State budget shortfall soars to about $5.1 billion
Gov. Chris Gregoire’s budget director is looking for another $400 million in spending cuts over the next eight months after learning that Washington is now staring at a budget shortfall of more than $5 billion.
Arun Raha, the state’s chief economist, said Wednesday that the economic picture has worsened dramatically in the past couple of months – so much so that he lowered his projection for state tax collections between now and mid-2011 by $1.9 billion. That means a budget shortfall that was pegged at $3.2 billion in September has now grown to about $5.1 billion.
To put that into perspective, total tax collections for the state general fund are now pegged at $30 billion for the 2009-11 budget cycle.
The exact amount of the shortfall isn’t yet known because demands on state spending, which also are on the rise, could make the deficit even larger. On the other hand, Gregoire ordered some $330 million in spending cuts this summer with a modified hiring freeze and other actions that might shrink the gap between tax collections and spending.
The budget picture will be clearer in mid-December, when the governor submits her budget request to the Legislature, which convenes Jan. 12.
“Our state revenues are dependent on people buying cars and houses and gifts over the holidays,” Raha said Wednesday at a meeting of the state Economic and Revenue Forecast Council in Olympia. “And right now, no one is buying cars or houses and, at best, we can expect a holiday shopping season that shows no decline over last year.”
Raha said the state still expects to collect 5 percent more in taxes in 2009-11 than it will have collected in 2007-09, but as recently as September the state’s economists had expected an 8.1 percent increase.
He said that although the U.S. economy isn’t officially in recession, “it is certain it will be.”
Raha said Washington won’t be hit as hard as the rest of the country, and will lead the country out of recession, probably in the second half of 2009. Nonetheless, less spending by consumers means lower-than-expected tax collections.
“The size of this has really surprised us,” said Victor Moore, Gregoire’s budget director. He said he’s asking state agencies to come up with another $300 million to $400 million in cuts before the current two-year budget cycle ends June 30, 2009. That’s because, on paper, the state is headed for a budget deficit.
The state will collect $500 million less than expected in the current 2007-09 budget cycle, Raha reported. That means if spending isn’t curtailed, the projected surplus of only $87 million in the state general fund will turn into a negative $413 million. Not included in the equation is $442 million in the state’s rainy-day savings account, but that money can’t be touched without legislative approval.
The general fund is the state’s largest account and where most of its sales, property and business taxes are deposited.
For the next budget cycle, 2009-11, tax collections are now expected to be $1.4 billion lower than the estimate from only two months ago. That amounts to a total $1.9 billion hit to state revenues over the next 31 months.
The dramatic news has raised the specter of tax hikes, even though Gregoire said during her re-election campaign that she wouldn’t raise taxes. Her fellow Democrats, who control both the House and the Senate by large majorities, haven’t committed to holding the line on taxes.
“That is something that we will attempt to do to the best or our ability,” Sen. Craig Pridemore, D-Vancouver, a member of the budget committee and the forecast council, said Wednesday.
The left-leaning Washington State Budget and Policy Center renewed its call for raising taxes instead of making deep cuts.
“Revenue increases will likely be necessary,” the organization said in a news release after the forecast.
The Washington Federation of State Employees, which represents 40,000 of the more than 100,000 state workers, expects the governor and the Legislature to eliminate tax loopholes and exemptions. Federation spokesman Tim Welch said the union doesn’t believe its recently negotiated contract, which will cost the state $70 million over the next two years, is in jeopardy.
“Our goal would be to avoid layoffs, which would make the problem worse,” he said.
But reducing the size of the state work force might be inevitable given the magnitude of the budget problem. Pay raises for state workers, school employees and independent health care workers also might be in jeopardy of being cut. They amount to more than $710 million over the next two years and will remain in Gregoire’s budget proposal because her office already has agreed to union contracts, Moore said.
Moore has asked agencies to develop budgets that would reflect a 20 percent cut, although that’s a nonbinding exercise at this point.
Republicans have been warning for years that Democrats have been spending too much, and said the rival party has set the stage for new taxes.
“With the economy so tough, how can citizens afford any more taxes?” said Rep. Ed Orcutt, R-Kalama, top Republican on the House Finance Committee.
Sen. Joe Zarelli of Ridgefield, top Republican on the Senate budget-writing committee and a member of the forecast council, said lawmakers must rewrite the current budget and slash spending right away to match tax collections.
“The sooner spending is reduced, the better,” he said.
Joseph Turner: 253-597-8436
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