Building an Economy that Works for Everyone

If you like California’s budget crisis, you’ll love Washington’s Initiative 1033

California’s budget-by-initiative process has helped decimate the state’s public transportation, education, health care…you name it. And while Washington’s budget problems aren’t as bad as California’s, if Tim Eyman’s Initiative 1033 passes this fall, we’ll know what it’s like to live in the Golden State without even moving across state lines.

Just take a look at what’s happening to higher education down south. The Economist reports Californians are “justifiably proud” of having “the best public higher education in the world” at the Berkeley campus of the University of California. But state cuts mean those days of glory may be at an end. At the other end of the educational spectrum, the Seattle Times notes California’s younger students will be using history textbooks that “won’t mention the election of President Obama or the subprime mortgage meltdown until at least 2016. Stem-cell research and climate change could be absent from science texts even longer.”

Washington is poised to walk down the same path with I-1033, which would drastically limit what our state and our communities can spend to promote economic growth, build our education system, and ensure quality of life.

The measure is projected to cost the state nearly $6 billion, cities $2.1 billion, and counties $694 million in revenue over the next 6 years. Since about 60% of the state budget is devoted to mandatory spending on items like basic education, federally mandated Medicaid, pensions and debt service, cuts would have to be made in the remaining 40 percent of the budget.

At the state level that means more cuts in human services like adult day health care and nursing homes, more tuition hikes for public 4-year and community colleges, more poor working families kicked off the Basic Health Plan, and less funding for state parks and recreational spaces. That’s just for starters — it doesn’t even touch what cities and counties would have to cut.

As Colorado voters discovered with a similar initiative, I-1033’s “population plus inflation” formula to limit state revenue looks good on paper, but makes it impossible to support the public structures that are critical to long-term prosperity for all. That’s because:

  • No existing measure of inflation — neither the Consumer Price Index nor the GDP deflator nor any other measure — correctly captures the growth in the cost of the kinds of services purchased in the public sector. State governments, for instance, are major purchasers of health care, the costs of which are rising far faster than the general rate of inflation.
  • In most states, a rising share of the state population is utilizing public services. For instance, the number of senior citizens in most states is rising faster than the general population, putting new burdens on programs such as Medicaid.
  • States often face the burden of providing new or expanded services for reasons outside the control of lawmakers. These include court mandates to increase school funding or other services, response to natural disasters or public health emergencies, major economic shifts such as plant closings, or other reasons.
  • In an era of large federal deficits, states are increasingly expected to finance a substantial share of new domestic priorities. Some of these expectations take the form of formal mandates, such as the additional education expenditures required under No Child Left Behind. Others may reflect what one analyst has called “underfunded expectations,” such as the expectation that states and local governments will provide heightened levels of security as part of the war on terrorism.

As the Center on Budget and Policy priorities notes above, all state programs are threatened by a rigid population-growth-plus-inflation limit, because these kinds of spending limits cover so many areas of state and local spending. If one spending area is forced to grow faster than the rate allowed under the limit (for instance due to court order, federal mandate or popular demand), then another spending area must grow at a slower pace. In other words, in terms of the level of service provided, that second spending area must shrink. Not because there isn’t money available…not because voters wanted spending cuts in that particular area…but because of a rigid, artificial limit imposed by ballot measure.

Washington’s working families are paying more than their fair share in taxes. But I-1033 won’t fix that – our state’s sales and business taxes will remain unchanged, effectively meaning those taxes will subsidize property tax rebates to property owners. In the long run, I-1033 will only exacerbate the structural deficit inherent in our current tax structure.

Instead of drastically cutting important public structures in the middle of a recession, Washington should be funding a retooling of its economy for future growth by investing in education, transportation and health care. A small tax on high-income earners (say, 3%-5% on incomes above $250,000) would enable us to do that. At the same time, we could stimulate our local economies by putting money back in people’s pockets through an actual property tax cut (instead of I-1033’s rebate gimmick), or an increased B&O tax credit for small businesses.

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