State considering tax hikes because there’s little fat left to trim
PETER CALLAGHAN; THE NEWS TRIBUNE
Since taking over as the state’s chief economist a year ago, Arun Raha has been charged with answering one basic question from the politicians he works for: Tell us, doc. How bad is it?
Bad. It’s always been bad.
This is not an easy job, because state budgets are written based on the number he delivers. Low numbers equal budget cuts. High numbers equal increased demands from interest groups.
Raha’s predecessor, Chang Mook Sohn, was assigned the nickname Dr. Doom after a series of recession-era forecasts.
But when the state’s Economic and Revenue Forecast Council met in September, Raha finally was able to give a little bit of good news. The recession had ended, he said. While the recovery would be slow, it would happen.
Relief was the pervasive emotion that day. Revisions to the budget come January would be tough but manageable. And they could be leavened with the knowledge that it would be the last time cuts would be needed for awhile.
Then came last Thursday, when Raha reversed himself. It was the seventh straight forecast in which revenue projections were lowered. The state is in the midst of a revenue-less recovery blamed on fearful consumers who see high unemployment numbers and stash their cash.
Not that anyone was surprised, since tax collections in September and October were lower than Raha had just predicted. But his new numbers were more bleak than expected. The January session would have to find $2.6 billion due to both declining revenue and increasing demand for government services.
The likelihood that it could be solved with spending cuts is about zero. Which is why Gov. Chris Gregoire and majority Democrats have started talking about taxes.
In a recession.
In an election year.
In the face of what looks like an anti-incumbent election.
Why not just cut more, as Republicans have suggested? Because the $31 billion, two-year budget is already one-quarter gone, and you can’t cut what you’ve already spent. About 70 percent of the state budget is protected from cuts by the state constitution, federal law and legal commitments to those who purchased state bonds and are owed pensions.
And when the state accepted federal stimulus dollars to reduce by half the level of budget cuts last year, it agreed not to cut higher education and schools below 2008 funding levels.
That leaves a relatively small chunk of state spending that can even be considered for cuts – class-size reduction programs, levy equalization for property-poor school districts, college financial aid, the basic health care subsidy for the working poor.
And those areas would have to be cut deeply, if not eliminated, to have much effect on the shortfall.
How much is $2.6 billion? The two-year budget to care for and treat the mentally ill and those with developmental disabilities is $1.6 billion. It is the same for prisons and community supervision of offenders. Care and support for low-income senior citizens is $1.3 billion. All state support for community and technical colleges costs $1.4 billion. That’s also how much the state spends on the six four-year universities.
Cuts in those areas carry their own political consequences. So Democrats think some of the burden must be borne by higher taxes. They will look at eliminating tax loopholes (or “tax incentives,” if you get one). They will look at so-called sin taxes on booze and cigarettes.
But each loophole is loved by someone with a well-paid lobbyist. And sin taxes don’t raise as much money as some imagine.
Like it or not, Democrats will have to consider the big three: sales, property, and business and occupation taxes. They will have to amend or ignore a voter-approved initiative to do so. And they will face a rhetorical barrage from Republicans that will continue all the way to Election Day.
There are worse things in life than losing an election. That’s a realization many legislators may come to before the end of the 2010 session.
Peter Callaghan: 253-597-8657