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November Revenue Forecast Predicts Slower, But Increasing Growth

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The Economic and Revenue Forecast Council (ERFC) released their November revenue forecast. The projected Near General Fund-State (GF-S) revenue forecast for the 2017-19 biennium increased by $163.4 million. Projected revenue collections for the 2019-21 biennium increased by $195.5 million. The report projects higher personal income than the September revenue forecast, but slower growth.

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

  • $45.799 billion for the 2017-19 biennium, 17.3 percent more than the 2015-17 biennium
  • $50.002 billion for the 2019-21 biennium, 9.2 percent more than the 2017-19 biennium
  • $53.795 billion for the 2021-23 biennium, 7.6 percent more than the 2019-21 biennium

Some context behind the numbers:

  • Washington’s unemployment declined to 4.3 percent in October, an all-time low in the series that extends back to 1976.
  • The forecast expects 2.7 percent Washington employment growth this year compared to 2.9 percent in the September forecast. The forecast expects growth to decelerate gradually as the recovery matures and for employment growth to average 1.3 percent per year in 2019 through 2023.
  • The forecast estimates that Washington personal income in the second quarter of 2018 is $10.4 billion (2.4 percent) higher than the September forecast.
  • Cumulative GF-S revenue collections from September 11 through November 10, 2018 were $22 million (0.7 percent) higher than forecasted in September. The slower growth was primarily attributed to Revenue Act taxes, which make up the bulk of GF-S revenue and include sales taxes, business and occupation taxes, and certain tobacco products, coming in $25 million (0.9 percent) lower than forecasted in September.

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

Stay tuned to the OPBlog for updates on 2019-21 budget proposals and the legislative session!

September Revenue Forecast Shows Increased Revenue

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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 $348 million. Projected revenue collections for the 2019-21 biennium increased by $443 million. The forecast expects higher personal income and employment than the June revenue forecast.

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

  • $45.636 billion for the 2017-19 biennium, 16.9 percent more than the 2015-17 biennium
  • $49.806 billion for the 2019-21 biennium, 9.1 percent more than the 2017-19 biennium
  • $53.585 billion for the 2021-23 biennium, 7.6 percent more than the 2019-21 biennium

Some context behind the numbers:

  • Cumulative GF-S revenue collections from June 11 through September 10, 2018 were $147 million (3.0 percent) higher than forecasted in June.
  • Revenue Act taxes, which make up the bulk of GF-S revenue and include sales taxes, business and occupation taxes, and certain tobacco products, came in $137 million (3.3 percent) higher than forecasted.
  • The forecast expects Washington employment to grow 2.9 percent this year compared to 2.5 percent in the June forecast. The increase is primarily attributed to growing private services-providing sectors. Partially due to employment growth, personal income is also projected to be higher than the June forecast.

There will be one more revenue forecast this year, which will be released in November. The Governor will use the November forecast revenue estimates when crafting his proposed 2019-21 biennial budgets, which will be released in December.

Stay tuned to the OPBlog for updates on revenue forecasts and the upcoming 2019 legislative session!

July Economic & Revenue Update Indicates Continued Growth in Washington

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Last month the Washington state Economic and Revenue Forecast Council (ERFC) released their June revenue forecast. Cumulative major General Fund-State (GF-S) revenue collections were $189 million higher than the February revenue forecast.

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

  • $45.288 billion, for the 2017-19 biennium, 16.0% more than the 2015-17 biennium
  • $49.363 billion, for the 2019-21 biennium, 9.0% more than the 2017-19 biennium
  • $53.170 billion, for the 2021-23 biennium, 7.7% more than the 2019-21 biennium

Some context behind the numbers:

  • Cumulative real estate excise taxes (REET) were $25 million (8.0%) higher than forecasted.
  • Revenue Act taxes, which consist of sales, use, business and occupation (B&O), utility and non-cigarette tobacco products, make up the bulk of the GF-S revenue. Collections were $131 million (2.7%) higher than forecasted.

