Office of Planning and Budgeting

We have updated the OPB brief we posted on February 27th, to reflect additional information regarding the employee health insurance related agency reductions. Both the House and Senate budget would decrease agency contributions for employee health benefits. The House budget cuts state funding by $7.6 million and the Senate budget cuts state funding by $4.4 million. However, both of these reductions are offset by lower per employee spending “limits” on benefits. The House budget would reduce monthly employer funding to $658 per eligible employee. The Senate budget would reduce monthly employer funding to $703 per eligible employee.

Leadership in both the House and Senate fiscal committees released supplemental operating and capital budgets this week, proposing technical corrections and appropriation changes to the current 2013-15 biennial budgets (primarily applicable to FY15). Please see the full OPB brief for information on each proposal.

As a reminder, both budgets will be amended in respective committees, and possibly on each chamber floor, before negotiations begin towards a compromise budget.

 

Today’s release of the November general fund state revenue forecast indicates that current biennial revenue is slightly down from September’s projection. The decline is largely due to a technical adjustment which resulted in a $41 million decrease of available funding this biennium, though collections for the current biennium are $16 million over prior projections. The net decrease in November’s revenue forecast is $24 million less than the September revenue forecast.

In other words, new revenue and an offsetting technical adjustment give Governor Inslee a $32.98 million general fund target for his supplemental operating budget, expected in December.

This forecast, once again, does not contemplate any tax revenue associated with the impending sale of cannabis.

It is tempting to copy and paste our post from June’s revenue forecast into this one, as the September revenue forecast cites many of the same themes: continued federal budget instability, rising house prices in conjunction with possible interest rate hikes, and likely economic losses in Asia could disrupt the slow recovery currently underway. However, modest regional employment gains, an uptick in real estate excise tax revenue, and positive personal income growth propelled collections and revenue projections $345 million higher than June’s forecast for the current, 2013-15 biennium.

Interestingly, the 2011-13 biennium closed with an estimated positive variance, $23 million higher than the June forecast.

The Governor will base his 2013-15 supplemental budget on the November forecast, so continued revenue growth will be critical. As in June, the September
revenue forecast did not include tax collections related to the sale of cannabis.

 

On Tuesday, June 18, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of General Fund-State (GFS) revenues. Compared with the March forecast, expected GFS revenues are up $110 million for the current biennium (2011-13) and $121 million for the next biennium (2013-15), meaning legislators have an additional $231 million to factor into their budget negotiations.

While these changes are positive, they represent very minor adjustments. Under the updated forecast, the state is expected to take in $30.65 billion in the current biennium and $32.66 billion in the next, thus the increases represent adjustments of less than 0.5 percent each.

Most of the positive variance came from increases in forecasted housing construction, taxable real estate activity, and Revenue Act taxes. Real estate excise taxes came in $34 million (34 percent) higher than forecasted and Revenue Act taxes came in $54 million (2 percent) higher—exceeding the January 2008 pre-recession peak. Lower than expected inflation and employment worked against these gains, but weren’t enough to negate them.  Although Washington employment has been slowly increasing in most sectors (especially construction), aerospace and government employment are in decline.

It is important to note that much uncertainty surrounds the council’s 2013-15 baseline forecast due to the Federal sequester, Europe’s recession, and China’s slowing economic growth. The ERFC gives its baseline a 50 percent probability and its optimistic and pessimistic alternative forecasts 20 percent and 30 percent respectively. The optimistic forecast is $2.5 billion above the baseline and the pessimistic forecast is $2.5 billion below.

In addition, it should be noted that, like the March forecast, the June update did not assume any revenue from taxable marijuana sales as the Federal Government’s response to Initiative 502 is still unclear.

Some state lawmakers are optimistic that the new forecast will expedite their budget negotiations; however, the two sides’ have a ways to go before the end of the fiscal year on June 30th (12 days from now). “We’ll get closer as a result of this,” said Representative Ross Hunter during a press conference Tuesday morning.

