State Rep. Matt Manweller (R-13) is reading the tea leaves on court-mandated hikes in the state’s share of K-12 basic education funding, and he’s not liking what he’s seeing. He told Lens that an October 6 Washington State Supreme Court order suggests the majority is not so subtly advocating a state income tax for basic ed, and is “not interested in a revenue-neutral solution.”
The funding challenge is tied to carrying out the court’s 2012 McCleary ruling that aims to shift more K-12 responsibility to the state. The new high court order accented the state’s “obligation to provide ample funding by means of dependable and regular sources” for the estimated $3 billion to $4 billion justices want to see lawmakers arrange for by 2018.
Justices continue to find lawmakers in contempt of the court for the pace at which they are moving, although related fines contemplated by the court are not being levied, and the state is actually among national leaders in increasing K-12 spending.
Revenue Growth, Pension Reform Eyed
A public pension consolidation plan could yield more money for McCleary, as could a $459 million boost over the current and next budget cycles of unexpected new revenue to the state from economic growth. In a recent gubernatorial debate, Republican candidate Bill Bryant said he favored using revenue growth and performance-driven state budget re-apportionments to address the court’s K-12 mandate.
However, other revenue measures for McCleary could end up on the table in 2017 state budget talks. These might include proposals to lift a sales tax exemption for some residents of border states that don’t have a sales tax, and rescind a bottled water tax exemption. Some Democrats favor a capital gains tax. Entrepreneurs and tech industry leaders are opposed to that – saying it would make the state less attractive for business.
Rep. Springer: Levy Swap ‘A Nonstarter Politically’
Another piece of the puzzle could be a so-called “levy swap.” It would shift more of the responsibility for school funding from local to state taxpayers; and the state would then step up its level of redistribution between property-rich and property-poor school districts across Washington.
However, the proposal is “kind of a nonstarter politically” in the Puget Sound region, says State Rep. Larry Springer (D-45), a member of the House Education Committee.
“It’s a net exporter of dollars, tax dollars to other parts of the state,” he said. “After numerous meetings in my local school districts, they’re convinced they come out as losers.”
The legislature is likely to yield some adjustment to teacher compensation “but less than the proponents of the pay raises want,” says Jami Lund, a senior policy analyst for the Freedom Foundation. That also means billions in new spending is equally improbable, he added.
Lund told Lens even if the Democrats took enough Senate seats to regain control, “the new ones elected are still not going to have an appetite to saddle everyone with big tax increases” needed to meet the new basic education spending levels stipulated by the court.
High Court Tips its Hand
Hewing to its growing tendency for legislative advocacy, the high court in its recent order seems to be moving closer to arguing for an income tax.
A capital gains tax is considered markedly “volatile” according to Manweller and a host of policy analysts. That leaves only a state income tax to provide the “dependable source” of funding the court is accenting, said Manweller. He is a member of the House Appropriations Committee, and House Finance Committee.
In a recent Facebook post, Manweller accused justices of cleverly calling for the tax in their latest court order, without directly stating so.
‘Zero Chance’ In Legislature For Income Tax
However, Manweller said there is “zero chance” an income tax could get through the state legislature. “There are not the votes for it,” he said.
In the meantime, lawmakers have not been standing still. State basic ed funding has already grown by 40.6 percent since the 2009–11 biennium, according to a June Special Report by the Washington Research Council. That puts Washington third in the nation for per-student spending hikes in the past eight years.
The final McCleary funding plan will be advanced by lawmakers and the governor, working from the draft proposal to be submitted to them by January 9, 2017 from the Joint Education Funding Task Force. The timeline and new task force were established under guiding legislation passed earlier this year, SB 6195. The task force is currently gathering school district financial data to see how exactly much local levy money is actually being spent on basic education.
Opposition To B&O Tax Hike, Or State Capital Gains Tax
Sam DeBord is the managing broker for Seattle Homes Group and Coldwell Banker Danforth. He is also the president-elect of Seattle King County REALTORS, and has produced a simple video explaining how a levy swap would shift around existing property tax dollars. DeBord told Lens this “revenue neutral” option is far more preferable than a business and occupation (B&O) tax increase or a state capital gains tax.
“We think those (taxes) are much more detrimental to the business and real estate environment than the levy swap,” DeBord said.
One tax incentive that may be on the table is the nonresident sales tax exemption. The Department of Revenue estimates repealing it would bring in an additional $65 million for the 2017-19 biennium. However, retailers are opposed. Lawmakers might also consider repeal of the sales tax exemption for bottled water. That would add an estimated $28.5 million to state coffers in 2018 alone.
Earlier this year, HB 2996 proposed eliminating both these incentives, and several others. It passed the House Finance Committee, but could not clear Rules.
Another option would extend the state sales tax to online retailers with no physical presence in Washington. However, this would require federal legislation. A related U.S. Senate bill, the Marketplace Fairness Act, was introduced in March and is currently before the Committee on Finance.
To add to the McCleary funding pool, Manweller favors repealing the state prevailing wage law, which WRC estimates would save school districts 12.7 percent of construction costs.
Pension Merger Savings Could Help
The state could also find savings by merging two public pension systems, a plan Senate Republicans advanced unsuccessfully this year via SB 6668. If implemented, the merger would have reduced state spending on pensions by $243.8 million for the 2017-19 biennium, and $1.5 billion over 25 years.
The final McCleary funding package may be subject to voter approval via a 2017 ballot measure.
“If Republicans have any say, we are not going to fund McCleary with a tax increase unless it goes to the people; period, end of discussion,” said Manweller. “If the people say no (to new taxes), who is the Supreme Court going to hold in contempt?”