Presentation to the 37th District Democrats

John Stafford

October 10, 2016

POLITICAL CONTEXT

THREE CENTRAL CHALLENGES• Operating Budget• McCleary Compliance• Tax Reform

OTHER LEGISLATIVE PRIORITIES

THEMES AND CONCLUSION

2017 is a “Budget Year” for the State Legislature

The National Elections are Critical◦ Presidency, Supreme Court, U.S. Senate and U.S. House “in play”

The State Senate and State House are both “in play”

The State General Election Initiatives will be Consequential◦ Sound Transit III (Regional Proposition 1)

◦ Statewide Minimum Wage (I-1433)

◦ Revenue-Neutral Carbon Tax (I-732)

◦ Campaign Finance Reform (I-1464)

The State Supreme Court Ruling on McCleary Compliance is Significant

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Washington State Legislature: Party Composition (2001-2016)

HOUSE SENATE

OBAMA ELECTED

THEMES

• OBAMA ERA DEMOCRATIC DECLINE (NATIONAL TREND)• BOTH CHAMBERS IN PLAY FOR 2017

• IMPACTS GENERAL ELECTION STRATEGY• IMPACTS INTERPRETATION OF TAXATION TREND IN WASHINGTON STATE

POLITICAL CONTEXT

THREE CENTRAL CHALLENGES• Operating Budget• McCleary Compliance• Tax Reform

OTHER LEGISLATIVE PRIORITIES

THEMES AND CONCLUSION

THEMES

• BIENNIAL BUDGETS•FIVE VERSIONS TO START; THEN NEGOTIATIONS

• OPERATING BUDGET IS PARAMOUNT

OPERATING

$40 Billion General Fund Plus $29 Billion Federal

Operating

K-12 Education, Higher Education, Government, Social Services, etc.

TRANSPORTATION

$16 Billion

Capital and Operating

Roads, bridges, transit, etc.

CAPITAL

$4 Billion

Capital

Schools,Buildings,

Parks

History◦ 2007: McCleary Lawsuit Filed

State Not Meeting Paramount Duty of Adequately and Uniformly Funding Public Schools◦ 2012: State Supreme Court Upholds Lower Court Decision◦ 2014: Contempt of Court Ruling (without sanctions)◦ 2015: Contempt of Court Ruling (with sanctions)◦ 2016: Contempt of Court Ruling (sanctions continue)

4 Categories of Increased Funding◦ Supplies, Maintenance and Operating Costs (“SMOC”)◦ K-3 Class Size Reduction◦ Transportation

◦ Teacher Compensation – The Big Outstanding Issue

Teacher Compensation: 2 Issues◦ More Spending◦ Transferring Levy Responsibility From Local Districts to the State (“Levy Swap”)◦ Roughly $3.5 Billion Per Biennium

Critical Issue: Taxation

Possibility For “Grand Bargain”: New Progressive Taxation and Levy Swap

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K-12 Spending Per $1,000 of Personal Income(Washington State: 1995-2013)

THEMES

• 30% Drop in Two Decades -- Startling• Washington Has Gone From A Very High Spending State to a Low Spending State

• The Same Is True On a Spending Per Pupil Basis

Two Ways To Measure Taxes◦ Total Taxes (State and Local) Per Capita

◦ Total Taxes (State and Local) as Percentage of Personal Income

Washington State:◦ Very High Personal Income State, with Slightly Below Average Per Capita Taxes

◦ Thus: Very Low Taxes as Percentage of Personal Income (37th Lowest in Country)

◦ Most Regressive Tax System in the Country

One of Seven States Without an Income Tax or Capital Gains Tax

It is Past Time to Raise Taxes in Washington State◦ Fully fund K-12 Education and Comply with McCleary

◦ Move Washington Closer to the Average on Taxes As Percentage of Personal Income

◦ Make the Tax Code Less Regressive

◦ Diversify the Tax Code

Possible Tax Options◦ Income Tax (Unlikely)

◦ Capital Gains Tax on High Income Earners (Likely)

◦ Property Tax Limit Eliminated

◦ B&O Tax Exemption Reduction

◦ Financial Transactions

◦ Internet Sales

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Personal Income Per Capita (Thousands)

Per Capita: Personal Income Versus State and Local Taxes(All States, 2013)

Source: Washington State Office of Financial Management; U.S. Bureau of Economic Analysis

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State and Local Taxes as Percentage of Personal Income:Washington State vs. National Average: 1990-2013

Source: Washington State Office of Financial Management; 2013 Is Washington vs. 50 State Average

THEMES

Shocking

The Most Important Explanatory Chart In Washington State Politics

Human Agency Factors: Eyeman; 1% Property Tax Limit; Republican Opposition to New Taxes; Lack of Democratic Resolve

Structural Factors: Sales Tax Dependent Regime Becomes Less Tax Intensive Over Time (Service Economy, Internet)

The Driver Behind McCleary

POLITICAL CONTEXT

THREE CENTRAL CHALLENGES• Operating Budget• McCleary Compliance• Tax Reform

OTHER LEGISLATIVE PRIORITIES

THEMES AND CONCLUSION

SOCIAL SERVICES

◦ Foster Care: Increase Spending.

