As gift horses go, this was a beauty.
Just as Washington state was trying to balance a budget knocked on its backside by the worst recession since World War II, the feds rode to the rescue.
About $3 billion in stimulus dollars were shipped West to maintain funding for schools, colleges and social agencies. That and some budget sleight-of-hand helped reduce the need for hard budget cuts from $9 billion to $4.5 billion, all this to a two-year budget of $31 billion.
Yes, it is rude to look such horses in the mouth. Still, state budget writers knew there were potential flaws in this federal generosity, especially something called “maintenance of effort.” By taking the money, the state had to agree not to reduce spending in the areas that were being backfilled.
“We were very aware of it when we were getting it and spending it,” said state budget director Victor Moore. “It would be fine if this budget had played out.”
But it didn’t play out. While economists have declared the Great Recession over, the effects are still keeping state tax collections down. A government dependent on sales taxes needs people to buy stuff and people still worrying about lingering unemployment don’t spend.
Through a combination of declining tax collections, some governor vetoes, some lawsuits challenging budget cuts and some overly optimistic assumptions, a $570 million reserve fund has turned into a $1 billion-plus deficit.
Washington has company. A recent study by the Rockefeller Institute in New York reported that state tax collections have declined $63 billion over the last year – about double what was sent to the states by the feds.
“The worst decline in both personal income tax and sales tax in half a century represents historic weakness in the two major tax sources for states,” the report said. “Despite the recovery, most states will face budget gaps this fiscal year and next, and probably for at least one to two additional years.”
Moore now gets to propose even more cuts and savings to close the billion-dollar-plus gap. A too-common cliché in Olympia is that easy budget cuts – the ones that don’t hurt or that don’t have powerful opponents – are low-hanging fruit. When the cuts get more difficult, the budget-cutters say the low-hanging fruit has already been plucked.
That’s why, when asked about where he might find $1 billion, Moore says: “I’m buying a taller ladder.”
But it’s actually worse than that. Those “maintenance of effort” rules put huge chunks of state spending out of reach, no matter the height of the ladder.
An analysis presented earlier this month by the staff of the Senate Ways and Means Committee looked at three of the biggest pieces of the budget pie – more than two-thirds of the budget.
Of the $6.8 billion in public school money set aside for this school year, only $635 million is available to be cut because of state Supreme Court rulings against cutting basic education support. Even that 9 percent is politically or legally untenable because it includes levy equalization for property-poor districts, all-day kindergarten and class-size reductions approved by voters.
Of the $1.7 billion in higher-education money, $1.3 billion is protected from cuts by federal rules and $275 million of the rest is for financial aid programs. That leaves just $80 million in politically possible cuts.
Of the $3.4 billion in support for low-income health care, senior care and help for disabled people, only $400 million could be cut and that includes all money for the Basic Health Plan, alcohol and drug treatment programs and health care for children.
All this leaves an even-smaller chunk of state government from which to find the billion bucks. Which might be why Gov. Chris Gregoire has begun softening her opposition to tax increases, saying she would now listen to proposals.
Said Moore: “When we started talking about ‘here’s what we have left,’ she started thinking about whether we can get there with reductions alone.”
Peter Callaghan: 253-597-8657