AN ACT Relating to funding of higher education faculty salaries; amending RCW 82.04.4281, 82.04.300, and 82.04.390; adding a new chapter to Title 28B RCW; adding new sections to chapter 82.04 RCW; adding a new section to chapter 82.32 RCW; creating new sections; making an appropriation; and providing effective dates.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. SHORT TITLE. This chapter shall be known as the higher education improvement act of 1986.

NEW SECTION. Sec. 2. PREAMBLE. The legislature finds that higher education is of the utmost importance to the continued social, cultural, and economic well-being of the people of Washington state.

The legislature also finds that salaries for full-time state-funded teaching and research faculty are below faculty salary levels at their peer institutions and that this situation is detrimental to attaining excellence in the education and training of our people.

The legislature recognizes that continued deterioration in faculty salaries will result from the inability to adequately address faculty salary disparities particularly in the retention and recruitment of the most able and meritorious faculty.

The legislature recognizes that efforts to address the problem of competitive faculty salaries will require the commitment of significant state resources for which other important programs will compete.

It is therefore the legislature's intent to remedy faculty salary disparities and achieve fully competitive salaries for full-time state-funded teaching and research faculty at Washington state institutions of higher education.

The legislature further intends that the salary increases which are provided by this chapter shall be based upon documented disparities in faculty salaries relative to those at peer institutions and be distributed within each institution on the basis of evidence of each faculty member's contribution to the profession, the institution, and the community.

The legislature intends that the salary increases which are provided by this chapter shall not be distributed on an across-the-board basis.

In as much as there is a lack of information concerning the salary disparity between community college faculty and their counterparts in other states, the legislature also intends to establish an objective measure of competitive salaries for community college faculty. The legislature finds it necessary to conduct a national survey of community college faculty salaries which will be the basis for determining competitive salary levels for community colleges in Washington state.

The legislature further finds that in addition to the critical issue of faculty salaries, there is substantial need for additional funding in the areas of student scholarships, student loans, and enhancement of undergraduate education. Therefore, a portion of the business and occupation tax is dedicated to those purposes.

NEW SECTION. Sec. 3. DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Washington state institutions of higher education" means the University of Washington, Washington State University, Central Washington University, Eastern Washington University, Western Washington University, The Evergreen State College, and all community college districts within the jurisdiction of the state board for community college education.

(2) "Research institutions" means the University of Washington and Washington State University.

(3) "Regional institutions" means Central Washington University, Eastern Washington University, Western Washington University, and The Evergreen State College.

(4) "Peer institutions" means those institutions most comparable to Washington's public institutions of higher education, including Washington's community college system, as determined by the office of financial management on the basis of similarity in role and mission, undergraduate or graduate education emphasis, research emphasis, program offerings at the doctorate, masters, professional, bachelors, and associate degree levels, and institutional size.

(5) "Peer institution groups" means (a) for the University of Washington: The University of Arizona, the University of California at Berkeley, the University of California at Los Angeles, the University of Illinois, the University of Iowa, the University of Michigan, the University of North Carolina, and the University of Oregon; (b) for Washington State University: The University of California at Davis, the University of California at Santa Barbara, the University of Illinois, Purdue University, Iowa State University, Michigan State University, North Carolina State University, and Oregon State University; and (c) for the regional universities and The Evergreen State College: Northern Arizona University, California State University at Chico, California State University at Hayward, Western Illinois University, Northern Michigan University, Western Carolina University, and Portland State University.

(6) "Faculty salary disparity" means, for each Washington institution of higher education, the extent to which average salaries for its eligible faculty are below the average salaries received by full-time state-funded teaching and research faculty at its designated peer institutions.

(7) "Eligible faculty" means full-time state-funded teaching and research faculty including primary support personnel who are appointed with a faculty title and paid one hundred percent of a full-time equivalent salary rate on a monthly basis.

(8) "Merit" means excellence in performance, consistent with the role and mission of each respective institution and its individual colleges, schools, and departments as evidenced by (a) evaluations of teaching effectiveness, (b) contribution to the institution and its students, the profession, and the community, and, for the research and regional institutions, (c) the professional recognition of research and publications.

