by John Stafford

This article provides a preview of the upcoming Washington State Legislative Session, which begins on January 11. This will be a short session because it is the second year of the state’s two year budget cycle. The three primary budgets (operating, transportation and capital) are prepared during 105 day legislative sessions in odd-numbered years (e.g., 2015). Then, in the 60 day short sessions in even-numbered years (e.g., 2016), adjustments are made to these budgets. In addition to these budget adjustments, there are several key issues facing the 2016 Legislature: the need to comply with the McCLeary decision to adequately fund K-12 education; tax reform and the Tim Eyman Initiative; the feasibility of charter schools; and climate change policy. Each of these topics is discussed below.

BUDGET ADJUSTMENTS

In 2015, the state passed a $38 billion, two year operating budget. Last month, Governor Inslee prepared his 2016 supplemental budget, which outlines the changes he proposes to make to this 2015 budget. Most of these adjustments are incremental, reflecting small program needs and minor demand modifications. However, Governor Inslee has proposed significant funding increases in four areas: expanded caseloads in Medicaid; higher costs for fire management (linked to the record one million acres of land burned by wildfire in Eastern Washington in 2015); new mental health investments; and higher starting salaries for teachers (a $4,300/year increase) to address the state’s teacher shortage. Inslee proposes that these teacher raises be funded by the repeal of four tax breaks (including the sales tax exemption for bottled water); the other three areas would be financed via a $245 million expected increase in state revenue (relative to the 2015 budget), and a transfer of some reserves. Predictably, these proposed spending increases were immediately criticized by a number of conservatives (including Senator Andy Hill and state gubernatorial candidate Bill Bryant).

McCLEARY COMPLIANCE

The 2012 McCleary decision requires the state to significantly increase spending on K-12 education.¹ In response, the state has ramped up its K-12 spending (including a $1.3 billion increase in 2015). These spending increases have thus far been financed by increases in state revenues during the economic recovery, and by shifting funds from other accounts (e.g., marijuana tax proceeds intended to address drug abuse and addiction) to education. However, more McCleary funding is required in order to reach full compliance by the 2017-2018 school year, and the state has yet to develop a plan that describes how this will be done.

Due to this failure to develop a financing plan, the State Supreme Court found the state to be in contempt of court in 2014, and began assessing a $100,000/day fine for continued non-compliance after the 2015 session. Then, in November, 2015, the McCleary plaintiffs filed a new motion with the State Supreme Court. This motion calls for the Court to establish a timeline for assessing compliance in 2016, and to implement more severe sanctions – closing the public schools or repealing hundreds of tax exemptions — if compliance has not been achieved.

The central issue that is motivating the Legislature’s non-compliance with McCleary is, of course, the prospect of a tax increase. The creation of a McCleary funding plan that will meet the Court’s standards would, in all likelihood, require the introduction of a new tax (e.g., a capital gains tax). Many Republican lawmakers would rather face the consequences of non-compliance than to introduce a new tax in Washington State to adequately fund public schools.

TAXES (AND THE TIM EYMAN INITIATIVE)

As this column has noted on several occasions, Washington has become a low tax state relative to its personal income. Between 1995 and 2013, it fell from 11^th highest to 15^th lowest in the nation in state and local taxes as a percentage of personal income. It is not a surprise, therefore, that Washington State has high student-to-teacher ratios and ranks 43^rd in the nation in K-12 expenditures per $1,000 of personal income.² It is inefficient to operate a low-tax state, as this condition leads to lawsuits (in addition to McCLeary, the state has confronted lawsuits over inadequate mental health funding and DSHS staffing levels) and the use of inappropriate policies due to budget constraints (e.g., incarcerating youth for status offenses – a practice not followed in other states³). The key question remains: will the Legislature introduce a new tax? Doing so would allow the state to: comply with McCleary; move towards the average amongst states in state and local taxes as a percentage of personal income; and decrease the level of regressivity in the state’s tax structure (Washington State has the most regressive tax code in the nation). It is clearly the right thing to do.

