Search Results for: structural revenue deficit

The King County Sheriff’s Department, prosecutor’s office and other law enforcement officials have sounded the alarm over impending budget cuts, warning that they could result in a significant adverse impact on public safety.  And no doubt that’s true.

But as municipal governments statewide struggle to cope with the economic downturn and its resulting decline in sales and property tax revenues, it is important to remember that the criminal justice system comprises over 70 percent of the general fund of nearly every county in the state, and thus any substantial decline in local tax revenues is going to inevitably impact public safety.  You simply cannot effectively address substantial budget shortfalls without addressing the largest part of your budget.

Washington Democrats have every reason to be cheered over last Tuesday’s election results, but as far as I can tell our party leaders have no plan in place to address our long term state and local structural revenue deficit… a deficit that when adjusted for good and bad economic times, assures that tax revenues cannot possibly keep pace with economic growth, and thus cannot possibly keep pace with growth in demand for public services.

If what we want is a dramatically smaller government, we can elect Republicans, or, apparently, we can elect Democrats, and just gradually get to the same place by default.  If that’s what voters really want, just don’t complain when the Sheriff’s Department starts laying off officers.

There are dueling editorials in Seattle’s two dailies today regarding the projected $3.2 billion revenue deficit facing budget writers in the next biennium.  And if you’ve ever wondered why it’s necessary to have two dailies, well, this is a great example.

The Seattle Times leads off by intentionally misinforming their readers:

AFTER the deficit in the next state budget increased by $529 million Thursday, Gov. Christine Gregoire called on her director of finance to suggest $200 million in immediate cuts. It was a good move, if late.

Yeah, thanks for the backhanded compliment Frank, but as I’ve previously explained, there is no state budget deficit.  You can call it a “budget deficit” if you want, but that doesn’t make it so, and technically, you are absoposilutely wrong.

Had current revenues during this current biennium fallen below budgeted expenditures, that would have constituted a budget deficit.  But they haven’t.  In fact, we are still generating a small surplus.  What the Times is referring to is a revenue forecast that would project a deficit in the next budget should spending continue to grow at its current rate, which it won’t, because the state is constitutionally prohibited from running deficits.

The governor blamed the shortfall on the disaster in Wall Street and, by implication, on the Bush administration. That was not altogether convincing.

You know what I don’t find all that convincing?  An editorial page that routinely misleads its readers… you know, like the time you guys lauded Sweden for repealing their estate tax, without bothering to mention that they replaced it with a 1.5% annual wealth tax.  Or, you know, like when you label a revenue forecast a “budget deficit” when you know that it isn’t.

Whatever the cause of the Wall Street crisis — and we think most of the blame is in the private sector — some kind of economic downturn would have happened eventually, and Gregoire’s budget was not ready for it.

And eventually, our Sun will exhaust its supply of hydrogen, swell up into a red giant, and swallow the earth.  But that doesn’t stop me from planting a garden.

The point is, the governor could have let state spending continue to shrink as a percentage of our economy, socking away a few billion dollars for a rainy day… though the last time we tried that, Tim Eyman used the surplus as ammunition to pass his tax-cutting I-695.  Or, we could spend the money when have it, and then not spend so much when we don’t.  The latter option makes writing the 2010-11 budget more difficult, but in the meanwhile, class sizes have been reduced and tens of thousands of children have been given access to health care.

The rest of the Times editorial is filled with self-righteous I told you so’s and meaningless blah-blah-blah’s.  So let’s move on to the Seattle P-I, which offers a more concise, accurate and thoughtful approach to the issue.

If you wonder why more governors don’t follow Gov. Chris Gregoire’s lead and create an online suggestion box to solicit cost-saving ideas for voters, just take a look at the most popular suggestions on her Transforming Washington’s Budget page.

You’ll find such bright ideas as “cut government waste,” “require proof of legal residency,” “limit salaries” and “English only.” What you won’t see anywhere near the top of the list are realistic, specific proposals that reflect a willingness to accept the kinda dramatic cuts in government services that would make a substantial impact on the budget… you know, things like “slash state funding of K-12 education,” “shut down the state ferry system,” “privatize the state universities,” or, you know, “raise our taxes.” Most of the suggestions either wouldn’t save much money (for example, the state doesn’t own the land or buildings housing most of its liquor stores, so there’s nothing to sell off), and/or wouldn’t be possible (ie, federal law prevents the state from taxing tribal casinos without their permission).

