State budget shortfall at $5.3 billion

Revenue forecast: Budget gap widens by $780 million as official blames geopolitical uncertainty in Mideast, Japan

March 18, 2011 

  • HOW THE BUDGET SHORTFALL IS CALCULATED

    How much money does the state have to spend?

    • Projected 2011-13 revenue is $31.9 billion.

    • After adjustments, including a transfer to the rainy day fund, the state is projected to have $31.5 billion.

    How much money does the state need in 2011-13?

    It depends on the assumptions you make. Under one scenario:

    • The 2009-11 budget (before another $700 million in cuts over the past three months) was $30.3 billion.

    • But that doesn’t include help from one-time federal stimulus money. Replacing that money would cost $2.1 billion.

    • Increases in population at K-12 schools, prisons and health and human services programs would cost $1.5 billion.

    • Suspended initiatives to reduce class size and increase pay for teachers are due to resume, costing $1.1 billion.

    • Adjustments related to state employee pension and health care costs are another $1.1 billion.

    • Expanded definitions of basic education that are due to take effect would cost $700 million.

    • Smaller adjustments cut about $100 million, for a total of about $36.7 billion.

    Total shortfall under this scenario: $5.15 billion.

Washington's state budget gap widened Thursday to about $5.3 billion through mid-2013. A new revenue forecast knocked another $780 million out of budget-writers' hands, due to geopolitical uncertainty in the Mideast and Japan.

In doing so, the forecast stoked a growing debate: Should the state raise taxes to balance the books or simply slash programs, including health programs that serve the poor.

Gov. Chris Gregoire said the net impact of the revenue forecast is to add $500 million to the budget gap – after accounting for a separate report last week that said some state costs are about $278 million less than expected.

“Our challenge today is to create a budget that is both responsible and lives within our means. We need a long-term plan that protects our fiscal integrity,” the Democratic governor added. “This must be a year of decision, not deferral. We can’t kick the can down the road.”

Gregoire said lawmakers of both parties must eliminate programs without relying on gimmicks that put the state further in debt or postpone payments.

Republicans including Sen. Joseph Zarelli said the state cannot do it all anymore, but Democratic Senate Ways and Means chairman Ed Murray of Seattle said it may be hard to get votes for all the cuts he has been bracing for.

Gregoire bridged a $4.6 billion gap in December with a two-year spending proposal that cut education, health care and colleges, while adding a few fees and consolidating some government agencies. And it sent a shudder of fear through advocates for children, health care and schools. Now, the hole has only gotten deeper.

GLOBAL UNCERTAINTY

State revenue forecaster Arun Raha blamed geopolitical uncertainty in the Mideast and Japan for the lowered economic expectations.

Raha said the North African unrest is jacking up fuel prices, which in turn lowers consumer confidence and cuts consumer spending that an economic recovery requires. He said Japan’s earthquake, tsunami and nuclear disaster are adding to uncertainty about manufacturing supply chains in the auto industry and also may cut state exports in agriculture.

Overall, the state economy is still 179,000 jobs below the peak of 2007 and won’t recover fully until October 2013 – well after the next budget, according to Raha’s report. He said jobs are being added but not as quickly as during past recoveries.

Raha’s two-year forecast is now a cumulative $2 billion below what he had predicted in June 2010 for the two-year budget cycle that begins July 1. His forecast through June is a cumulative $6 billion below a February 2008 forecast – or 18 percent.

SHARED SACRIFICES

Finding the sacrifices Gregoire called for won’t be easy to write into a state budget. But Republicans, including Rep. Gary Alexander of Thurston County, said that it is possible to do by the time the legislative session ends April 24, but he did not identify new places to cut.

“I’m very confident we can address the difference between state spending ‘wants’ and the revenue we actually have – and we can do it within the 105-day session and without asking our citizens or employers for new or increased taxes,” Alexander said in a statement.

Democratic Sen. Murray of Seattle and Republican Zarelli of Ridgefield have been working together on a budget proposal that the Senate plans to release once the House announces its budget proposal – perhaps next week. Murray said they already had taken into account the expectation of a lower forecast.

Majority Democrats have been trying to spare the Basic Health Plan and other health care programs, but House Ways and Means chairman Ross Hunter admitted “the problem has become more daunting.”

House budget vice chair Jeannie Darneille said a budget based on a shortfall of about $4.8 billion would have been voted out of the House by the end of next week, she said.

But that time frame is “shattered,” said Darneille, a Tacoma Democrat. “This will force us back to the drawing board for Plan B,” she said, unable to say what it entails other than “very devastating cuts in virtually every sector.”

REVENUE QUESTIONS

Some lawmakers want to find new revenue, and proposals to lease out the state liquor warehouse for $300 million upfront or to allow tribal-style video slot machines to raise another $190 million a year emerged this week. Gregoire declined to rule out the gambling proposal, but she also thinks voters rejected tax increases in the November election.

Lawmakers of both parties also know that any new taxes need a two-thirds vote to pass in the Legislature after Tim Eyman’s Initiative 1053 passed last fall.

Eyman said this week that his measure has been wrongly blamed for the state’s financial problems. He said Democrats who want to increase taxes are not giving taxpayers credit for nearly $1.5 billion in legislative-approved taxes from 2010 that budget writers are counting on in the next budget cycle.

But Rebecca Kavoussi of the Community Health Network of Washington said the state’s slowly recovering economy – and forecast – shows the state needs to find ways to preserve the safety net for struggling families and communities.

“The main thing for us is that health care is not … a luxury that you can only afford when you are rich or during good times,” said Kavoussi, whose group represents community-based health clinics. “It’s a basic need.”

PROTESTERS RALLY

Activists who want more taxes, or fewer tax breaks for businesses, also staged a rally on the Capitol steps Thursday. Organized by a group called Our Economic Future Coalition, the event drew about 1,000 teachers, health-care workers, students and others who called on lawmakers to end tax exemptions, rather than cut education and social programs.

Collin Jergens, a spokesman for the liberal Fuse advocacy group, said the rally was meant to remind lawmakers they have a choice between adding taxes and cutting social services.

“The new revenue forecast just underscores the need for the Legislature to take a balanced approach,” he said.

So far this session several bills have been introduced that would remove some tax exemptions, including bills that would add taxes to coal, private jets and plastic surgery and use about $120 million per year to pay for a state-subsidized health insurance program for low-income residents.

Rep. Sam Hunt, an Olympia Democrat who went to the rally, said adding taxes to fund state programs would be a big political challenge, given Eyman’s initiative. But so are cuts.

“I get all these e-mails saying, ‘keep funding my program, keep funding my program,’” he said. “It’s going to be very difficult.”

Jergens said if legislators don’t pass anything to end tax exemptions this session, the coalition would push for a ballot measure to do so in the fall. But he thought it made sense for lawmakers to support bills to raise certain taxes now.

“I can’t understand why two-thirds wouldn’t support closing tax exemptions for Wall Street banks and private jets,” he said.

But Zarelli said lawmakers have to come to grips with not being able to do everything anymore. He said the state still has nearly $4 billion more revenue in 2011-13 than in the previous biennium – including last year’s tax increases.

“The reason Washington faces a budget crisis is because the Governor and her fellow Democrats refuse to live within their means,” state Republican Party chairman Kirby Wilbur said in a statement.

Staff writer Jordan Schrader contributed to this report.

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

Katie Schmidt: 360-786-1826 katie.schmidt@thenewstribune.com

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