Posted by DeLee Shoemaker
Senior Director of State Government Affairs, Microsoft

Editor’s Note: This post is part of a monthly series from Microsoft called “The View from Washington State.” The View from Washington State provides insight and commentary on topics and trends of importance to technology, education, corporate citizenship and public policy in Washington State.

Last week, the state’s Economic and Revenue Forecast Council published its February revenue update.  There were no major surprises, and cumulated general fund revenue collections are now about two percent above the November forecast.

The fact that actual revenue collections are running slightly above forecasted levels is good news for lawmakers working to close a gap in the budget estimated to be as much as $2.5 billion, including the costs of beginning to comply with the Supreme Court’s ruling in the McCleary basic education funding case.

Conversely, it illustrates the fact that one major cause of our budgetary challenge has a lot to do with past spending decisions.  Since the 1993-95 biennium, the state’s total near general fund (NGFS) revenues have climbed from $16.3 billion to just over $31.0 billion.  Over the same period, the share of state general fund going to K-12 education has actually shrunk from roughly 47 percent to around 44 percent, while the share going to higher education has dropped from about 11 percent to around 9 percent.

As lawmakers have prioritized other programs, the state’s education system – both K-12 and higher education – hasn’t been able to keep up with the needs of a rapidly evolving, innovation-dependent state economy.  The statistics are as daunting as they are consistent:

• Washington rates in the bottom third (37th in the nation) in HS graduation rate, with roughly one in four high school freshmen failing to graduate.

• Washington is one of the few states in which achievement gaps between students of color and their white peers are not shrinking and, in fact, are growing in same subjects and grade levels

• A foundational skill these days is computer science, yet today of the 791 public and private high schools in our state, only 35 offer AP computer science classes.

• Washington ranks 38th in the nation in bachelor’s degrees awarded per capita.

• And at a time when the Student Achievement Council estimates that Washington annually needs another 10,000 bachelor’s degrees and 9,000 graduate degrees in STEM fields to meet employer needs, more than two-thirds of the qualified applicants to be CS majors at UW cannot be accepted, due to capacity constraints.

These statistics mean that too few Washington students are prepared to take advantage of the best job opportunities being created here. Skilled workers are important for any business, but they are the lifeblood of the innovative and growing technology employers who have become the key drivers of the state economy.

According to the Washington Research Council, roughly two-thirds of the job growth and more than one-half of the employee compensation growth in Washington over the past two decades is attributable to the tech industry.  Technology-related employment has grown 119.3 percent since 1990, compared to growth in the underlying state economy of only 14.1 percent.  The industry now accounts for more than 27 percent of all jobs in our state, and its job-creating role has been especially important during the recession, as tech employers provided employment and income stability while many of the state economy suffered.

The industry’s contributions to the state can also be measured in taxes generated.  Sales and B&O taxes paid by the industry have grown 318 percent since 1994, to $2.9 billion in 2011.  That growth rate is more than four times that of overall state revenues (73%).  As a result, the technology industry plays a much larger role in funding state government than it did two decades ago.

Which brings us back to the revenue forecast.  At least some of the tech industry’s growth has been spurred by a series of tax incentives enacted in 1994 to help diversify the state economy.  These incentives, especially in the R&D sector, have paid off dramatically in jobs, economic activity and tax revenues.  But those skeptical of the incentives are arguing that they should be eliminated to help plug the current budget hole.   

Washington’s vibrant technology industry has provided substantial economic benefits to individual families, to local communities, and to the state as a whole.  The incentives that are in now in place have worked exactly as they were designed to, and have proven to be prudent investments for the taxpayer, paying substantial dividends in the form of new jobs and incremental tax revenues that far exceed their costs. 

While there are many difficult budget trade-offs facing state lawmakers, understanding how incentives can help create jobs and grow the economy is just as important as considering the impact of spending or tax proposals.  If we want Washington to continue to enjoy a vibrant and healthy economy, we will need to support the employers that are creating these types of jobs here.