A Preview of the 2017 Washington State Legislative Session

by John Stafford

INTRODUCTION

The 2017 Washington State Legislative Session will likely be one of the most momentous in recent history. The reason for this is the imperative to finally, fully address McCleary. And addressing McCleary will entail tax reform. Thus, the session holds promise for much-needed change in two critical areas — educational finance and tax policy. In the next two months, several critical events will define the political landscape for the upcoming session. This article previews the 2017 Legislative Session. There are four sections: political context, central issues, legislative topics and themes.

POLITICAL CONTEXT

Four events will set the stage for the Legislative Session. The first is the national election. As Akhil Reed Amar, U.S. Constitution expert from Yale, stressed in his September lecture at Seattle's Town Hall, it is difficult to remember a U.S. election with as much at stake as 2016. Everything is potentially in play: the presidency, the Supreme Court, the U.S. Senate and arguably the U.S. House. The outcome of the national election will have significant implications for state policy on a wide range of issues, from Affordable Care Act viability, to immigration law, to trade and tariffs, to infrastructure investment.

The second key event is the state election, and its determination of control of the two legislative chambers in Olympia. Currently, the State House is under Democratic control (50-48), while the State Senate is under Republican control (26-23). It is important to be aware of the recent historical context — both chambers have become increasingly Republican since the start of the Obama presidency. This is shown in the following exhibit:

Since Obama was first elected, the Democratic majority has declined from 62-36 to 50-48 in the House; and Democrats have gone from a 32-17 majority, to a 23-26 minority in the Senate. This is consistent with national trends. In 2008, there were 27 state legislatures with both chambers controlled by Democrats, and 14 with both chambers controlled by Republicans. By 2015, the situation had more than completely reversed — 11 states with both chambers controlled by Democrats, and 30 with both chambers controlled by Republicans. The GOP now controls more partisan legislative chambers (68) than at any time in history. Myriad factors have driven this Democratic decline. A popular narrative is that in highly uncertain times, voters tend to purposefully establish divided government (e.g., a Democratic presidency with Republican state government) in order to institutionalize gridlock and thereby slow the pace of change.

Critically, in the upcoming state elections, both state legislative chambers are in play. Indeed, there is a very real chance for the Democrats to retain control of the House, and regain control of the Senate. There are five critical Senate races (Mullet (D) vs. Magendanz (R), Wellman (D) vs. Litzow (R), Probst (D) vs. Wylson (R), Peloquin (D) vs. O'Ban (R) and Homola (D) vs Bailey (R)). The primary election results in most of these races were extremely close, but there are three structural factors that will favor the Democrats between the primary and the general election: the perennial increase in youth turnout (which tends to vote Democratic), the strong economy (which favors the national incumbent presidential party), and the likely negative Trump down-ballot impact on statewide GOP candidates. It goes without saying that if Democrats control the state governorship, the Senate and the House, this will have profound implications for the realization of a progressive agenda in the Legislative Session.

The third event will be the general election results for the major initiatives and propositions on the November ballot. Regional Proposition I (Sound Transit III) is a massive, 30-year, $54 billion measure to "build out" Sound Transit from Tacoma to Everett, and from West Seattle and Ballard to Redmond and Issaquah. The passage of this measure could have implications for available tax capacity in other budget areas (although this is a hotly contested subject¹). Initiative 1433 would raise the statewide minimum wage to $13.50 per hour.

If it fails, it is likely that legislation will be introduced in Olympia to increase the minimum wage. Initiative 732, calling for a revenue-neutral carbon tax in Washington State, is also on the ballot. Its failure could precipitate legislation for a different form of carbon tax. Similarly, initiatives that deal with campaign finance reform (I-1464) and gun control (I-1491) are on the ballot, and their passage or failure may also have implications for legislation introduced in Olympia. In short, there are an uncommon number of highly consequential initiatives and propositions on this year's general election ballot, and their electoral fate will influence the 2017 legislative agenda.

Finally, the Washington State Supreme Court held a hearing on September 7, 2016 to evaluate the State's progress in complying with the McCleary decision. The Court will announce the results of its deliberations from this hearing on an unspecified date in the near future. It is possible that the Court could make a pronouncement that would dramatically impact the Legislative Session, possibly including one or more of the following: the closure of public schools; the mandatory repeal of tax breaks to increase funding for public schools; some form of contingent sanctions (e.g., a threat to close schools if taxes are not increased by a certain date), etc.

