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September Revenue Forecast Predicts Continued Gains

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It is tempting to copy and paste our post from into this one, as the 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
revenue forecast did not include tax collections related to the sale of cannabis.

 

Oregon Passes Bill to Implement 鈥淧ay Forward, Pay Back鈥� Pilot Program

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(This piece was originally posted on 07/11/2013, however聽it was lost聽due to聽technical issues and is therefore re-posted here.)

Last week, the Oregon legislature passed a bill that, if signed by the governor, will implement a pilot program to study the effects and feasibility of substituting upfront tuition payments with income-based, post-graduation payments. For 24 years after graduating, four-year college students would pay back 3 percent of their income and community college students would pay back 1.5 percent. Students who do not graduate would pay back a smaller percent determined by how long they were in school.

If, after several years of study, Oregon decides to adopt a plan (or some form of it), it would signify a major shift in the funding paradigm for public institutions.聽But that鈥檚 a big IF. The plan has received considerable criticism due to a multitude of unanswered questions that could pose significant logistical barriers. For example:

  • How would institutions and/or the state pay for the plan鈥檚 implementation (i.e. the several years of foregone tuition revenue between when a student enters school and when they graduate and start earning pay)?
  • How would the state efficiently collect accurate income data on students who move out-of-state?
  • How would the state go about collecting and enforcing payments?
  • How would the plan account for and apply to part-time students, transfer students, mid-career students, and other non-traditional students?
  • How would the plan work with federal and state financial aid programs?聽Would low-income students be accommodated so as to avoid creating barriers to entry?
  • How does one pilot a 24-year repayment program in just 2 or 3 years?

Even if Oregon鈥檚 higher education commission, which is tasked with implementing the pilot program, can find viable answers to those questions, the plan still has a number of possible (if not likely) negative consequences. For instance, the plan may:

  • Magnify the public鈥檚 view of higher education as a private good (only benefiting the individual) rather than a public good (benefits for many) which, in turn, could spur the continuing and problematic trend of replacing state dollars with tuition revenue;
  • Make institutions even more vulnerable to economic variations and recessions as their revenue would be tied to graduates鈥� earning and unemployment rates; and
  • Create social and economic imbalance between Oregon and other states since students who expect to earn less鈥攅.g. social science and humanities majors鈥攚ould be incentivized to go to Oregon, and students expecting to earn more鈥攅.g. engineering and medical students鈥攚ould likely go elsewhere.

Granted, the idea of basing college payments on graduates’ income is not a new one. Some federal student loans are eligible for income-based repayment and a program similar to Oregon鈥檚 already exists in Australia. However, Australia鈥檚 version is administered at the federal level, meaning many problems inherent in Oregon鈥檚 plan (tracking students who move around the country, imbalance between states, etc.) are avoided.

The Economic Opportunity Institute, a liberal think tank in Seattle, proposed a version of the plan for Washington in October 2012; but, unlike Oregon鈥檚 version, it has yet to go anywhere.聽 We鈥檒l keep you posted.

States Shift Financial Aid Money toward Need-Based Aid and Grant Aid

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According to an released on Monday by the National Association of State Student Grant and Aid Programs (NASSGAP), the amount of state dollars going toward financial aid remained relatively stable between 2010-11 and 2011-12. In 2011-12, states awarded about $11.1 billion in state-based financial aid, a slight increase (0.7 percent) over the $11.0 billion awarded in 2010-11. That growth has not kept pace with rising enrollments or the overall increase in students鈥� financial need; however, it’s encouraging to see growth of any size given that聽general state appropriations for higher education fell by 7 percent during that same time period.

The state-by-state data show that Washington, New Jersey, New York and California gave out the most need-based aid on a per-student basis. Oregon more than doubled the amount it spent on need-based grants, to nearly $44-million, and Washington increased its need-based grants by 26 percent. However, 23 states cut need-based aid from 2010 to 2011 and four states reported no need based aid聽programs at all.