NEW SECTION. Sec. 4. APPLICATION OF CHAPTER. This chapter applies only to eligible faculty at Washington state institutions of higher education.

This chapter shall not prevent the granting of salary increases, on terms consistent with this chapter, to research faculty at Washington institutions of higher education supported by moneys other than state funds if sufficient moneys exist to support the increases.

This chapter shall not preclude eligible faculty from receiving general salary increases granted by the legislature to state employees through the normal appropriations process, but these general salary increases shall be fully recognized by the office of financial management and/or the higher education coordinating board in updating its report of faculty salary disparities at each Washington institution of higher education.

NEW SECTION. Sec. 5. PEER GROUP COMPARISONS. The office of financial management shall annually identify the faculty salary disparities between Washington state's research and regional institutions of higher education and their respective peer institutions. The office of financial management shall report these disparities no later than January 15, 1987, and no later than January 15 of each subsequent year. The office of financial management shall concurrently identify and report the level of appropriation from the higher education improvement account necessary to eliminate the faculty salary disparities.

NEW SECTION. Sec. 6. COMMUNITY COLLEGE SURVEY. The office of financial management, in conjunction with the higher education coordinating board, shall conduct, or designate a recognized consulting firm to conduct, a national survey to determine average salaries for full-time instructional faculty at a representative sample of two-year institutions of higher education in other states. The sample shall be constructed to reflect, to the greatest extent possible, the nature and composition of Washington state's community college system, with particular emphasis given to similarity in (1) degree and program offerings; (2) enrollment levels; (3) types of communities served; and (4) degree of reliance on state funding. Based on the findings of this survey, the office of financial management shall prepare a report no later than January 15, 1987, and no later than January 15 of each subsequent year, that identifies the faculty salary disparity for Washington state's community college system. The report shall also identify the level of appropriation necessary to eliminate the community college faculty salary disparity.

NEW SECTION. Sec. 7. DISTRIBUTION PLAN REQUIREMENTS FOR FOUR-YEAR INSTITUTIONS. Each research and regional institution shall submit to the higher education coordinating board by March 15, 1987, and by March 15 of each subsequent year, a plan to distribute, solely on the basis of merit, the moneys provided by this chapter to their eligible faculty. Each plan shall be consistent with the role and mission of the institution and its colleges and schools, provide for the involvement of faculty in assessing merit, and be specific to each college and school within the institution. Evidence which documents faculty salary disparities by college and school and professorial rank shall be prepared to support and accompany each plan. For The Evergreen State College, the faculty disparities shall be identified to major disciplines or departments and by an appropriate proxy for professorial rank.

NEW SECTION. Sec. 8. DISTRIBUTION PLAN REQUIREMENTS FOR COMMUNITY COLLEGES. The state board for community college education shall submit to the higher education coordinating board by March 15, 1987, and by March 15 of each subsequent year, a plan to distribute, solely on the basis of merit, the moneys provided by this chapter to their eligible faculty. The plan shall be consistent with the role and mission of the community college system and each individual community college, provide for faculty involvement in assessing merit, and be specific to each community college. Evidence which documents faculty salary disparities by college and major instructional department shall be prepared to support and accompany the plan.

Each community college district shall submit a plan to the state board for community college education to distribute the moneys provided by this chapter to their eligible faculty on the basis of documented objective merit procedures developed and adopted by each district with the participation of the district's faculty. Each plan shall be consistent with the role and mission of each college, provide for faculty involvement in assessing merit, and be specific to major instructional departments within each college. Evidence which documents faculty salary disparities by major instructional department shall be prepared to support and accompany each plan.

NEW SECTION. Sec. 9. REVIEW AND APPROVAL OF PLANS. The higher education coordinating board shall review the plans submitted by the state board for community college education and each research and regional institution to certify whether each plan meets the requirements and intent of this chapter. By April 15, 1987, and by April 15 of each subsequent year, the higher education coordinating board shall approve only those plans which meet the requirements of this chapter.

On July 1, 1987, and on July 1 of each subsequent year, the office of financial management shall release that portion of the higher education improvement account necessary to implement the distribution plans approved by the higher education coordinating board.

