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November Revenue Forecast Shows Increased Revenue, but Slowing Growth

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The Economic and Revenue Forecast Council (ERFC) released their November revenue forecast on November 20. The final tabulation of Near General Fund-State (GF-S) revenue for the 2017-19 biennium was $46.081 billion, $5 million less than estimated in September. Projected revenue collections increased by $299 million for the 2019-21 biennium and by $181 million for the 2021-23 biennium. The report projects similar growth to the September revenue forecast.

Here is a quick summary of the total projected Near GF-S revenue for each biennium:

  • $51.733 billion for the 2019-21 biennium, 12.3 percent more than the 2017-19 biennium
  • $55.154 billion for the 2021-23 biennium, 6.6 percent more than the 2019-21 biennium

More background on the state revenue forecast is available here.

Some context behind the numbers:

Washington state:

  • Revenue collections have been higher than forecasted in September. Cumulative major General Fund-State (GF-S) revenue collections from September 11 through November 10, 2019 were $135 million above the forecast. Much of this surplus, however, came from transfers of unclaimed property into the GF-S, which were $47 million higher than forecasted in October.
  • Cumulative Revenue Act taxes (retail sales and use, business and occupation, public utility and non-cigarette tobacco products taxes), which make up the bulk of General Fund-State (GF-S) revenue, were $50 million (1.7 percent) higher than forecasted.
  • Cumulative real estate excise taxes (REET) came in $22 million (11.8 percent) higher than forecasted. Large commercial sales spiked while residential sales activity remained close to forecasted levels.
  • Over half of the increase in forecasted GF-S revenue for the current biennium and the bulk of the increase for the next biennium came from property tax collections. These increases stemmed from a revised estimate of the market value of the existing stock of taxable property, which will determine the level of the calendar year 2020 levy. The increase in estimated market value will increase the levy for next year as well as the following years. The revised valuation, combined with other forecast changes, has resulted in a forecast increase of $147 million for the current biennium and $177 million for the 2021-23 biennium.

Local:

  • Seattle area home prices rose over the year for the first time in five months. According to the S&P/Case-Shiller Home Price Indices, seasonally adjusted Seattle area home prices increased 0.5 percent in August while the composite-20 index declined 0.2 percent. Seattle home prices increased 0.5 percent in July as well. Because of the growth in the last two months, Seattle home prices are up 0.7 percent over the year.
  • Seattle area consumer price inflation slightly outpaced the national average in October. From October 2018 to October 2019, the Seattle CPI rose 2.2 percent compared to a 1.8 percent increase in the U.S. City Average.

Governor Jay Inslee will use revenue estimates from this forecast when crafting his proposed 2020 supplemental operating budget, which will amend the enacted 2019-21 biennial budget. The Governor’s budget release is the first step in the budget process for the upcoming 2020 legislative session, which begins in January.

Stay tuned to the OPBlog for updates on the 2020 supplemental budget proposals and the legislative session!

Income Share Agreement Update

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Income Share Agreements (ISAs) have grown in popularity in recent years. They have been lauded by some as a solution to the student debt crisis, and criticized by others for further complicating the education finance market. Given the continued interest in ISAs, we have updated our 2016 brief on the topic. Here are some key takeaways:

  • While our 2016 brief compared ISAs to the federal Income Based Repayment (IBR) plan, it is now clear that ISAs typically supplement subsided loans rather than replace them, and are thus better compared to private loans than public loans.
  • More colleges and universities have begun offering ISAs directly, as have more coding academics and other non-traditional institutions.
  • Some members of the Washington state legislature introduced a bill that would create an ISA pilot program and establish ISA regulations for Washington state. There continues to be interest in ISAs on a federal level but also within our state.

For more information and to read the updated brief, please see our OPB Briefs page.

Background on the State Revenue Forecast

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The Office of Planning & Budgeting (OPB) publishes a summary of the state’s quarterly revenue forecasts. This primer provides background on revenue forecast reports, including helpful information about how to interpret and understand their contents.

Who produces the report?