Thus, between now and January, there may be tectonic shifts in the political landscape — via the national elections, the state political elections, the initiatives and propositions, and/or the State Supreme Court ruling on McCleary compliance — that will have powerful ramifications for the Legislative Session.

THREE CENTRAL ISSUES

Three interwoven issues will dominate the 2017 Legislative Session: the need to create an operating budget, the determination of how to comply with McCleary, and decisions on tax policy.

The Washington State Legislature alternates between budget years (like 2015), in which three budgets are created (operating, transportation and capital); and "short sessions" (like 2016), in which adjustments are made to existing budgets. 2017 is a budget year, and thus the central task of the Legislature will be to pass three new budgets. The largest and most critical of these is the operating budget (close to $40 billion per biennium). The governor, and each party in each chamber will create its own budget (five total), and then negotiations will begin on how to bridge the (typically vast) differences.

The most divisive issue in the 2017 Legislative Session will be the question of how to address McCleary, the 2012 State Supreme Court decision calling for the State to dramatically increase K-12 spending. For the past two decades, Washington State has dramatically reduced the percentage of its personal income that it spends on K-12 education. This is depicted in the exhibit below (from my September article that deals exclusively with McCleary²), which shows that Washington has reduced the amount spent as a percentage of personal income on K-12 education by an alarming 30% between 1995 and 2013 (from roughly $50 to roughly $35 per thousand dollars of personal income). During this time, Washington went from being a very high spending state to a low spending state on public education.

Generally, high-income states spend more per pupil on K-12 education than low-income states, for two reasons: they realize that education spending is a powerful investment that brings a multitude of benefits to their states; and they can afford to spend more on education because they are affluent. But Washington State is an exception to this pattern: we are a high-income state that spends less than the national average on per pupil K-12 education spending. Washington State is now 43^th in the nation in K-12 education as a percentage of personal income. This is the underlying cause of the McCleary lawsuit.

The state has made some progress toward increasing educational spending to achieve McCleary compliance, but it has been insufficient. The major area requiring additional funding is teacher compensation. Here, there are two issues. The first is increasing the overall level of spending on teacher compensation. The second is transferring responsibility for teacher compensation from local school districts to the state (a process referred to as a "levy swap"). Dealing with these issues will require substantial additional state funding — perhaps $3.5 billion per biennium. Discussions on how to address this issue will be the single largest subject of the 2017 Legislative Session.

As I have noted previously, there is only one way to satisfactorily address McCleary, and that is by raising taxes. Here, it is important to note that there is the possibility of a "grand bargain" between Democrats and Republicans: a tax increase to raise funding for education (favored by Democrats) in return for transferring levy responsibility from lower-wealth districts (generally conservative), to higher-wealth districts (generally liberal), a tactic favored by Republicans. This will require strong political leadership, a quality that has been in short supply on this issue.

The McCleary problem was precipitated by the decline in taxation intensity in Washington State, and it will not be addressed until this decline is reversed. Washington State has gone from a level of state and local taxes as a percentage of personal income that was 8% higher than the national average in 1991 to a level that was 10% lower than the national average in 2013.

This has dropped Washington from the 11^th highest to the 37^th lowest state in the nation in state and local taxes as a percentage of personal income. The obstacle to reversing this trend, and raising taxes in order to meet the McCleary obligation, is, of course, unwavering Republican opposition to a tax increase. In maintaining this intransigence, the state GOP occupies ever shrinking political territory.

As noted previously, it is possible that the State Supreme Court will intervene and order the repeal of tax breaks in order to effectively raise taxes for education. Even The Seattle Times now favors a tax increase in the form of a capital gains tax on higher-income residents. I argue that Washington State's tax policy over the past two decades has been negligent.

There are a variety of possibilities for tax reform in Washington State — an income tax on high-income individuals (very unlikely in this political environment despite the fact that nearly all states have one), a capital gains tax on high-income individuals (far more likely), a repeal of the 1% annual limit on property tax increases, a tax on financial transactions, the repeal of many of the more than 650 corporate ("B&O") tax breaks, etc.