Meanwhile, the number one suggestion, which admittedly would raise a significant amount of revenue while cutting costs, presents its own legal and political hurdles. And while Gregoire’s office assures the pothead community that she’ll consider “Legalizing Marijuana” as a “legitimate idea,” it’s hard to imagine this governor actually following through.

One thing this public suggestion box does illustrate, is that as frustrated as voters may be with the current budget crisis, they don’t really want smaller government. They just want government to be cheaper. And that something-for-nothing attitude is, of course, at the heart of our structural deficit.

Unfettered by the need to win votes from voters, interim King County Executive Kurt Triplett is making the tough budget cutting choices, choices that are unlikely to win him many friends outside of the local politicians who are currently using him as a human shield. Yet the toughest choice of all — what to do about the county’s chronic long term revenue deficit — well that, nobody’s allowed to even talk about, especially not during an election season.

Slashing budgets is hard, but not impossible, because unlike most tax increases, budget cuts don’t require the prior approval of voters, and there’s no automatic mechanism for vetoing them via ballot referendum. Sure, plenty of voters will be plenty pissed off by shuttering parks, eliminating animal control and raising Metro fares countywide, but there’s nothing any of us can do about any of it… at least not directly, and certainly not directly against Triplett. So with nearly three quarters of the county’s general fund dedicated to criminal justice, so-called “non-essential” services must necessarily bear the brunt of this year’s cuts.

And next year…?

The cuts would come on top of several years of cost-cutting. For 2009, the county executive had to close a $93 million general-fund deficit, and between 2002 and 2005 $137 million in deficits had to be bridged.

Without new sources of revenue, Triplett forecast general-fund deficits of $54.2 million in 2011 and $88.2 million in 2012.

“There’s nothing left to spare,” he said. “Counties have to be funded differently.”

Yeah, well, Triplett can say that, because he’s not running for office. But as for the rest of the county’s political and media elite…? Shhhhh… voters might hear you.

So if we’re not going to fix a revenue system that has been intentionally monkey-wrenched to prevent county revenues from growing as fast as even population-plus-inflation, let alone growth in demand for public services, what’s the solution?

Republican executive candidate Susan Hutchison is running on the tried and true “waste, fraud and abuse” platform, claiming she can save popular services simply by wringing greater efficiencies from bloated government bureaucracy, mostly at the expense of the evil unions. Whether she really believes this or not, I don’t know, because like most other issues, she’s not sayin’. But the point is it can’t be done, at least not to the extent necessary to keep county services anywhere near their current level.

It’s not that there aren’t inefficiencies in county government, and it’s not like our bureaucracies don’t need to be scrutinized, squeezed and reformed from time to time; that’s the nature of bureaucracies, both public and private sector. It’s just that, as I’ve pointed out before, expecting to address long term structural deficits via productivity gains is a losing and illusory proposition:

But researchers long have recognized that the services provided in the public sector, such as education, health care, and law enforcement, tend to rise in cost faster than many other goods and services in the economy in general. This analysis was first put forward by economist William Baumol, who pointed out that technology and productivity gains may make goods cheaper to produce, but the services that government provides are different. Baumol said public services typically rely heavily on well-trained professionals — teachers, police officers, doctors and nurses, and so on — and technology gains do not make these services cheaper to provide. It may take far fewer workers to build an automobile than it did 30 years ago, but it still takes one teacher to lead a classroom of children.

The problem facing county governments statewide is simple: they have been forced to rely on a tax structure that over the long run guarantees that revenue will grow at a slower pace than the economy as whole, at the same time that the cost of providing government services is virtually assured to rise faster than the cost of most other goods and services in the economy. No doubt there are some productivity gains to be had, and we should attempt to squeeze them out where they make sense, especially in these trying economic times. But relying on productivity to address our long term deficit is wishful thinking.