What’s most intriguing, in my opinion, is that even though states collectively put only slightly more money toward their financial aid programs, they shifted a larger portion of those aid dollars toward need-based aid and grant aid (see the tables below). This finding suggests that states are attempting to maintain access in the face of rising tuition rates and to reduce the amount of debt their students accumulate.

Of the $11.1 billion in total state-awarded student aid:

  • $9.4 billion (84%) was grant aid鈥攗p 1.7% from 2010-11; and
  • $1.7 billion (16%) was non-grant aid (loans, work-study, tuition waivers, etc.)鈥攄own 4.2% from the previous year.

Of the $9.4 billion in state-awarded grant aid:

  • $7.0 billion (74%) was need-based鈥攗p 6.3% from last year; and
  • $2.4 billion (26%) was non-need-based鈥攄own 9.4%.

Of the $10.1 billion in state-awarded undergraduate aid (both grants and non-grants):

  • $4.7 billion (47%) was exclusively need-based鈥攗p 6.0%;
  • $2.0 billion (20%) was awarded on a mix of need and merit criteria鈥攗p 1.6% and surpassing, for the first time ever, aid awarded solely on merit;
  • $1.9 billion (19%) was exclusively merit-based鈥攄own 1.3%; and
  • $1.4 billion (14%) was special purpose awards and uncategorized aid鈥� a 3.0% drop.

Change in Total State-Awarded Student Aid
Percent change from 2010-11 to 2011-12
Type of Student Aid Dollar amount Portion of total
Grant aid 1.7% 0.8%
Non-grant aid -4.2% -0.8%
Total aid 0.7%
Change in State-Awarded Grant Aid
Percent change from 2010-11 to 2011-12
Type of Grant Aid Dollar amount Portion of total
Need-based 6.3% 3.0%
Non-need-based -9.4% -3.0%
Total grant aid 1.7%
Change in State-Awarded Undergraduate Aid
Percent change from 2010-11 to 2011-12
Type of Undergrad Aid Dollar amount Portion of total
Exclusively need-based 6.0% 2.7%
Mixed need & merit-based 8.5% 1.6%
Exclusively merit-based -6.5% -1.3%
Uncategorized & other -17.4% -3.0%
Total undergraduate aid 0.0%

Washington’s June Revenue Forecast Shows Small Improvements

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On Tuesday, June 18, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of General Fund-State (GFS) revenues. Compared聽with the , 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鈥攅xceeding the January 2008 pre-recession peak.聽Lower than expected inflation and employment worked against these gains, but weren鈥檛 enough to negate them.聽 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鈥檚 2013-15 baseline forecast due to the Federal sequester, Europe鈥檚 recession, and China鈥檚 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.聽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鈥檚 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鈥� have a ways to go before the end of the fiscal year on June 30th (12 days from now). 鈥淲e鈥檒l get closer as a result of this,鈥� said Representative Ross Hunter during a press conference Tuesday morning.

Senate Releases Revised Budget Proposal

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On Saturday, the Senate released a , which closely resembles the budget they passed in April.聽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聽from the UW Hospital Account;
  • The revised budget does not cut the UW by $3.2M for 鈥渁dministrative efficiencies鈥� 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.聽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鈥檛 stray far from the original. Just like the Senate鈥檚 original proposal, its revised budget:

  • Provides the UW with $479.6M (General Fund and Education Legacy Trust funds) for聽the 2013-15 biennium鈥�$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 鈥渘ew鈥� funding for higher education by imposing a 20 percent tuition surcharge on international students at the state鈥檚 public colleges and universities.

For more information about the original Senate proposal, please see the .

House Chair Releases Revised Budget Proposal

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House Ways & Means Chair Ross Hunter released a revised today. The proposal represents Democrats鈥� updated negotiating position as budget discussions intensify in the last few weeks of the current biennium. We expect the revised House chair budget to pass the floor later this week, after which leaders of both parties and chambers will continue their budget negotiations. It is likely that the UW will not have a clear sense of its actual anticipated state funding level until the end of June.

The revised House budget provides approximately $5 million less for the UW than the previous House budget.聽 In addition, the revised House budget assumes tuition increases of only 3 percent per year for resident undergraduates, compared to 5 percent per year in the House engrossed budget. Thus, even less revenue is available.

