Earlier this session, when brand new Gov. Jay Inslee's jobs proposal landed with a thud, failing to focus the debate on the economy around his ideas, we made him our Capitol Newsmaker of the Week precisely  because the non-newsniness of his lackluster pitch was, well, newsworthy. This week, he’s earned the top newsmaker spot in earnest for releasing a budget outline that has not only reframed the debate, but has thrown down a gauntlet for the Republican-dominated Majority Coalition Caucus in the senate when it comes to the defining issue of the session: Meeting the Washington State Supreme Court's McCleary mandate to fund basic education.
 
In a year when the Legislature is also looking at a steep budget shortfall, writing the new budget under the McCleary mandate is a tricky proposition.

Throughout the session, each party has nudged and elbowed via press release and public hearing to be the real champions for education funding—a joint task force has recommended adding $1.4 billion to the roughly $16 billion baseline to meet the Court's mandate (phasing up the funding over the following two biennia)— but no one has committed to a hard funding number.  

Enter Inslee. His proposal would put $1.26 billion more toward education (above the baseline funding)—efficiently targeting the money at specific programs. The biggest initiatives would help high-poverty schools, including $116 million for all-day Kindergarten and another $128 million to ensure Kindergarten and first grade students in poor districts learn in smaller classes. His proposal would mean the state would start paying the full cost to transport students to and from school—a key element of proving to the state Supreme Court that the legislature is making real progress toward their funding mandate. And his budget also includes $90 million for every-other-week professional development sessions for teachers and principals. Smaller dollar initiatives include an effort to improve third grade reading statistics and reduce the drop out rate.

Enter Inslee. His proposal would put $1.26 billion more toward education (above the baseline funding)—efficiently targeting the money at specific programs. 

To pay for all this, Inslee is proposing scaling back and outright ending a batch of tax exemptions. Among them: He's proposed limiting the trade-in exemption for cars and boats, which would bring in an estimated $95 million over the two-year budget cycle. He's also proposing closing the out-of-state sales tax exemption, adding about $64 million. And he's targeting exemptions for bottled water and residential phone service, as well as trimming tailored B&O tax exemptions for dozens of industries. In addition to closing tax exemptions (valued at $565 million), he’d extend taxes on beer and some service professionals (doctors and lawyers among them) that were enacted during the recession but scheduled to end this summer. That move is worth $661 million.
 
During his media availability, Inslee painted the budget not only as a moral document, as his predecessor, Gov. Chris Gregoire, had done before him, but also as a binary decision between kids and loopholes. “I believe we should all choose education over tax breaks and to make good on our constitutional and moral duty to quality schools.”
 
Until this week, the MCC’s education message that additional funding must be targeted and accompanied by substantive reforms has dominated the discussion. But Inslee’s proposal beat them to it. And that changes things. Before this week, a proposal of, say, $800 million more for schools would have seemed substantial. Now, such a proposal, particularly when the MCC money is contingent on reforms they pushed that could mean flunking a 9-year-old, may seem simply stingy.
 
So, the question the MCC faces: Do they match Inslee’s proposal? If so, they also have to include more for higher education, as they’ve already hammered him for including modest tuition increases of three to five percent. And, of course, they’d have to do it all without new revenue.

So the question the MCC faces: Do they match Inslee’s proposal?
They could walk back on their no-tax pledge to make ends meet, but comments made by senate Republicans on Thursday indicate they’ve doubled down. Senate Republican leader Sen. Mark Schoesler (R-9, Ritzville) said of Inslee's budget yesterday: "He's going to showcase tax hikes. We're not"—and accused Inslee of setting up a fake choice between funding kids or handing out tax breaks. Schoessler said Inslee was actually making a choice between raising taxes or cutting benefits for "bureaucrats."

 

Republican Sen. Mark Schoesler

 

In addition to Republican resistance (and they seemed most perturbed about ending the trade-in exemption yesterday), Inslee's proposal faces two big hurdles: First, given the 25 percent across the board cut to tax exemptions for tailored B&O rates to about 40 industries (as varied as travel agencies to ag products), not to mention the powerful car dealer industry, it's clear there will be an army of resistance. Second, keep in mind: Inslee was elected after a year of campaigning on a no-new-taxes pledge. Though he said during the campaign that he would close loopholes, he didn’t mention extending existing taxes set to expire.

“Things do evolve when you have a cold reality check on the numbers,” Inslee said yesterday pointing out that things such as medical assistance caseloads, long-term care caseloads, and statewide population have outpaced general fund state revenues. In real dollars, for example, revenues have declined 7.8 percent since 2008, he said, while people needing medical assistance has grown 25.5 percent. "We're a growing, aging state in a tough economy," he said.

He concluded: "I said that I was going to do three things when I was running for governor. I was going to increase funding for education over a billion dollars, and I'm doing that. I said that I would close tax breaks to make sure that we did do that. I said I would do that without increases in existing tax rates. I'm doing that."

"When we made that decision, we didn't have McCleary," Hunter said. "McCleary is a game changer. We've hit a tipping point."

And here's what Inslee has going for him: judging from their response yesterday—with some tinkering around the edges—the house Democrats are all in on the idea of closing tax loopholes and raising new revenue. Advancing the ball for Inslee yesterday, the chief house budget writer, appropriations committee chair Rep. Ross Hunter (D-48, Medina), said the legisltuare made the decision for temporary beer taxes and B&O surcharges in a different context. "When we made that decision, we didn't have McCleary," Hunter said. "McCleary is a game changer. We've hit a tipping point."

As for closing tax loopholes: Hunter said Inslee's proposal "reflected the values of our caucus." Hunter's house budget colleague, finance chair Rep. Reuven Carlyle (D-36, Queen Anne), indicating house Democrats were also going to close tax loopholes, added that the budget they're working on would make extensive use of the Joint Legislative Audit Review Committee (the legislative committee that reviews tax breaks).

This isn't surprising rhetoric from liberal Democratic budgeters. But now the governor is driving the conversation.

 

Flanked by students from Seattle's Cleveland High School yesterday, Inslee said: "I don't think I will have difficulty talking about the wisdom of investing in the education of our kids," after reporters challenged him about making temporary taxes, such as the 50 cent per gallon tax on beer, permanent.

"If you go down to Cleveland High School, and you go down to their to their applied science class, and you see what's going on at that lab, I don't think any citizen is gonna walk out of there and say, 'Gosh this beer thing was only supposed to be temporary, let's shut down this lab.' I just don't know any good beer drinker that's gonig to take that position. Because the fermentation that's going on in that lab is the fermentation of some genius ideas of some young minds. And that's the fermentation, we oughta be focusing on. And the public will see the wisdom of investing in these kids."

—Additional reporting by Josh Feit

For the session's previous Capitol Newsmakers of the Week start here. Not that we're keeping score, but the tally so far is six Democrats to five Republicans. (We didn't award a Newsmaker of the Week for Week six—and Week nine was a tie.)