Politics & Government

Gov. Jay Inslee proposes $4 billion in taxes to solve school-funding crisis

Gov. Jay Inslee's tax plan to boost teacher pay, fund schools

Gov. Jay Inslee is proposing more than $4 billion in new taxes as part of his plan to boost teacher pay and end Washington state’s unconstitutional way of paying for public schools.
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Gov. Jay Inslee is proposing more than $4 billion in new taxes as part of his plan to boost teacher pay and end Washington state’s unconstitutional way of paying for public schools.

Gov. Jay Inslee is proposing more than $4 billion in new taxes as part of his plan to boost teacher pay and end Washington state’s unconstitutional way of paying for public schools.

The governor’s new two-year budget proposal — which he unveiled at a news conference Tuesday at Tacoma’s Lincoln High School — would rely on about $4.4 billion in new tax revenue, about half of which would come from new taxes on capital gains and carbon emissions.

The governor’s plan also would increase the business and occupation tax for service businesses from 1.5 percent to 2.5 percent, which would raise about $2.3 billion over two years.

Those and other smaller tax measures under Inslee’s plan would substantially boost what the state pays school districts to hire teachers, administrators and other staff, adding about $3.9 billion in total spending on K-12 education.

Most of the tax measures are ones Inslee has proposed before, but that have failed to move forward in a divided Legislature.

Inslee, a Democrat, said he knows the taxes in his budget would be “a heavy lift” for lawmakers when they return to Olympia in January, but “waiting will not make any of these decisions easier.”

“It’s time to end the 30 years of underfunding education. It’s time to get this job done,” said Inslee, referencing school-funding problems that have landed the state in contempt of court.

But Republicans on Tuesday immediately criticized Inslee’s proposal as one that would impose excessive taxes and hurt economic growth.

In a statement, state Sen. Ann Rivers, R-La Center, called the governor’s budget “a plan that would truly pull a massive amount of money out of the economy.”

The “tax hikes he wants would go well beyond what is needed to fully fund education,” said Rivers, who serves on a task force working to address court-ordered school funding fixes.

“The bottom line can’t be good for families and employers across Washington,” she said.

For years, many local school districts have been using revenue from local property tax levies to supplement what the state gives them to pay for teacher and other school employee salaries.

But in the McCleary school-funding case, the state Supreme Court has said providing market-rate salaries for school employees is a state responsibility and shouldn’t be paid for using local levy dollars.

The state is now in contempt of court and being fined $100,000 a day over lawmakers’ failure to come up with a plan to take on those local salary costs by September 2018.

Under Inslee’s proposed budget, what the state pays for a beginning teacher would jump by about $19,000 per year, from $35,700 this year to to $54,587 by the 2018-19 school year. In some small districts that pay only what the state allocates, that could mean a $19,000 raise for teachers, but in most districts teachers would see more modest raises.

Inslee’s plan would increase what the state pays for school administrators even more — from $62,847 per year to $114,612 by 2018-19.

At the same time, Inslee’s proposal would limit school districts’ ability to raise money through their own local property tax levies. Right now, the amount of money most school districts can raise through local property taxes is capped at 28 percent of the money they receive from state and federal sources.

Inslee’s plan would reduce that cap to 15 percent for all school districts in the state.

Inslee’s budget director, David Schumacher, said the governor’s plan wouldn’t result in any school districts losing money, and wouldn’t increase property taxes for people living in any of the state’s 295 school districts.

About three-fourths of people across the state would see their property taxes decrease under the governor’s budget, Schumacher said. For others, property taxes would remain flat, he said.

Unlike some plans that have come out of the Legislature, the governor’s proposal wouldn’t make any changes to the common schools levy, the statewide property tax that helps pay for schools.

The governor said he wanted to avoid increasing the property tax because he thought it would disproportionately affect working people. He said lower-income people in Washington state already pay a higher share of their income to taxes due to the state’s reliance on sales taxes and property taxes.

By contrast, a new tax on capital gains — which includes income from the sales of stocks, bonds and other assets — will affect only a small portion of the state’s wealthiest residents, Inslee said.

“That at least marginally improves the fairness of our system,” Inslee said.

Inslee’s plan would apply a 7.9 percent tax on capital gains above $25,000 for an individual or $50,000 per couple, with exemptions for income from retirement accounts or selling a home. It’s slightly higher than the 7 percent capital gains tax he proposed in late 2014.

The governor’s budget office estimated the tax would affect fewer than 50,000 people out of about 7 million who live in Washington.

The governor’s proposed carbon tax also differs from the cap-and-trade model he proposed two years ago. It would impose a $25 fee on every metric ton of carbon emissions starting in the 2018 fiscal year, and affect a broader group of businesses than his previous proposal, which targeted the state’s biggest polluters, officials said.

Neither idea — taxing polluters or taxing capital gains — advanced in the Legislature after Inslee proposed them before.

Republicans who controlled the state Senate were staunchly opposed to both proposals during the 2015 legislative session. Yet Democrats who had a majority in the state House also declined to bring the measures up for a floor vote that year.

Next year’s Legislature will look largely the same as it did then, with Democrats holding a slim advantage in the state House and Republicans leading a conservative coalition that will control the Senate.

The proposed business-and-occupation tax increase would apply to service providers such as accountants, attorneys, consultants, janitors and real estate agents. The governor’s budget also would expand tax credits to provide tax relief for smaller businesses.

Inslee is expected to release more details of his two-year spending plan Wednesday, including additional information about his carbon tax proposal and how his budget would pay for mental health care needs and homelessness programs.

Melissa Santos: 360-357-0209, @melissasantos1