000. This includes a reduction of $327,000 in general fund dollars and a reduction of $241,000 in non-state funds.

In addition, $30 million is expected in savings from increased efficiency in state information technology. The savings will be achieved through strategies outlined in House Bill 3178 (i.e. buying wireless service from master contracts and consolidation of email and phone services).

Specific to higher education, the budget provides funds for worker retraining, maintains much of the state funded student-financial aid programs; and minimizes reductions to colleges and universities to the extent possible.

The budget only increases funding for higher education in two areas. The budget provides $17.6 million for the Opportunity Express Account. The Account will fund an additional 3,800 full-time equivalent (FTE) unemployed workers to train at community and technical colleges for new jobs in high-demand fields.

The budget also provides $1 million to the Opportunity Express Account to provide financial aid for the additional community and technical college students who pursue training in high-demand fields.

Beyond these increases, the budget includes several budget reductions. The budget reduces state funding to the six public baccalaureate institutions and 34 community and technical colleges by an additional 6% overall for  fiscal year 2011.  The Evergreen State College was reduced by $1.291 million in addition to the reduction taken as part of the compensation-reduction bill (SB 6503).

As with implementation of the reductions in the original biennial budget, colleges and universities are expected to focus first on achieving savings through purchasing efficiencies, reduced energy use, administrative reductions, and program consolidations. The Legislature does acknowledge that the following are likely across higher education in Washington: reductions in course offerings, increases in class sizes, and reduced student support services.

The State Need Grant is maintained as enacted in the 2009-11 biennial budget. However, the State Work Study Program is reduced by approximately 30% in the second year of the biennium.  The reduction will be realized through a combination of the following: maintaining average student earnings at the current level rather than increasing them to keep pace with the estimated costs of attendance; increasing the required employer share of wages from 35% to 50% for proprietary employers and from 20% to 30% for non-profits; and discontinuing student eligibility for the program.

It should be noted that the budget assumes the passage of Senate Bill 6409 which creates the Opportunity Pathways Account and funds this account by providing that all profits from in-state lottery games are to be used for student financial aid, early childhood education, and economic development. Funds from the Opportunity Pathway Account, $73.5 million, are appropriated to replace state general fund support for the State Need Grant, the State Work Study program, Washington Scholars, and the WAVE program.

Funding for the state funded GEAR-UP project to increase college awareness and preparedness among students is also reduced by 30%.

Funding is also suspended for several state supported student aid programs.  The Legislature does continue to provide sufficient funds to complete commitments to current recipients. These programs include the Health Professional Loan & Scholarships, Education Opportunity Grants, Western Interstate Compact for Higher Education (WICHE) Professional Student Exchange program, and Future Teachers Scholarship.

The Washington Scholars and Washington Award for Vocational Excellence (WAVE) programs were not suspended but  reduced. During the 2010-11 academic year, only one student (instead of three) will be awarded scholarships equivalent to at least 90 percent of full tuition and fees at a Washington public college or university. Similar to other financial aid programs, funding will continue to be made available for current recipients who were awarded scholarships in previous years to complete their studies.

Finally, a handful of other programs were reduced or suspended. During the second year of the biennium state matching funds are not provided to support innovations in childcare delivery at public universities and funding for the Leadership 1000 project is reduced by 50%.

Two programs were suspended. State contributions for the Foster Care Endowed scholarship are suspended for the second year of the biennium. In addition, state work study for math and science is suspended.

Legislature Releases Operating and Capital Budgets: Overview

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Late this morning the Washington Legislature released the 2010 supplemental operating (SB 6444) and capital budgets (HB 2836).

The release of the budgets was followed by a press conference with leadership from both chambers. Legislators discussed a balanced approach to remedying the $2.8 billion state budget gap, including reductions to state programs and services, one-time transfers of dollars, federal funding, and new revenue.

Legislators acknowledged that Washington has a structural problem with regard to taxes, citing the state’s regressive tax system and the narrowing limits placed on new revenue through various initiatives passed over the years. Legislators plan to continue discussions on reforms and solutions through the interim in preparation for the 2011 legislative session.

An overview of the budgets released today echoes the implementation of this multi-pronged approach to remedying the $2.8 billion state budget shortfall this biennium.

The Legislature reduced funding for state programs and services by $755 million. Among the multitude of reductions, some of the major reductions included:

  • The elimination of the remaining $79 million in Initiative 728 per student allocations to school districts;
  • Reductions in funding of $73 million to institutions of higher education near the minimum level required for the receipt of federal stimulus funds;
  • Savings of $67 million from the implementation of an additional assessment on hospitals and leveraging federal match;
  • Reductions of $49 million to all areas of state government through the requirement of temporary layoffs or salary savings;
  • Reductions of $46 million from correctional facility capacity;
  • Reductions of $30 million to reduce the grade 4 class size enhancement;
  • Savings of $30 million from information technology;
  • Reform of the Security Lifeline programs (formerly GA-U), $ 28 million
  • Savings of $15 million through the elimination of the learning improvement day for teachers.