Since we can’t actually outsource parks, animal control, Metro buses and other services to China, that leaves budget writers with only two real options: cut services and or raise revenues, neither of which is particularly popular, but only one of which appears to be even possible given the revenue constraints placed on the counties by the Legislature, and of course, our friend Tim Eyman. Timmy and the rest of the anti-government crowd don’t really mind watching local governments slowly drowned in a bath tub… indeed, that’s their goal. But the majority of voters — you know, those of us who actually use and rely on these services (and admit it) — we’re going to be sorely disappointed if the budget debate continues to focus on spending priorities to the exclusion of tax reform.

County government simply isn’t sustainable, anywhere in the state, and no amount of focus on budget priorities is going to fix this over the long term.  At some point, voters are going to have to accept that the level of revenue they are providing simply isn’t sufficient to support the level of services they’ve come to want and expect. But we’ll never have that painful conversation until our elected officials are willing to start it.

I’ll be on KUOW’s The Conversation this afternoon, between 12:15 and 12:30, talking about proposals for a temporary sales tax increase.  Listen live or download the podcast.

And for those of you listeners coming to HA looking for the statistics I’ve cited, here are some useful links.

Sales Tax vs Income Tax: A Short Primer in Fairness and Adequacy

Out of control spending?

Per capita revenues at 15-year low

Structural deficit

UPDATE:
If KUOW listeners are typical (and I’m not suggesting that they are,) they are a lot better informed, and a lot more supportive of an income tax than many of our politicians imagine.

Over the 74 years since it was first implemented, Washington’s state retail sales tax has been raised eight times, from 2% in 1935 to 6.5% in 1983.  On average, the sales tax rate was raised once every 6 years during its first 48 years of existence, culminating in a 2-cent jump between 1981 and 1983.

Yet it has remained unchanged over the past 26 years.

The steady rise in rates over the first two-thirds of the sales tax’s history stemmed partially from the fact that growth in demand for public services generally tracked growth in personal income, while retail sales steadily shrunk as a portion of the overall economy (from 32% of total consumer spending in 1959 to only 26% by 2000), primarily due to our ongoing shift from a manufacturing to a service and information based economy.  State government simply couldn’t meet the demands of our growing economy without periodically raising the sales tax rate, and at times, expanding its base.

But since 1983 the rate has been frozen at 6.5%, and with inevitable results.  Over the past decade and a half Washington state’s personal income has grown by 225%, while state sales tax revenues have increased by only 198%.  And for a state that relies on the sales tax for over half its general fund revenues, that is a recipe for a structural budget deficit.

Contrary to the Eymanesque meme of out-of-control government spending, state taxes and expenditures are steadily declining both per capita, and more importantly, as a percentage of the total economy.  Sure, our severe recession has exacerbated and accelerated the problem, but it was always there lurking beneath the ups and downs of the economic cycle.  Already even with Mississippi in terms of state and local tax burden, and contemplating drastic cuts in our social safety net, Washingtonians can no longer put off the tough questions:  are we willing to raise our taxes to help maintain the level of services and quality of life we’ve come to expect, and if so, how?

The easiest and quickest solution would be to raise the sales tax, which would immediately generate additional revenue with little administrative overhead.  But a 1 cent increase only raises an additional 2 billion dollars over the next biennium, enough to fill but a portion of the remaining budget gap, and recent polls show an increase even a fraction of that size is extremely unpopular amongst voters.  And with WA already laying claim to the most regressive tax structure in the nation, and combined state and local rates now topping out at 10 percent, it’s not hard to understand why.

The other solution—the one I’ve been relentlessly plugging for weeks—is a high-earners income tax, that depending on the plan, would only tax the top .1% to 4% of households.  The very households, it turns out, who have benefited most from our state’s economic growth over the past couple decades.

Over the past decade the average income of the wealthiest fifth of Washington families has increased $14,136, from $119,954 to $134,090, while real incomes of the poorest fifth and middle fifth have remained flat, or even declined.  And the disparity only grows when looking back a further decade.

Again, lower and middle incomes have remained relatively flat, while the top fifth of households have seen their income grow 41%, from $94,930 to $134,090.

