State taxed with the challenge of keeping up with a robust economy

Writing the next state budget is going to be a taxing experience.

Figuratively and actually.

That’s the distinct impression Gov. Jay Inslee left in a conversation Tuesday with The (Everett) Herald’s editorial board.

Washington’s super-charged economy, one of the best in the nation the last three years, is not generating enough revenue to cover the demand for services from the state’s growing population, he said.

“We are about one-and-a-half billion dollars under water going into the next biennium,” Inslee said. That’s the projected deficit before putting in more dollars to improve the mental health system, expand early childhood education and do “some of the other things we’d like to do,” he said.

Inslee’s approach for making ends meet will be revealed in December when he proposes a budget for the two-year period that starts July 1, 2019. Lawmakers will consider his effort in the course of drafting their own spending plan in the 105-day session beginning in January.

While the state’s reserves are projected to be around $3.2 billion by June 30, not every one of those dollars can be tapped.

Roughly a third will be socked away in the Rainy Day account, accessible only with the support of a super majority of lawmakers. Of the remainder, a good chunk is getting counted on to ensure all the McCleary obligations for public schools are met.

Lawmakers won’t find many places to trim spending because there a lot of things neither party would do, Inslee said.

“Legislators are not going to be able to go back and cut educational funding,” he said. “They are not going to be able to defund the transportation system. They are not going to close state parks. They are not going to shut down the state patrol. So they’re going to have to look for money from other sources.”

That literally translates to taxes – all of which makes who crafts the next state budget an important subject in this election.

When the second-term Democratic governor speaks of needing revenue and lacking options for generating it, odds are likely new or higher taxes will be in the mix. They have been in his previous budget plans.

Already, Superintendent of Public Instruction Chris Reykdal has called for a capital gains tax to boost funding for public schools. And Democratic leaders in the House and Senate – who are expected to enlarge their respective majorities in the Nov. 6 election – are said to be designing their own capital gains tax offering.

Inslee knows it’s hard for the public to understand how state leaders could possibly be confronting a deficit and considering taxes in such good economic times. It’s because the method of funding state government is outdated and expanding segments of the economy are not taxed, he said.

“Our revenue system is designed for a Model T economy in an Internet Age,” he explained. “The things that are growing, which is the service sector, are not taxed. The things that are shrinking, which are the sales of goods in Big Box stores, are taxed” but those revenues make up a dwindling percentage of the state’s tax receipts, he said.

Inslee wouldn’t say if he’ll seek to change the taxing of professional services.

“We don’t know exactly what our proposals will be,” he said. “I am just alerting you to a challenge the legislators will have.”

And now a matter for voters to ponder when deciding who they want tackling it in Olympia.

Jerry Cornfield: 360-352-8623; jcornfield@herald net.com. Twitter: @dospueblos.