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Washington State Legislative Session 2017 Overview: McCleary Funding and Taxation

In this presentation, John Stafford discusses the key highlights of the 2017 Washington State Legislative Session, including the McCleary education funding case and proposed taxation plans. Learn about the challenges, proposals, and concerns related to K-12 spending in the state.

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Washington State Legislative Session 2017 Overview: McCleary Funding and Taxation

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  1. The 2017 Washington State Legislative SessionPresentation to 31STDistrict DemocratsNovember 29, 2017(Originally Presented to 37th District Democrats) John Stafford

  2. SESSION OVERVIEW • Full Session • To Create Three Budgets: Operating, Transportation, Capital • One Budget Not Yet Passed ($4.2 BB Capital Budget) • Schools, Housing Trust Fund, Infrastructure, Puget Sound, Burke Museum (etc.) • Issue = Hirst Decision (SB 5239) • Longest Session in State History (195 Days) • 3 Special Sessions • Least Productive Session in State History • 1.9 Bills Passed Per Legislative Day versus 4.0 Average Since 1991 • Least Transparent Session in State History • 1000+ Page Operating Budget Document Released on Final Days with no Public Review or Comment Period • “This is outside the bounds of acceptability, and I think we owe the people of this state an apology.” Reuven Carlyle, D-36 (Seattle Times 6/30/17)

  3. AGENDA • McCLEARY AND TAXATION • OPERATING BUDGET AND OTHER LEGISLATION • CLOSING COMMENTS

  4. K-12 SPENDING IN WASHINGTON STATE • THEMES • 30% Drop in Two Decades -- Startling • Washington Has Gone From A High Spending State to a Low Spending State • In 2014, Washington Ranked 40th In U.S.

  5. McCleary: Four Issues • Increase Per Pupil Spending on K-12 Education • Transfer Funding from Local School Districts to the State • Increase Spending Equity Between School Districts • How Will the New Spending be Financed?

  6. McCleary Proposals (Overview) • House Democratic Plan • Senate Republican Plan • Governor Inslee Plan • $3.9 BB in New Revenue (2.8 BB For McCleary) • New Taxation: Capital Gains, B&O, Carbon, Eliminate Some Exemptions • No Levy Swap $2.5 – 3.o Billion in New Revenue New Taxation Capital Gains B&O Real Estate Excise No Levy Swap $800 Million in New Revenue No New Source of Taxation Levy Swap Largely to King County Taxpayers

  7. McCleary: Financing • $7.3 Billion in New K-12 Spending (Over 4 Years) • Property Tax Increase of Roughly $4.6 BB Via Levy Swap • Local Levies Reduced and Capped • $1.50 Per $1,000 Assessed Value or Levy Rate that Generates $2,500 Per Student, Whichever is Lower • State Levy Increased • From $1.89 to $2.70 Per $1,000 Assessed Value • Adds Roughly $500 To Average Seattle Homeowner Property Tax Bill • Other Sources of Revenue (Roughly $2.7 BB Over 4 Years) • Rainy Day Funds (1.5 BB) • Applying Sales Tax to Out-Of-State Online Retailers (1.0 BB) • Repeal of Bottled Water and Oil Extraction Tax Exemptions (166 MM) • Extending B&O Tax to Out of State Retailing (24 MM)

  8. McCleary: Other Dimensions • Increase in Teacher Pay • Three Tiers Based on Housing Costs • Collective Bargaining • Remain at Local District Level for Salaries • Move to State Level for Health Care Benefits (Starting 2020) • $500 MM Fund to Support Lower Income School Districts • I-1351 (Class Size Reduction) On Hold • New Allocation Method For Special Education/ELL/Etc. • Based on Number of Teachers; Not Based on Staff Mix

  9. McCleary: Concerns • The Financing for McCleary is Not Progressive • “They can hold on all they want to this stereotype cliché that this is a tax increase on rich city folks. But the truth is, this is middle-class people statewide, and real families.” Reuven Carlyle D, 36 (Seattle Times, 7/1/17). • Will Seattle Voters Now Be Less Likely to Support Local Education Levies? • Will the Property Tax Be Non-Sustainable Due to 1% Cap (Starting in 2019)? • “This is a ticking time bomb. The bill is unfortunately non-sustainable.” Jamie Pederson, D 43 (Tacoma News Tribune, 7/1/17) • Will Basing Teacher Compensation on Regional Housing Prices Create Vicious Cycles? • “This is a bad idea all around [to base salaries on housing prices].” Marguerite Roza, Georgetown University Professor (Seattle Times, 7/9/17). • Will the Supreme Court Rule in Favor of the Legislative Proposal?

  10. NEW K-12 McCLEARY SPENDING “This does not even come close to what the state assured the Supreme Court that the state was going to be doing…The question is, will the Court say it’s enough to give them a pass?” Thomas Ahearne. McCleary Plaintiff Attorney

  11. THEMES • From 1995 to 2014: Washington Dropped from 11th to 36th in Nation • Shocking • The Most Important Explanatory Chart In Washington State Politics • The Driver Behind McCleary Source: Washington State Office of Financial Management

  12. Tax Regressivity By State(Washington, Oregon and California, 2015) Source: Institute for Tax and Economic Policy (2015)

  13. New Taxation in Washington State ProposedAchieved “Progressive” • Income Tax (No One) 0 0 • Capital Gains Tax (Inslee/House): 1.6 BB 0 • B&O Tax Increase (Inslee/House): 2.3 BB 0 • Carbon Tax (Inslee): 1.9 BB 0 • Eliminate Tax Breaks (Inslee/House): 0.03 BB 0.02 BB “Non-Progressive” • Property Tax Increase (Senate) 2.0 BB 1.6BB • Internet Sales Tax (House) 0.4 BB 0.4BB • Add Tax Exemptions (Senate) (0.03 BB) (0.02)BB Note: All figures are two-year (not 4 year) numbers.