The Legislature incorporated approximately $618 million of approved/anticipated additional federal relief to Washington State. The supplemental operating budget anticipates $480 million in additional resources based on the Federal Medical Assistance Percentage (FMAP) enhancement being extended by an additional six months through June  2011.  Congress is considering legislation that would extend the enhancements beyond the current end date, December 2010.

In addition, based on a recent U.S. Department of Health and Human Services reversal of the decision to disallow state savings from Medicare Part D “clawback” payments for prescription drugs, the state expects to receive $87 million in additional federal resources beyond the current level assumed in the state budget.

Finally, the Legislative budget offsets $39. 5 million in the Security Lifeline and Basic Health programs based on receiving a waiver allowing a portion of these state costs to be supported with federal funds; and the budget assumes additional federal resources of approximately $12 million from two smaller sources of federal aid.

The supplemental operating budget, in addition to reductions and federal funds, makes $461 million in additional transfers from various funds to increase General Fund-State resources.

Some of the larger transfers include:

  • $141 million from the Public Works Account
  • $101 million from the Education Savings Account
  • $21 million from the Job Development Account
  • $18 million from the Education Construction Account
  • $16 million from the Life Science Discovery Fund
  • $16  million from State and Local Toxics Account
  • $15 million from the Performance Audit Fund
  • $15 million from the Public Service Revolving Account
  • $12 million from the Treasury  Service Account
  • $10 million from the Savings Incentive Account
  • $10 million from the Streamlined Sales Tax Account

Finally, the Legislature plans to pass legislation that would raise $794 million with a net increase of $757 million after $12 million in legislation that decreased revenue is acknowledged. This includes:

  • $7.4 million in tax loopholes
  • $241.9 million B&O tax on service businesses
  • $59 million beer tax increase
  • $33.5 million soda/pop tax increase
  • $32.6 million bottled water tax increase
  • $101.4 million cigarette and other tobacco product tax increase
  • $10 million convention center
  • $15 million lottery marketing

The House is expected to take up the operating budget first today, followed by the Senate.

Senate Passes Cigarette Tax

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This morning the Senate passed House Bill 2493 – the tax increase on cigarettes and other tobacco products. The House passed HB 2493 the first week of special session.

House Bill 2493 raises state cigarette taxes by $1 per pack and increases taxes on other tobacco products.

The Senate did amend the bill to change the effective date. The effective date for the changes to all tobacco products, except for moist snuff, was changed from April 1, 2010, to May 1, 2010. The changes made to the taxation of moist snuff remain effective October 1, 2010.

House Bill 2493 now goes back to the House for concurrence on the amendment to change the effective date.

Budget Deals Reached

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Reports released this afternoon announce that the Senate and House have reached agreement on 2010 supplemental operating and capital budgets. These agreements fall on the heels of the agreement between the two chambers to raise $794.1 million in new revenue.

Final details on the budgets are expected to be released on tomorrow, Monday April 12.

Surprise…Votes Counted…House Passes Revenue Bill

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This evening the House passed Senate Bill 6143, which modifies excise tax laws to preserve funding for public schools, colleges, and universities, as well as other public systems essential for the safety, health, and security of all Washingtonians.

The House passed the conference report agreement signed earlier today by the Senate and House with a vote of 52-44.

Senate Bill 6143 raises $667.7 million in new revenue. Combined with the revenue expected to be generated by an increase in the cigarette tax and taxes on other tobacco products, the total revenue generated is expected to be $794.1 million.

Senate Bill 6143 now goes to the Senate where they are expected to take action on the bill tomorrow when they convene at 2:00 p.m.

The House is adjourned until 9:00 a.m. on Monday, April 12.

Senate Passes Compensation Legislation

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Today, the Senate concurred on House amendments to Senate Bill 6503, the compensation reduction bill, with a vote of 26-14.

In other words, the Senate passed the House’s revised version of SB 6503 and now the bill heads to the Governor for her signature.

Senate Bill 6503 focuses on state savings through the reduction of compensation-related changes for state employees.  The bill is referred to by many as the “furlough bill”.