In July the ERFC released an economic & revenue update that showed a further increase in GF-S revenue collections. Here is how this update compares:

  • GF-S revenue collections for June 11 through July 10 were $41.1 million (2.4%) above the June forecast.
  • Revenue Act tax collections for the current period were $39.3 million (3.0%) higher than the June forecast.

Washington continues to lead the country in personal income growth. The U.S. Department of Commerce, Bureau of Economic Analysis (BEA) released state personal income estimates for the first quarter of 2018. These estimates showed Washington personal income rose to $434. 1 billion in the first quarter 2018 compared to $426.5 billion in the fourth quarter of 2017. With 7.4% growth rate, Washington was the highest among the states and the District of Columbia.

Check back with the OPBlog in September for future updates on revenue forecasts.

Update: Supreme Court Decision on Fisher v. University of Texas

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On Thursday, the U.S. Supreme Court upheld University of Texas at Austin’s race-conscious admissions policy in its second consideration of a Fisher v. University of Texas appeal. As a reminder, the case stemmed from a lawsuit by Abigail Fisher, a white applicant to UT Austin who claimed she was unfairly rejected due to the university’s affirmative action admissions program. Since our last update, when the Supreme Court ordered the U.S. Court of Appeals for the Fifth Circuit to reconsider the case, the appellate court affirmed their decision in favor of UT, and Fisher again appealed that court’s decision to the Supreme Court. For additional background on this case, please see our previous two posts, found here and here.

The case was decided by an unusual 4-3 margin due to Justice Kagan’s recusal and the recent death of Justice Scalia. According to the NY Times, Justice Kennedy, who had never before voted to uphold an affirmative action plan, wrote for the majority that “…it remains an enduring challenge to our nation’s education system to reconcile the pursuit of diversity with the constitutional promise of equal treatment and dignity.”

This decision marks the end of the Fisher case, but the debate over affirmative action in higher education carries on.

Stay tuned to the OPBlog for updates.

New OPB Brief on Income Share Agreements (ISAs)

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Over the past few months, income share agreements (ISAs) have received significant attention from political candidates, higher education advocates, and news sources. A new OPB brief takes a closer look at ISAs by:

  • Exploring differences between and the history of privately funded ISAs and publicly funded ISAs (such as Pay It Forward).
  • Comparing ISAs to federal income-based repayment (IBR) plans in terms of overall structure, years to repayment, monthly payments, and total cost over time.
  • Identifying remaining issues regarding ISAs and their implementation.
  • Offering alternatives like improving federal loan repayment options.

Please contact Jed Bradley if you have any questions.

Obama administration announces plan to expand Pell Grant program

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The Obama administration has introduced a plan to bring back year-round Pell Grants and to create a $300 bonus for Pell recipients taking at least 15 credits a semester. Both elements of the plan are designed to incentivize students to graduate faster and accrue less debt in school. The plan would cost $2 billion over the next year, according to the Department of Education.

The year-round Pell Grant program was initially put in place by President Bush in 2008 but was cut in 2011 as a budget-saving measure. While the effort to reinstate the program will likely face significant Congressional opposition, there is some bipartisan support. Senator Lamar Alexander (R-LA), Chair of the Senate education committee, and Democratic Senator Michael Bennet of Colorado are cosponsoring legislation to reintroduce year-round Pell Grants. “We have long supported providing students a more flexible Pell Grant program and hope this is one of many areas Congress and the administration can work together to strengthen higher education,” a Republican education committee spokesman was quoted as saying in Inside Higher Ed. Even with this bipartisan support, however, the administration faces a difficult task in getting the legislation through a very budget-conscious Congress.

The $300 bonus, dubbed “15 to finish” by education non-profits, is also somewhat controversial, though the division is between a different set of stakeholders than the Pell Grant expansion. Many college completion non-profits support 15 to finish, saying that encouraging 15 credit semesters is an important tool in incentivizing Pell recipients to graduate on time. The plan has drawn criticism, however, from community college leaders and adult student advocates, who contend that 15 credits is too many for students who are busy working or who have come into higher education unprepared for college-level work.