The Washington State Economic and Revenue Forecast Council (ERFC) produces the revenue forecast, and is comprised of both bipartisan legislative and executive members and the State Treasurer.

What does the revenue forecast show?

The quarterly revenue forecast seeks to predict how much tax revenue (or income) will be remitted to Washington state during the given timeframe. This includes funding projections from a variety of sources, including income, property, estate, and sales taxes. Since revenue from these sources is affected by other economic factors (employment, income, home prices, etc.) the forecast generally includes a wider conversation on the health of national, state, and local economies.

Why is it helpful?

Washington state is unique in this approach to revenue forecasting in that the forecast is nonpartisan and is used by both the executive and legislative branches in budget preparation. The Governor uses the November forecast to inform their proposed budgets to the legislature, and the legislature uses the February forecast to inform their final budget recommendations. It is helpful for the UW to monitor the report, as changes in state revenue may be tied to changes in appropriations to the University as part of the state budgeting process.

What accounts support the University of Washington?

  • Near General Fund – State (NGF-S): The combination of the State General Fund, Education Legacy Trust Account, and Opportunity Pathways Account.
    • General Fund – State (GF-S): Created in 1907, the general fund serves to account for all financial resources of the state except those required to be accounted for in another fund. The general fund is the principal state fund supporting the operation of the state. It is funded through taxes, federal grants-in-aid, charges and miscellaneous revenue, licenses, permits, fees and interest income. The vast majority of state funding for the University comes from GF-S.
    • Education Legacy Trust Account (ELTA): Created in 2005, this account can be used only for support of the K-12 schools, and for expanding access to higher education through funding for new enrollments, financial aid, and other educational improvement efforts. The ELTA is funded through estate taxes and interest earnings.
    • Opportunity Pathways Account (OPA): Created in 2010, this account is intended for the recruitment of entrepreneurial researchers, innovation partnership zones, research teams, early childhood education, higher education grants and scholarship programs, and charter schools. This is funded through lottery revenue.
  • Workforce Education Investment Account: Created in 2019, the Workforce Education Investment account can be used only for higher education programs, higher education operations, higher education compensation, and state-funded student aid programs. The Account is funded through a business and occupation tax on large technology companies, called the “workforce education investment surcharge.”
  • Other accounts: The University receives several appropriations from special state appropriated accounts that are not as visible or contemplated at all in the revenue forecast. These include amounts for the School of Public Health Department of Environmental and Occupational Health Sciences (DEOHS) (Accident and Medical Aid Accounts), funding for marijuana research and education (Dedicated Marijuana Account), funding for ocean acidification and management research (Biotoxin Account, Aquatic Lands Enhancement Account), and to support aerospace initiatives (Economic Development Strategic Reserve Account).

 

September Revenue Forecast Indicates Slowing, but Continued Growth

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The Economic and Revenue Forecast Council (ERFC) released their September revenue forecast. The projected Near General Fund-State (GF-S) revenue forecast for the 2017-19 biennium increased by $27 million. Projected revenue collections for the 2019-21 biennium increased by $447 million, decreased by $63 million for the 2021-23 biennium. The report projects similar growth to the June revenue forecast.

Here is a quick summary of the total projected Near GF-S revenue for each biennium:

  • $46.086 billion for the 2017-19 biennium, 18.0 percent more than the 2015-17 biennium
  • $51.435 billion for the 2019-21 biennium, 11.6 percent more than the 2017-19 biennium
  • $54.973 billion for the 2021-23 biennium, 6.9 percent more than the 2019-21 biennium

Some context behind the numbers:

Washington state:

