Gov. Jay Inslee’s no-surprises supplemental budget doesn’t presage the biennial firestorm to come. 2014 is a respite, a break from the noise. It’s also the best time to conjure a fix for Washington’s catawampus tax system.
“This is a hold-steady budget that keeps us whole the remainder of the biennium, but we’ll have to make some tough decisions again next year,” Inslee said.
Because lawmakers consider tax talk a political third rail, those tough decisions get punted until after the 2014 election cycle. But the McCleary decision is the sword of Damocles, and natural growth in the economy won’t fill the gap. Inslee’s office projects more than $5 billion is needed over the next two biennia to achieve the statutory requirements for K-12. This includes implementing I-732, the cost-of-living adjustment for teachers that lawmakers suspended five years ago, as well as enrollment costs for another 30,000 students by 2019. (Inslee doesn’t fund I-732 in his supplemental request.)
Real per capita General Fund revenues are significantly below pre-recession levels (2007 was the peak) according to the Washington State Economic and Revenue Forecast Council. All the while, service demand has sprinted ahead of state revenue collections, with a 16.9 percent jump in long-term care caseloads, a 23 percent hike in medical assistance caseloads, and an (adjusted for inflation) 6.7 percent drop in state General Fund revenue from fiscal year 2008 to 2013.
The governor’s office floats these shortfalls-a-commin’ figures to preempt criticism when they elbow for ending a series of draining tax exemption in 2015-17. But elbow they must, despite quibbles over what constitutes a tax increase. An easy first step is the expiring high-tech R&D tax exemptions. Inslee wants to keep them in place for another year, with a colossus like Microsoft sidestepping $18 million in taxes in 2012. Waiting another year to level the field (smaller companies still would be exempt) will make 2015-17 a tougher go. House Finance Chairman Reuven Carlyle is wise to push his High Technology Investment Act to reform the credit and underwrite STEM degrees.
Inslee exhibits passion discussing income inequality, acknowledging that Washington has the most regressive tax system in the country. But tinkering at the margins isn’t a long-term remedy. Budgets are value statements.
The governor’s hold-steady budget works fine for now (and a SnoCo hat tip for requesting $500,000 for WSU to develop the School of Advanced Manufacturing and Aerospace at Everett Community College.) If Inslee wants to bend history and tackle income inequality in a meaningful way, however, he’ll need to apply his formidable political skills and take real risks in the next biennium.
Here’s hoping he does.