Today is the 40th day of our 60-day legislative session. Tuesday was the cut-off for passing bills out of their houses of origin, with the exception of fiscal bills necessary to implement the budget. Bills that passed the Senate now go to the House, and bills that passed the House now go to the Senate. Right now my colleagues and I are busy ushering our bills through the respective policy committees. Senate committees like Judiciary Committee, which I chair, are all considering bills passed by the House of Representatives.
Along with the cut-off, this week was marked by two major events. On Monday, Governor Chris Gregoire signed SB 6239 into law, making Washington the seventh state in the nation to legalize same-sex marriage, in addition to Washington, D.C. Later this week, we received a budget forecast that actually provided good news for the first time in a long time.
As for marriage equality, I’m thrilled that our state is finally recognizing that there is no second-class love. You can read more about the historic event here, which is a Seattle Times story that includes a link to sweet video footage of the Seattle Men’s Chorus celebrating the passage of the bill. As I wrote here before the passage of SB 6239, marriage equality is fabulous!
Our work to create marriage equality is far from done. Reports indicate that our newly-minted law will probably be subject to a statewide referendum challenge in November. After we have successfully defeated the naysayers at the ballot box in November, we’ll still have to change the law on the federal level. Only when the federal government institutes marriage equality will we have actual marriage equality. In the meantime, let’s celebrate our successes, and keep organizing!
In the meantime, we’re still working furiously down here in Olympia on policy and budget issues, and we received a bit of good news from the State Economic and Revenue Forecast Council, which is tasked with providing a forecast of economic activity and general fund revenue for the Legislature and the Governor to be used as the basis for the state budget. As you probably know, it became clear several months after session ended last year that even the severe cuts we’d made for the last three years would not be enough: the economy continued to falter, and because our tax system depends so much on sales tax, our revenues continued to fall during this recession. During our special session in November, we began to tackle the forecasted $2 billion gap between the expenditures to which we are currently committed and the revenue we were expecting to receive. At the close of the special session, we had taken care of about $500 million; you can read more about that here. That left us with a revenue deficit of about $1.5 billion to address in the regular session. (The actual revenue deficit was close to $1 billion; the projected deficit of $1.5 billion included putting an expected $500 million in reserve in case the economy continued to flounder.)
The latest calculation from the Forecast Council shows an actual increase of $96 million for this (2011-2013) biennium. This revenue is composed of $45 million in increased tax revenues, and $50 million from the change made to the unclaimed property act that was made in the December special session. This reduces the deficit to $855 million deficit for this biennium, plus the need to put some funds in reserve in case the economy goes south again.
Note that this forecast does not consider the economic impact of Congress extending the payroll tax break or extending unemployment. Dr. Steve Lerch, the chief economic forecaster, stated that had that been factored in, it would have increased the forecast by another $50 - $75 million. In addition, there has been a drop in the expected demand for state services that the forecasters predict will save us an additional $340 million. The risks to our economy remain high, but this is the first stable forecast in quite some time. All told, our budget shortfall is down to about $500 million. Again, we’ll also have to put some funds in reserve, so at this point we are trying to come up with a total of about $950 million. We need to put funds in reserve because our recovery is slow and has included many setbacks. You can read more about the current state of the budget here.
The Governor made her budget and revenue proposal in the fall. Now that we have the latest information from the Forecast Council, the House is set to release their proposal next week, and the Senate will follow soon after.
We need to make up for the $950 million we’re lacking by raising more revenue, making cuts, or instituting cost-saving reforms. Like the vast majority of 37th District constituents who communicate with me about budget issues, my preference would be to raise the majority of that $950 million by new revenues, in the form of progressive taxes that reach the disposable income of those most able to pay. This includes the closure of tax exemptions that primarily benefit wealthy corporations and industries. There also are a number of small cost-saving reforms we can make, but after three consecutive years of cutting almost $10.5 billion, there are few reforms we can make without hurting people further. We've already made too many cuts that are imposing significant burdens on the health and welfare of Washingtonians and will cost us more in the long run.
Folks in the 37th District seem to have a keen understanding of the importance of supporting critical state programs upon which we or our neighbors depend. We also seem to understand the necessity of reforming our system of taxation so that it no longer overburdens low and middle-income people, who potentially pay 20 percent of their income toward state taxes while the very wealthy often pay less than 3 percent of their income in state taxes. As I wrote here, we tend to agree with Governor John Rankin Rogers (Washington’s governor from 1897-1901), who said, “I would make it impossible for the covetous and avaricious to utterly impoverish the poor. The rich can take care of themselves.”
