The state's chief financial officer is urging lawmakers to reject what he calls "felony gimmicks" as they work to finalize their proposals for the next two-year budget.
State Treasurer Jim McIntire says he’s concerned that lawmakers will dust off shortsighted deficit-reduction ideas from the past to close the state’s estimated $5 billion budget gap for 2011-13, at the expense of long-term fiscal stability. Such strategies include adding a 25th month to the 24-month budget period to help cover expenses — a tactic last seen in 1971 — and borrowing against expected future revenues, or securitization.
“The gimmicks we have to watch out for are the ones that create a long-term liability for the state,” McIntire said in a phone interview Tuesday, noting that the 25-month plan took nearly 16 years to pay off.
The state adopted a securitization strategy in 2002, borrowing $450 million by selling a portion of its future payments from the 1998 national settlement with tobacco companies. That decision has since stripped vital money from education and health services, McIntire said, estimating that the state will spend $100 million in the next biennium to repay interest and principal on the debt.
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“That’s expensive money. Those are junk bond rates,” he said. “Those are long-term revenue streams that we’re locking up for short-term purposes.”
McIntire’s concerns have been echoed by Democratic Gov. Chris Gregoire, who as state attorney general served as a lead negotiator in the tobacco settlement. She told reporters last week that if recent rumors of securitization are true, “somebody needs to tell me so I can say no.”
Jeff Reading, a spokesman for the Senate’s majority Democrats, said the Senate was not considering either securitization or a 25th month as part of its budget plan.
House Majority Leader Pat Sullivan, D-Covington, called both strategies “very, very unlikely,” but said at this stage, “everything is on the table, and it always has been.”
“There’s this spectrum of things that you can do, things that are very difficult to do, and things that are so bad you don’t want to talk about it,” he said Wednesday, adding that securitization and a 25th month fall under the third category.
Rep. Gary Alexander, the GOP’s budget negotiator in the House, said Republicans have crafted a list of a dozen principles to serve as guidelines, and one of them is “no gimmicks.”
“Certainly, to us, that includes the 25th month and issues such as securitization, so we attempt to try to avoid them,” Alexander said.
Leaders from the House and Senate have given no clear indication of when they will unveil their plans to counter Gregoire’s budget proposal, released in December.
This year, the House is proposing its budget first. Sullivan said his colleagues were “getting close” to an agreement and he hoped the plan would be ready by early next week.
Earlier this month, the state’s chief economist said tax collections will drop by an estimated $780 million in the next two years, bringing the deficit to about $5.3 billion.