Add to this growing income inequality our profoundly regressive tax structure, where the bottom fifth of households pay 17.6% of income in state and local taxes while our top 1 percent pay only 3.1%, and the argument for an income tax appears clearly grounded in both fairness and mathematics.  It is the wealthy who have benefited the most from our state’s extraordinary economic expansion over the past few decades, and the public investment that helped make it possible, and it is the wealthy who clearly have ability to pay.  Meanwhile our lowest income households are already struggling to pay what amounts to the highest state and local taxes in the nation, all the while seeing their real incomes stagnate or decline.

Coming up soon:  why taxing the rich has less of an anti-stimulus effect than cutting government spending.

Thanks to a steep drop in sales tax revenue, Seattle’s new fiscal forecast is bad and getting worse, with a $29.5 million decline in revenue now projected for 2009, on top of the $13.3 million actual revenue decrease in 2008.  And that’s good compared to 2010, where a “squishy” forecast now projects another $41 million drop in revenue.

As a result, the Council and the Mayor need to cut $43 million in expenses between now and the end of the 2009 fiscal year, plus God knows how much in 2010.  It won’t be easy.  But I suppose, it could be worse.

$43 million amounts to roughly 4.7% of the city’s annual $912 million budget, and I’m guessing a big chunk of that gap will be filled by drawing down the city’s $30 million rainy day fund.  But while I don’t envy the folks who will be asked to make these cuts, it’s a walk in a slightly underfunded park compared to the crisis facing the state:

While the city’s budget troubles are serious, Dively said they are not as bad as the situation state lawmakers face in trying to backfill a $9 billion deficit to a $35 billion two-year spending plan with cuts and possible tax increases. That’s because sales tax alone amounts to more than 50 percent of the state’s general fund revenue.

“While you’ll see that we have a significant budget challenge, it’s nothing what like the state has. The state’s is far worse than what we’re talking about here,” Dively said.

By comparison, sales tax revenues account for only about 20% of the city’s general fund, but shhh… let’s not talk about the state’s structural revenue imbalance, as it interfere’s with the popular meme that the budget crisis is largely the result of out-of-control spending.

Nope, Seattle Times Publisher Frank Blethen doesn’t do yoga.  How else to explain this editorial?

YOGA studios ought to be subject to the retail sales tax imposed on all physical-fitness services.

[…] Personal services are a growing segment of the economy, growing much faster than other types of retail trade. Yoga businesses have been in a catchall of services that include motivational speakers. It is time to quantify them and put them in the proper tax code.

So… um… if the sales tax were to be extended to yoga studios, how would this not be one of those dreaded tax increase thingies that the Times so resolutely opposes?

Of course, it would be a tax increase, and an absolutely reasonable one.  As even the Times points out, personal services are becoming an ever larger portion of our post-industrial economy, while retail trade proportionally shrinks.  For that matter, business services (accounting, legal, consulting, etc.) are growing much faster than retail as well.

The result is that our sales tax—WA state government’s largest revenue source—is levied on an ever smaller portion of our economy, year over year, creating a long-term structural deficit that simply cannot keep pace with either economic growth or the lockstep growth in demand for public services.

So in a state that insists on remaining one of the few in the nation to resist an income tax, it’s not just yoga studios to which the sales tax needs to be extended, but most other personal and business services as well.  And if the thought of that ties Frank up in knots, I know a yoga instructor who can help.

UPDATE:
As long as Frank’s paper is lobbying to extend the sales tax to other businesses, we might want to consider eliminating the current sales tax exemption on newspapers.  I’m just sayin’…

The Seattle Times editorial board urges Gov. Gregoire to be “careful” regarding the state budget…

Its additions were modest, and the $0.015 billion the governor vetoed was helpful in that regard. So was the $0.85 billion ending savings account. But these changes were on the top of a total — $33.7 billion in a two-year cycle — that was not modest. In four years, state spending has risen by 33 percent. […] Some of this spending was necessary. But the across-the-board spending has meant the state was not able to lower taxes in any substantial way.

Yeah, well, there are reasons to be careful regarding the state budget in the face of an antiquated tax system that virtually assures a longterm structural deficit, but not for the reasons the Times suggests. Indeed, every time they trod out Rossi’s intentionally misleading “33 percent” number — without offering readers the appropriate budgetary context — the Times does a great disservice toward the cause of fiscal stability.