The 105-day state legislative session officially ended this Sunday, April 28th. Unfortunately, the state legislature was unable to reach a compromise on the budget by the end of the session. A significant cause of the impasse is the Washington State Supreme Court ruling that requires the legislature to fully fund K-12 education.  The House budget proposal repeals eleven tax exemptions and extends several other taxes, diverting $1.17 billion into education, while the Senate version cuts several social programs to fund education with $1 billion. Governor Inslee has called a special session, to begin May 13th, in order to pass a compromise budget and to pass legislation on other issues such as universal background checks for gun purchases, the state DREAM act, tougher DUI laws, and the Reproductive Parity Act. When special session begins, all bills that have passed out of the house of origin will be reintroduced in that house and placed on third reading.  Budget writers will stay in Olympia to try to work on a compromise in the next two weeks. As always, we will post any updates on their progress to this blog. Be sure to monitor the UW State Relations blog for updates as well.

Click here to watch Governor Inslee announce the special session. To read more about the proposed budgets and other legislation, check out this article.

House Ways & Means Chair Ross Hunter released the House budget proposal today. Please see the OPB Brief for a complete analysis. Table 1 shows the total funding the UW would receive under the House chair budget, divided into three standard categories: the carry forward level, the maintenance level and the performance level.

The House assumes that the UW will increase undergraduate resident tuition by 5 percent each year, thus making more revenue available. However, the House Chair budget requires that $2 million go toward the College of Engineering, $12 million be used to create a Clean Energy Institute, and a total of $16.5 million of the appropriation be used to support enrollments in Computer Science and Engineering.

As shown in the table below, once recognized additional operational needs are met and once dedicated funds are removed from the equation, the UW is left with almost $10 million less in net new state funding in 2013-15 compared to the previous biennium under the House budget.  Once the potential additional tuition revenue is taken into account, however, the UW fares better under the House budget, even with its spending requirements.  Moreover, the Senate relies on a draconian 20 percent surcharge on international student tuition to generate this additional funding amount.  As mentioned in our previous brief, given that the majority of international students in Washington are enrolled at the UW, this amounts to a tax on UW students. It is expected that the surcharge will lead to a decline in international student enrollments, which could lead to an overall reduction of revenue for the UW.

We are still reviewing the potential impacts of this budget proposal and will provide revisions to the brief as more information becomes available. Once the House chair budget passes the floor (which is expected later this week), leaders of the House and Senate will begin negotiations to reconcile the differences between their respective approaches. It is likely that the UW will not have a clear sense of its actual anticipated state funding level until the end of this month at the earliest.

Senate Ways & Means Chair Andy Hill released the Senate budget proposal today. Please see the OPB Brief for a complete analysis.

Tuition: The Senate Chair budget contains language allowing the Regents to set tuition and fees for all student categories other than resident undergraduates. The budget bill assumes no tuition increases for resident undergraduates; however, UW Regents retain the authority to set tuition rates under HB 1795. It is crucial to note that the budget states that these tuition provisions will be nullified if SB 5883 passes. SB 5883 would require a 3 percent decrease in resident undergraduate tuition for 2013-14.

Compensation: The budget deems the UW’s collective bargaining agreements (CBA) to be financially feasible and restores the 3 percent salary cut imposed on state agencies in the last biennium. We assume the budget lifts the current salary freeze for state employees as it makes no mention of extending it. In addition, the budget assumes savings by changing the definition of “full time” employee to align state employee healthcare eligibility with the federal standard set out in the Affordable Care Act. This is a significant change in policy, and we expect it to become a serious topic of public debate in the weeks to come.

Other policy changes affecting the UW include:

  1. Funding for the Joint Aerospace Initiative with WSU;
  2. Appropriations for a new Center on Ocean pH Balance;
  3. One-time, performance-based funding;
  4. Operation and maintenance funding for MolE and Dempsey Hall;
  5. Funding reductions related to administrative efficiencies;
  6. An international student surcharge; and
  7. A fund transfer from the UW Hospital Account.