The final bill headed to the Governor directs that savings will be generated at state agencies and institutions of higher education through either 10 temporary agency closure days or alternate-approved compensation reduction plans. In addition, the legislation directs that in addition to the closure or alternate compensation reduction plan savings, Washington Management Services and exempt employee compensation will be reduced by $10 million General Fund-State. Finally, the bill provides a list of agencies, or portions of agencies, exempt from the closures.
Specifically Senate Bill 6503:

  • Directs state agencies to achieve a reduction in employee compensation costs through mandatory and voluntary furloughs, leave without pay, reduced work hours, voluntary retirements and separations, layoffs and other methods. The amount of the savings will be specified in the omnibus appropriations act.
  • At least $10 million in savings will be from management positions exempt from civil service.
  • Agencies that fail to submit an approved compensation reduction plan will be subject to ten specified agency closure dates beginning in July 2010.
  • The alternate reduction plans for institutions of higher education may include reductions to operations, as well as to compensation.
  • Agencies are encouraged to preserve family wage jobs.
  • Exceptions to the agency closure dates include: state corrections and social service institutions; child protective services; law enforcement; military operations; state hospitals; emergency management; state parks, highways, and ferries; revenue collection by the Department of Revenue; higher education classroom instruction and student employees; state liquor stores; state lottery; unemployment insurance and reemployment services; workers compensation and workplace safety programs; agricultural commodity commissions and food inspection programs; employees necessary to protect state assets and public safety; functions of the Attorney General’s Office directly related to civil, criminal, or administrative actions; the operations of the Office of the Insurance Commissioner that are funded by industry regulatory fees; state legislative agencies, the Governor, the Office of Financial Management and Lieutenant Governor during legislative sessions; and the Labor Relations Office of OFM through November 1, 2010.
  • State agency closures will result in the temporary layoff (furlough) and reduction of compensation of affected state employees. These temporary layoffs and reduction in compensation do not affect employee seniority, vacation and sick leave accrual, or retirement benefits.
  • Agencies that do not adopt an approved compensation reduction plan will be subject to ten closure dates specified in the bill. Employees earning less than $30,000 per year are allowed to use annual leave or shared leave in lieu of temporary layoffs during agency closures.

Revenue Conference Report $7 million Less than Proposed Revenue Package Earlier this Week

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The revenue conference report signed by the House and Senate this afternoon will provide less revenue than was previously proposed earlier this week.

The revenue conference report provides $794.1 million in new revenue ($667.7 million +$126.4 million cigarette tax). This is over $7 million less than the $801.3 million proposed in the revenue agreement discussed this past week.

So what is different?

  • Minimum Nexus Standards ($84.7 million). Incorporates all changes from Senate and House. In addition, includes a B&O deduction for interest and fees on loans secured by commercial aircraft. Effective June 1, 2010.
  • Tax Avoidance Transactions ($8.5 million). Provides the Washington Department of Revenue authority to disregard three specific types of tax avoidance transactions. Creates legislative oversight committee. Effective May 1, 2010.
  • Homestreet Fix (modifying first mortgage deduction) ($3.6 million). Servicing of loans by the originator of the loans qualifies for the deduction; other types of fees and charges are not deductible. Effective June 1, 2010.
  • Livestock nutrients (sales tax exemption for livestock nutrient equipment and facilities) ($1.3 million). Changes effective date to July 1, 2010 from April 1, 2010.
  • Corporate Directors B&O (B&O tax on corporate directors) ($2.1 million). Changes effective date to July 1, 2010 from April 1, 2010.
  • Sales and use tax applied to bottled water ($35.3 million). From June 1, 2010 to June 30, 2010 bottled water is subject to sales and use tax. The exemptions for prescribed water and for persons without potable water are made in the form of a refund except for bulk deliveries.
  • Sales tax applied to candy and gum ($30.5 million). Candy and gum are subject to sales tax, as of June 1, 2010. Provides a job credit of $1,000 per position for the next two years for candy manufacturers. Washington Department of Revenue will publish a list of taxable candy, if not on the list, retailers must check with Revenue.
  • PUD privilege tax clarification ($1.2 million). Changes effective date to May 1, 2010 from June 1 in the Senate and April 1 in the House.
  • Temporary B&O tax surcharge on service businesses ($241.9 million). Temporary B&O surcharge of 0.3% from May 1, 2010 to June 30, 2013. Permanently doubles the small business tax credit for service businesses. Excludes public and private hospitals as well as certain R&D activities.
  • Property management B&O (limits the B&O exemption for property management salaries) ($6.9 million). The exemption is not repealed but rather is limited to nonprofit property management companies and property management companies that contract with a housing authority. Effective June 1, 2010.
  • Temporary Beer Tax increase ($59. million). From June 1, 2010 to June 30, 2013 increases the Beer Tax by 50 cents per gallon (28 cent increase for six packs). The temporary increase does not apply to the first 60,000 barrels produced by small breweries
  • Temporary soda/pop tax increase ($33.5 million). Beginning July 1, 2010 to June 30, 2013 increases the tax on carbonated beverages (pop/soda) by 2 cents per 12 oz bottle. The first $10 million in sales is exempt from the tax increase.

Here is what did not change.