If any institution's distribution plan is not submitted to the higher education coordinating board by March 15 of any year, or if the institution's plan has not been approved by the higher education coordinating board by April 15 of that year, the office of financial management shall retain in the higher education improvement account that portion of the moneys the institution would have otherwise received from the account. By September 15, 1987, and by September 15 of each subsequent year, each institution and the state board for community college education shall report to the higher education coordinating board on how their respective plan was implemented. The report shall specify the salary adjustments received by the eligible faculty of each school and college and be detailed by department and professorial rank within each school and college.

NEW SECTION. Sec. 10. REPORTS ON IMPLEMENTATION. By November 15, 1987, and by November 15 of each subsequent year, the higher education coordinating board shall submit to the ways and means committees of the senate and the house of representatives a report that documents that the faculty salary adjustments at each Washington state institution of higher education are being implemented in conformance with the plans approved by the higher education coordinating board. The report shall specify the salary adjustments received at each institution and shall provide detail on the distribution of these adjustments by the schools and colleges at each institution, including the distributions to major instructional departments by professorial rank.

NEW SECTION. Sec. 11. HIGHER EDUCATION IMPROVEMENT ACCOUNT. (1) The higher education improvement account is hereby created in the state treasury. The account shall only be used as provided in this chapter.

(2) Moneys in the account shall be used according to the following:

(a) Not less than twenty percent of the moneys in the account shall be used for student scholarships, student loans, and the enhancement of undergraduate education. These moneys shall be appropriated to the higher education coordinating board for distribution according to the annual plan submitted to the legislature by the board under this chapter.

(b) As much of the moneys in the account as needed that remain after distribution under (a) of this subsection shall be used to fund faculty salaries to reach the average salary of each institution's peer group.

(c) Any moneys in the account that remain after distribution under (b) of this subsection shall be used for higher education, as determined by the legislature.

NEW SECTION. Sec. 12. INVESTMENT BUSINESS INCOME. "Investment business income" includes dividends, interest income, and gains from the sale or exchange of capital assets.

NEW SECTION. Sec. 13. NONBUSINESS INVESTMENT INCOME. "Nonbusiness investment income" means amounts derived from investments or the use of money as such, other than investment business income.

NEW SECTION. Sec. 14. DIVIDENDS. "Dividends" means those dividends taxable for federal income tax purposes without regard to any federal dividend exclusion or deduction.

NEW SECTION. Sec. 15. INTEREST INCOME. "Interest income" includes:

(1) Any interest income taxable for federal income tax purposes, except any interest income with respect to which taxation under this chapter is prohibited by federal law; and

(2) Any interest income from obligations issued by or on behalf of any state or local agency, except interest income from obligations issued by or on behalf of any Washington agency.

NEW SECTION. Sec. 16. GAINS FROM THE SALE OR EXCHANGE OF CAPITAL ASSETS. "Gains from the sale or exchange of capital assets" includes:

(1) Net gain as determined for federal income tax purposes, after due allowance for losses and holding periods from (a) sales or exchanges of capital assets or assets treated as capital assets, other than obligations of any Washington agency, or (b) from transactions or events taxable to the taxpayer as such sales or exchanges, and being the net amount includable in the taxpayer's adjusted gross income, with respect to all such sales, exchanges, transactions, or events, under the provisions of the Internal Revenue Code in effect for the taxable year; and

(2) Net gains from sales or exchanges of certain depreciable property, not includable in the taxpayer's adjusted gross income as net capital gains subject to the deduction allowed under Section 1202 of the Internal Revenue Code, but includable in such adjusted gross income as supplemental gains determined in accordance with Internal Revenue Service Form 4797.

NEW SECTION. Sec. 17. STATE OR LOCAL AGENCY. "State or local agency" includes each state, each state agency or political subdivision, and each public instrumentality, state or local authority, agency, district, or similar public entity created under state law.

NEW SECTION. Sec. 18. WASHINGTON AGENCY. "Washington agency" includes the state of Washington and each state or local agency created under the laws of the state of Washington.