  • The June forecast included an $85 million transfer of property tax from the GF-S into the Education Legacy Trust Account (ELTA) in Fiscal Year (FY) 2019. While some of this transfer did occur in June 2019, $84 million of the transfer occurred in July 2019, the first month of FY20. This increased the preliminary cash estimate of GF-S revenue for the 2017-19 biennium by $84 million above the June forecast and decreased the forecast for the 2019-21 biennium by the same amount.
  • The preliminary estimate of GF-S revenue for the 2017-19 biennium, which ended June 30, 2019, is $44.144 billion, which is $102 million higher than forecasted in June. Absent the abovementioned delayed transfer, however, collections would have been $18 million higher than forecasted.
  • While the September economic forecast was very similar to the June forecast, expected Revenue Act collections have increased in the current 2019-21 biennium due to their recent strength. Expected slower growth in the 2021-23 biennium, however, has slightly reduced expected Revenue Act collections in that period.
  • Washington’s unemployment rate remained at 4.6 percent in August for a fourth consecutive month. The state’s unemployment rate remains near its all-time low of 4.4 percent last reached in October 2018.
  • Washington personal income rose to $471.5 billion in the first quarter from $466.6 billion in the fourth quarter of 2018. The reported 4.3 percent growth rate in Washington personal income was the 15th largest among the states and District of Columbia and exceeded the 3.4 percent growth rate for the U.S. as a whole.

Local:

  • Seattle area home prices increased in July but were down over the year. According to the S&P/Case-Shiller Home Price Indices, seasonally adjusted Seattle area home prices increased 0.5 percent from June to July. Monthly Seattle home prices have, on average, been trending down since June 2018. As of July 2019, Seattle home prices were down 0.7 percent over the year.
  • Seattle area consumer price inflation continued to outpace the national average in August. From August 2018 to August 2019, the Seattle CPI rose 3.2 percent compared to the 1.8 percent increase in the U.S. City Average.

The Governor will use the November forecast revenue estimates when crafting his proposed 2020 supplemental operating budget, which will amend the enacted 2019-21 biennial budget.

Stay tuned to the OPBlog for updates on revenue forecasts and the upcoming 2020 legislative session!

June Revenue Forecast Growth Driven by Legislative Activity

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The Economic and Revenue Forecast Council (ERFC) released their June revenue forecast. The projected Near General Fund-State (GF-S) revenue forecast for the 2017-19 biennium decreased by $47 million. Projected revenue collections for the 2019-21 biennium increased by $432 million. This change was primarily driven by legislative activity in the 2019 session. The report projects similar growth to the March revenue forecast.

Here is a quick summary of the total projected Near GF-S revenue for each biennium:

  • $46.059 billion for the 2017-19 biennium, 17.9 percent more than the 2015-17 biennium
  • $50.988 billion for the 2019-21 biennium, 10.7 percent more than the 2017-19 biennium
  • $55.036 billion for the 2021-23 biennium, 7.9 percent more than the 2019-21 biennium

Some context behind the numbers:

  • Revenue has been coming in close to the March 2019 forecast. Cumulative major GF-S revenue collections from March 11 through June 10, 2019 were only 0.5 percent ($30 million) higher than expected.
  • Washington’s unemployment rate remained at 4.7 percent in May after increasing in March and April. The reason for the increase in recent months is that although employment has continued to grow, the labor force has grown faster.
  • Legislative changes accounted for significant adjustments to the previous forecast. This included:
    • An $85 million transfer of property tax into the Education Legacy Trust Account (ELTA), which decreased the forecasted GF-S revenue for the 2017-19 biennium by $87 million. The legislated transfer of additional real estate excise taxes (REET) revenue from new graduated rates plus other small changes added $220 million to forecasted ELTA revenue in the 2019-21 biennium and $327 million in the 2021-23 biennium.
    • An increase in REET receipts due to the adoption of graduated tax rates. The total increase in GF-S revenue from legislative and budget-driven changes is $109 million in the 2019-21 biennium and $282 million in the 2021-23 biennium.
  • Absent these legislative changes, forecasted revenue for the 2019-21 and 2021- 23 biennia would have increased slightly due to positive changes in the economic forecast. Most of the increases stemmed from Revenue Act taxes and REET. These economic changes increased forecasted revenue by $86 million in the 2019-21 biennium and $64 million in the 2021-23 biennium.

Stay tuned to the OPBlog for updates on revenue forecasts!

2019 Higher Education Trends

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As the higher education landscape continues to change and evolve in the United States, below are some select national and state trends driving higher education policy and innovation in recent years. The Office of Planning & Budgeting (OPB) continues to monitor these, and other, trends. This list was curated using multiple sources, including recent news articles and blogs, recent state-level legislation, and higher education trends analyses from The Brookings Institution and The Chronicle of Higher Education.

