As a member of the House Transportation Committee, I am often asked how the Legislature can spend millions of dollars on highway projects when it cannot afford to pay teachers. The answer is simple. Money spent for state and local highways, ferries, motor vehicle registration and enforcement comes from the state transportation budget. Its primary sources of funding are the state gas tax and license fees.
Teachers are paid from a separate pot of money – the state operating budget – which also funds the general day-to-day operating expenses of government, such as state agencies, colleges and universities, and public schools. Employee salaries and benefits, including those for teachers, are typical operating expenses. Funding for the operating budget comes primarily from the retail sales taxes, business and occupation taxes, property taxes, and real estate excise taxes. The operating budget received the most press attention during the legislative session with stories about the “deep deficit.”
The transportation and operating budgets are independent from one another. When we pay for a road project, it does not take from money used to pay teachers or the general government operating expenses.
That is not the case with the state’s third budget – the capital construction budget. The capital budget provides for construction and repair of state office buildings, public schools, facilities at colleges and universities, prisons, parks and recreational facilities. While it has no ties to the transportation budget, more than half of the capital budget is funded by state general obligation bonds (money borrowed by the state) that are paid back over time with interest from the operating budget.
Bonds are like a mortgage. Let’s say you purchase a home on a 25-year loan at 6.5 percent for $100,000. The interest over 25 years will be nearly $103,000, meaning you’ll pay more than double the original purchase price. It’s the same for the state.
Many people are surprised that the capital and operating budgets are connected. When the state issues bonds to receive money for a new school, a park or recreational facilities under the capital budget, it commits the operating budget to repay both principal and debt service for the next 25 years. Not only that, the state charges itself sales tax on capital projects. So it must take out a higher loan to cover the cost of the sales tax. Taxpayers pay far more than the original price tag.
How substantial is this? In the 2011-13 operating budget, debt service from capital budget projects will cost taxpayers $1.97 billion. That’s just a little more than the $1.7 billion that was cut from K-12 education in the same budget. Imagine how many more teachers could be funded if there wasn’t such a large amount of debt? Unfortunately, because of “wants” that increase debt, the Legislature is sacrificing funding of the state’s “needs.”
Recently, an older school in Snohomish County was leveled that would have been sufficient for some years to come. But the school district wanted a more modernized facility. So it received voter approval to build a new school, with matching funds from the capital budget. Those funds are bonded, meaning that additional debt will be paid from the operating budget – the same pot of funding that pays for teachers’ salaries. In the new operating budget, the Legislature reduced teacher pay by 1.9 percent. We’re cutting teachers’ salaries, and yet a new school is now under construction that will add more debt and more strain to the operating budget, when the original school would have been fine with far less expensive upgrades. How does this make sense?
The 2011-13 capital budget spends millions of dollars to purchase new lands for parks and recreation use. Yet, the Legislature found itself short in the operating budget to take care of existing state parks. So it is now charging a $10 day fee or a $30 annual Discover Pass fee for people to access parks. How can we afford to purchase new park lands when we can’t afford to take care of the state parks we now have?
Other vital services paid from the operating budget, including public safety, health care, and programs for vulnerable citizens, are also placed at risk when we take on more debt. This is why it is important to look at the overall picture when making decisions about your tax money.
Certainly there are worthwhile capital budget projects that are needed and valid. Unfortunately, there are too many “wants” that ratchet up long-term debt and put the operating budget in deeper trouble.
Part of the debate during this year’s legislative sessions centered on lowering our state’s debt limit. The Legislature passed and I supported a measure (Senate Bill 5181) that sets a statutory debt limit reduction from 8.75 percent to 7.75 percent by 2020. That’s a good start. However, when adding projects to the capital budget, we should also ask, “Is this a need or a want? What is the total cost? Can we afford to fund and maintain it? Will it harm our abilities to fund needs, such as education, in the operating budget?”
In my household and probably yours too, if it is a want, it costs too much, must be put on a credit card to obtain it, and we can’t afford to maintain it, perhaps the best decision is to go without. Shouldn’t state government do the same?
Rep. Dan Kristiansen, R-Snohomish, represents the 39th Legislative District. He can be contacted at 360-786-7967 or e-mail him through his website at www.houserepublicans.wa.gov/Kristiansen.