A complicating factor is the recently-passed Tim Eyman Initiative (I-1366). This calls for the Legislature to refer to voters a constitutional amendment requiring two-thirds majorities to increase taxes, or else to lower the state sales tax by one percent. This measure failed badly in King County, but narrowly passed statewide. In all likelihood, I-1366 will be overturned in state court for one of several reasons (including that it places initial responsibility for amending the Constitution with voters rather than the Legislature). However, if it is not repealed, I-1366 will obviously have a major impact on legislative proceedings, as the state would be further hindered in its ability to fund McCleary. It goes without saying that it is deeply ironic that at the very time that the state has fallen to become the 15^th lowest ranked state in taxation relative to income, and that the state has been found to be in contempt of court for not adequately funding its public education system, voters passed an initiative whose objective is to make tax increases much more difficult.⁴

CHARTER SCHOOLS

At the start of the 2015-2016 school year, there were nine charter schools in Washington State. In September, 2015, the State Supreme Court ruled that these charter schools are not “common schools” (because they are governed by boards that are not publicly elected), and that they are therefore not eligible for public funding. Thus, charter schools face an uncertain future in the Washington State. Some charter schools are evaluating alternative funding and governance mechanisms to continue their viability. In addition, legislators are considering other options to maintain charter school legality, and there will certainly be a number of bills dealing with charter schools in the upcoming session. Some individuals have gone so far as to claim that making progress on McCleary funding should be tied to reestablishing the legality of charter schools (e.g., Republican Senator Chad Magendanz of Issaquah). In my view, this is absurd. Decisions on the legality of nine schools with 1,300 students should be entirely decoupled from decisions on funding for over 2,300 schools with over one million students.

A PRICE ON CARBON

Last year was a seminal year for Washington State on climate change policy. Three major efforts to institute a price on carbon were put in motion. In the 2015 Legislative Session, Governor Inslee proposed a cap-and-trade system. This did not pass the legislature, but two other movements – Carbon Washington (with its Initiative 732), and the Alliance for Jobs and Clean Energy (which is about to begin signature gathering for its own initiative) – moved forward with carbon pricing efforts. If either of these passes, this would be the first time in the U.S. that a state carbon pricing mechanism was passed at the ballot.

The Carbon Washington proposal is a direct tax, and is revenue neutral. It places a direct $25/ton tax on carbon, making fuels more expensive and thereby disincentivizing their use. Concurrently, it lowers the state sales tax by one percent, lowers the business and occupancy tax to help manufacturers who might become less competitive as a result of the price on carbon, and provides a tax rebate for working and middle class families. The overall impact is revenue-neutral in that the state does not raise net revenue from the proposal. ⁵ This is patterned off a similar tax in the province of British Columbia, which has been quite successful (the price on carbon has led to lower per capita emissions relative to other Canadian provinces without lowering growth in GDP/capita). Carbon Washington has submitted the signatures for its proposal, and if they meet approval requirements (which is likely), I-732 will go to the State Legislature, which will either have to pass the measure (highly unlikely), or forward it to voters.⁶

The Alliance for Jobs and Clean Energy proposal establishes a statewide cap for carbon emissions, and institutes a carbon fee for emitters. Unlike the Carbon Washington plan, it is revenue-generating. That is, it takes the revenue from the carbon fee, and uses it to fund other initiatives (e.g., education, job training, environmental programs, etc.). Proponents argue that this revenue-generating dimension is important – especially in an era where the state suffers from inadequate tax revenues. Moreover, investments can be targeted to benefit the low-income and minority communities that are often most impacted by climate change.

Two points should be made regarding these carbon pricing efforts. Most importantly, these organizations should be commended for forcefully moving forward on the issue of climate change – which is clearly the major public policy challenge of our era. The organizations have dramatically increased the level of awareness on this critical issue, thereby raising the chances for achieving the ultimate goal of a price on carbon in Washington State. On the other hand, the collaboration between these groups has often not been ideal. Indeed, each group has undergone a period of soul-searching in which they have questioned their path forward, at least partly based on the strategy of the other group. In addition, it now appears that both proposals may end up on the 2016 ballot, which may not be the best approach for maximizing the chances of success.

