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.
On Saturday, the Senate released a revised budget proposal, which closely resembles the budget they passed in April. For the UW, the two budgets differ in just a few ways:
- Unlike the original Senate budget, the revised budget does not include a $12.5M transfer away from the UW Hospital Account;
- The revised budget does not cut the UW by $3.2M for “administrative efficiencies” that were assumed in the original budget; but
- Compared to the original proposal, the revised budget provides the UW with $3.2M less in new funding.
The latter two changes essentially nullify each other. A few additional changes occurred with regards to state employee health benefits; we are working to interpret the effects and will provide more information as soon as possible.
As mentioned, the revised Senate budget doesn’t stray far from the original. Just like the Senate’s original proposal, its revised budget:
- Provides the UW with $479.6M (General Fund and Education Legacy Trust funds) for the 2013-15 biennium—$10.2M of which is one-time performance-based funding;
- Assumes 0% tuition increases for resident undergraduates;
- Preserves tuition setting authority, but nullifies that authority if either SB 5883 or SB 5941 pass (the bills would require the UW to decrease resident undergraduate tuition rates by 3 percent for the 2013-15 biennium and limit future resident undergrad tuition growth to the rate of inflation); and
- Generates “new” funding for higher education by imposing a 20 percent tuition surcharge on international students at the state’s public colleges and universities.
For more information about the original Senate proposal, please see the full OPB brief.
A recent update on our state’s progress toward meeting the Washington Roundtable’s Benchmarks for a Better Washington emphasizes the need for legislative action on education, including protecting funding for our public universities, as well as transportation and business costs. The Roundtable – a nonprofit, public policy organization comprised of major, local business executives – created the Benchmarks in 2011 as a means to measure and track Washington’s economic vitality and quality of life. The organization publishes annual updates that examine state-by-state comparative data (primarily from federal sources like the U.S. Dept. of Education); assess Washington’s position in key categories; and highlight opportunities for improvement.
The May 2013 update showed that:
- Washington trails most states in high school graduation rates (ranking 32nd nationally) and bachelor’s degrees awarded per capita (39th nationally).
- Washington’s road condition rankings have dropped from 16th (2012 ranking based on 2008 data) to 29th (2013 ranking based on 2011 data) and our state continues to rank poorly on bridge conditions (41st).
- Washington ranks in the bottom third of states for business tax burden (36th), unemployment insurance tax rates (40th) and workers’ compensation benefits paid (50th).
- However, Washington has held onto its lead in patent generation (5th) and in low commercial and industrial electricity rates (3rd).
The authors argue that Washington must move quickly to improve its education pipeline and align with workforce needs. As 70 percent of Washington jobs will require postsecondary training by 2020, they assert, “It is imperative that Washington prioritizes higher education and does a better job of preparing its citizens to succeed.”
In Monday’s edition of CrossCut, Roundtable President, Steve Mullin, urged lawmakers to focus on two key topics during the remaining weeks of session: education and transportation. He specifically called for legislators to ensure our colleges and niversities have the funding they need to develop necessary talent. “Decision time is here,” he wrote, “Education is the driver of prosperity and individual quality of life. Transportation is the backbone of commerce. Both need attention before the 2013 Legislature adjourns.”
Sequestration will take effect tonight at midnight. While the cuts will be smaller than originally mandated ($85 billion instead of $109 billion), the impact in federal FY13 will be higher since the cuts must now be applied to only seven months instead of nine. Immediate and long-term impacts on the UW and Washington State are difficult to predict. However, during the remaining months of federal FY13, we estimate that the sequester could reduce the UW’s federal grant and contract support by an estimated $75 million to $100 million and cut Build America Bonds (BABs) subsidy payments by $500K to $700K. Additionally, the UW is projected to lose about $33,000 in work study funds for 2013-14. The potential impact on Washington State includes $11.6 million less for primary and secondary education, $11.3 million less for education of children with disabilities, and 1,000 fewer children receiving Head Start services.
Please see the full brief prepared by the Offices of Federal Relations, Planning & Budgeting, and Research and be sure to visit at the UW’s Federal Relations blog for regular updates.
My name is Julia Martinelli and I am the Student Assistant for the Office of the University Architect within the Office of Planning and Budgeting. I am currently a Sophomore at the University of Washington and I am planning on majoring in Architecture with a minor in Urban Ecological Design and Italian. Within my position I will be writing about events, updates, and news regarding the planning and architecture.
