The Facts Behind Washington State’s I-884

Initiative 884 will raise the sales tax by one billion dollars per year with the intention of increasing spending on education programs from preschool through higher education.

Economic Impact

This initiative will raise the state retail sales tax rate 15.4%; from 6.5% to 7.5%. This does not include local and special sales taxes that combined will make the sales tax nearly 10% in most parts of Washington.

● Currently, the states with the highest sales tax rates in the country are Mississippi and Rhode Island at 7.0%. There is 0% sales tax in neighboring Oregon and 6 % in Idaho. Increasing the sales tax will drive people out of the state and to the internet to purchase goods, particularly big-ticket items.

● A sales tax increase is regressive and would have the largest impact on Washington residents with the lowest incomes. Our state’s tax system is already rated the most regressive in the country with low- and middle-income families paying a far higher share of their incomes in state and local taxes then do the richest. (Institute on Taxation & Economic Policy)

● A tax increase of this size will have a measurable and negative effect on job creation and investment; short-term effects include a decrease in private-sector job growth, an increase in the cost of living and a drop in per-capita personal income. (Washington Research Council, June 2004 – Education Initiative 884: Short –Term Pain for Long-Term Gain)

● The WA retail sales tax is applied to the sale of most tangible personal property with the exemption of food and prescription drugs. It also includes the sale of many services. Individual consumers are not the only ones that will pay this increase. Businesses and state and local governments will pay the new tax on materials for public roads, building construction and improvement, and supplies and equipment.

Accountability

Initiative 884 creates a statutory account for the deposit of the new revenue. The sponsors have named this account the Education Trust Fund but it does not meet the definition of a true trust fund.

● The spending of the new taxes will be overseen by a citizens oversight board consisting of 12 members; eight appointed by the Governor, three by the Governor or state agencies that represent education, and the State Auditor. The Auditor is the only independently elected member of the board and is also the only non-voting member. He is not allowed to do performance audits.

● Most of the dollars will be sent to districts using an allocation model giving the school districts flexibility on how the money is spent. There are no defined outcomes for programs and no consequences in case of failure. (EFF – Can voters trust 884)

● The initiative states that the legislature can not supplant existing education funding with the new revenue. In the first two years after it passes, an initiative can be amended by a supermajority vote of both houses of the legislature. After two years, it can be amended by a simple majority vote. In 2000 and 2001 the legislature used this discretion and redirected funds of three initiatives (I773, I-732, I-728)

Education Spending

The intent of the sponsors of Initiative 884 is to improve education only by allocating additional monetary resources. There is no language in the initiative that would prioritize current state spending, or conduct performance audits or add reforms to current programs.

●The current 2003-2005 biennial state operating budget allocates spending of over $23 billion. Of this, $12.8 billion, or 55%, goes to education programs.

● Due to the passage of previous initiatives, spending on education programs is already scheduled to increase over $1.2 billion in the next four years without the new tax money contained in I-884. Under I-732 the legislature is directed to increase spending on teacher and school employee salaries in 2005-2207 by $492 in the years 2007-2009. Under the provisions of I-728 they are directed to increase spending on classroom size reduction by $710 million between 2005-2009. These figures grow substantially in future years. (Source, Legislative Evaluation and Accountability Program)

● Spending on K-12 education and higher education in Washington almost doubled in real terms between 1980 and 200 while the number of K-12 public students increased by only 32% and the number of higher education students increased by only 2.6%. (WPC)

●Total spent per student including all public funding sources for the 2002-2003 school year was $9,454. This figure was higher than the average private school tuition in every region of the state including the Seattle area. (Source, Washington Policy Center, April 2004)