  • DOT Foods (direct seller B&O exemption) ($155 million).  Effective  May 1, 2010. 
  • Agrilink (B&O tax on manufacturing of certain agricultural products) ($4.1 million).  Effective May 1, 2010.
  • Tax debts corp (tax debts – corporate officer liability)($1.1 million)
  • Bad debt (limits the bad debt deductions) ($1.7 million)

And finally, here is what was not included in the conference report.

  • Changing the definition of “qualifying business”, regarding data centers, so that a lessee of a least 20,000 sq. ft. of space within an eligible computer data center can qualify for the exemption. Amends the job provisions to provide associated definitions regarding the requirement to increase employment by 35 family wage jobs.
  • Limiting the foreclosure exemption from the Real Estate Excise Tax (REET).
  • Repealing the B&O tax job credit for international service activities.
  • Changing the rural county tax incentive to allow for claims for incentives for computer programming only when it is used to create a new item for sale.
  • Limiting the B&O deduction for dues and initiation fees.
  • Repealing the sales tax exemption for coal used at a coal-fired thermal electric generation facility.
  • Changing the exemption for machinery used to create electricity and wind to require a producer to either be a local utility or someone contracting with a local utility for the sale of power.
  • Establishing the temporary 0.2% slaes and use tax and Working Families Tax Credit.
  • Repealing the nonresident sales tax exemption
  • Establishing an aircraft excise tax.
  • Capping the first mortgage interest deduction at $120 million.
  • Extending sales tax to custom software
  • Eliminating the credit against the sales tax for the Convention Center.

Revenue Conference Report Signed but Still Counting Votes

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Early this afternoon members of the conference committee for Senate Bill 6143 (the revenue bill) met and signed the revenue conference report – $794.1 million in revenue.

Senators Murray and Prentice and Representatives Hunter and Hasegawa received a summary of the conference report from staff prior to signing the report.  Democrats took the opportunity offered by the conference report signing to underline the importance of new revenue to protect public services.

Both chambers also shared that vote counting on the revenue package is continuing.  When asked by the media if there are votes in the House and Senate to approve this compromise, Senator Murray, Democratic Caucus Chair, said “We’re confident but we’re counting votes.”  Similar thoughts were echoed by House Finance Chair, Representative Ross Hunter, “I think we’re very close. I think we’re closer than we were yesterday.”

At the same time the House and Senate continue to count revenue votes, negotiations on the operating and capital budgets continue. As shared by Senator Margarita Prentice, Chair of the Senate Ways & Means Committee,  “We’re still working,” when asked about negotiations on the actual budget.

The revenue conference report would provide the state with $794.1 million in new revenue.

Conference Revenue Report
($794.1 million)

  • Temporary Services B&O surcharge to 1.8% without hospitals and narrow exemption for R&D. Small business credit doubled (credit permanent). Effective May 1, 2010 and expires June 30, 2013 ($241.9 million).
  • Temporary Beer Tax increase of 50 cents per gallon. Twenty-eight cent increase per six pack. Microbreweries exempt. Effective June 1, 2010 and expires June 30, 2013 ($59 million).
  • Temporary soda/pop tax increase of 2 cents per 12 oz bottle. Bottlers under $10 million in volume exempt. Effective July 1, 2010 and expires June 30, 2013 ($33.5 million).
  • Dot Foods ($155 million).
  • Cigarettes and other tobacco products (House Bill 2493) ($101.4 million).
  • Nexus ($84.7 million).
  • Sales and use tax applied to bottled water. Exemption for prescription water and unavailable potable water ($32.6 million).
  • Sales tax applied to candy and gum. B&O credit for jobs ($30.5 million).
  • Lottery Marketing (Senate Bill 6409) ($15 million).
  • Convention Center (Senate Bill 6889– Delivered to the Governor) ($10 million).
  • Tax avoidance ($8.5 million).
  • Property management. B&O ($6.9 million).
  • Agrilink ($4.1 million).
  • Homestreet fix ($3.6 million).
  • Corp. Dir. B& O ($2.1 million).
  • Bad debt ($1.7 million).
  • Livestock nutrients ($1.3 million).
  • PUD clarification ($1.1 million).
  • Tax debts corp ($1.2 million).

The conference report must sit on the bar of both the House and Senate for a full day before it can be voted upon. The report can only be voted up or down without amendment. The House will take up the package first, likely tomorrow.

No Declared Agreement. Floor Sessions Scheduled for Saturday

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No official announcement has been released at this time regarding a final agreement on revenue by the Legislature. The new revenue package released earlier this week is still being considered by both Chambers and votes are being counted.

Though no progress has been made to seal the deal with regard to revenue since the last blog posting, there is some hope that tomorrow’s scheduled floor action at 2:00 p.m. for both Chambers will be the necessary first step to a successful sine die of special session.

Next week, Tuesday, April 13, will mark the end of the first special session of 2010, final revenue package and budgets or not.