Currently, the University District is preparing to undergo multiple changes in the upcoming years. In an effort to guide these changes, a group of residents, businesses, social service providers, the U District Chamber, City of Seattle, and University of Washington has come together to create The University District Livability Partnership. The University District Livability Partnership (UDLP) is a four-year strategic initiative that is working towards transforming the University District into a sustainable, walkable community. The vision of the UDLP for the University District is to have a vibrant and innovative district of entrepreneurs, major employers, talented workers, and diverse residents. The collaboration of partnerships in the UDLP are preparing to help the University District transition and grow as it experiences many changes in the upcoming years, especially with the emergence of the light rail station on NE 43rd St. and Brooklyn Ave.
Within the UDLP there are four components, which include the Commercial Revitalization Strategic Plan, an Urban Design Framework, U District Next: A Community Conversation and Long-Term Leadership & Partnerships, each of which focuses on different aspects and strategies to reach the final desired goal for the U District. Additional information regarding the different components of the UDLP may be found here.
The UDLP Strategic Plan was formally released on January 31, 2013, at the third and final U District Next: A Community Conversation event. In order to preserve the unique and historical aspects of the University District as well as develop new enhancements that will enrich the already vibrant community, the Strategic Plan has developed five initiatives. The initiatives include organization, economics, marketing, clean & safe, and urban design, each of which has its own specific set of goals and strategies. The goal of the organization initiative is to create long-term leadership capacity and partnerships of effective and diverse voices. Whereas, the economic initiative is striving to create an attractive neighborhood for various startups, large companies, and businesses where they can both flourish and contribute to the community. The marketing initiative wants to both appeal to the current community of the U District as well as reach out and draw in new residents, investors and businesses by advertising the best elements of the neighborhood. The clean & safe initiative wants to develop a safe and clean environment that contains resources that will provide support to everyone. And lastly, the goal of the urban design initiative is to design and create a built environment that fits and reflects the culture of the University District community. All of these initiatives create a group of organized tasks that will contribute to The Strategic Plan’s strategic vision for the future University District. If you would like to read the Strategic Plan, visit the UDLP website found here. If you would like to contribute your thoughts and ideas about the future of the U District, please go here.
Last week, Moody’s Investors Service issued a negative short-term outlook for the entire sector of higher education based on its conclusion that every traditional revenue source for even the most elite colleges and universities is under pressure. That pressure, according to the report, is the result of nation-wide economic, technological and public opinion shifts, which are largely beyond institutions’ control.
The outlook report, released annually, articulates the fundamental credit conditions that Moody’s expects higher education will face during the next 12 to 18 months. For the last two years, Moody’s gave elite colleges and research universities a stable forecast; but this year, the following factors contributed to a negative outlook for the entire industry:
Struggling Revenue Sources:
- State appropriations are unlikely to increase meaningfully due to weak economic recovery.
- Federal spending on research and student aid could be truncated in response to the nation’s fiscal concerns.
- Tuition revenue continues to be suppressed by low family incomes and public/political pressure to keep prices down.
- Endowment returns are vulnerable to any economic volatility that could stem from federal tax and budget decisions.
- Donations are not expected to increase and could face pressure as Congress evaluates associated tax deductions.
- Financial diversity is no longer helpful as all revenue streams are strained.
- Student debt and loan default rates have increased and thus challenged the perceived value of a degree.
- High school graduates are declining in number.
- Public and political scrutiny of efficiency and degree value could add to institutions’ list of regulatory requirements.
- New technologies such as online learning and MOOCs could provide new revenue opportunities, but could also undermine traditional higher ed models.
Moody’s analysts warn that revenue streams will never rebound to post-2008 levels and leaders in higher education will need to adapt by thinking strategically and adjusting their operations.
But not all is gloom and doom. Although Moody’s gave higher education a negative outlook, most of the country’s top colleges and universities still hold the strong credit rankings. The UW, for one, continues to maintain a Aaa credit rating—the highest offered by Moody’s. Additionally, the report stressed that the intrinsic value of and demand for higher education remains stable.
Yesterday, the Senate and House of Representatives approved legislation to avert the fiscal cliff. The deal postpones the automatic, across-the-board spending cuts—known as “the sequester”—by two months and increases tax rates only for individuals earning over $400,000 and couples earning over $450,000. The bill also preserves funding for Pell Grants and extends for five years the American Opportunity Tax Credit (AOTC), which allows students and their parents to claim up to $2,500 a year for tuition and college expenses.