OTHER ISSUES

Several other issues are important to mention regarding the legislative session. First, it has recently been revealed that the state has been releasing incarcerated individuals prior to the end of their terms due to computer protocol errors that were known about, but not addressed for years.⁷ Several of these early-release individuals then proceeded to commit violent crimes. This debacle will likely lead to significant increases in the state’s financial liabilities, with implications for the budget. Second, WAmend has submitted signatures for Initiative 735, which requires the State Legislature to petition Congress to put forth a constitutional amendment to overturn the U.S. Supreme Court’s infamous Citizens United decision of 2010, which dramatically increased the level of corporate funding for public elections. Third, there will, of course, be a wide range of policy bills introduced in the upcoming session. These will have objectives ranging from expanding solar incentives, strengthening renewable energy standards, raising the statewide minimum wage, expanding the use of district-based elections, raising the legal age for smoking to 21, and many others. In the run-up to the session, discussion about specific policy bills has tended to be overwhelmed by debate on the broader, structural issues (e.g., McCleary, tax reform, charter schools, etc.).

THEMES

There are several themes that emerge from this discussion. The first, using the words of Yogi Berra, is that the 2016 Legislative Session appears to be an instance of “déjà vu all over again.” That is, it will likely be another session dominated by McCleary and the attendant conservative recalcitrance over a potential tax increases. The persistence of this issue has become an embarrassment, and a structural logjam which precludes a host of other topics from being meaningfully addressed. The solution to the problem – some form(s) of new, progressive taxation in Washington State – is obvious. It is time to make this happen. This would concurrently fulfill the demands of McCleary, improve Washington’s revenue position, decrease the appalling level of regressivity in the state’s tax code, and free the Legislature to address other policy concerns. Second, however, the political will to make these important changes may be lacking. Both chambers of the Washington State Legislature now have very narrow partisan majorities (with the loss of the 30^th Legislative District in 2015, the Democratic majority in the State House is down to 50-48), which suggests that both parties may be risk-averse regarding taking principled stands on policy bills that may have political consequences in 2016. Third, as noted above, it is encouraging to see the increased momentum on climate change policy reform – at the international level via the Paris Conference on Climate Change, and at the state level via the efforts of Carbon Washington and the Alliance for Jobs and Clean Energy. One hopes that this heightened awareness will translate into a price on carbon in Washington State in 2016, or soon thereafter. Finally, there have been a wide range of predictions about prospects for the 2016 Legislature – some predict an inconsequential session with little or no progress on the primary structural challenges; others predict a breakthrough on McCleary and the passage of several significant policy bills.

John Stafford is a senior substitute teacher for Seattle Public Schools, and a former corporate strategy consultant. He was a Democratic candidate for State Senate in the 37^th Legislative District in the 2014 elections.

Notes:

1. It also calls for moving a higher percentage of public education funding from local districts to the state (which may be achieved through “Levy Swaps”), and by providing extra funding for school districts with lower property values and thus lower access to local funding (“Levy Equalization”). These dimensions of the McCleary decision are not discussed in this article.
2. Source: The Washington State Office of Financial Management. Data is for 2013 (the most recent year available).
3. Source: The Seattle Times’ ongoing series on youth and homelessness by Jonathan Martin, 2015, 2016.
4. Some argue that voters are more likely to vote to make tax increases more difficult in Washington State precisely because the state has a regressive tax code. That is, because a high percentage of the tax burden falls on the poor, they in turn vote to make tax increases more difficult, because they cannot handle the added burden.
5. In fact, recent analyses suggest that the proposal might actually be revenue-negative, meaning that the state would lose revenue. This would be highly undesirable in the era of McCleary, where the state cannot afford to erode its revenue base.
6. The Legislature may also put its own proposal on the ballot along with the I-732 proposal.
7. In effect, early release adjustments for good behavior were applied to two fields of a database, rather than just one as intended. This increased the calculation of the number of early release days applicable to a considerable number of inmates. See the Seattle Times’ articles on this subject (December, 2015, and January, 2016) for more detail.