State Relations

June 19, 2007

Taxes and Spending: How Does Washington Measure Up?

I’m still “on call” for jury duty but haven’t been summoned to the courthouse today so I thought I’d post a couple of items you might find interesting.

The state Department of Revenue (DOR) issued a press release yesterday that indicates that Washington residents pay less state and local tax relative to their incomes than residents in 36 other states, according to U.S. Census Bureau figures for Fiscal Year 2005.  Washingtonians rank 37th nationally paying an average of $105.91 in taxes for every $1,000 in personal income compared to the national average of $112.94.

According to DOR this is the lowest ranking for the state since the severe recession of 1981 when the state dropped to 39th.  Washington ranked as high as 11th in the nation in 1998, chiefly because of rapid personal income growth resulting from the “dot com” boom.

And although you’d never believe this judging by the angry letters to the editor I’ve been reading around the state, Washington also fell below national averages in property taxes too.  Property taxes dropped to $30.60 per $1,000 of personal income in Fiscal Year 2005, placing Washington 28th nationally, the same as the prior year.

On the spending side, the Washington Research Council issued a report this past March titled “Trends in State Spending” that looks at the last ten years of state budget expenditure patterns. 

The Council studied “near general fund-state” spending or “NGFS” for short.  This includes the familiar state general fund and eight additional accounts which are similar to the general fund in that the revenue sources are somewhat the same.  These other accounts include the health services account, the student achievement account, the education legacy trust account, the public safety and education account and its equal justice sub-account, the violence reduction and drug enforcement account, the water quality account, and the pension funding stabilization account.

So, what did the Research Council report conclude?  Since 1997-99, the state budget has been dominated primarily by human services spending with most of the growth concentrated in the areas of health care and corrections.  This growth has come primarily at the expense of education (K-12 and higher education) which is the other major category of NGFS spending.

In 1995-97, education represented about 57% of all NGFS spending.  By 2005-07, that percentage share had declined to about 52%, with most of the residistribution going towards the human services spending category.

Within the education category there were some interesting findings as well.  In four of the the six biennia covered in the study, NGFS spending on higher education grew a bit more than overall NGFS spending.  The exceptions were the two biennia affected by the recession — 2001-03 and 2003-05 — in which state spending for higher education actually declined.

The report also conculed that NGFS spending for community and technical colleges grew at a significantly greater rate (or fell at a lower rate) than NGFS spending for four year schools, although the fastest growing segment in all higher education is the Higher Education Coordinating Board due to increased financial aid appropriations.