Our problems need more efficient management, not ‘free stuff’

The story under the headline should not have been surprising. Flawed, empty promises by politicians are so common that they are hardly news. But the story behind this flawed promise is interesting precisely because the politicians took steps to ensure that it wasn’t empty.

At the heart of the issue is the money to pay for the Washington College Grant program, which promises free or discounted tuition at the state’s four-year and community colleges. The program was to be funded by a new tax on businesses that require and hire workers with post-secondary education and degrees.

The theory behind it is that public funds — taxes, in other words — are paying for the four-year and community colleges that provide the skilled workers that corporations need to stay in business and earn profits. It is reasonable, then, that these corporations should shoulder the expense of preparing this workforce just as they would have to pay the cost of any other resource.

The theory made some sense, but it turned out to be complicated when the ground level calculations and wording were written into law. The result is that enough questions have arisen about computing and collecting the tax to threaten the projected balance between revenue and expenditures.

The financing of the program is an example of dedicated or designated funds where mismatches between revenue and expense are, or can be, a chronic problem. The cause is rooted in basic economic theory, in this case that the forces driving the demand (expenditures) are different from the forces driving supply (revenue).

At startup time, especially, there is no existing fund or other way to cover the mismatch. If more applicants sign up than planned, for example, or tax collections are less than predicted, there is no clear financial path to cover the shortfall. If that problem is not anticipated and dealt with in the law as written the shortfall ends up as a stink bomb in the state treasury budget, and Gov. Jay Inslee has already requested the allocation of $28 million of Treasury’s general fund to cover this eventuality. It may not be enough.

The base level problem with the program has its origins in the fuzziness of what we are trying to accomplish with the legislation, other than offering the voters something free.

If it is “access to higher education” we should examine the implications of that.

Not too long ago the federal direct loan program was launched to promote access to higher education. Today, there is general agreement that it is a financial nightmare with over $1.5 trillion in personal indebtedness outstanding that is still growing.

The Washington College Grant program is, in fact, a grant system and will not create a wake of personal indebtedness. But that doesn’t mean that there won’t be any side effects or unintended consequences.

There are a lot of good intentions behind the higher education grant program, but little attention has been paid to the impact on businesses.

Programs to end homelessness, for example, are running out of money and the politicians’ solution is guess what: a new tax on businesses. King County wants a “head tax”on some businesses that have highly paid people on their payroll. Clearly, the principal targets of the new tax are Microsoft and Amazon, but many others will be caught in the same net.

The higher education grant program and the King County “head tax” have one thing in common.

The politicians behind them have given little thought to long-range consequences. The effect on higher education quality, for example, when the standards for obtaining a high school diploma are declining, could be substantial.

And rising taxes on businesses could certainly spur “movin’ out” thinking in corporate planning.

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