Today the Superintendent of Public Instruction, Chris Reykdal, held a press conference to announce his 2019–21 budget request. So far only an overview of the request is available, but it includes several fiscal policy proposals.

The Office of Superintendent of Public Instruction (OSPI) writes, a “key aspect of Reykdal’s budget priorities involves addressing inequities created by recent changes to education funding.”

Capital gains tax: OSPI proposes a capital gains tax. The rate would be 8 percent and bring in $2 billion a biennium. Half of that would reduce the state property tax by 35 cents per $1,000 of assessed value, and the other half would help to fund OSPI’s spending proposals.

This is a perennial proposal at this point; we wrote earlier this year about a bill that would have imposed a 7 percent capital gains tax and used the proceeds to reduce the property tax rate. As we noted in that policy brief, such a tax could be challenged as unconstitutional—not least because it is an income tax. The brief also looked at the highly volatile nature of capital gains. Together, the constitutional questions and volatility make it “a risky source of revenue.”

Local levies: Local levies have long supplemented state funding for schools. When local levies get too high relative to state funding, the state has been sued for not fulfilling its paramount duty. In the Doran I decision in 1977, it was decided that it is unconstitutional to make districts rely on local levies for basic education. This led to the passage of the Levy Lid Act, which limited the revenues districts could get from levies.

Still, after an initial drop, levies as a percent of district revenue crept back up over time, as shown in the chart below. Actual statewide maintenance and operations (M&O; now called enrichment levies) levy revenue as a percent of total district revenues was 18.3 percent in SY 2016–17. (Over the years, the Legislature increased the maximum levy percentage. It was 24 percent from 1999 through 2010 and 28 percent from 2011 through 2018.)

The Legislature’s response to McCleary included changing how local levies are limited. For 2019, districts may levy up to $1.50 per $1,000 of assessed value or $2,500 per pupil, whichever is less. OSPI would instead cap local levies at 22 percent of total district revenues. (The maximum levy limit was last at 22 percent in 1998.)

In response to a question, Reykdal said that they don’t believe any districts are above 22 percent, “so this would give quite a bit of relief. No one would revert back to the old world of really high levies, but almost everybody would come off of their current level.”

It is very important to keep a limit on local levies. As we wrote in 2016, Washington has been in a school funding loop since the 1970s:

State school funding drops (due to recession or other priorities), local levies make up the difference, courts rule that the state must pay more, repeat. The McCleary case was filed because spending devolved despite the Doran decisions. Whether it will be different this time will depend on whether sufficient safeguards are put in place to prevent future increases in local levy reliance.

Regionalization: The McCleary response added regionalization funding to salary allocations for certain districts, to address the higher cost of living in some areas. This was reportedly one issue that contributed to the teacher strikes this year. OSPI will ask “the Legislature to reexamine its regionalization model” because “the new model creates funding levels for neighboring districts that share no real differences in housing values or cost of living. Southwest Washington was hit particularly hard by this model.”

Bonds: Reykdal also said OSPI will “ask the legislature to eliminate the 60% majority to pass a bond.” This would certainly make it easier for districts to pass bonds, but it would require a constitutional amendment. I ran the numbers last year: in 2015, 54.8 percent of bond issues were approved. If only a simple majority were required, 85.7 percent of bonds would have been approved.