Additional differences between the revised House budget and the House engrossed budget:

  • Clean Energy Institute Proviso 鈥� Unlike the previous House budget, which allocated $12 million of the UW鈥檚 general fund for the creation and staffing of a Clean Energy Institute, the revised budget only directs $9 million to that purpose.
  • Center on Ocean Acidification 鈥� Identical to the budgets of Governor Inslee and the Senate, the House now provides $1.82 million for a new Center on Ocean Acidification.
  • Forestry Program 鈥� The revised House budget states that the UW shall establish a Forestry Program 鈥渨ithin existing resources.鈥澛� In the accompanying budget spreadsheet, $450,000 in “tuition resources” is set aside for this purpose.

Some similarities between the two budgets (this list is not exhaustive):

  • Computer Science & Engineering Proviso 鈥� Both House budgets stipulate that $14.5 million of the $20.8 million in Education Legacy Trust funding appropriated to the UW for the biennium must be reserved for the expansion of computer science and engineering enrollments.
  • College of Engineering Proviso 鈥� Like the prior House budget, the revised budget appropriates $2 million in new state funds to expand College of Engineering enrollments.
  • O&M Funding 鈥� Both House budgets provide funding to cover operation and maintenance (O&M) costs for the UW鈥檚 new Molecular Engineering building and Balmer Hall.
  • Compensation 鈥� Both budgets restore the 3 percent salary cut imposed on state agencies in the last biennium.聽 And, as neither budget explicitly extends the current salary freeze for state employees, which is set to expire on June 30 of this year, we assume the freeze will be lifted under both.

Please see the full for more information.

Washington Roundtable Urges Legislators to Prioritize Higher Education

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A recent update on our state鈥檚 progress toward meeting the Washington Roundtable鈥檚聽 emphasizes the need for legislative action on education, including protecting funding for our public universities, as well as transportation and business costs.聽 The Roundtable 鈥� a nonprofit, public policy organization comprised of major, local business executives 鈥� created the Benchmarks in 2011 as a means to measure and track Washington鈥檚 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鈥檚 position in key categories; and highlight opportunities for improvement.

The showed that:

  • Washington trails most states in high school graduation rates (ranking 32nd nationally) and bachelor鈥檚 degrees awarded per capita (39th nationally).
  • Washington鈥檚 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鈥� 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, 鈥�It is imperative that Washington prioritizes higher education and does a better job of preparing its citizens to succeed.鈥�

In Monday鈥檚 edition of , Roundtable President, Steve Mullin, urged lawmakers to focus on two key topics during the remaining weeks of session:聽 education and transportation. He specifically called for legislators to ensure our colleges and universities have the funding they need to develop necessary talent. 鈥淒ecision time is here,鈥� he wrote, 鈥�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.鈥�

House Chair Released 2013-15 Operating Budget

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House Ways & Means Chair Ross Hunter released the today. Please see the for a complete analysis.聽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. 聽Once the potential additional tuition revenue is taken into account, however, the UW fares better under the House budget, even with its spending requirements.聽 Moreover, the Senate relies on a draconian 20 percent surcharge on international student tuition to generate this additional funding amount.聽 As mentioned in our , 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 Chair Releases 2013-15 Operating Budget

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Senate Ways & Means Chair Andy Hill released the proposal today.聽Please see the 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鈥檚 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 鈥渇ull time鈥� 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.

Governor Inslee Releases Budget Priorities

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

Governor Inslee鈥檚 plan would fund all of higher education, including financial aid,聽with nearly $3 billion (8.4 percent of the total budget), of which the 天美影视传媒 would receive just over $232 million per year. This funding level represents about $3.6 million more per year聽than the UW would have received under Governor Gregoire鈥檚 鈥淣ew Law鈥� budget. Governor Inslee鈥檚 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鈥檚 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鈥檚 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鈥檚 plan does not provide explicit funding for wage increases.

Governor Inslee鈥檚 capital budget plan is identical to Governor Gregoire鈥檚, and includes money for the UW鈥檚 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鈥檚 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 for information.