Yes, the state budget has grown by about a third over the past four years, and no, that rate is not sustainable when compared to longterm budget forecasts, but our state government’s growth has absolutely been “modest” by any meaningful economic measure. In fact, a January 2007 analysis by the Washington State Budget & Policy Center clearly shows that general fund spending under Gov. Gregoire has merely followed the same trend established during the 1990s.

The Times would have you believe that it was the spending increase under Gov. Gregoire’s watch that is the anomaly, when in fact it was the slower spending growth during the national recession and tepid recovery that actually fell below historical growth levels. Gov. Gregoire’s budget merely returned the state to the established trend.

Indeed, as a share of the total state economy, Gov. Gregoire’s budget actually represents a reduced investment — a smaller share of state resources than any of the six budgets that directly precede it.

Anti-government/anti-tax critics can spout all they want about rising spending and per-capita tax increases, but those numbers are entirely meaningless when taken out of context… as they usually are. Read the academic literature and you will find that the most common metric used in comparative studies of government spending, and for analyzing the relative growth of both expenditures and revenues, is spending/taxation as a percentage of personal income.

The reason is twofold. First, the economic metric that most closely tracks long term growth in demand for government services is growth in total personal income. That is because many of the services provided by the government are commodities, and as personal income increases, so does consumption. As our state grows wealthier, demand for government services increases faster than population plus inflation.

The other reason to focus on personal income is that it is the only metric that tracks individual taxpayers’ ability to pay. The state invests in things like transportation and education and law enforcement — investments that provide the infrastructure necessary for our economy to grow and for all our citizens to prosper. Thus a spending increase, even when accompanied by an increase in marginal tax rates, does not increase the real burden on individual taxpayers if it results in a corresponding increase in personal income.

So how does our state stack up in terms of state and local taxes as a percentage of personal income? Again, according to the Budget & Policy Center, Washington currently ranks 36th nationwide… and falling.

There is a legitimate debate to be had over the proper size and scope of government, and the priority in which we make public investments, but it is fundamentally dishonest to enter this debate by reinforcing the common misconception that our state government is out of control, when by the most meaningful measure — the government’s total share of our state’s economic resources — even a four-year 33-percent increase represents a decline from historic trends. And it is equally dishonest to profess a concern for fiscal responsibility by focusing solely on budgetary expenditures while refusing to address the revenue side of the equation.

Washington state not only boasts the most regressive tax structure in the nation — one in which the bottom 20% of wage earners pay a whopping 17.6% of income in state and local taxes while the wealthiest pay only 3.1% — our tax system is also based on an antiquated, early 20th century model that over-relies on an ever shrinking portion of our 21st century economy: the manufacture and sale of goods. Economic booms can mask this structural deficit in the short term, but because our economic growth is increasingly occurring in sectors that remain un- or under-taxed, longterm revenue growth simply cannot keep pace with growth in demand for public services… at least not without raising marginal tax rates, shifting an ever greater burden on exactly those families who can least afford it.

The Times and other critics have repeatedly cautioned about unsustainable budget growth while refusing to articulate which programs and services they would see slashed, or displaying an ounce of willingness to discuss the kind of fundamental tax restructuring that might allow state and local government revenues to reliably keep pace with both economic growth, and with the growth in demand for public services. If the Times editorial board wants a smaller state government — if they want to see less per capita real dollars spent on education, transportation, law enforcement, children’s health care, and other essential services — they should just come out and say it; we would all benefit from an honest debate. But the sort of disingenuous budgetary “concern trolling” they display in today’s editorial adds absolutely nothing to the discussion.

Article IX, Section 1 of the Washington State Constitution is pretty damn clear:

It is the paramount duty of the state to make ample provision for the education of all children residing within its borders, without distinction or preference on account of race, color, caste, or sex.

“Ample” is not synonymous with “adequate” — it means “more than adequate,” “abundant,” “liberal” or “copious.” And a “paramount duty” is one that is “chief in importance or impact”… “above others,” and “superior in power or jurisdiction.”