1. College Affordability

College affordability continues to dominate the national conversation around higher education. This year, the Washington Legislature took big steps to make college more accessible and affordable for Washington families. Read more about the proposal in OPB’s brief on the legislature’s final compromise 2019-21 state budgets.

Additionally, many of the Democratic candidates for president in 2020 have released higher education policy proposals to address college affordability. These proposals include initiatives to increase funding for Pell Grants, to create “free college” using state-federal partnerships, expand student loan forgiveness, and increase dedicated funding for Historically Black Colleges and Universities (HBCUs) and other Minority-Serving Institutions (MSIs).

2. Changing Student Profiles

According to the Lumina Foundation, 38 percent of all undergraduates are older than 25. Traditional college students – 18- to 21-year-olds who attend school full-time – now only make up about a third of the college population.

Students are also increasingly taking on additional responsibilities while in school. According to HBSC, 85 percent of students are working in paid employment while studying. Lumina also reports that students work, on average, 19 hours per week.

3. Integrating Data

A report from the National Association of Student Personnel Administrators, Association for Institutional Research, and Educause found that “most institutions are investing in data and analytics projects, but few are measuring the resulting costs.”

The report found that colleges are using data in more ways as they modernize and manage programs to show returns on student and state investments. Studies of students’ academic progress and success are the leading types of data projects. Many institutions are conducting several types of student success studies annually. However, nearly one fourth of institutions are not collecting usable business and systems-level data and few institutions are systematically collecting, integrating, and using their data.

4. Changes in Admissions

Last year, the University of Chicago announced that it would no longer require applicants to submit SAT or ACT scores, the most-selective institution ever to adopt a test-optional policy. Today, more than 1000 U.S. colleges and universities have adopted similar policies.

As colleges and universities continue to use data to better understand how their students perform, they become less reliant on test scores. According to the Chronicle of Higher Education, “on many campuses, deep dives into enrollment data have helped admissions offices determine which pieces of information they collect from applicants actually help them predict a variety of student outcomes, such as first-year grades and progress toward a degree.” The University of Chicago “found that ACT and SAT scores didn’t tell it much about who would succeed and who would struggle.”

5. Open-Access Research

Global advocates are calling for publicly funded research to be available through open-access sites, rather than behind paywalls of subscription-based journals. Over the last few years, the movement has gained momentum at increasing cost to publishers. In 2018, Florida State University said it would not subscribe to a publisher’s journals in one bundled deal. This year, the University of California system cancelled its contract with Elsevier, one of the biggest academic publishers in the world. The University of Iowa also announced a new open-source online journal, providing open access to the research and creative scholarship of the university.

This debate has some immediate consequences for academics and researchers, who will lose access to journals unless schools renegotiate with publishers. The University of California attempted to mitigate some of these consequences by publishing alternative methods to access publications.

 6. Transnational Students

According to Studyportals, the number of American students enrolling at foreign colleges is expected to grow from 2.3 million student in 2015 to 6.9 million in 2030. This trend is attributed to multiple causes, including “higher ambitions and investments for world-class universities” and “accelerated growth of global, multi-national networks.”

However, in the United States, the number of new international student enrollments is declining. Inside Higher Ed reports that, “New enrollments fell 6.3 percent at the undergraduate level, 5.5 percent at the graduate level, and 9.7 percent at the non-degree level from 2016-17 to 2017-18.” While overall trends remain at an all-time high, increasing by 1.5 percent in 2018, there is some concern that new U.S. immigration policies might have long-term impacts on international enrollment.

7. Online Enrollment

Online courses continue to become more popular in the United States. In 2016-17, overall postsecondary enrollment dropped by almost half a percent, while the number of students who took at least some of their courses online grew by 5.7 percent. Over the last 15 years, online enrollment has quadrupled.

However, a report from George Mason University claims that the growth in online enrollment has been “disproportionately large in the for-profit sector.” Further, “online coursework has contributed to increasing gaps in educational success across socioeconomic groups while failing to improve affordability.”

