Time for new rainy day fund?

SJR 8206: Measure would set aside ‘extraordinary’ revenue from boom times

October 10, 2011 

Republican state Sen. Joseph Zarelli and several leading Democrats think Washington needs more state savings to get off its financial roller-coaster. Their solution: a new and improved “rainy day fund.”

Senate Joint Resolution 8206 asks voters if they want to change the state constitution to require that “extraordinary” revenues during economic boom times are socked away in a budget stabilization account that could grow much larger than the rainy day fund voters approved in 2007.

“Just as your family would not take on unsustainable commitments if you received an unexpected windfall, neither should Olympia,” Zarelli wrote in the 2011 voter guide. The statement was co-authored by House Ways and Means Committee chairman Ross Hunter, D-Medina, and state Treasurer Jim McIntire, also a Democrat.

Some Democrats are not sold. Democratic Reps. Zack Hudgins of Tukwila and Sam Hunt of Olympia are leery of what some might call Rainy Day Fund, version 2.0. The existing rainy day fund already sets aside 1 percent of state revenues in a fund that can be tapped only during hard times.

Hudgins said lawmakers have voted to cut money for food banks, school lunch programs and other necessities. A larger savings account would not have spared the state from the budget disaster it has muddled through.

“I’m arguing against putting money into the savings account when you don’t have food on the table … when the kids are going hungry,” Hudgins said. “Everybody is for savings. It’s how much for savings? And do you keep putting it in if the economy is bad? … If your family is starving, it doesn’t help you that you have money in the bank” and don’t spend it.

But Zarelli of Ridgefield notes that state revenue grew by a stunning 21.4 percent during 2005-2007, and most of it was spent. If his measure had been law, it would have put about $1.8 billion extra into savings during that period and reduced the “bow wave” of future spending by an equal amount.

So what qualifies as “extraordinary” revenue?

The answer is complicated: When revenue growth from one biennium to the next is more than 133 percent of the average growth of the preceding five budget cycles, or 10 years. In those situations, three-quarters of revenue greater than 133 percent would be set aside.

Zarelli has said that standard would have triggered the set-aside of “extraordinary” revenue only twice in recent years – in 1989-91 and 2005-07.

SJR 8206 has no formal or financed campaign on either side. But Jeff Johnson, leader of the Washington State Labor Council, helped write the voter-guide statement against it with Hudgins, Hunt and other liberals.

On the other side is the Association of Washington Business. Other supporters include Senate Majority Leader Lisa Brown, D-Spokane, who was the first co-sponsor. The Senate eventually voted 47-0 to put it on the ballot; just 10 members voted against it in the House.

Many states have a way of setting aside leftover funds at the end of a budget cycle or earmarking money for the future needs such as schools. But a 2008 report by the National Conference of State Legislatures said Washington was one of just 11 states to enshrine its fund constitutionally, making it harder to raid.

SJR 8206 does not change the rules that let lawmakers tap into the extra funds during really bad times. Lawmakers may pull out money with a simple majority vote in two instances: when the governor declares an emergency in response to a catastrophe that imperils lives or public safety; or if job growth is predicted to be less than 1 percent.

In better times, 60 percent supermajority votes are required.

But Washington’s fund also has a cap – 10 percent of revenues – which is among the highest of states with caps on their rainy day funds. Once Washington’s cap is met, lawmakers can tap the funds with a simple majority vote of the House and Senate, but the excess revenue must go into state school construction accounts. That threshold is less than $1.5 billion after recent shrinkage in the state’s general-fund cash flow.

Under SJR 8206, there would be exceptions when extraordinary revenue is not put into savings – such as when average job growth in the previous biennium was less than 1 percent per year.

Brad Shannon: 360-753-1688

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