Attorneys might semantically nitpick over the subjective meanings of these words, but us normal folks understand that when our per-student education funding ranks amongst the lowest in the nation, our state can’t possibly be living up to the spirit of Article IX, Section 1.

A suit was filed last week challenging the state’s inadequate funding of K-12 education, and I agree with the Seattle P-I editorial board’s assessment:

While it is regrettable that public dollars will need to be spent on lawyers, experts and depositions, it is more important that words in our state constitution have real meaning. The state can’t win this suit. One way to limit legal expenses would be to negotiate a settlement that honors the words and intentions of the state’s founders.

But it is not enough for our state’s editorialists to simply join the civic-minded chorus demanding more education funding. It is time they start laying the groundwork for the type of tax restructuring necessary to assure that the state has the resources to live up to its paramount duty.

Gov. Christine Gregoire’s new budget already provides several hundred million dollars more for education. But even though this is still at least a billion dollars a year short of the mark, her spending “increase” has already generated faux outrage by those who either refuse to, or are incapable of understanding the true nature of our state’s long term structural budget deficit. It’s not state spending that is out of whack — it continues to steadily decline as a percentage of the overall state economy. The problem rather, is the antiquated, early 20th Century hack of a tax system that simply cannot grow revenues at a pace sufficient to keep up with the demands of our post-industrial service economy.

Both the governor’s mansion and the state legislature are controlled by Democrats. Does anybody really believe that the Democrats wouldn’t spend amply on such a popular item as K-12 education if they had the money to do so? For all the recriminations we continue to focus on the wrong end of the problem, and the Democratic leadership is just as guilty as the obstructionists across the aisle.

We need to start having a grown-up, mature and informative debate about tax restructuring. We need to be willing to broach the idea of an income tax without fear of political retribution.

But we’re never going to get that debate unless our state’s editorial pages start leading the way.

Well, so much for “fair and balanced” journalism. The Seattle Times objectively reports on Gov. Christine Gregoire’s budget proposal:

Shortly after the November election, when it was clear Democrats would hold overwhelming majorities in the Legislature, Gov. Christine Gregoire vowed to keep lawmakers on a “fiscally prudent” path and to impose discipline if needed.

Now, some people hope legislators can restrain the governor from embarking on a $4 billion spending spree.

There is absolutely nothing objective about this lede. Perhaps it was poorly phrased, but whatever the intent, the Times’ mischaracterization of Gov. Gregoire’s budget as a “spending spree” will be understood by most readers as a statement of fact. Furthermore, by presenting the Governor’s proposed budget in opposition to her previous vow to be “fiscally prudent,” the Times clearly implies that she is not.

This is the Republican frame, and the Times reporters have swallowed it hook, line and sinker. The lede is also entirely consistent with the equally leading headline: “Governor’s big spending plan: Can we afford it?” The spending plan? Big. Can we afford it? Well, if you have to ask the price….

Don’t bother reading beyond the headline and the first couple paragraphs (and understand that most readers won’t,) the very language of the Times’ reporting serves to reinforce a frame that has been decades in the making. And as George Lakoff famously observes, if the facts don’t fit the frame, most people discard the facts and keep the frame.

As I have insisted many times before, there is a legitimate debate to be had over the proper size and scope of government — but “reporting” like this makes such a debate impossible. This article is based on an assumption — that projected budget deficits are due to profligate government spending — an assumption that if left unchallenged and unrefuted virtually assures the status quo: a government that continues to fall further and further behind its obligations.

The article also presents a faulty and simplistic methodology for measuring government growth. Nobody is arguing that the state government isn’t growing larger in terms of total employees or dollars spent. But these measurements are meaningless when presented outside the context of growth in the overall state economy. Indeed, despite its 12.2 percent growth, Gov. Gregoire’s biennial budget actually represents a smaller percentage of our state economy than any of the six biennial budgets that precede it.

Think about it. If state spending were to double over the next decade, but the state economy were to grow at twice that rate, then the government would effectively shrink in half when measured as a percentage of the overall economy. And since the metric that most closely tracks growth in demand for government services is growth in personal income, this smaller government (relative to the overall economy) would grow increasingly incapable of meeting the demands placed upon it.