For example, I’ve heard from thousands of constituents about the Basic Health Program (BHP), which offers state-subsidized health insurance coverage to low and middle income folks. BHP isn’t free to participants, who still have to step up to pay premiums and co-pays. It’s a very good state investment that improves the lives of participants and saves the state money in the long run. It’s a model that other states are using to develop similar plans. The BHP was created 30 years ago with bipartisan support, and has, in the past, been favored by members of both parties and supported via initiative by a vote of the people. Enrollment was set at 200,000 in 1995 by a Republican-controlled legislature, but we’ve never met that commitment. Instead, we’ve whittled the program down consistently through various fiscal crises; now the BHP has only 35,000 enrollees, with nearly 160,000 people on the waiting list. This in a state where more than a million people don’t have health insurance coverage. Hopefully, federal health care reform will assist many of the folks who are currently uninsured, but it doesn’t go into effect until 2014. The BHP is all we have right now to address the immediate needs of hundreds of thousands of Washingtonians.
The BHP is just one example of many good state investments that are in danger. How can we raise more revenue to pay for these in a way that doesn’t overburden Washingtonians who are already struggling to get by? The Governor proposes a half-cent increase in the retail sales tax for three years. I appreciate that it's time-limited, but the sales tax falls harder on low-income people than other taxes, and her version is neither dedicated to governmental functions that aid low-income people, nor does it have a mechanism to allow rebates to low-wage earners, as did Rep. Eric Pettigrew's version from a few years back. With the relatively good news of the recent economic forecast, it’s beginning to look like this proposal is off the table, or at least will be reduced to maybe one or two tenths of a percent.
One alternative is to securitize more of our income from the settlement of the lawsuit against the tobacco industry. We could get $180 million needed to “bridge” both the BHP and the Disability Lifeline to 2014 by selling bonds that would be paid by that stream of income. Interest rates are low, so this is a good time to do it.
I’m interested in closing tax loopholes that benefit wealthy corporations, but provide no benefit to the rest of us. There are more than 500 tax breaks in Washington state. In aggregate, they cost us billions of dollars in foregone resources each year. Some, like the sales tax exemptions on food, serve a valid public purpose and should be retained. Others offer little public benefit.
One tax loophole that’s garnering the most attention in the legislature right now is the tax break for big banks. Unlike every other state in the union, Washington doesn’t charge taxes on interest earned by banks on a home’s first mortgage. Like many progressives, I’ve wanted to close this tax loophole for years. Even the Republicans are finally beginning to understand how unpopular this tax exemption is, and how this particular tax exemption is offering no benefit except to banks, who aren’t passing the extra money around to their customers or staff.
Some Republicans have said that they now support keeping the mortgage exemption for smaller state-based banks, but think it should end for the five big, multistate institutions: Wells Fargo, Citi, KeyBank, J.P. Morgan Chase and Bank of America. Republican support could mean that we could get a supermajority vote in the legislature on implementing this change, which would raise about $18 million for the current state budget and prevent us from having to send the measure to the voters. Closing the loophole for all banks, including Washington-based community banks, would bring in closer to $40 million.
There are other closures of tax loopholes that are strongly being considered; I’ll write more about them in my next post. In the meantime, I wanted to tell you about one important step we’re taking to address unfair and ineffective tax exemptions. Last week, the Senate passed SB 6088, a bill that I co-sponsored which would require that any new legislation which institutes a new tax preference, or expands or extends an existing tax preference, include an expiration date and statement of legislative intent. The intent section would provide information regarding the reasoning for the exemption and data for purposes of reviewing the tax preference. It would make it much easier to repeal tax exemptions that aren’t serving their intended function.
Currently, our tax code is full of exemptions with no declared purpose or end date. I co-sponsored SB 5857 that would go a step further than SB 6088 by requiring that all 567 tax current breaks have a sunset date as well as instituting an objective, mathematical formula for analyzing tax breaks to see if the return on investment is actually worth it. By sunsetting all exemptions and giving legislators an objective way of measuring the effectiveness of tax breaks, we would force tax breaks to undergo the same democratic test that budget expenditures go through—a yea or nay vote during budget deliberations. Exemptions should be looked at with the same rigor as expenditures.
Although it doesn’t go as far as SB 5857, SB 6088 is a good first step.
Along with closing tax loopholes, I am working with other legislators on long-term fixes to make our tax system more progressive, such as a capital gains tax.
While considering options regarding revenue, we are also working hard to maximize the efficiency and cost-effectiveness of public programs. The Senate was able to pass about 30 reform bills in the past few months. If all these bills pass the Legislature, the savings are estimated at approximately $40 million for this biennium and at least $250 million over the next five years. The reform agenda targets all areas of government including job creation, economic development, fraud prevention, corrections, transportation, education, the environment, and human services. You can read more about these reforms here.
Keep up the good fight!