Editorial: With schools funded, let’s fix tax system next

By The Herald Editorial Board

In resolving one crisis, the Legislature has complicated the solution to another.

The state Supreme Court will have the final say on whether lawmakers have met their mandate to satisfy the court that the state is meeting its constitutional obligation to amply fund K-12 education and end its over-reliance on local school district levies to pay for basic education.

There’s general agreement that the plan to boost education spending by $7.4 billion over the next four years will come closer to hitting that mark and bring its education spending closer to that of most other states. As late as 2014, Washington state ranked 42nd in the nation for K-12 spending as a percentage of personal income.

How the Legislature got to that spending level, however, was a last-minute stumble to find the revenue and make trade-offs before the end of the fiscal year and a partial government shutdown. Talks went to the wire, with a budget approved by House and Senate with less than 24 hours before the deadline and the governor’s signature coming within minutes of the layoffs of 32,000 state employees.

Sweeping changes to the state’s tax system — already judged by many to be the most regressive in the nation because of its heavy reliance on sales tax revenue — were signed into law with virtually no opportunity for review by lawmakers or the public.

The biggest change, of course, is the so-called “levy swap,” with the state increasing its share of property taxes to pay for education while lowering what local school districts can collect. But, especially in its first year, the levy swap is expected to result in an increase for almost all paying property taxes in 2018. In following years, many in urban and suburban Western Washington can expect increases to property tax bills over current levels, while some rural and property-poor areas will see a decrease.

In Everett for example, the state Office of Program Research estimates that the owner of a median-value property can expect to pay between $40 more in 2019, but $120 and $170 more in 2020 and 2021, according to a chart published Thursday by The Seattle Times. Even Monroe homeowners can expect increases over the same period of $60 in ’19, $130 in ’20 and $210 in ’21 for a median home.

In passing the property tax change, the Legislature also exempted itself from the 1 percent cap on property tax increases, something it hasn’t been willing to do for counties and other local governments facing their own difficulties in funding their responsibilities and meeting unfunded mandates from the state.

Along with the increases for many property taxpayers, lawmakers also passed a tax break for an estimated 10,000 manufacturers in the state, lowering their business and operation (B&O) taxes to a rate comparable with the one that Boeing enjoys following the tax incentive deals signed in 2003 and extended in 2013 to win production of the 777X in Everett.

But by Friday afternoon, Gov. Jay Inslee had vetoed the B&O tax break at the urging of some Democratic House members, including much of the county’s delegation, as he approved much of the rest of the tax package the Legislature passed as a companion to the budget.

The problem is that Republicans put the B&O break on the negotiation table with just hours remaining in talks. Similar legislation was discussed early in the regular session, but it was not made part of negotiations until the last minute, Democrats say, including those who asked the governor to veto the tax break.

The B&O break is worth reconsidering. It’s likely that an incentive for smaller manufacturers could result in an increase in jobs, particularly in the state’s more rural areas that haven’t shared in the state’s economic rebound.

As with the changes to the property tax, there was no time to weigh the effects of the B&O break, to debate the pros and cons or for the public to consider and comment. Democrats who sought the governor’s veto noted that there’s nothing in the B&O legislation that requires the Joint Legislative Audit and Review Committee to track and evaluate its effect on jobs and state revenue.

While funding for education has been increased, the budget deal and tax package that were reached do nothing to address the regressive nature of the state’s tax system and may have actually added to the burden for middle-income earners. Republicans rejected proposals from the Democratic governor and lawmakers for a capital gains tax and a carbon tax that could have begun to make the state’s tax system more equitable.

The heaviest lifting may be over in satisfying the McCleary case, but the Legislature must next find a better, fairer way to fund K-12 education and the rest of the state’s responsibilities or, as happened with McCleary, the state is likely to again find itself standing before the state Supreme Court.