See the UW Federal Relations department post for further information on the Pell Grant proposal.

Perkins Loan Program Temporarily Revived

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Last week, Congress passed a bipartisan bill to extend the Federal Perkins Loan Program, which had expired in September.

The bill authorizes new undergraduate applicants to join the program through September 2017, but only if they have exhausted all other federal borrowing options first.  New graduate students will not be able to join the program, but those who already have Perkins loans can continue to receive them through September 2016.

In the current academic year, over 3,200 University of Washington students have received approximately $12 million in Perkins loans.  These low-income, high-need students, rely on Perkins loans to cover any financial gap that remains after grants and scholarships have been applied to their tuition.

More information on the Perkins extension is available at Inside Higher Ed and The Chronicle.

DOJ reaches largest-ever settlement with for-profit higher education provider

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U.S. Attorney General Loretta Lynch announced on Monday that the Department of Justice (DOJ) has reached a settlement in its false claims case against the Education Management Corporation (EDMC), an operator of for-profit colleges and universities. The $95.5 million settlement is the largest ever in a higher education false claims case. EDMC will also forgive a total of $102.8 million in loans to over 80,000 students who attended its schools, which include Argosy University, the Art Institutes, Brown Mackie College, and South University, between 2006 and 2014.

The lawsuit was originally filed in 2007 by whistle-blowers within EDMC, who alleged that the organization was offering extra incentives to their admissions officers based on the number of students they enroll, a violation of the Incentive Compensation Ban in the Higher Education Act. Said Attorney General Lynch in her statement, “EDMC’s actions were not only a betrayal of their students’ trust; they were a violation of federal law.”

Reactions to the settlement have been mixed. While it is encouraging to see the DOJ take action against illegal and unethical practices at for-profit institutions, many student and consumer advocates have criticized the settlement for providing too little relief for students who accrued thousands of dollars of federal student loan debt at EDMC institutions.

Secretary of Education Arne Duncan has indicated that his Department is willing to listen to claims from students who believe that EDMC mislead them when if offered loans, but critics of the deal say listening is not enough. “I am disappointed that the department’s only plan for EDMC students is to hear their complaints,” said Robyn Smith, a lawyer at the National Consumer Law Center, who was quoted in The Chronicle. 

Others have criticized the language of the settlement, which did not force EDMC to admit wrongdoing for its actions. Stephen Burd, a senior policy analyst at New America, laments the continued lack of accountability of for-profit institutions.

“Too many of these cases are settled without finding fault,” he said in the same Chronicle article, “and the for-profit industry has been able to say, ‘Oh, nothing is proven.’”

Despite its issues, this settlement is another step in the Federal Government’s continuing efforts to rein in the questionable behavior of for-profit colleges and universities. Last year, the Department of Education formed an interagency task force to more rigorously oversee for-profit institutions of higher learning. The Department of Defense also suspended all tuition assistance to the University of Phoenix, which targets veterans in its recruiting efforts.

National 3-Year Cohort Default Rate Drops For Third Consecutive Year: UW Continues to Excel

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The Department of Education recently released their annual report detailing the 3-year cohort default rate (CDR)—a metric that measures what percentage of postsecondary students default on their loan payments within the first three years of entering repayment—and the data are encouraging: the 3-year CDR for FY 2012 is 11.8 percent, almost two percent lower than the previous year and three percent lower than FY 2010.

While reasons for the drop are uncertain, administration officials have credited the increased enrollment in income-based repayment plans as partially responsible. Secretary of Education Arne Duncan has cheered the lower default rate but cautions that there is more work to do. “There’s no real reason why we can’t significantly reduce default rates even further,” he told reporters in a statement reported by Inside Higher Ed. “We’re going to keep working to hold schools accountable.”

