Budgets in Washington state tighten as population growth slows

It's budget season in Washington state, and lawmakers are looking at cuts.

Seattle leaders might lay off employees in human resources, cut some programming at city hall’s version of C-SPAN, and get rid of mounted police.

RELATED: How city leaders want to patch Seattle's $250 million budget deficit

Proposed cuts at King County have the assessor worried he won’t have enough appraisers for the growing region’s new construction. The state government expects to miss its revenue forecast for this fiscal year by about $500 million.

There are lots of reasons for these tight margins — including ones you've probably heard a lot about, like inflation — but there's one driver you likely haven't heard much about: slowing population growth.

People aren’t moving to Washington as much as they have been in the last half-century, said Jacob Vigdor, a professor of public policy at the University of Washington.

“We have had pretty robust population growth, year in, year out, from the early 1970s through to just about 2020,” Vigdor said. “We never had population growth less than a half percent in a year, over basically a 50-year time span.”

The years since the Covid-19 pandemic have been a different story, according to numbers from the Federal Reserve: growth has been “anemic” — 0.2% in 2021, 0.6% in 2022, and 0.4% last year.

We happen to live in a state that relies on population growth to pay the bills, Vigdor said — one where there’s no income tax, and lots of sales and property taxes instead.

“Every time a house gets built somewhere in Washington State, there's sales tax paid on all those construction supplies. And then, we get money when the house is sold as well,” Vigdor said. (Tax superfans: That’s called a real estate excise tax.)

RELATED: Building housing in downtown Seattle just got easier

For the record: Washington state is still growing, just not as fast as it was. And new construction is still happening, although not enough to keep up with demand, by some experts’ estimations.

Washington state’s chief economist, Dave Reich, agreed with Vigdor’s assessment. For the first time since the Great Recession, sales tax receipts have dropped this year (although only by 0.2%) — and Reich also pins that partly on fewer people building, buying, and moving homes. Construction makes up about a fifth of statewide sales taxes, Reich said, and new construction lets the government hike property taxes higher than they normally can.

“Even things like home furnishings, that are sort of tied to people buying homes and stuff, have been weak,” Reich said, although he also pinned the drop in sales tax revenue on other culprits, like slow auto sales.

Though you’re probably tired of hearing about it, inflation is a part of this puzzle: governments buy fuel and pay employees just like everyone else does. Fuel costs have been up, and many government employees such as cops and teachers have won raises or cost-of-living adjustments to keep up with inflation.

RELATED: Everything you always wanted to know about inflation (but were afraid to ask)

But tax revenues don't always go up with inflation. For instance, the amount county governments can raise your property taxes every year is limited to 1% by law. So, if they charged you $100 last year, the most they can charge you this year is $101, unless you built something new that hiked the property’s value.

That means higher costs for government, and tax revenues that don't meet those costs.

“You [the government] committed to paying these higher salaries, just sort of crossing your fingers that when the bill came due, you'd have some source of extra revenue somewhere,” Vigdor said. “And now, we're actually having trouble figuring out what that source of revenue might be.”

Some Democrats say that source of revenue is taxing the rich more. Another side effect of a tax system based on sales and property values is that poor and middle-class people pay a larger share of their income in taxes than rich people pay.

Republicans often argue that people aren’t moving to Washington in the same numbers they did in the last 50 years because of crime and a high cost of living -- failures they pin on Democratic control of local governments.

RELATED: Washington state population tops 8 million and it's not getting any younger

Vigdor ties the growth slowdown to remote work and stagnating population growth countrywide.

“Where does population growth come from?” Vigdor said. “It comes from families having kids, and it comes from immigration, and we're having less of those things.”