  14. McCLEARY: EVALUATION OFTHE FOUR ISSUES • Increase Per Pupil Spending on K-12 Education: • Some new Spending, but Insufficient. Grade: D+ • Transfer Funding from Local School Districts to the State: • Funding Moved to State, but Regressive and King County Focused. Grade: C- • Increase Spending Equity Between School Districts: • Some, but Unclear how Much. Grade: C • “The new formula, for example, results in no additional money for any district with a student poverty rate of 30 percent or above.” -- EdBuild • How Will the New Spending be Financed? • Non-Progressive Financing. Grade: F • Overall Grade: D • “They [state legislators] think they did this really hard, really wonderful thing. I’m not saying it wasn’t hard. I’m just not convinced that it was that wonderful.” JoLynn Berge, assistant superintendent for business and finance with Seattle Public Schools (Seattle Times, 8/7/17).

  15. AGENDA • McCLEARY AND TAXATION • OPERATING BUDGET AND OTHER LEGISLATION • CLOSING COMMENTS

  16. State Operating Budget Over Time(All figures expressed in real 2017 dollars) Source: Julie Denton, OFM; Figures are for Near General Fund and Opportunity Pathways Account

  17. Operating Budget Highlights • Increase in State Operating Budget is Misleading – Local Levy Funding Has Been Transferred to State • Mental Health: $102 Million (Far from what’s needed) • TANF: $15/Month Increase for Family of 4 • HEN (Housing and Essential Needs) and Aged, Blind and Disabled (ABD): No Cuts • Early Learning Funding • Department of Ecology Clean Air Rule: Funded • College Tuition Increases: 2% • Increase in State Need Grant Scholarships

  18. KEY BILLS (1 of 2) • EDUCATION • Levy Cliff Extensions (SB 5023) • Young Students Cannot Be Removed From Class for More than 1 1/2 Days (SB 5155) • Standardized Test Requirement for Biology Delayed Until 2021 (HB 2224) • TAXATION • Sound Transit III Car Tab Depreciation Schedules (SB 5893) • Now: Eyeman Initiative 947 for Flat $30 Car Tab Fees • ENVIRONMENT • Extension of Solar Tax Credits (SB 5939) • SOCIAL SERICES • Paid Family and Sick Leave – 12 Weeks Paid Time Off (SB 5975) • Washington Fifth State in U.S. with Paid Family Leave • New Department of Children, Youth and Families (HB 1661) • Multiple Foster Care Improvements (E.G., HB 1867, SB 5241, etc.) • Including 3700 Childcare Vouchers for Families in the 37th LD

  19. KEY BILLS (2 of 2) • DRIVING LAWS • Distracted Driving Illegal (HB 1371 AND SB 5289) • Fourth DUI is Felony Conviction (SB 5037) • GUN CONTROL • Gun Control – Mandatory Reporting When Someone Attempts to Purchase a Firearm and is Denied Due to Ineligibility (HB 1501) • CRIMINAL JUSTICE • Lift Ban on College Courses Offered in Prison -- Although Still Limited to 2 Year Courses (SB 5069) • Allow Sexual Assault Victims to get Permanent Protection Orders from their Abusers (SB 5256) • Prostitution/Trafficking Charges can be Vacated (SB 5272) • OTHER • Real ID (SB 5008): Two Tier State Licenses • State Level – Not Valid For Federal Purposes • Enhanced Driver’s License – Valid for Federal Purposes • Ballot Boxes in All Communities (SB 5472) • Agencies can Deny Some Public Records Requests and Charge for Others

  20. Key Bills That Did Not Pass • Carbon Tax (4 Bills: HB 1555; HB 1646; SB 5385; SB 5930) • Voting Rights Act (for 5th Session -- HB 1800/SB 5067) • Educator Workforce Supply (HB 1828) • Link Boeing Tax Incentives to Employment (HB 2145/HB 2146) • Change the Standard for Police Use of Deadly Force (SB 5073) • Gun Storage Requirements (HB 1122/SB 5468) and Assault Weapon Licensure (HB 1387/SB 5444) • Repeal the Death Penalty (HB 1935/SB 5354) • Ban the Box (SB 5312) • Restrict the Sale of Users’ Internet Data (HB 2200 AND SB 5919) • Change Legal Age to Buy Tobacco from 18 to 21 (HB 1054/SB 5025) • Relaxing Hirst Decision to Allow Increased Water Usage to Support Development (SB 5239)* • Enshrine No Income Tax in Constitution (SJR 8204)* • Bill to Ban Safe Injection Sites(HB 1761/SB 5223)* * = Good that Bill Didn’t Pass

  21. AGENDA • McCLEARY AND TAXATION • OPERATING BUDGET AND OTHER LEGISLATION • CLOSING COMMENTS

  22. Observations • Another Disappointing Session • Substantively and Procedurally • Democrats Take Big Losses (As Usual) on Major Structural Issues • Insufficient McCleary Funding • No Progressive Tax Reform • No Price on Carbon • Some legislative victories • Paid Family Leave • Department of Children, Youth and Families • How Progressive Is Washington State? • The Need for Bold Democratic Party Leadership • All Too Easy to Blame Republicans

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