Yesterday the Economic and Revenue Forecast Council (ERFC) adopted a new budget outlook that includes the end of the 2015–17 biennium, 2017–19, and 2019–21. It is controversial in that it includes an estimate for how much it will cost to complete compliance with the McCleary decision on school funding.

There was some good news in the revenue forecast (also adopted yesterday) that was incorporated into the outlook. On a near general fund­–state plus opportunity pathways (NGFS+) basis, the forecast was increased by $222.4 million for 2015–17, by $132.2 million for 2017–19, and by $22.5 million for 2019–21. 

The updated outlook for the current biennium, 2015–17, expects an unrestricted ending balance of $943 million and total reserves (including the rainy day fund) of $2.134 billion. For 2017–19, the unrestricted ending balance is estimated to be negative $1.489 billion, with total reserves of $138 million. For 2019–21, the unrestricted ending balance is estimated to be negative $7.444 billion, with total reserves of negative $5.283 billion.

The ERFC decided to include an estimate of additional McCleary compensation costs of $1.75 billion a year, beginning in FY 2019. The outlook also includes a footnote:

The expenditures in this Outlook include costs related to McCleary compensation. For purposes of the Outlook only, the ERFC estimates that the state’s McCleary compensation costs are $3.5 billion per biennium when fully implemented.

Sen. Hargrove proposed adding the footnote because the McCleary compensation estimate is “more of an estimate than the other numbers in the outlook.” The final amount will be something that the Legislature has yet to determine. Sen. Braun argued against including the $3.5 billion estimate, saying that it “seems premature” to include a number when the Legislature must still make a policy decision.

Indeed, the Education Funding Task Force also met this week to hear from the consultant that had been tasked with analyzing school compensation data. The consultant’s final report identified $1.455 billion that local districts paid for teacher salaries in SY 2014–15 over and above the state salary allocation. Although this number is lower than the $1.75 billion per year in the outlook, that doesn’t mean the outlook estimate will turn out to be wrong. Note that the $1.455 billion does not include benefits. It also doesn’t include the salary amounts for special education and pupil transportation. On the other hand, not all of the $1.455 billion is necessarily related to basic education—some of it could be the responsibility of the local districts even under the McCleary decision. The Legislature will have to make that determination.

Joseph O’Sullivan reports in the Seattle Times that Sen. Braun said the task force might not be able to agree on a cost estimate before the session. Indeed, there’s still a wide range of estimates even after the consultant’s report, as Melissa Santos reports in The News Tribune: 

State Rep. Chad Magendanz, an Issaquah Republican who serves on the school funding task force, said he thinks anything outside of work during the normal school day, including the majority of professional development, is an add-on that shouldn’t be a state responsibility.

Based on numbers included in the consultants’ report, Magendanz estimated that means the state is on the hook for only about half of what districts are paying above and beyond the state’s current salary allocations, or about $2 billion every two years. . . .

House Majority Leader Pat Sullivan, who also serves on the school funding task force, is of a different mind. The Covington Democrat said teachers need to be compensated for work they do outside the school day if the Legislature expects to be able to hire and retain quality employees. . . .

Based on the consultants’ report, Sullivan expects the Legislature will need to come up with at least $3 billion in its next two-year budget to finish meeting McCleary requirements.

Back in May, the ERFC decided not to include the McCleary compensation costs in the outlook. At the time, the late Sen. Andy Hill objected, saying “I worry about putting any number in there. Only because these numbers have been picked up, bandied about, and before you know it, they become a mandate.” 

But McCleary isn’t the only looming expense shown in the outlook. If you remove the McCleary compensation cost estimate from the outlook, the expected unrestricted ending balance is $261 million for 2017–19 and negative $2.194 billion for 2019–21 (see option 1 here). Other K–12 maintenance level expenditures (including already enacted McCleary costs) are expected to increase spending by $832 million in 2017–19 and by $1.465 billion in 2019–21. Providing the I-732 cost-of-living adjustment for teachers will increase spending by $366 million in 2017–19 and by $979 million in 2019–21. Initiative 1351 (which lowers class sizes in grades K–12) is currently scheduled to go into effect in 2020; if allowed to become effective, it would increase 2019–21 spending by $1.857 billion.

Low income health care would also see significantly increased maintenance level spending. It would increase by $398 million in 2017–19 and by $929 million in 2019–21. According to staff at the ERFC meeting, this includes the effect of the reduced federal match for Medicaid clients that are newly eligible under the Affordable Care Act. (Through 2016, the federal government pays for 100 percent of this cohort. The federal government pays for 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent thereafter.)

Finally, Treasurer McIntire said at the end of the outlook meeting that he believes there will be a recession at some point in the next four years. He also noted that the four year budget outlook requirement has been “a real benefit in our appeal to financial markets,” and that it has helped our state’s credit rating.