◦ Mental Health: Increase Spending.

TECHNOLOGY

◦ Police Body Cameras: When to Use; Public Access to Data Generated.

◦ Drones: Regulations (Drone Size, Airspace Restrictions, Registration Requirements, Pilot Certification, etc.).

PUBLIC RECORDS

◦ Access to Data: Balancing the Public’s Right to Know with Reasonable Compliance Expectations.

HIGHER EDUCATION

◦ State Need Grant: Expand.

◦ Free Tuition: At Community and Technical College for Students Without a Bachelor’s Degree.

K-12 EDUCATION

◦ Equity: Build off the 2016 Tomiko-Santos Bill to Equalize Educational Opportunity.

◦ Supermajority Requirement for School Construction Bonds: From 60% to Mere Majority Requirement.

◦ Collective Bargaining For Teachers: Statewide, Rather District by District.

◦ Charter Schools: Ongoing Issue of Legality of Using Public Funds (Even Lottery Proceeds) for Funding.

CLIMATE CHANGE

◦ Solar Tax Credit Extensions.

◦ Dam Policy and Management.

◦ Renewable Energy Requirements: Ongoing Utility Requirements to Purchase Renewable Energy (I-937)

◦ Oil Train Legality.

◦ Energy Export Facility Legality.

MINIMUM WAGE

◦ Raise Minimum Wage Statewide.

HOUSING AFFORDABILITY

◦ State Housing Trust Fund: Increase.

VOTER REGISTRATION

◦ Automatic Voter Registration.

◦ Same Day Voter Registration.

◦ Legal Residency Identification Requirements.

VOTING RIGHTS

◦ Local Elections: District-based (Rather than At-Large) Statewide.

CONTROLLED SUBSTANCES

◦ Marijuana: Rationalize Legal Framework Governing Marijuana.

◦ Safe Injection Sites: Introduce Into Washington (Patterned Off of Successful Canadian Model).

CRIME AND CRIMINAL JUSTICE

◦ Gun Control: Attorney General Bob Ferguson’s Bill to Ban Military-Style Assault Weapons and High-Capacity Magazines

◦ Death Penalty: Make Illegal.

◦ Legal Financial Obligations: Reduce Fines and Interest Rates for Individuals Convicted of Crimes.

Revenue Neutral Revenue Generating

Direct Tax Carbon Washington’s

Initiative 732

(BRITISH COLUMBIA

PROVINCE)

(RHODE ISLAND)

Cap-and-Trade Governor Inslee’s 2015

Proposal

(CALIFORNIA)

Cap-and-Fee Alliance For Jobs and

Clean Energy 2017

Proposal

DOES THE TAX GENERATE REVENUE FOR THE STATE?

WHAT TYPE OF TAX?

DESCRIPTION◦ Direct Tax on Carbon, Escalating Every Year◦ Revenue-Neutral: Tax on Carbon Used to:

Lower Sales Tax

Lower B&O Tax

Provide Tax Rebate To Lower and Middle Class Residents

STRENGTHS◦ Patterned Off of Successful British Columbia Model◦ Administratively Simple◦ Deals with Tax Regressivity◦ Opportunity to be National Model◦ On the Ballot Now

WEAKNESSES◦ Does Not Generate Revenue◦ Perhaps Revenue-Negative◦ Developed Without Minority Group Input◦ Does Not Address Climate Justice

CONCERNS◦ Washington’s Environmental Community Divided

Washington State Underinvests in Foster Care

◦ Bramm Versus Washington

Problems

◦ Excessive DSHS Worker Caseloads

◦ Excessive Moves Between Homes for Foster Kids

◦ Use of Hotel Rooms

◦ Leads to: Lack of Emotional Trust, Depression, Drug Abuse, Crime, High Pregnancy Rates, etc.

