Budget and Taxes

Budget all done

In quick order the House and Senate have both approved the 2017-19 operating budget.  House vote: 70-23.  Senate vote: 39-10.  Governor Inslee is expected to sign the bill long before the deadline of midnight tonight.

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3rd special session starts

In 2 hours, Governor Inslee will start the 3rd special session.  With only 9 days left before the current budget expires (and therefore all funding for state funded programs), budget negotiators have as much pressure on them as possible to reach an agreement.  Strategically, they will need to announce the agreement by the 26th, no later than the 27th, in order to get everybody to town, brief them on the agreement and to get the staff to prepare the paperwork so they have all the information necessary for the final votes.  Will they make it in time?  My guess, and it is only a guess, is they won’t.

Will there be a government shutdown?  My guess, and it is only a guess, is there won’t be a government shutdown because they will pass a one or two month extension of current state funding.

Sitting on the sidelines impatiently watching this is the Supreme Court demanding that they reach a conclusion to fully fund K 12 education. Will they add another sanction to the $100,000 per day fine to get the legislators to take their order seriously?

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K 12 compensation tied to McCleary

When the Supreme Court entered its last order, they made compensation a major issue that the legislature needed to address.  This wasn’t new to anyone since it has been clear for decades that local levies, not the State, have been paying for “competitive salaries”.  What “competitive” means is that the State provides school districts a “base salary” but school districts have to rely upon local levies to add additional compensation to make salaries “competitive”.

This is true for all three of the major classification of employees: teachers, principals, classified employees.  And the amount of money coming from local levies for “competitive” salaries is a very large number: $1.2 billion per year.  The classified employee share of the total amount is $244 million.  Because the Court wants the State to fully fund or have at least a plan to fund this by 2018, legislators (and Governor Inslee) have offered 3 different solutions.  Solutions form House Democrats and Governor Inslee are similar while the Senate is significantly different.

Governor Inslee

While there were significant salary increases for teachers and administrators, there were also significant increases for classified employees.

—- September 1, 2017…raise state funding for classified salaries (inclusive of the 2.4% Initiative 732 salary increase) from the current $33,412 to $39,457 (a 18.1% increase)

—- September 1, 2018…raise state funding for classified salaries (inclusive of the 2.8% Initiative 732 salary increase) from $39,457 to $52,908 (a 34% increase).

—- Professional development would be provided to paraeducators amounting to 20 hours in 2017 and 40 hours in 2018.

House Democrats

While there were significant salary increases for teachers and administrators, there were also significant increases for classified employees.

—- September 1, 2017…raise state funding for classified salaries (inclusive of the 2.3% Initiative 732 salary increase) from the current $33,412 to $40,060.66 (a 19.9% increase)

—- September 1, 2018…raise state funding for classified salaries (inclusive of the 2.7% Initiative 732 salary increase) from $40,060.66 to $46,888.93 (a 17% increase).

—- Professional development would be provided to all state funded FTEs amounting to 1 day 2017 and 2 days in 2018.

Senate Republicans

Along with many other changes to K 12 funding, the Senate only proposed a 2.3% Initiative 732 salary increase effective September 1, 2017.

Future salary increases would be governed by future local negotiations.  The State would provide school districts an annual increase (based upon the US IPD (implicit price deflator – usually 1-1.5% below the Seattle CPI (consumer price index).  This increase is then subject to negotiations to determine who gets how much of the increased funding.  And to make it more complicated, school districts cannot provide salary funding exceeding 80% of their State funding.  Not an attractive environment competing with teachers and others for smaller funding increases.


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State and higher education employee contracts

There are 27 contracts that unions have negotiated with their employers (including Governor Inslee).  Those contracts have to be approved (and funded) by the legislature before they can be implemented.  Governor Inslee’s budget funded them.  The House democrat’s budget funded them.  Senate republican’s budget only funded 2 of the contracts.  The remaining 25 contracts were not approved by Senate republicans instead they approved a $500 salary increase per year for each year of the budget.

Why is there a difference?  According to Senate budget chair John Braun, Senate republican’s chose to prioritize state funding so they could fully fund K 12 education.  Fully funding the contracts costs nearly $500 million.  The Senate budget proposal only costs $78 million.

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Budget breakdown continues

The stage is set but the actors are not playing their roles.  House democrats and Senate republicans have approved their separate budgets, now the only thing to do is negotiate the differences.  Normally, with 11 days left before the end of session, Budget negotiators meet and trade issues based upon the relative importance of the issue to their party.  This winnowing process results in a final budget.  That’s not happening this year because the Senate has refused to meet until after the House has approved the tax increases necessary to fund the House’s budget (roughly $3 billion in new taxes).  As of today, House democrats have refused to vote on the tax increases necessary to fund their budget.

So there is the first reason for the breakdown.  And if you think that is a big problem the next one is even bigger: the Budgets they have approved are as different as “apples to zucchinis”.  Normally, budgets are different, but the differences are so big it is difficult to imagine how they are going to cobble together an agreement.  The popular expectation here in Olympia is that the only thing that is going to force them to agreement is the June 30 deadline (after that date, the government doesn’t have any money to operate).

Over the next several blog entries, I am going to break apart the major issues, one issue at a time, that are the heart of the “apples to zucchini” budgets.