The Senate chair budget proposal is one of a series of budgets released as part of the biennial budget process; the House is expected to release its budget proposal next week. It is likely that the UW will not have a clear sense of its actual anticipated state funding level until later this month.

On Thursday, Governor Inslee released his budget priorities for the 2013-15 biennium. OPB released a comprehensive brief on the plan, but below is a quick summary of the major points in the Governor’s budget.

Governor Inslee’s plan would fund all of higher education, including financial aid, with nearly $3 billion (8.4 percent of the total budget), of which the University of Washington would receive just over $232 million per year. This funding level represents about $3.6 million more per year than the UW would have received under Governor Gregoire’s “New Law” budget. Governor Inslee’s plan also:

  • Authorizes tuition increases of up to five percent per year for resident undergraduates at UW and WSU (three percent at other four-year universities). While the UW still has tuition setting authority, it must provide increased financial aid if it raises tuition above five percent.
  • Provides the UW with $6 million per FY to create a Clean Energy Institute with the purpose of researching energy storage and solar energy.
  • Appropriates$1 million per FY to the UW’s College of Engineering to support increased enrollments.
  • Funds the joint Aerospace Initiative and the Center on Ocean Acidification at levels consistent with Governor Gregoire’s budgets.
  • Gives additional funding to financial aid to keep pace with tuition increases and to fully fund the College Bound scholarship program.

Governor Inslee’s plan restores the 3 percent salary cut imposed on state agencies in the last biennium, but includes no mention of the current salary freeze for state employees, which is set to expire on June 30, 2013. We assume this means the freeze will be lifted, however the Governor’s plan does not provide explicit funding for wage increases.

Governor Inslee’s capital budget plan is identical to Governor Gregoire’s, and includes money for the UW’s top capital priorities such as minor capital repair, the UW Tower Chilled Water System Replacement, and Magnuson Health Sciences Center Roofing Replacement.

While Governor Inslee’s budget blueprint is an important step in the budget process, we expect the UW will not have a clear picture of its actual FY14 and FY15 funding levels for at least another month. We will post updates to this blog when the Senate and House release their budgets. Please also monitor the State Relations website for information.

The Governor’s budget office released the first set of biennial budgets today. The current Governor proposed a “current law” balanced budget, assuming no new revenue, and a budget with new revenue, appropriating $34.1 billion of Near General Fund State per year, for which all of higher education, including financial aid, would receive nearly $3 billion (or 8.7 percent). As a reminder, Governor Gregoire’s budget proposals are the first of many budgets to be released for the upcoming biennium. The earliest point that the UW will have a sense of its actual anticipated state funding level is late April 2013. In addition, we might see Governor-elect Inslee release his own budget, or a set of budget priorities, in January 2013.

Under Governor Gregoire’s balanced and new law budgets, each of the state’s six baccalaureate institutions would receive slight increases in funding when compared to carry-forward budgets levels, with no new tuition increases or state funding reductions. While the UW has another year of tuition setting authority under HB 1795, the Higher Education Opportunity Act, this budget does not provide any new financial aid funds to cover tuition increases.  Note that Education Legacy Trust funding, from which the UW normally received at least $8 million annually, was removed from all public baccalaureate institutions’ budgets and replaced with general fund appropriations.

The 2012 Legislature appropriated $209 million in state funds to the UW for FY13, thus, both of the Governor’s proposed budgets represent an increase in the UW’s state funding for FY14 and FY15. However, the budget bill devotes these increases to covering expenses associated with the UW’s collective bargaining agreements.  If any funds remain afterward, they will be available for any other purpose(s).

Please review our budget brief on the Governor’s operating budgets and capital budgets. As usual, let us know if you have any questions.

 

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