Politics & Government

State budget problem: Without taxes, something has to go

More than one-quarter of the way into the legislative session, state lawmakers are still struggling with the main challenge they’ll face this year: writing a budget that satisfies a state Supreme Court order to boost funding for basic education.

Legislators generally don’t disagree about whether they have enough money to keep state government humming along, maintaining the status quo.

They do have enough for that. Even Democrats advocating new tax increases concede that point.

The question is whether lawmakers can avoid raising taxes and still comply with the court’s mandate to make substantial investments in K-12 education, and pay for a $2 billion class size initiative and $440 million in pay raises for state workers.

The answer is: They can’t. To do that, something will have to go.

Without new tax revenue in the next two years, the Legislature could afford to pay for the minimum required investment in public schools — at least $750 million for materials and operating costs — and long-delayed cost-of-living increases for teachers. But that’s it.

Those expenditures alone would eat up the roughly $1 billion that lawmakers are projected to have on hand after paying to maintain services during the next two years.

Other spending needs, such as approving labor contracts already negotiated with state workers and paying for the class-size measure Initiative 1351, wouldn’t be included in that no-new-taxes scenario.

And there’s another wrinkle: Lawmakers in both parties say they’re not sure whether doing the absolute minimum to comply with the Supreme Court order to fully fund basic education is a good idea.

“I think there’s pretty broad agreement that we’ll want to do more,” said Sen. Andy Hill, the budget writer in the Republican-controlled Senate.

That means a larger investment in K-12 education may be necessary, to the tune of closer to $1.2 billion or $1.3 billion, said Hill, R-Redmond.

That higher amount of education spending not only would pay for the required investment in school maintenance, supplies and operations, but also chip away at the state’s obligation to lower class sizes in kindergarten to third grade and expand all-day kindergarten.

Putting money toward reducing K-3 class sizes would also cover a piece of I-1351, which calls for lowering class sizes in all grades.

The state’s obligation to increase education funding largely stems from the lawsuit known as McCleary. In that case, the state Supreme Court ruled that the state must meet its constitutional duty to fully fund public schools by 2018.

In September, lawmakers were held in contempt of court for not making adequate progress toward the funding deadline. Legislators face unspecified legal sanctions if they don’t do more this year.

State officials estimate that paying for the key pieces of McCleary will cost between $2.5 billion and $4 billion by 2018, and possibly more.

To boost the state’s payment toward McCleary this year to $1.2 billion, the Legislature would need to come up with either about $500 million in new revenue or about $500 million in cuts in the state’s new two-year budget, according to Hill’s estimates. The state’s 2015-17 budget is shaping up to be at least $37.2 billion.

Hill wouldn’t say in an interview last week what services he’d cut to find the extra money for K-12 education. He said it’s easy to find $500 million to $1 billion in savings and cuts in a budget that large.

And that’s where he and his counterpart in the state House disagree.

Rep. Ross Hunter, D-Medina, said he’s already carefully gone through the budget, and there aren’t substantive savings and potential cuts left to be found.

“All you get with a fine-tooth comb is the lice. The little bits. The nits,” said Hunter, who chairs the House Appropriations Committee, in a recent interview.

“I’ve said consistently, during the whole campaign and now, I don’t see how you do this budget without some revenue,” he said.

Hunter and the state Office of Financial Management estimate that about two-thirds of the budget can’t be reduced without creating other legal problems for the state or cutting services the state is federally or constitutionally obligated to provide.

David Schumacher, Gov. Jay Inslee’s budget director, said the state already has “cut too far in some areas.”

“We’ve made all these cuts, and we’re actually being sued over some of the cuts we made during the recession,” Schumacher said.

At the same time, Republicans say they want to spend more, not less, on other priorities such such as higher education and preschool programs.

Hill said he’d pay for those with the multitude of unspecified savings and potential cuts he sees in the nooks and crannies of the budget.

Hill said small cuts wouldn’t necessarily provide enough to pay for I-1351 and state worker raises, but they could free up enough money to improve all levels of the state’s education system.

When asked what areas he’d like to cut, Hill told a reporter: “I won’t give you any examples.” But he insisted there was “a lot of leeway” in a $37.2 billion spending plan.

Yet Hill also indicated that in the end, some new tax revenues could be a part of the budget solution. They were used two years ago, in the 2013-15 budget that Republican leaders now point to as evidence that lawmakers can invest more money in K-12 education without raising taxes.

That budget increased spending on education by roughly $1 billion over two years, but also included a change to the state’s estate tax laws and the closure of a telecommunication tax break that together made the state about $245 million.

Hill said an agreement on those tax measures emerged during the very last days of budget negotiations two years ago, only after every other possibility was explored.

He hinted that a similar scenario could play out this year.

“Do we need more revenue? I’ll let you know in March, as we get deeper,” Hill said.

Democrats in the House are expected to release a budget proposal sometime next month, with Senate Republicans planning to unveil their budget ideas soon after.

Lawmakers are in the middle of a 105-day legislative session scheduled to last through roughly the end of April.

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