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Revenue to fund education

Yesterday, the House Finance committee took several hours of testimony on HB 2186, the bill to authorize new revenue sources to fund McCleary, K 12, and other priorities in the House’s recently approved budget.  It would authorize an additional $2.8 billion of new revenue sources in the 2017-19 budget which would grow to $4.8 billion in the 2019-21 budget.  The majority of these increases in 2017-19 would come from three sources: B&O tax ($1.2 billion),  capital gains ($715 million), and, real estate excise tax (REET) $435 million.  Here is a complete listing at this table.

Not surprising, there were many more supporters than opponents testifying at the hearing.  The committee approved the bill on party line vote this morning sending it to an uncertain future on the House floor.

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Final budget better for classified employees

House democrats just released their budget, the final of the three budgets, that is quite a bit different from the Senate proposal released last week.  Representative Ormsby, chair of the Appropriations committee, characterized the differences between the House and Senate budgets like the differences between apples and zucchinis.  Except for the lack of additional funding for K 12 health insurance or classified employee staffing, it was good on all other measures.

Major Issues:

— Higher Education Contracts and Health Care Agreement – Fully funded

— K 12 Classified Employee Salary Increase – 19.9% effective 9-1-17, 17% effective 9-1-18 (this includes the I 732 salary increases of 2.3% effective 9-1-17, and 2.7% effective 9-1-18.)

— Learning Days (something new) – One funded day in 2017-18, Two days in 2018-19, Four days in 2019-20, 6 Days in 2020-21

— Higher Education Tuition Freeze and revenue backfill – $56 million

— K 12 Insurance – frozen at current rate, $780

— No change to basic education classified employee staffing funded by local levies (5,000 FTEs) 

— House’s paraeducator bill fully funded.

$1.7 billion of the K 12 compensation increases, inclusive of the learning days and I 732 salary increase, are in jeopardy if the House does not pass nearly $3 billion in new tax sources.

As more details emerge, I will update this entry.

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Republican levy proposal looks good

One key component of any McCleary solution has to be the State taking responsibility for funding basic education.  Currently, school district’s rely upon their local levies to fund among other things, 5,000 classified employee FTEs that should be funded by the state.  Additionally, levies fund a portion of basic education salaries that should be funded by the State.  With that in mind, it is clear that local levies have to go down (only remaining use would be for “enrichment”) and State funding would have to go up.

As you can see from this document, the Senate levy proposal accomplishes that goal, fully funding all 5,000 FTEs and basic education salaries.  And it goes one step further: it equalizes all school district levy funding across the state.  In other words, no longer is there the property poor / property rich school district issue since all will be treated the same.

While there still are some problems with other features of the Republican’s McCleary solution that we are trying to change, at least they got this one right!


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Senate budget appears

It’s only a couple minutes old but as with any Budget there are positives and negatives.  Unfortunately, there appear to be more negatives than positives.

Regarding state employee and higher education contracts, nearly all, except Teamsters correction contract and Washington State Patrol, were not funded.  Instead higher education employees will be provided a $500 per year salary increase effective July 1, 2017, and July 1, 2018.  On the other hand, the union coalition bargaining agreement on health insurance was fully funded.

On the bleaker K 12 side, the Senate budget repeals the Initiative 732 salary increase instead providing a 2.3% salary increase effective September 1, 2017.  Further, insurance funding would not change staying at $780 per month for the 2017-18 school year.

What’s important to realize is that there isn’t funding for a salary or insurance increase the second year of the budget since this is the year when the Senate republican McCleary solution, SB 5607, takes effect (see my previous entry about the bill).  Sorry to get complicated but starting September 1, 2018, school districts would receive increased state funding based upon the National IPD (implicit price deflator).  The IPD usually runs about 1% below the Seattle CPI (consumer price index) – the current measure for our annual salary increases. The way their proposal works is that when this IPD increase goes into effect in September 2018, we will have to negotiate with the school district how much of this increased funding goes for salary or insurance benefit increases starting September 1, 2018.

One positive with their proposal (looking hard for a silver lining), really not this proposal, but their McCleary solution: the state will be funding the additional 5,000 classified employee FTEs that are currently funded by local levies.

And another good point is that the pension plan was fully funded with an additional $246 million set aside to pay for the unfunded liability.

As I spend more time on this proposal, I will update as needed.

Update #1 – Good news…The Senate fully funded PSE’s paraeducator bill, SB 5070 at a cost of $2.3 million!

Update #2 – Good news…they used $700 million from the “rainy day” fund to buy down the PERS 1 unfunded liability.


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Inslee signs levy cliff bill

With a crowd of school district supporters observing, Governor Inslee signed the levy cliff bill, SB 5023.  In addition to delaying the levy cliff one year (to calendar year 2019), it adds in “accountability measures” designed to ensure local levies do not fund basic education costs.

Here is the accountability language: “Beginning in calendar year 2018, to ensure M&O levies are not used for basic education programs, school districts must provide a report to OSPI detailing the programs and activities that will be funded through the proposed levy.  OSPI must approve the report before a ballot proposition can be submitted for voter approval.   
Enrichment beyond the state-provided funding in the omnibus appropriations act for basic education programs is a permitted use of M&O levies.”

Now we wait to see if the legislature can come up with a McCleary solution that will permanently take the pressure off local levies to fund basic education.

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