Last week’s state revenue forecast tore a $1.4 billion hole in the fragile fabric that is the state budget. Incorporating even a minimal reserve fund – essential these days – state lawmakers face a $2 billion shortfall in the 21 months remaining in the two-year budget ending June 30, 2013.
For nearly four years, state government has been in persistent contraction. Rising health care costs and deteriorating tax collections forced reductions in nearly every area of state spending. Despite federal stimulus aid during the downturn, the cost of maintaining current services grew faster than revenues.
After making significant cuts last spring, particularly in social service and higher education programs, lawmakers – and the rest of us – hoped conditions would stabilize. Instead, projections collapsed.
Arun Raha, the state’s economist and forecaster, said last week that “a return to normalcy seems like a mirage in the desert.” It keeps slipping away. Conservative budget writers recognize the present austerity as the new normal.
Gov. Chris Gregoire made the right initial moves. In early August she ordered state agencies to plan for spending cuts of as much as 10 percent, in all about $1.7 billion. Agencies are supposed to turn in their cut lists today. Already some warn that their proposed reductions are unacceptable or impossible without policy changes.
That is certainly true, but the plans will be useful as the tough work begins. While top budget staff and legislators are clearly engaged now, too many lawmakers remain in denial.
Nevertheless, accepting that further budget cuts are inevitable, the earlier the Legislature makes reductions the better. Gregoire can make only across-the-board cuts (exempting the constitutionally protected public school funding), and no one thinks that’s the way to go.
Budgeting involves setting priorities, jettisoning what can no longer be carried and protecting what’s essential. Gregoire needs to lead, but only the Legislature can restructure spending.
The governor has said a special session makes sense, but told the Seattle Times she wanted to wait until after the next forecast in November. I’d like to see it earlier, but she’s right. After the recent contentious session, there’s no chance that the Legislature could come together next month in bipartisan harmony to make deeper, uglier cuts.
Complicating the task, they have limited options. Most school funding is protected by the state constitution. Federal rules relating to the stimulus package put major Medicaid changes off-limits. Existing collective bargaining agreements cannot be modified without union cooperation.
Many Democratic legislators will only consider approving the cuts if they can match them with new taxes. Yet the fiscal frame remains unchanged from last year. Under Initiative 1053, any tax increase requires either a two-thirds legislative supermajority or voter approval (lawmakers can place a measure on the ballot with a simple majority vote).
Most likely, they will send us something, but not soon. Lawmakers will be hard-pressed to agree on a tax proposal that can win majority approval in the Legislature and have a decent chance at the polls. The populist progressives rally to close “loopholes,” but there’s not much money there. A broad-based, low-rate tax increase would be more stable and productive.
To win a tax referendum, lawmakers must first show that they understand the changed reality. In addition to the necessary spending reductions, they should adopt structural reforms with long-term benefits. It’s a familiar list: open more state services to competitive contracting, control the size and compensation of the state workforce, and produce a six-year budget outlook pegged to realistic (that is, slow growth) revenue projections.
Lawmakers kicked costly, unsustainable programs into the 2013-15 budget. Among them: voter-approved initiatives for class-size reduction, teacher pay and mandatory training for home-care workers – all adopted without new revenue. Other delayed but not slain items include funding an ill-advised paid family leave mandate and expensive changes in the state’s basic education formula.
It’s time to refocus priorities and reset the long-term budget baseline to the current reality. The real mirage is the vision of a swift rebound that will pay for the unfocused policy debris blocking the road ahead. Before asking voters to approve new taxes, legislators need to demonstrate that they won’t be back in another year looking for more money to pay for false promises.
Bainbridge Island resident Richard S. Davis is president of the Washington Research Council. Email him at rsdavis@simeonpartners.com.
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