Boosting Aid With a Tax on Business

Washington State's new scholarship program, which will help make college free for thousands of students, will be funded by a tax on businesses that need highly skilled and educated employees.

May 28, 2019
 
University of Washington

Lawmakers in Washington State are taking a novel approach to funding higher education with a new scholarship program that will make tuition at the state's colleges and universities free for thousands of low-income families.

Governor Jay Inslee, a Democrat, on Tuesday signed into law a work-force investment bill that creates the Washington College Grant. The scholarships, which will be fully funded through an increase in the state’s business and occupation tax, guarantees financial aid for more than 110,000 low- and middle-income Washington residents. The grant will help students pay little or no tuition.

The scholarship program is one of the more progressive statewide grants to emerge in recent years. It’s a first-dollar scholarship, which means qualified students can be eligible for the aid regardless of whether they receive federal or other state grants. Students can use the grants to attend any of the state’s public or private two- and four-year colleges. Part-time students, students pursuing a certificate or those enrolled in an approved apprenticeship also can qualify for the grant. And the grant isn’t limited to recent high school graduates but is open to any potential student who doesn’t already hold a bachelor’s degree.

“This does allow our low-income students … the ability to have their full needs met,” said Ana Mari Cauce, president of the University of Washington. “And this is benefiting our business community because now we can graduate more students who are ready to take the jobs right here in our state.”

Several employers in the state sounded an alarm a few years ago about a lack of residents with high-quality skills and educations that go beyond a high school diploma, said Anne Fennessy, chairwoman of the Washington State Board for Community and Technical Colleges. A report released in 2016 by those employers found a projected 740,000 job openings in Washington by 2021, with 70 percent of those jobs requiring some education past high school.

Cauce said it was important to include all types of institutions -- public, private, four-year and two-year -- as places where students could use the grant dollars. The state doesn’t want to create a "two-tiered system" where low-income students go to only one type of institution and wealthier students go to another, she said.

“People from low-income backgrounds should have the same range of opportunities as people from wealthier backgrounds,” she said. “A quarter of our students are community college transfers, and they’re absolutely terrific. Beginning at a community college is perfectly respectable and for some people the best option, but at the same time we want students to take the option that makes sense to them. And for some, that’s enrolling here.”

Support From Microsoft and Amazon

The grant is expected to cost about $80 million annually for the first two years, but the program doesn’t represent the full scope of the new work-force legislation. The legislation will generate more than $1 billion in projected revenue over the next six years for higher education.

It also attempts to make the funding “recession-proof” by only allowing the taxes collected to be used for higher education programs, compensation for college employees and student financial aid. Other statewide tuition-free programs, such as the Oregon Promise, are funded through their state budgets. No other state has replicated Tennessee’s approach of paying for its Promise program through lottery reserves that were placed in an endowment.

In addition to the grant, the state is spending $16 million a year for two years to expand guided pathways at community colleges, which are designed to help students transition from college programs to a career. It also is providing $30 million annually to colleges and universities to increase the salaries of nurse educators and other faculty in high-demand areas such as computer science and welding.

"This legislation invests in both sides of the equation: affordability for students coupled with foundational support for the colleges and universities that serve them. And it also invests in student support services, like advising, to make sure students not only enroll in college but can succeed once they get there," said Laura McDowell, a spokeswoman for the two-year college board.

The new funding is paid for through a tax on businesses that rely heavily on employees with advanced degrees, such as software development, architecture, engineering, financial services, scientific research and telecommunications.

“There should be some recognition that they are paying for the next generation,” Cauce said. “There’s nothing wrong with importing talent, but it’s easier for them to hire from within the state … so this is a really good investment for them.”

Supporters of the new education investment include two of the state’s largest employers -- Microsoft and Amazon. Depending on the size of the business, each will be taxed at a different rate. Microsoft and Amazon would pay the most and see a total annual surcharge of $7 million each.

“It is sensible to ask the parts of the business community that benefit so strongly from higher education to pay into this fund so we can sustain the higher education system on which we depend,” said Brad Smith, Microsoft's president, in an interview with Inside Higher Ed. “I was acutely aware of the fact personally and as a company that Microsoft arguing for a tax increase for other businesses was somewhat of an awkward position to be in.”

Smith said Microsoft, with annual revenue of more than $100 billion, was arguing for a tax increase on much smaller companies. But Smith encouraged a larger tax increase for Microsoft and Amazon.

Some employers opposed the tax.

“We’re very supportive of the need for further investment in higher education, especially because we spend so much time and effort in funding the K-12 system and we need to be strategic in funding higher education,” said Amy Anderson, director of government affairs for education, work-force development, health care and federal issues at the Association of Washington Business, which represents more than 7,000 companies. “But increasing taxes is not sustainable, and we don’t want to get in a position where we starve our higher education sector.”

Anderson said while there is money now in the state budget, that won’t always be the case.

“If we see any economic downturn, which is anticipated, we do know that at some point it will impact our businesses and we won’t have additional revenue to support these higher education efforts,” she said.

Smith said he would encourage businesses and lawmakers in other states to consider following Washington’s footsteps in finding a new way to fund higher education, even if that means increasing business taxes.

“The states are laboratories of democracy, and I’m hopeful the success and innovation in Washington State may inspire similar efforts in other parts of the country,” Smith said. “I don’t think the Legislature would’ve imposed a tax on businesses without the leadership by some businesses to advocate for it.”

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