Dissecting the Governor's Budget Proposal

by Marilyn Watkins

Last week, while most of us were madly preparing for the holidays, Governor Inslee proposed a Washington state budget for the next two years. Adopting a budget will be the main task of our legislature when it convenes the second week of January. Inslee's first draft devotes new resources to education and transportation, takes small steps at modernizing our outmoded and regressive tax structure, and takes a swipe at climate change.

Inslee's draft budget is a good start, with a vision for a better future. But it doesn't move us far enough toward providing all our state's children and families with true opportunity. Here's a New Year's wish that our legislators will go bolder and lead us further down that road.

Washington's elected leaders face a big challenge. Income inequality is constricting family budgets and the whole economy, here in Washington and nationwide. That means that public revenues from sales and business taxes are growing a lot more slowly than the costs of educating our kids and providing basic services.

Most other states modernized their tax systems years ago with a state income tax, so they can reap some benefit from the skyrocketing wealth of the 1% and plow those resources back into early learning, small class sizes, and affordable college educations. But Washington still relies on a 1930's-style system based on the sales tax. As a result, we're falling behind other states.

The revenue projected for our state over the next two years will be up by about enough to cover the growing population of school kids and others, with no improvement in services. But Washington voters just approved Initiative 1351 to lower class sizes in all grades. That requires more teachers, more class rooms — and more money. And the Supreme Courts has told the legislature in no uncertain terms that it must invest more to insure that all kids have equal access to an education that will fully prepare them for life in the 21st century.

We also must invest more in early learning and higher education if we want to help all kids achieve their potential. Then there's everything else the state does, like protect mentally ill people and children from dysfunctional families. Most state services were cut to the bone during the Great Recession and also need more funding to get the job done.

While Washington's tax revenues are projected to be up by close to $3 billion over the next two years, all those increased demands total more than $7 billion.

Inslee's budget proposal covers class-size reductions in the early grades, more support for early learning, tuition freezes and more financial aid in higher education. But he didn't include smaller classes for older kids or change the over-reliance on local levies for basic school expenses.

The governor proposes two new progressive sources of funding to help foot the bill. One is a 7% tax on capital gains from selling stocks and bonds. Retirement accounts and the first $25,000 would be exempt, so only the wealthiest would pay. The other is a new carbon tax that would be paid by the largest corporate polluters in the state. That would provide new money for education and transportation projects, while reducing pollution and slowing climate change. He also ends a few tax breaks — but also piles on some more, including for high tech companies (you know, like those struggling start-ups, Microsoft and Amazon.)

Republican Senator Andy Hill and others have already fired back that the state doesn't need more revenue, just needs to be more disciplined in how it spends. But our state government's share of Washington's total economy has declined steadily for two decades. If tax revenues came in today at the same rate they did in the year 2000, we'd have $6 billion more for the current budget without new taxes.

Ultimately, if we want the basic infrastructure of education and services our communities need to prosper, we will have to completely reform our tax structure to be more in tune with today's economy. That won't happen in the next two years, with Republicans controlling the Senate and Democrats in charge in the House.

Meanwhile, attacking income inequality and rebuilding family economic security are equally important to improving our long term fiscal outlook. First steps would be to raise the minimum wage to $12 statewide, enact statewide paid sick days, fund a full family and medical leave insurance program, and give women a better shot at equal pay. Working families are the true job creators. When they have more economic security and a little more cash in their pockets, our whole economy will be stronger, and the state's budget picture will be brighter.

Marilyn Watkins is policy director of the Economic Opportunity Institute, a nonpartisan policy center focused on building and economy that works for everyone.