The report also breaks down the CDR by school, state, and institution type. Below is a breakdown of the most salient statistics.

National statistics:

  • Public four year institutions saw their 3-year CDR drop to 7.6 percent, down from 8.9 percent last year.
  • Private non-profit four year institutions’ default rate also dropped, to 6.3 percent from 7 percent.
  • Private for-profit four year institutions’ CDR dropped to 14.7 percent, down from 18.6 percent last year.

State statistics:

  • Schools in Washington state have an average 3-year default rate of 10.1 percent, slightly below the national average.
  • The University of Washington performed exceptionally well by this measure: the 3-year CDR for UW dropped to 2.7 percent, almost 5 percent lower than the national average for public four year universities and down from 4.3 percent last year.

As previously stated, the declining CDR average nationwide is a hopeful sign for the future of student loan repayment. Nevertheless, loans remain a massive strain on millions of college students and graduates and more must be done to alleviate the student debt burden. The CDR itself has come under fire as a flawed metric; it only measures those students who default on payments and does not take into account the almost one in three borrowers who make payments but cannot make any progress on paying down their debt or the share of students at a given institution who borrow. Some in the education policy world have called for using loan repayment rates, rather than default rates, as the primary metric for gauging an institution’s ability to prepare its students for repayment.

 

Average Debt for Graduates Continues to Rise

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Overall student debt levels of recent bachelor’s degree recipients continue to rise according to Student Debt and the Class of 2013, a new report from the Project on Student Debt at The Institute for College Access & Success (TICAS).  The report includes 2013 state- and college-level debt data for graduates from colleges that opt to disclose their graduates’ debt. However, since very few for-profit colleges choose to disclose debt data, the report’s figures represent only public and nonprofit colleges.

  • At the national level, 69 percent of graduating seniors had student loans and those that borrowed had an average debt of $28,400 – a 2 percent increase over 2012. For comparison, in 2013, 50 percent of UW undergraduates graduated with debt, and those that borrowed graduated with an average debt load of $21,471.
  • At the state level, borrowers’ average debt at graduation ranged from $18,656 to $32,795, and the likelihood of graduating with debt ranged from 43 to 76 percent. In six states, average debt was greater than $30,000; in one state, it was under $20,000. Nearly all the highest debt states were in the Northeast and Midwest, with the lowest debt states in the West and South. In Washington, 58 percent of graduates had debt, and those that borrowed had an average of $24,418 in loans. Debbie Cochrane, research director at TICAS and coauthor of the report, says, “The importance of state policy and investment cannot be overstated when it comes to student debt levels.”
  • At the college level, borrowers’ average debt at graduation varied widely – ranging from less than $2,500 to more than $71,000 – and the likelihood of graduating with debt also varied – running from 10 percent to 100 percent. At nearly one in five (18%) colleges, average debt rose at least 10 percent, while at 7 percent of colleges, average debt decreased by at least 10 percent. In general, colleges with higher costs had higher average debt at graduation, although that wasn’t always the case.

The authors note that the report’s data have significant limitations, primarily because colleges are not required to report debt levels for their graduates. Only 57 percent of public and nonprofit bachelor’s degree-granting colleges provided data, representing 83 percent of graduates in those sectors. And for-profits, as mentioned, were excluded because hardly any chose to disclose their graduates’ debt.[1] Even colleges that do provide data may understate graduates’ debt loads because they do not include transfer students and are often not aware of all private loans.

Thus, the report’s main recommendation is to get better debt data via federal collection of cumulative student debt data for all schools. The report also makes recommendations about reducing students’ need to borrow, helping students make better-informed college decisions, and simplifying income-driven repayment plans.

See the report or TICAS’ interactive map for more information.

[1] Federal data for 2012 graduates of for-profit. four-year colleges show that the vast majority (88%) took out student loans and that borrowers graduated with an average of $39,950 in debt—43 percent more than bachelor’s recipients in the other sectors. In addition, students at for-profits tend to default on their loans much more frequently than students in other sectors.