• Compounded by Insufficient Mental Health Counselling Resources

Crosscut Online Article (September 20, 2016): “Meanwhile, the Legislature has yet to

fully restore the steep recession-era budget cuts that trimmed more than 15 percent of Children’s Administration workers, froze social workers’ salaries, and slashed services for foster children and parents.”

Washington State Underinvests in its Mental Health System

Psychiatric Boarding◦ Individuals Kept in Emergency Rooms While Awaiting Access to Mental Health Care◦ Individuals Prison While Awaiting Competency Evaluation and Treatment

Lawsuits◦ State: Psychiatric Boarding In Emergency Rooms (T.R. vs. Dreyfus)

Deemed Illegal By State Supreme Court (2014)◦ Federal: Psychiatric Boarding In Hospitals (A.B./Trueblood vs. DSHS)

Deemed Illegal By U.S. District Court (2014)

Western State Hospital◦ Insufficient Intake Capacity◦ Insufficient Release Capacity◦ Management and Staffing Issues

Needs◦ Beds at Western State and Eastern State◦ Beds in Community Treatment Facilities

Myriad Legal Issues Associated with Big Data

Police Body Cameras (and Dashboard Cameras)◦ Storage Requirements

◦ Sensitive Footage

◦ Inadvertent Footage

Public Records Requests◦ Balancing the Public’s Right to Know With Reasonable Compliance Expectations

◦ Cottage Industry Profiting From Data Requests

Request Large Amounts of Data in Order to Collect Fines from Non-Compliance

Repackaging and Reselling Data

POLITICAL CONTEXT

THREE CENTRAL CHALLENGES• Operating Budget• McCleary Compliance• Tax Reform

OTHER LEGISLATIVE PRIORITIES

THEMES AND CONCLUSION

IT IS INEFFICIENT TO OPERATE A LOW-TAX STATE◦ Lawsuits◦ Poor Outcomes◦ McCleary Serving as Legislative Logjam

HOW PROGRESSIVE IS WASHINGTON STATE?

DISCONNECT BETWEEN POLICY COMPLEXITY AND PUBLIC DIALOG◦ Policy Becoming More Interconnected and Complex◦ Multiple Channels for Legislation◦ Issues of Provenance Expanding◦ Public Dialog Becoming More Shallow

The “Post-Fact” Society◦ Interrelated◦ Likely to Become Worse

FALSE NARRATIVES ON POLICY ABOUND

THE RECENT ELECTION EXPERIENCE SHOULD NOT BE SEEN AS ANOMOLOUS◦ From Democrat vs. Republican to Open Society (Pro-Globalization) vs. Closed Society (Anti-Globalization)

K-12 EDUCATION◦ “Education First, Then Fund Other Priorities.”◦ “Reforms First, Then Spending Will Follow.”

TAXATION◦ When Economy is Weak: “Don’t Raise Taxes; It Will Jeopardize the Economy.”◦ When Economy is Strong: “State Revenues Have Increased. We Should Be Living Within Our Means.”

ECONOMIC GROWTH◦ “Keep Taxes Low For the Rich – They Will Create More Jobs for the Middle Class.”◦ “Don’t Institute a Capital Gains Tax – the Wealthy Job Creators Will Leave the State.”

CARBON PRICING◦ “Instituting a Price on Carbon in Washington State Will Have No Impact on Global Temperatures.”◦ “Dealing with Climate Change Will Hurt the Economy.”

GUN CONTROL◦ “Instituting a Ban on a Specific Weapon Won’t Save Lives.”◦ “A Ban on One Type of Weapon Will Lead to a Massive Repeal of Gun Ownership Rights.”

IMMIGRATION◦ “Immigrants Come to the State and Take our Jobs.”

MINIMUM WAGE◦ “When You Increase the Price of Labor, Less Will Be Demanded, and Unemployment Will Increase.”

Four Critical Events Will Set the Stage for the 2017 Session◦ National Elections◦ State Elections◦ State Initiatives◦ Supreme Court Ruling on McCleary

Session Likely to be Most Momentous in Recent History◦ Opportunity to Simultaneously Address K-12 Education Finance and State Tax Structure◦ Opportunity to Unblock the Political System

There Will Be Two Tiers of Activity◦ Primary: Operating Budget/McCleary Compliance/Tax Policy◦ Secondary: All Other Legislation

Session Will Be Characterized By Vitriol, Chaos and Uncertainty◦ Special Sessions a Virtual Certainty◦ Political Leadership Key

The Political Landscape May Have Already Been Permanently Changed

Washington State’s Political Landscape Will Be Further Reconfigured by the 2017 Legislative Session