Budget ideas get creative

Legislature: Severe financial shortfall leaves lawmakers edgy as they consider what to cut

March 14, 2011 

If Washington's budget problems get too terrible to solve, can't the state borrow money? Or could it issue bonds against future Lottery earnings or future tobacco-lawsuit payments to the state?

Why not sell off state assets such as land? Or just leave the state budget unbalanced for a year or so – until the economy gets better and money is flowing again?

Gov. Chris Gregoire has suggested selling some state surplus lands, but she and her budget writers see the others as simply “bad ideas.” Going into debt or failing to balance a budget could risk the state’s bond rating and cut off supplies of dollars needed in the future.

But state legislators are dealing with a financial shortfall estimated at between $3.6 billion and $5.5 billion for the two-year budget that starts July 1, and they already are getting edgy about slashing health care, college or public school programs.

Adding to their angst, the financial sinkhole might deepen after Thursday’s quarterly revenue forecast, which some fear could come in $2 billion short.

“We talked about how big it could be, but nobody wants to utter the word. Another $1 billion down is a possibility. It’s hard to fathom,” said Rep. Kathy Haigh, a Shelton Democrat who chairs a school-funding committee.

In the meantime, House Ways and Means Chairman Ross Hunter, D-Medina, is developing a budget proposal that goes entirely without tax increases but has some fees.

But he also said Friday that he is expecting revenues to fall between $500 million and $1.5 billion, so he cannot take a blood loyalty oath and swear that no bad ideas will be considered this year.

“The number that matters is 50 (votes). We can all stand here and say we won’t do bad ideas. But cutting kids off health care is a bad idea, too,” Hunter said. “We will build a vote that is as sustainable as I can get the votes for the budget … The plan is to roll out a budget four or five days after the forecast comes out.”

SELLING BONDS

Haigh has talked publicly about one very controversial idea: selling bonds to raise operating cash. The Legislature did that in 2002 by pledging tobacco-settlement dollars the state receives each year to pay the bonds.

Hunter doesn’t like going into debt to pay off current or short-term expenses. But Haigh said, “We are trying to find some ways of keeping our higher education system from sinking. It’s a large amount of money (needed), and I don’t see us raising taxes.”

Sen. Majority Leader Lisa Brown, D-Spokane, was the Senate budget writer when lawmakers agreed to pledge 29 percent of the state’s tobacco-lawsuit settlement in exchange for $450 million in cash. That instant money let Democrats lessen cuts she would have made to safety-net programs.

Brown isn’t advocating tobacco bonds – or securitization, as bond markets call it – as a solution this time. She said Friday that lawmakers want to produce a balanced budget without gimmicks or borrowing.

But she did say there is interest in raising revenues – perhaps by closing tax exemptions or reducing their size.

Gregoire is loudly objecting to use of the tobacco money, just as she did before. She had a personal stake, having negotiated the 46-state settlement with major tobacco firms in 1998. The Democrat also has claimed a bit inaccurately that the tobacco “securitization” didn’t work.

Claims by critics that the state got only 30 cents for every $1 of tobacco earnings it forfeited also are not quite true, according to Kim Herman, who oversees the State Tobacco Settlement Authority.

Herman said actual interest on that debt over 30 years was estimated to cost just 11 to 12 cents per dollar borrowed. He said the estimated $1 billion in overall debt payments are being made with dollars that have lost value over time due to inflation, so the state received far more than the 30 cents that Senate Republican Leader Mike Hewitt and others have cited.

OTHER GIMMICKS FOR THE DESPERATE

Other budget ideas lawmakers could kick around this year:

 • The 25th month. Hewitt and House Republican Leader Richard DeBolt of Chehalis both fear that Democrats will shy away from making deep enough cuts. They told reporters the majority might consider delaying state payments into the next budget cycle – after July 1, 2013.

“Anytime you push your problem forward, it’s a bad idea,” DeBolt said. But he and Hewitt estimated the “scheme” could postpone $1.7 billion in costs.

Gregoire’s budget office has said the state needed more than a decade to recover financially after doing that in the 1970s.

 • Cancel worker contracts. Republican Sen. Joseph Zarelli proposed last week to reject collective-bargaining agreements with state employees. He would renegotiate the agreements and ask to raise employees’ share of health care costs to 25 percent, up from the 15 percent Gregoire has negotiated in several public-employee contracts that also include 3 percent reductions in pay and hours worked starting July 1.

Senate Ways and Means Chairman Ed Murray of Seattle has said Zarelli’s Senate Bill 5870 is not going anywhere in his committee, and Brown said a majority in the Senate opposes the idea. Brown and Gregoire both have pointed out that public employees have sacrificed over a few years, going without pay raises, taking furloughs, getting layoffs and seeing closures of institutions or facilities. Brown said workers face further cuts and costs through the proposed labor contracts and possible changes in pensions.

 • Go unbalanced. It’s not getting talked about, but the state could run an unbalanced budget for a year or so, allowing the economy and sales tax collections to pick up more before trying to pay some bills. Legal experts in the Legislature, the Office of Financial Management and the state Treasurer’s Office all said it is not illegal or barred by the state constitution.

The constitution merely requires a governor to submit balanced budget proposals, and accounts are balanced at the end of a two-year budget period. But state budget director Marty Brown said it would be a terrible idea to postpone any payments that hurt state credit ratings.

“I think it would be fiscally irresponsible to do that,” Brown said. “Your borrowing costs would go up. The view of the state would drop considerably. We need to do what we can to get on a stable footing” with spending cuts and no tricks.

Marty Brown also ruled out getting Gregoire to agree to borrowing. “I don’t think she has any interest in borrowing money for current expenses. You wouldn’t want to do that at home; you wouldn’t here,” he said.

 • Haigh said Arizona sold its Capitol building a year ago and is leasing it. She quickly added that she was not suggesting such a move for Washington. But selling off assets such as parks, natural resource lands and university properties are ideas that get mentioned.

So far, Democrats are not embracing the “bad ideas.” Like Hunter in the House, Sen. Murray said the budget-writing effort has been hard and that he has been focused on finding cuts.

But Murray said fellow lawmakers struggle as they see what cuts are needed, and he hears interest in finding revenue.

For instance, individual Democrats in both the House and the Senate have been exploring how to end tax breaks for special interests that have not produced Washington jobs as promised. Majority Leader Brown said Friday that another option is to reduce the size of tax breaks temporarily.

Murray is chilly to other ideas such as going into debt. But on the topic of “securitizing” tobacco payments, he was more agreeable.

“Everything has to be on the table. It’s not my first choice,” Murray said.

But as Haigh put it: “It’s just general conversations – anybody who is trying to find money (giving ideas). We are trying to find ways of finding some money.”

As Republicans might say, good luck with that.

Brad Shannon: 360-753-1688 bshannon@theolympian.com www.theolympian.com/politicsblog

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