WASA 2014 Superintendent Workshop The McCleary Decision: Implications for State Revenue May 6, 2014 Dr. Bill Keim WASA Executive Director

WASA 2013–14 Goals GOAL 2—INVEST IN THE PARAMOUNT DUTY Hold the Legislature accountable for delivering on the state’s “paramount duty” to provide ample funding for all K–12 children, consistent with the Supreme Court’s McCleary ruling and defined by HB Actions: Monitor and communicate the Legislature’s progress toward achieving ample funding of K–12 education as required by the McCleary decision. Educate and enlist the local community, business leaders, and policymakers to advocate for legislative progress toward full implementation of HB 2261 and the ample funding of K–12 education, as affirmed by the Washington State Supreme Court in the McCleary decision.

OSPI Plan to Fully Fund Basic Education by 2018 Expenditure category School year 2015–162016–172017–18 Early elementary class sizes $197,705,030$431,971,930$728,715,188 Later grades class sizes 152,377,454345,212,696527,356,311 Materials, Supplies & Oper. Costs 399,311,789405,245,793411,381,872 School/district support staff 360,415,667718,885,5041,078,501,720 Program hours 103,173,518242,540,664472,358,338 Professional development 105,901,790237,026,250398,792,466 Compensation 2,169,173,7992,585,447,1073,076,062,912 GRAND TOTAL $3,488,059,048 $4,966,329,944 $6,693,168,806 ESHB 2261 and SHB 2776 breaks down costs into eight categories. In 2014– 15, funding for student transportation is fully funded. For each year until 2018, the state funding levels for the other seven categories are as follows:

New Revenue Considerations Can we cut other programs to free up the funding needed for McCleary?

Can We CUT Our Way to $6.7 Billion? Every area of the state budget has already been scrutinized and cut during the recent economic downturn. Reductions in one area (e.g., social services) would likely cause increased costs in other areas (e.g., public safety). Due to legal obligations, there is a limit to how much some areas can be cut. The scale of the problem is well beyond the kind of minor adjustments that further cuts could achieve.

Can We Cut Our Way Into That Funding? 2013–15 Biennial State Budget —$32.8 Billion Total General Fund Source: A Citizen’s Guide to the State Budget 2014 Legislative Evaluation & Accountability Program Committee

Can We Cut Our Way Into That Funding? 2013–15 Biennial State Budget —$32.8 Billion Total General Fund McCleary Add $13.4 Billion per Biennium

New Revenue Considerations Can we fund McCleary by earmarking revenue growth to that purpose?

Can We GROW Our Way to $6.7 Billion? SB 5881 would have earmarked 67% of all revenue growth to education for 10 years. Problems with SB 5881: Increased revenue is for Early Learning, K–12, and Higher Ed with distribution to three areas unclear. McCleary decision requires implementation by 2017– 18 NOT 2024–25. Earmarking 67% of growth to one part of the state budget would slowly starve the other parts. Even if ALL new revenue went to K–12, it would require an unrealistic growth to add $6.7 billion/year.

New Revenue Considerations Aren’t we already over-taxed in Washington?

Washington Ranks Low in Tax Collections State and local tax collections per $1,000 personal income Fiscal Year 2011 Washington = $98.95 Bureau of Economic Analysis and Census Bureau U.S. Department of Commerce U.S. Average = $108.31

Revenue Collections are at Historically Low Levels When Compared to Overall Economy General Fund-State revenue as percentage of Washington personal income Projected Washington State Economic and Revenue Forecast Council, September 2013 ›In 1990, GF-S revenue equaled about 7% of total personal income. ›If the same were true today, we would have about $15 billion in additional revenue for current biennium. ›In 1990, GF-S revenue equaled about 7% of total personal income. ›If the same were true today, we would have about $15 billion in additional revenue for current biennium.

Growth in Personal Income vs. Growth in Sales Subject to Sales Tax, Washington, 1979–2013 Source: 3 Steps to Funding Washington’s Education System Economic Opportunity Institute.

New Revenue Considerations Should we fund McCleary by just increasing existing tax sources?

State% Income in Taxes Poorest 20% Washington17.3% Florida13.5% Illinois13.0% Arizona12.5% Texas12.2% Hawaii12.2% Arkansas12.1% Ohio12.0% Connecticut12.0% Indiana11.9% Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Washington Has Highest Taxes on the Poor Top 10 States

State Poorest 20% to Top 1% Middle 60% to Top 1% Washington599%327% Florida514%297% South Dakota534%332% Tennessee356%230% Texas365%228% Illinois264%197% Arizona224%151% Nevada451%309% Pennsylvania227%180% Alabama213%179% Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Washington Has Most Regressive Tax System Top 10 States

Percent of Income Paid in State & Local Taxes, Washington State and U.S. Average, 2010 Source: 3 Steps to Funding Washington’s Education System Economic Opportunity Institute, based on non-elderly citizens.

Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Detailed State Tax System Tables Washington’s Regressive Structure

Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Detailed State Tax System Tables Oregon is Much More Equitable

Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Detailed State Tax System Tables Idaho is More Equitable

Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Detailed State Tax System Tables California is More Equitable

Source: Who Pays The Institute on Taxation and Economic Policy, based on non-elderly citizens. Detailed State Tax System Tables Massachusetts is More Equitable

Let’s Discuss This Information At your table please discuss and record your thoughts on the following topics: Did any of this information surprise you? Do you think it is pertinent to the resolution of the McCleary decision? Do you think this information is well understood by our citizens? What role do you think WASA should play in sharing this information? What role can local district leaders play in sharing this information?