Our analysis of the governor’s proposed 2019-21 state budget finds that it addresses several important priorities, but leans on a net increase in taxes and a drawdown of state reserves to help finance the cost. A key question is whether it strikes the correct balance between needed re-investment and prudent financing.
Our state budget brief discusses several key issues likely to dominate budget deliberations, including:
- Reserves: In the first year, the governor’s budget would take in substantially more in general purpose revenue (GPR) than it spends, raising the general fund ending balance to $937.9 million. In the second year, however, the budget proposes spending $832.6 million more than projected revenues. The state would close the year with just $105.3 million in the general fund, the lowest amount since 2011.
- Taxes: The governor’s budget includes a two-year, $688.7 million net increase in collections of GPR income, sales, and excise taxes. It proposes a 10% income tax cut for middle-income taxpayers, as well as increases in other tax credits for low-income earners. At the same time, the budget would raise corporate or individual income collections by substantially more over the next two years, largely by limiting a tax credit for manufacturing and restricting capital gains exclusions.
- Education: The governor would raise GPR spending on K-12 education and the Department of Public Instruction by $1.59 billion, including $618.8 million more in general school aids. Equally noteworthy are his proposed changes to the school aids formula and increases in school revenue limits to provide more money to districts, as opposed to additional “per pupil” aid that does not account for district wealth.
- Medicaid: The governor proposes spending $329 million more in GPR within the Department of Health Services for a variety of expanded services, including increased hospital reimbursements, expanded dental care, and enhanced funding for counties for crisis intervention services. While the financing mechanism for those moves (expansion of Medicaid under the federal Affordable Care Act) is likely to receive the most attention, the policy objectives associated with the proposals also need to be considered.
The budget brief also covers several other key issues, including corrections, transportation, higher education, and aids to local governments.