Sec. 19. Section 2, chapter 37, Laws of 1980 and RCW 82.04.4281 are each amended to read as follows:

DEDUCTIONS‑-NONBUSINESS INVESTMENT INCOME. In computing tax there may be deducted from the measure of tax amounts derived by persons, other than those engaging in banking, loan, security, or other financial businesses, from ((~~investments or the use of money as such, and also amounts derived as dividends by a parent from its subsidiary corporations~~)) nonbusiness investment income.

NEW SECTION. Sec. 20. A new section is added to chapter 82.04 RCW to read as follows:

DEDUCTIONS‑-SALE OF PRINCIPAL RESIDENCE. In computing tax there may be deducted from the measure of tax the amount of gains derived by an individual from the sale or exchange of the individual's principal residence.

Sec. 21. Section 82.04.300, chapter 15, Laws of 1961 as last amended by section 213, chapter 3, Laws of 1983 and RCW 82.04.300 are each amended to read as follows:

BUSINESS AND OCCUPATION TAX THRESHOLD. This chapter shall apply to any person engaging in any business activity taxable under RCW 82.04.230, 82.04.240, 82.04.250, 82.04.260, 82.04.270, 82.04.280 and 82.04.290 other than those whose value of products, gross proceeds of sales, or gross income of the business is less than ((~~one~~)) four thousand dollars per month: PROVIDED, That where one person engages in more than one business activity and the combined measures of the tax applicable to such businesses equal or exceed ((~~one~~)) four thousand dollars per month, no exemption or deduction from the amount of tax is allowed by this section.

Any person claiming exemption under the provisions of this section may be required to file returns even though no tax may be due: PROVIDED, FURTHER, That the department of revenue may allow exemptions, by general rule or regulation, in those instances in which quarterly, semiannual, or annual returns are permitted. Exemptions for such periods shall be equivalent in amount to the total of exemptions for each month of a reporting period.

Sec. 22. Section 82.04.390, chapter 15, Laws of 1961 and RCW 82.04.390 are each amended to read as follows:

EXEMPTIONS‑-SALE OF REAL ESTATE. This chapter shall not apply to gross proceeds derived from the sale of real estate. This however, shall not be construed to allow a deduction of:

(1) Amounts included within investment business income; nor

(2) Amounts received as commissions from the sale of real estate, nor as fees, handling charges, discounts, interest or similar financial charges resulting from, or relating to, real estate transactions.

NEW SECTION. Sec. 23. A new section is added to chapter 82.04 RCW to read as follows:

DEPOSIT OF REVENUES. All moneys received under this chapter on the taxation of investment business income shall be deposited in the higher education improvement account.

NEW SECTION. Sec. 24. A new section is added to chapter 82.32 RCW to read as follows:

COPIES‑-FEDERAL AND STATE RETURNS. The department may require any taxpayer to furnish to the department copies or pertinent extracts of:

(1) Any return or document pertaining to tax liability which the taxpayer has filed with or received from this state, another state, or the federal government; and

(2) Any statement or registration made under any state or federal law pertaining to securities or securities exchange regulations.

NEW SECTION. Sec. 25. NONSEVERABILITY. If any provision of sections 12 through 19 of this act or the application of any of those sections to any person is held invalid, the amendment of RCW 82.04.300 by section 21 of this act shall be void and without effect.

NEW SECTION. Sec. 26. APPROPRIATION. The sum of seventy-five thousand dollars, or so much thereof as may be necessary, is appropriated for the biennium ending June 30, 1987, from the general fund to the office of financial management to conduct the community college survey required in section 6 of this act.

NEW SECTION. Sec. 27. CAPTIONS. Section captions as used in this act do not constitute any part of the law.

NEW SECTION. Sec. 28. LEGISLATIVE DIRECTIVE. (1) Sections 1 through 11 of this act shall constitute a new chapter in Title 28B RCW.

(2) Sections 12 through 18 of this act are each added to chapter 82.04 RCW and shall be codified between RCW 82.04.020 and 82.04.212.

NEW SECTION. Sec. 29. EFFECTIVE DATES. This act shall take effect January 1, 1986, except sections 12 through 24 of this act shall take effect on January 1, 1987.