For details, please see the blog post provided by Christy Gullion, Director of Federal Relations, and the articles provided by Inside Higher Ed and The Chronicle
Here are a few noteworthy headlines from the past few days of higher education news:
- History professors at the University of Florida are fighting a proposed differential tuition strategy that would hold tuition rates stable for “high-skill, high-wage, high-demand” degree programs for at least three years. Most STEM degrees made the list of majors recommended for this tuition freeze, while core Humanities disciplines (such as history) did not. The Governor-commissioned task force responsible for the proposal said, “The theory is that students in ‘non-strategic majors,’ by paying higher tuition, will help subsidize students in the ‘strategic’ majors, thus creating a greater demand for the targeted programs and more graduates from these programs, as well.” Supporters feel such an approach will provide taxpayers with the maximum return on their investment and “improve the university system overall.” However, the opposition, championed by a number of history professors, argues the strategy would detract from the university’s prestige and lead to a less “richly educated” workforce. Over 1,300 faculty from Florida and beyond have petitioned Florida Governor Rick Scott to seek faculty input for future decisions regarding Florida’s higher education system. This particular form of differential tuition contrasts with the more typical, cost-driven approach, under which students in majors that cost the university more to provide (such as STEM fields) are charged higher tuition than students studying less expensive subjects (like history).
- Carnegie Corporation President, Vartan Gregorian, is advocating for a presidential commission on higher education to “generate the kind of attention and urgency that the circumstances demanded for the nation to keep its competitive edge.” The commission’s mandate would be to address the many challenges confronting higher education (cost, access, etc.) and help policy makers determine its future. Given the drastic demographic, technological, and economic changes already occurring in higher ed, Mr. Gregorian believes now is the appropriate time to discuss nation-wide reform.
- Apprenticeships are becoming more popular in the U.S. as a means of bridging the disconnect between what students learn in college and what their future employers actually want them to know. Several Harvard professors, inspired by Germany’s “dual system” of providing students with practical job-related skills and theoretical instruction, are working with six states to establish apprenticeship programs.
As a means of both acknowledging and analyzing the recession’s impact on students, this year’s National Survey of Student Engagement (NSSE) included a new set of questions asking how students’ finances affect their stress and academic activities. Approximately 15,000 first-year and senior students from “a diverse group of 43 institutions” responded to the new addendum. The results, which were released last week, indicate that “finances were a significant concern for the majority of students.”
As seen in Table 5 from the official report:
- The majority of students frequently worried about paying for college and regular expenses.
- Roughly 1 in 3 students said financial concerns interfered with their academic performance.
- About 30 percent said they frequently chose not to buy required academic materials due to cost.
- More students looked into working more hours than into borrowing more money as a way to cover costs.
- Approximately 3 in 4 students still agreed that college is a good investment.
In addition to these findings, the study found that over 55 percent of full-time seniors said that their choice of major was influenced by factors such as ability to find a job and/or the prospect of career advancement. Yet, 89 percent of students overall said the most influential factor in choosing a major was still how well it fit with their talents and academic interests.
Washington’s Economic Revenue and Forecast Council (ERFC) released November’s revenue forecast today. Overall, revenue collections for the current biennium are holding steady, while collections anticipated for the next biennium are slightly lower than the previous forecast.
2011-13 (FY12 and FY13)
For the current biennium, collections are $8 million higher than the previous forecast, and though this increase is extremely slight, it signals
to agencies that additional, current year budget cuts are unlikely when the legislature reconvenes in January.
2013-15 (FY14 and FY15)
The upcoming session will be at least 105 days in length and result in a new biennial (two year) budget for fiscal years 2014 and 2015. The revenue forecast for the upcoming biennium was also updated today and as predicted, shows a modest decline but largely holds anticipated collections to the previously forecasted level. As required by law, ERFC releases optimistic and pessimistic alternative forecasts for the coming biennium. The alternative forecasts suggest that a variance of $3 billion in new revenue or in new cuts is possible. For the time being, the actual forecast for the upcoming biennium is $88 million lower than the September forecast. Slow growth is expected in both Washington State and the US. However, high downside risks including the sovereign debt crisis in Europe, federal fiscal cliff, and the resulting employment and consumer confidence declines present significant reasons to be skeptical about any significant revenue growth.
Governor Gregoire will release her biennial budget in December, but new Governor Jay Inslee may present an alternative budget in January, at
the same time the legislature begins its budget process. Stay tuned! We have a long way to go!
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