Thus, if you are a proponent of smaller government, do nothing, for without substantial tax restructuring a smaller government is exactly what we are going to get. This is because our current tax system is structurally incapable of growing tax revenues at a pace equal to growth in the overall economy, because we tax a smaller and smaller portion of our economy every passing year.

That is a fact.

But you won’t read this fact in the newspaper. That’s because this fact is wonky. It’s complicated. It’s difficult to understand and explain.

And it doesn’t fit the frame.

Here is the truth about the Seattle Public Schools plan to close a bunch of elementary schools. It has very little to do with saving money. It has everything to do with increasing revenues.

That’s a fact.

If our local editorialists who have been so quick to back up the district’s plans would actually talk to some district officials — off the record — they will be candidly told that the district never expected to save much money, if any, from this round of closures. What the architects of closure policy will tell you is that if the district complies with demands from state legislators to consolidate schools — thus making a show of fiscal responsibility — they believe the district will be rewarded with a big pile of state money.

Again, that is fact.

Indeed, Superintendent Raj Manhas’ preliminary closure plan has reduced savings estimates to a little over $2 million a year, and it’s fair to be skeptical even of that. With half that money being reinvested in the remaining schools, we have only about $1 million a year towards closing our long term structural budget deficit… barely a drop in the bucket.

Again, facts.

I am being asked to disrupt my daughter’s education and sacrifice my neighborhood school for the good of all the children… when really, from the start, this closure plan has mostly been about providing political cover for gutless legislators who refuse to make the tough choices necessary to fully fund basic K-12 education statewide.

You’d think there was a story there that the local media might be interested in pursuing? Apparently not.

The front page of Sunday’s Everett Herald featured a story about the Snohomish County town of Gold Bar, and how it is struggling to stay incorporated in the aftermath of tax-cutting initiatives. [Cash-strapped town could fall off the map]

The reason Gold Bar and numerous other cities around the state are struggling financially can be traced to the passage of the car tab initiative in 1999, which lowered licensing fees to a flat $30 rate. Since then, Gold Bar has lost about $707,000 in revenue, according to the Association of Washington Cities. That loss is bigger than the city’s 2005 general fund of about $508,000. The city already has tightened its belt, cutting expenses on staff training, laying off staff and restructuring the police service contract with the county, which has saved the city about $194,000, said Hester Gilleland, the city’s clerk and treasurer.

Gold Bar Mayor Collen Hawkins realistically acknowledges that the deepening financial crisis could force the town to disincorporate, forcing Snohomish County to take over services. Residents would lose local control of local services, while facing uncertainty over who would run the local water system, which counties are simply not set up to do.

And they’ve got nobody to blame but themselves.

Hawkins said she finds it ironic that even she voted for Initiative 695 – the major cause of the city’s financial headaches.

The town’s registered voters supported the initiative by a vote of 354-138. Courts eventually struck down the measure, but state lawmakers heeded the will of the people and adopted $30 license tab fees anyway.
…
In 2002, voters approved a second car-tab initiative, which eliminated a $15 license registration fee that Snohomish County and several other counties had been charging. That money was earmarked for street repairs. As a result, the street fund in Gold Bar dropped from $17,200 in 2002 to nothing in 2004, Gilleland said.

“Even though these initiatives are appealing, they are giving a death warrant for local government,” Hawkins said.

Some might argue that these are the unintended consequences of ill-conceived initiatives like I-695, but I’d say it was intentional. While many voters — and even some mayors — didn’t realize the local impact of these statewide measures, many of their strongest and most vocal proponents knew exactly what they were doing.

We are witnessing the gradual devolution of state and local governments. Small towns across the state will be forced to disincorporate as tax revenues continue to dry up, possibly pushing some Eastern Washington counties into insolvency as they struggle to provide additional services.

Meanwhile, the structural deficit built into our antiquated state tax system has created a cycle of perpetual, multi-billion dollar budget gaps that makes it impossible for Olympia to lessen the blow, or assume more of the burden itself. When Republicans talk about cutting government waste, they’re no longer talking about making government more efficient, they’re talking about cutting programs entirely. They’re not interested in convincing the public to embrace a dramatically smaller and limited form of government… they know that if they just sit back and patiently defend the status quo, they will achieve this vision, with or without public support.

