OLYMPIA – In laying out his vision for restructuring state government last week, Republican gubernatorial candidate Rob McKenna pointed to a projected rise in tax revenue as an indication that Olympia is not short on cash.
“Even in this economy, the state is expecting 7 percent more tax revenue in this new biennium than in the last — over $2 billion more than in the last budget,” McKenna said. “I don’t know too many families that are expecting their incomes to go up by over 7 percent, or too many companies expecting revenues to grow by that amount. The problem isn’t the revenue — it’s the spending.”
Is it true that tax revenue is on the rise? It depends how you look at the numbers, both currently and historically.
The figures that McKenna cites are correct: The state is currently projected to bring in $2 billion more in the current two-year cycle than in the last one. If it happens, the state will raise more cash than in any other budget period in state history.
However, those numbers are based on projections of economic growth in 2012 and 2013, so if the economy remains stagnant, as some predict, the tax revenues will continue lagging, too. Arun Raha, the state’s chief economist, said there is a 40 percent chance of the state missing those revenue numbers to the downside — hampered by problems in Europe and political gridlock in the nation’s capital.
“The outlook remains very uncertain,” Raha said.
The projected growth also follows a 10 percent decline in state revenues in 2009 and a 4 percent decline in 2010. Even if the influx of cash comes in as high as projected, the state will have about the same amount of revenue in 2013 as it did in 2007 — while the government will be servicing 3.3 percent more K-12 students and even higher caseloads in social services programs.
Moreover, when accounting for the state’s population and economic growth in recent years, state revenue has been on a steady decline.
In 1995, the first year comparable information is available, the state brought in almost 7 cents for every dollar of personal income in Washington. That has dropped to less than 5 cents, according to state data.
If state revenue had kept pace with the income of residents over the past two decades, Washington would collect enough money to have a $10 billion budget surplus in the current cycle. Instead, the state faces a $1.3 billion shortfall and is examining further cuts in education.
State figures accounting for population also indicate weak revenue in recent years compared with past ones. Real per-capita data, which removes inflation from calculations, shows the state’s revenue per person to be about the same as it was in 1995.
The tax and spending discussion is expected to be a critical one as the state goes into 2012 — in both the Legislature and the governor’s race. Some Democratic lawmakers have talked about offering some sort of tax package for voters to offset widespread budget cuts that are expected to include further reductions in education funding.
McKenna would like to increase funding for education by finding savings in other parts of state government.