8. Online Program Managers

As online enrollments rise, online program managers (OPMs) are working with colleges and universities to provide online options for students. OPM providers contract with institutions of higher education to create, market, and recruit for online degree and non-degree programs. In return, OPMs earn a percentage of the revenue or tuition from the online programs offered at public colleges and universities.

College and universities like Harvard University, the University of Pennsylvania, and the University of North Carolina already provide online programs through OPMs. Purdue University chose to acquire Kaplan University in 2017 to directly expand its online presence.

Conclusion

Higher education continues to adapt to new technologies and a changing global environment. This blog represents just some of the most recent changes, and there are many other challenges and opportunities for American colleges and universities. As institutions seek to balance the status quo with contemporary shifts, their flexibility to adapt to changing circumstances will be a key element in determining their future success.

UW Ranked #28 in the World for Second Straight Year by Times Higher Education (THE)

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The University of Washington maintains its #28 rank for second year in a row in the Times Higher Education (THE) 2019 World Reputation Rankings, released Wednesday July 17th. This ranking is commonly used to measure a university’s global impact.

The UW is one of only 11 of our US News top public research university peers to make the top 50 in the reputation ranking. In that group of 11, UW is ranked 4th overall, coming in 4th in both research and instruction.

This ranking is based on an opinion survey sent to published scholars around the world. THE asks scholars to name the top 15 universities that come to mind in two categories:  research and teaching. The ranking score is a count of how many times an institution is named by a respondent as being the best in their field.  This year, Harvard University was cited most often, therefore their score was set to 100 and the rest of the universities were graded on a curve as a percentage of Harvard’s 100 score.

The geographic distribution of responses spanned 135 countries, with 20 percent of the responses coming from scholars in North America.  In the survey, scholars are asked their opinions based on their specific discipline.  Scholars with at least 14 years of experience in their field are invited to respond.  This year, THE received 11,554 responses.

Finally, it is worth noting that the survey data used for the Reputation Ranking serves as one of 11 indicators used to create THE World University Rankings that will be published in the fall.

Legislature Passes 2019-21 Biennial Operating and Capital Budgets

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On Sunday, April 28, leadership in the legislature reached a compromise on the state’s 2019-21 biennial operating and capital budgets. The Governor is expected to approve these budgets, but has line-item veto power. As part of the compromise budget package, the legislature passed HB 2158, which creates a dedicated source of funding for higher education through an increase to Business and Occupation (B&O) taxes on professional services.

For a detailed analysis and comparison of the proposals, see OPB’s newest brief on this page.

The outcomes of the state operating budget will be incorporated into the UW’s Fiscal Year 2020 (FY20) operating budget, which will be presented to the Board of Regents as an information item in May and as an action item in June.

Operating Budget

Some noteworthy items in the final operating budget include:

  • Competitive Compensation and Foundational Support: The UW’s highest operating budget priority for the 2019 legislative session was funding to provide competitive compensation to recruit and retain valued faculty and staff. HB 2158 provides $25 million over the biennium in “foundational support” to increase the share of state funding for new compensation and central services in 2019-21. The amounts are also sufficient to make permanent the one-time compensation funding provided last year.
  • STEM Enrollments: HB 2158 also includes funding for STEM investments at the UW, including increasing high-demand enrollments across all three campuses and maintaining the Washington State Academic RedShirt (STARS) program.
  • Financial Aid: The compromise budget package will increase funding for the State Need Grant, which was re-named the “Washington College Grant” under HB 2158. The new funding will reduce the program’s current waitlist by one-third in FY20 and will fully eliminate the waitlist in FY21. Starting in FY21, the program’s income eligibility threshold will be expanded to include students with a household income of up to 100 percent of the state’s median family income.
  • UW Hospitals and the School of Dentistry: The compromise budget includes additional funding to UW Medical Center, Harborview Medical Center, and the School of Dentistry to support their role in providing safety-net care for the state. The budget also provides B&O tax parity for Harborview.