In sum, the central challenge for the 2017 Legislature will be to develop an operating budget which contains full funding for K-12 education sufficient to fulfill the requirements of McCleary, based in part on new progressive taxation. This proposition, while conceptually straightforward, will be wrought with implementation difficulties due to Republican fealty to misplaced ideology.

LEGISLATIVE TOPICS

Against the backdrop of this central challenge, there will be a wide range of policy bills (numbering in the thousands) introduced in the 2017 Legislature. Naturally, it is far beyond the scope of this article to predict and summarize this volume of pending bills. Nevertheless, the following is an attempt to provide a concise summary of most major areas where there will be significant 2017 legislative proposals:

• Foster Care Spending: The State underinvests in its foster care system. As a recent Investigate West/Crosscut article explains, this leads to excessive moves of foster children between households, and even the use of hotels as temporary residencies. This contributes to youth depression, drug use, pregnancy and the consequent need for additional mental health services (which are also underprovided by the State). The article notes: "Meanwhile, the Legislature has yet to fully restore the steep recession-era budget cuts that trimmed more than 15 percent of Children's Administration workers, froze social workers' salaries, and slashed services for foster children and parents."³
• Mental Health Spending: Washington State also underinvests in mental health, and has been embroiled in lawsuits (federal and state) that seek to force the State to improve its mental health system. Amongst other problems, the State has boarded psychiatric patients in emergency rooms and prisons, rather than providing adequate mental health care, due to lack of mental health capacity.
• Body Cameras — Usage and Legal Framework: There are myriad issues associated with appropriate deployment and usage of body cameras. In addition, there is an ongoing need to construct a meaningful legal framework to address ethical issues associated with the use of body cameras. For example, under what circumstances should body camera footage be removed from public purview (e.g., if a child rape scene is recorded by the cameras)?
• Drones: There are a variety of outstanding legal issues associated with drone use in Washington State (drone size regulations, airspace restrictions, registration requirements, pilot certification, etc.).
• Public Records Law: It is critical to maintain open access to records of government proceedings. Nevertheless, two issues have emerged that raise questions about the costs of compliance. First, some new technologies (e.g., body cameras) may generate such tremendous amounts of data as to raise questions about data storage feasibility. Second, a new "cottage industry" has developed to profit from public records law: firms request exorbitant quantities of public records in order to collect fines when the requests aren't met on time; and firms pursue financial gain by repackaging and reselling public records online. Thus, the appropriate balance between the public's right to know and reasonable compliance expectations must be assessed.
• Higher Education: There will be legislation introduced to increase funding for the State Need Grant — the primary financial aid program in Washington State. In addition, in 2016, a bill was introduced (supported by Senators Pramila Jayapal, David Frockt and others) to offer tuition-free community and technical college for students without a bachelor's degree. This bill did not pass, but some form of this proposal will likely re-emerge in the 2017 session.
• K-12 Educational Equity: In 2016, State Representative Sharon Tomiko Santos led the successful effort to pass the Educational Opportunity Gap Bill, designed to address opportunity differences between ethnic groups in public schools. There will be additional measures introduced to build off of this achievement and make further progress in this area.
• Supermajority Requirement for School Construction Bonds: There is ongoing concern about the 60% supermajority requirement to approve school construction bonds in Washington State, with numerous groups supporting a mere majority requirement instead.
• Collective Bargaining For Teachers: A number of conservative groups are advocating for public school teacher contracts to be collectively bargained statewide, rather than on a local district by local district basis.
• Charter Schools: In 2015, the State Supreme Court ruled that the State's charter schools were illegal because they received public funding despite having unelected Boards. In the 2016 Legislative Session, the Charter School Act was passed that provides revenue from lottery proceeds to fund charter schools. This act has been challenged in court, with plaintiffs arguing that lottery funds are merely another form of public financing that should be not be legal for supporting charter schools. This issue could re-emerge in this Legislative Session, depending in part on the lawsuit proceedings.
• Climate Change: There are a variety of issues associated with climate change that will likely be addressed: solar tax credit extensions, dam policy and management, ongoing requirements for utilities to purchase specified levels of renewable energy (I-937), etc. If Initiative 732 (for a price on carbon in Washington State, as discussed above) does not pass, it is possible that there will be legislation introduced to effect some form of a price on carbon in the Legislature.
• Oil Trains and Energy Export Facilities: There is ongoing debate over the legality of oil trains crossing Washington State. In addition, there are a variety of issues associated with the desirability and legality of energy export terminals in Washington's coastal communities.
• Housing Affordability: A variety of issues associated with affordable housing and homelessness will be addressed, including the appropriate size of the State Housing Trust Fund.
• Voter Registration: A number of issues associated with voter registration and voting rights will be considered, ranging from automatic voter registration, same day registration, and legal residency identification requirements.
• Voting Rights Act: District-based (rather than at-large) local elections are designed to increase the prospects for minority communities to elect their candidates to office. In 2015, Yakima conducted its first district-based elections (after a legal challenge from the ACLU against the prior at-large voting system), and duly elected its first Hispanic City Council Members. There have been efforts (thus far unsuccessful) in the State Legislature to expand this approach statewide. This issue will certainly be reintroduced in the 2017 session.
• Marijuana Legal Framework: There will be ongoing efforts to rationalize the legal frameworks governing the sale of marijuana in the state.
• Safe Drug Injection Sites: There is a movement to introduce public, safe drug injection sites in Washington State. These would be patterned off the successful model deployed in Canada.
• Gun Control: Attorney General Bob Ferguson is introducing a bill to ban military-style assault weapons and high-capacity magazines in the state.
• Death Penalty: There is continued strong support for ending the death penalty in Washington State.
• Legal Financial Obligations: Individuals convicted of crimes in Washington State are often burdened with unreasonably high fines with usurious interest rates. These legal financial obligations ("LFOs") can serve as a debtor's trap for convicted individuals, hindering their ability to re-establish themselves in society. Bills will be introduced to address this problem.