It is time for the Republican leadership to come clean about its agenda. If they don’t believe in shuttering city halls across the state, if they don’t believe in denying health care to tens of thousands of children, if they don’t believe in mediocre public schools and a university system that can’t possibly grow to meet the needs our rising population… then they need to tell us how they intend to pay for these and other basic services without raising taxes. But if what they truly believe in is minimal government and zero regulation, then they need to let voters decide on this agenda for themselves, instead of dishonestly relying on our broken tax structure to enact it by default.

Andrew Garber has done an excellent job in today’s Seattle Times, of explaining in layman’s terms why it is the state government faces cutting services, even as existing taxes are producing an estimated $1 billion in additional revenues over next two year budget: “State budget writers tangle with high cost of just standing still.” I hope the Times doesn’t mind if borrow one of their graphics, to help explain:

What we have is a “structural deficit,” where the costs of maintaining existing services at current levels are rising faster than tax revenues. The economic figure that most close tracks growth in demand for public services, is growth in personal income, yet because our tax structure is so heavily dependent on sales and excise taxes (only New Hampshire is more dependent on a single tax) government revenues simply cannot keep up with demand.

Excise taxes, like those on gasoline, alcohol and tobacco, are taxes on volume, not price, and as such rise slower than consumption over time, as inflation raises the price of the product and eats away at the value of the dollar. For example, while the Legislature added a nickel a gallon to the gas tax last year, the gas tax is now half what it was a couple years ago as a percentage of the retail price. While that is a dramatic example, it illustrates the impact of inflation on excise taxes in general.

The general sales tax, which is by far our largest source of revenue, also becomes less adequate over time, for a number of reasons, not the least of which being that we only tax goods… an ever decreasing portion of our post-industrial service economy. At the same time, inflation, particularly in health care, is hitting the state budget much harder than it is the private sector.

Nowhere is the state’s inflation problem better illustrated than in health care, which has been described as the “Pac-Man eating the state budget.”

For example, a single dose of Avinza, a prescription pain-relief medication, jumped $72 in the past year to $208 a dose. The cost of an electric hospital bed went up $101, to $1,407. And the cost of a wheelchair increased by $98, to $2,366.

Add cost and caseload increases to expected cuts in federal Medicaid spending, and the state suddenly finds it needs about $695 million in additional funds over the next two years to maintain existing health-care services for the poor.

Some would argue the solution is to simply cut health-care services for the poor. But even if one were to follow such a Hobbesian policy, it would end up costing our economy more, not less. Poor people will continue to get sick, showing up at emergency rooms at more advance stages of illness, when treatment is more expensive, and shifting the costs to the rest of us. Whatever savings we might see in lower taxes will more than be eaten up in higher insurance premiums.

And the inflationary pressures aren’t just limited to health-care:

To maintain existing levels of service, the state needs to come up with an additional $90 million to pay for prisons over the next two years, $164 million to run colleges and universities, $383 million for public-employee pensions and $444 million for public schools. That doesn’t include pay raises or benefits increases.

Of course, Republicans argue that the solution is simply to reign-in spending, but their usual metaphors fall flat. Running a government is not like running a business, or balancing your household budget. Increasing class size does not make teachers more productive, and we just can’t cut federally mandated “No Child Left Behind” requirements, like a family might cancel cable TV.

Indeed, the whole anti-tax movement that is partially responsible for our perpetual budget crises, has government finances exactly ass-backwards.

After all, people want the services, said Senate Majority Leader Lisa Brown, D-Spokane. Perhaps the true question is, “how much [money] do we need, to do what we want to do?”

Exactly!

We levy taxes to provide the services voters want; we don’t provide services simply to spend the tax dollars we have. What’s missing from the debate is the real debate… the debate over the proper size and scope of government. Republicans don’t want to have this debate because they know they’ll lose, and because they know that without the debate, we’ll just continue continue hobbling along with the status quo, gradually defunding and eliminating government programs, until their dream of a libertarian dystopia is achieved by default.

In the end, Washington state will be faced with the choice between implementing an income tax… or becoming Mississippi. There are many in the Republican leadership who would greatly prefer the latter.