Washington lawmakers made national headlines when they promised to use a new business tax to make tuition at public colleges significantly more affordable — or free — for students across the state, starting in the 2020-2021 school year.
But now, after 31,000 students have submitted financial-aid forms, lawmakers and government officials are questioning whether the tax raises enough money to keep their promise.
The bottom line: Without changes to the law, the government could be several million dollars short of meeting its promise each school year. The state didn’t take into account how students would use the Washington College Grant, and overlooked issues with collection of the tax.
State Sen. Jamie Pedersen, D-Seattle, said last year’s law “didn’t have a lot of time for development, either on the policy side or the funding side.”
The premise of last year’s college-affordability legislation, which came as Gov. Jay Inslee campaigned for president, was to guarantee financial aid for anyone who qualified. It replaced the State Need Grant, which was already considered one of the nation’s most generous financial-aid programs, but ran out of money every year. The new grant program ends the state’s financial-aid waitlists.
Next school year is the first time students are eligible for the benefit, which was created through last year’s Workforce Education Investment Act. The move drew national fanfare for promising to pay full tuition and fees for students from families who make less than $50,000 a year – and partial tuition for families who make up to the state’s median income, which is about $92,000 for a family of four.
Officials planned to pay for the grants through a surcharge on roughly 82,000 businesses that rely on college-educated workers, such as Microsoft and Amazon, and also consulting firms, engineering companies and other businesses.
The law included a description of the types of businesses subject to the surcharge, but according to the agency tasked with collecting the tax, the language is so complex that it anticipates trouble with getting companies to pay. So far, some smaller businesses, such as doctor’s offices, have requested an exemption.
“We have concerns that we will be able to collect this,” said Mikhail Carpenter, a spokesperson for the Department of Revenue.
In response to concerns about a potential shortfall, Inslee has requested $28 million from the general fund to offset the expected budget shortfall, an acknowledgment that the state may not raise enough in 2020 tax revenues to cover the college grant’s cost. An estimate from the state Office of Financial Management projects this shortfall will swell to nearly $50 million a year by fiscal year 2023, as more high school graduates start college.
Pedersen and Democratic Rep. Drew Hansen, of Bainbridge Island, a lead sponsor of last year’s financial-aid bill, offered fixes this week. Hansen’s bill makes tweaks that ease the government’s ability to collect the tax that covers the benefit’s cost, and the Department of Revenue estimates it will raise just under an additional $110 million by fiscal year 2023.
Pedersen’s bill offers a more drastic overhaul, by making all Washington service businesses that gross more than $1 million a year subject to the surcharge, regardless of whether they rely primarily on highly skilled workers. The legislation would reduce the number of taxed businesses to about 15,000, he said. But the mix of companies would include more high-grossing businesses than the original law, he said, which would make up the difference and add additional revenue. The Department of Revenue expects Pedersen’s bill will raise an additional $230 million or so by fiscal year 2023.
Why the sudden rush to make revisions?
For one, more students are projected to attend the state’s four-year universities than two-year colleges than in years past. University tuition differs by institution, but is more than double the cost of the state’s community colleges. The business tax may not keep pace with the benefit’s cost.
“We are trying to be cautious about what we are likely to see in the future,” Hansen said. “We’re looking at some of the details of how we fund that to make sure we can keep that commitment.”
Lawmakers estimated last year that in the 2020-21 school year, about 110,000 students would take advantage of the grant. They based their projections on the number of students who applied for the State Need Grant, and the number of those who were eligible but missed out because the state ran out of money.
A more sophisticated estimate produced in November by a state forecasting agency, the Caseload Forecast Council, projected that 102,462 students will use the grant in 2020-21. Although this is about 8,000 fewer students than initially estimated, the program is expected to be more expensive. More students may land at the state’s four-year schools instead of at two-year options, and more may enroll full-time instead of part-time.
Where students choose to attend school, and how many of them use the grant, won’t be final for several months: Many students are still applying to colleges and submitting financial-aid eligibility forms.
As of Wednesday, 30,628 Washington students, 284 more than last year at this time, had filed the Free Application for Federal Student Aid, said Michael Meotti, executive director of the Washington Student Achievement Council, which oversees the Washington College Grant.
“This is the first time we’ve ever done this,” said Meotti. “This is a very complicated world of financial analysis.”
University of Washington officials didn’t take a position on Pedersen’s bill or any others, but spokesperson Victor Balta said they’re focused on making sure the “legislature honors its commitment.”
