Washington voters could reshape the state’s budget outlook for the next couple of years, depending how they weigh in Nov. 2 on six citizen initiatives and a referendum from the Legislature.
Most of the proposals would cut the flow of money into the state treasury, including two liquor-privatization efforts and a tax-rollback measure that is backed by $10 million from the national soft drink industry. But an income tax on high-earning residents, if enacted and not struck down by courts, would give the state $2.2 billion a year in future budget cycles.
In any scenario, hundreds of millions, if not billions, of dollars are at stake, based on an initiative-by-initiative analysis by the state Office of Financial Management. Gov. Chris Gregoire’s budget office is bracing for whatever happens Nov. 2, knowing the state already faces a $3 billion shortfall next year.
“There seem to be more initiatives and referenda that affect the budget, and they are not all affecting it the same way. So it’s probably more confusing than usual,” state budget director Marty Brown said Friday. “If everything passed, then it’s real complicated real fast.”
The biggest single impact could come from Initiative 1098, the proposal to tax income above $200,000 a year for individuals and $400,000 for couples. It would raise $1.58 billion in new net revenues in calendar year 2012. If it passes into law and survives all-but-certain legal challenges, the sum will grow to $2.28 billion in 2013 and higher in future years – even after accounting for tax breaks on property and businesses.
But no political observers are assuming I-1098 will pass, and it faces legal challenges if it overcomes the efforts of business and anti-tax advocates galvanized against it. In fact, the lawsuits might delay the state’s ability to collect new taxes so that none of the new revenue is available for education and health care programs in the 2011-13 budget.
Five other initiatives on the ballot erase or limit taxation, according to OFM’s recent analyses (the agency by law must try to gauge the budget effects of ballot measures). OFM found:
• Initiative 1107 – a measure to repeal temporary taxes on soda and bottled water and repeal a permanent sales tax on candy – threatens to erase $107.8 million in projected revenues in 2012 and $109.7 million in 2013.
• If voters pass Referendum 52 – an energy-upgrade measure for public schools and buildings – the soda tax would take effect again in 2014, generating at least $33.9 million the first year and larger amounts in later years. But it would put the state on the hook for about $937 million in debt service over five years (proponents say construction projects would generate additional sales tax revenues for the state to cover additional debt-service costs).
• Initiative 1100 – one of two liquor-privatization proposals – is expected to push hundreds of state jobs and enterprises into the private sector by shutting down state-run liquor stores and a distribution center by the end of 2011. The proposal is backed by Issaquah-based Costco. But eliminating the state’s markup on spirits while letting licensed private interests sell liquor either as distributors or retailers would cut between $2.1 million and $2.6 million through June from the state’s general fund (it pays for schools, prisons and most government agencies). It would cut between $31.5 million and $37.1 million in the next two-year budget cycle. The measure also would erase between $76 million and $84.6 million over five years from the state general fund and an additional $179.7 million to $192.2 million from local governments’ coffers.
• Initiative 1105 – the other liquor-privatization measure – would get the state out of the liquor sales business and shut down state-run stores and distribution facilities by April 2012. It also provides for sales of a “spirits retailer license” that requires licensees to pay a yearly fee and sellers to pay 6 percent of gross sales to the state for five years. Consumers could see lower prices, but the net loss in state revenues is estimated to total between $167.4 million in the next budget cycle and $485.9 million to $520 million over five years. Local governments would lose between $28.8 million and $29.2 million in 2012 and between $205 million and $210.2 million through 2015.
• Initiative 1082, another privatization measure, is aimed at letting private insurers enter the workers’ compensation market in Washington. Many large businesses run their own insurance programs, but those that purchase insurance buy it through the Department of Labor and Industries – which collects contributions from businesses and individual workers. Most of the measure’s effects are in L&I’s self-supported trust funds, but OFM predicts costs for other state agencies and the state general fund.
On the fiscal plus side, premium taxes and business taxes on insurers would generate $8.5 million to $11 million in 2013 – more than doubling in 2014 and reaching at least $22.8 million in 2015. But because premium costs for the state system could go up, state costs for insuring its employees could increase by $22 million a year. The state costs for the Office of the Insurance Commissioner also could rise by $5.4 million through mid-2013. Also, administrative costs could rise at L&I and at the Board of Industrial Insurance Appeals, because claims appeals are more expensive for private insurers. Smaller costs are predicted for the Department of Revenue and a legislative task force created by the initiative to put details of the initiative provisions into law.
• Initiative 1053, which is initiative promoter Tim Eyman’s latest effort, has no expected fiscal impact, according to OFM. The measure requires a two-thirds supermajority vote for any Legislature-enacted tax increase to pass, but it allows an option to put the measure to a public vote. I-1053, in effect, restores the two-thirds vote requirement that was in effect after voter passage of I-960 but was suspended by majority Democrats this year until mid-2011.
A recent Stateline.org report said 140 measures have qualified for the fall ballot around the country, and Washington is one of several states where voter action this fall is expected to have huge budget consequences. Stateline cited several other states and their proposals:
• Arizona’s proposed sales tax increase.
• California’s proposals for an $18 annual user fee for state parks, repeal of corporate tax breaks, and legalization and taxation of marijuana.
• Proposals in Colorado to cut property taxes in half, worth $1.5 billion, and other cuts in vehicle, income and other taxes, worth $1.6 billion.
• Repeal of alcohol sales taxes and reductions in sales taxes in Massachusetts.
In Washington, Eyman said there are “so many permutations of what could end up happening” on the ballot that it is difficult to estimate the ultimate impact of voter choices. But, he said, “Looking globally, it is pretty interesting. … I think voters are going to view each one on its own merits. I think in a lot of ways, they are philosophical debates as much as fiscal debates. Should the state be in the liquor business is a lot more of a philosophical debate.”
Critics of the ballot measures say cuts are coming for many state services if voters approve the measures. And voter passage of an income tax is unlikely to provide a counterbalance, because lawsuits will delay the arrival of any new revenue.
Andy Nicholas, a policy analyst with the left-of-center Washington State Budget and Policy Center in Seattle, produced a report in July that said the initiatives’ passage increases the likelihood that services would be cut. He wrote that taxes now targeted for repeal allowed lawmakers to avoid cuts to maternity support “for women with at-risk pregnancies” and other programs such as dental care, hospice, physical and occupational therapy, vision and hearing care, and help with Medicare Part D payments for low-income people.
He said the Legislature’s nearly $800 million in new revenues adopted in April also averted cuts to all-day kindergarten, college financial aid and early learning help for children.
Nicholas said the state already faces an uncertain budget future and a $3 billion shortfall, and the initiatives would only make the situation worse. An income tax could bring in more dollars for programs, but Nicholas said, “I don’t think anybody expects nor should legislators count on there being any revenues from it in the coming biennium.”
I-1098 is backed by Bill Gates Sr., organized labor and health care advocates. It would impose a 5 percent income tax on an individual’s earnings above $200,000 a year and 9 percent for the share of individuals’ earnings over $500,000, while cutting property taxes and giving a tax credit to most small businesses.
The Association of Washington Business released results of an online survey of 900 members last week that said most think I-1098 would hurt job growth, despite tax breaks for most small businesses.
“Employers expect the proposal would result in significant cuts in hiring and reinvestment in their businesses. Overall, 33 percent plan to decrease hiring and salaries and 47 percent expect to decrease reinvestment,” AWB said in a news release.
Brad Shannon: 360-357-1688