Capital Budget

The compromise capital budget appropriates $167.7 million in new state funding, $94.3 million from the UW Building Account, and $1.8 million from the Model Toxics Control Account. The final capital budget provides significant new state funding for capital projects seeking to advance state and University priorities, including STEM, behavioral and mental health, and health sciences education.

Overall, the final budget fully funds multiple UW requests and provides a substantial amount of new funding for key projects that will benefit both the UW and Washington state as a whole.

Stay tuned to the OPBlog for more updates!

 

House and Senate Proposed 2019-21 Biennial Operating and Capital Budgets

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Last week, leadership in the House and Senate released their 2019-21 state biennial operating and capital budget proposals.

The House Appropriations committee released their initial operating and capital budget proposals on March 25. The Senate Ways & Means committee released their capital budget proposal on March 27 and their operating budget proposal on March 29. As a reminder, Governor Jay Inslee released his proposals in December.

For a detailed analysis and comparison of the proposals, see OPB’s newest brief on this page.

Operating Budget

Some noteworthy items in the operating budget proposals include:

  • Competitive Compensation and Foundational Support: The UW’s highest operating budget priority for the 2019 legislative session is funding to provide competitive compensation to recruit and retain valued faculty and staff. Importantly, all budget proposals released thus far include funding to improve the UW’s share of state support for these critical new expenses. The Governor’s proposal and the original proposal from the Senate would provide sufficient funding to make permanent the temporary funding provided in the current biennium to increase the share of state support and, generally, those proposals get the closest to what is needed for this purpose in the upcoming biennium.
  • STEM Enrollments: The House operating budget would make significant investments in STEM enrollments, which would be funded by increasing Business & Occupation (B&O) taxes through House Bill 2158.
  • UW Medicine and the School of Dentistry: The House budget would make targeted investments supporting UW Hospitals and the School of Dentistry.
  • Financial Aid: All three proposals make significant strides towards fulfilling the 2018 legislature’s commitment to fully fund the State Need Grant.

The House and Senate operating budget proposals assume revenue projections provided in the March revenue forecast from the Economic and Revenue Forecast Council. All three operating budget proposals rely on significant new revenue from these forecasts as well as new revenue proposals. This includes increasing B&O taxes on professional services, instituting capital gains taxes, and/or increasing real estate excise taxes.

Capital Budget

The House’s capital budget would appropriate almost $167.7 million in new state funding for capital projects, along with $94.3 million from the UW Building Account and $1 million from the State Toxics Control Account. The Senate’s capital budget would appropriate almost $135 million in new state funding, $92.3 million from the UW Building Account, $1.8 million from the Model Toxics Control Account, and $1 million from the Community Behavioral Health Account. Governor Inslee’s capital budget proposed $72 million, $88.3 million, and $1 million, respectively.

Overall, the House and Senate proposals would fully fund multiple UW requests, but differ in their proposed funding mechanisms, amounts, and priorities. Both budgets would over-utilize the UW Building Account while providing significant new investments through state funds.

Stay tuned to the OPBlog for more updates as the proposed budgets move forward.

 

Note: The information in this post and the brief cover legislative versions as of April 1. For operating budget proposals, this means the House proposal after committee and floor amendments and the Senate proposal as originally proposed by the Senate Ways & Means chair. For capital budget proposals, the brief covers the House proposal with committee amendments and the Senate proposal as originally proposed by the Senate Ways & Means chair. Changes to the brief to reflect committee and floor changes in the Senate will be forthcoming.

OPBlog: Introduction

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Hi! My name is Jessie Friedmann, and I joined OPB in January as the Policy & Communications Analyst.

I have my Bachelor’s degree in Policy, Planning & Development from USC, and my Master’s degree from the UW School of Social Work, with a concentration in Administration & Policy. I have worked in local, state, and federal policy on education, child welfare, and mental health in both Washingtons, as well as California.

Since joining the OPB team, I have enjoyed applying my experience to help analyze policy and create clear communications about the amazing and diverse work being done here at the UW.

Please don’t hesitate to send me an email if you have any questions or feedback. Thanks so much!