THEMES

There are several themes that emerge from this discussion of the upcoming State Legislative Session. First, Washington State continues to suffer immensely from its negligent tax policy. This is apparent in crises in numerous areas — K-12 education, foster care, mental health, housing affordability, etc. It is inefficient to operate an under-taxed state, as evidenced by the numerous lawsuits that Washington has been embroiled in. It is time for Washington to face the music on the need for new, progressive taxation.

Second and related, McCleary has bogged down the state's legislative and judicial systems for far too long. McCleary has dominated the agenda for several legislative cycles, and will dominate this one as well. This unceasing focus on McCleary precludes sufficient progress on a variety of other essential issues. The McCleary logjam needs to be removed during the 2017 session.

Third, this session will be one of the most important in recent history, because if provides an opportunity to simultaneously address two issues that have plagued the state for decades — a poor educational finance system, and terrible tax policy.

Fourth, given the large number of moving pieces in the political landscape that will fall into place in the next several months, the immensity of the issues to be addressed in the upcoming session, the intense degree of partisan divide, and the State's poor track record of finishing its legislative work on schedule, it seems a virtual certainty that one or more special sessions will be required to complete this year's proceedings. This will likely be a very long session.

Fifth, it will require strong political leadership — from legislative leaders in both parties and from the governor — to reach satisfactory agreements during the 2017 session. Finally, while the 2017 State Legislative session will be characterized by an uncommon level of vitriol, chaos and uncertainty, one thing appears likely: the political and policy landscape of Washington State will be reconfigured by the time it is completed.

John Stafford is a senior substitute teacher for Seattle Public Schools. He is a former partner with Strategic Planning Associates, a corporate strategy management consulting firm in Washington, D.C. He has a B.A. from Dartmouth College, an M.A. from St. Martin's University and is completing an M.A. from the Harvard Extension School. He is involved with the Democratic Party in South Seattle.

Notes

1. Recently, State Senator Reuven Carlyle (D, 36^th LD) and State Representative Joe Fitzgibbon (D, 34^th LD) engaged in an online debate on this issue. See the following links:
   1. Carlyle: http://www.seattlemet.com/articles/2016/8/11/sound-transit-financing-plan-jeopardizes-education-funding
   2. Fitzgibbon: http://www.seattlemet.com/articles/2016/8/16/sound-transit-taxing-authority-does-not-poach-education-dollars
2. The link to my September McCleary article: https://southseattleemerald.com/2016/09/18/much-ado-about-mccleary/
3. Allegra Abramo and Susanna Ray of Investigate West, "Foster Care Crisis." In Crosscut Online, September 20, 2016.