State lawmakers now know the size of the budget shortfall - $5.3 billion. Senate Majority Leader Lisa Brown said there's no appetite in the Senate for tax increases, so lawmakers will likely support a two-year spending plan based entirely on cuts to services, programs and salaries to close the budget gap.
One word of caution. As tempting as it might be, lawmakers must not resort to so-called “budget gimmicks” to balance the budget. Hopefully we’ve learned from previous attempts to “kick the can down the road,” that budget gimmicks may produce short term gains, but have serious budget consequences later on.
In a dinner session with publishers and editors from daily and weekly newspapers last week, Gov. Chris Gregoire sent a strong message that she does not want a budget filled with gimmicks. It was a bit disingenuous on the governor’s part, given that she resorts to a budget quick fix to fill the budget gap in the 2009-11 budget. More on that in a minute.
“We can’t rely on short-term solutions,” Gregoire said in a press release. “Short-term solutions may cause less pain now, but we need a budget that is both sustainable and long-term.”
In her informal talk to newspaper executives, the governor pointed to two high profile budget balancing techniques that came back to hurt the state in the long run.
She noted that in 1971, lawmakers counted on 25 months of revenue to balance a 24-month budget. It gave budget writers an extra month’s worth of tax collections to fix the shortfall, but left the next budget just 23 months of unspent revenue. Gregoire noted, “It took 16 years to buy back that quick-fix loan.”
Then there was the decision surrounding the historic nationwide settlement with tobacco companies in lawsuits brought by attorneys general. In November 1998, tobacco companies agreed to pay states more than $206 billion between then and 2025 for concealing damaging research from the public. Gregoire was Washington state’s attorney general at the time and played a key role in getting the tobacco companies to agree to what was the largest financial recovery in the nation’s history.
But state lawmakers were impatient with the flow of tobacco settlement dollars into state coffers. In 2002 they borrowed $450 million through securitization of future tobacco settlement payments. The action got them an immediate infusion of needed revenue but forced the state to forego future tobacco settlement dollars.
Gregoire said that single budget gimmick will ultimately cost the state $1 billion in principal and interest.
The decision by lawmakers almost a decade ago has resulted in the state receiving $100 million less per two-year budget cycle in tobacco settlement funds. Lawmakers sure could use that additional $100 million in these days of austerity to balance a 2011-13 budget that’s more than $5 billion out of balance.
“Have no doubt,” Gregoire said, “writing a budget that relies on no new taxes, low revenue and high demand for services is a tough challenge. But it must get done. This must be a year of decision, not deferral. These fixes may look good now, but they won’t a few years from now. We’ve got to stand for our children’s economic future as well as our own. That requires sacrifice on our part.”
Already there’s talk of privatizing the state’s liquor distribution system for $300 million in cash up front. But, again, how much revenue will that cost the state in future years? Future budget impacts must be part of the discussion on this privatization issue.
Gregoire is right when she says that lawmakers must face this budget deficit straight on — with no budget gimmicks that simply shift the revenue problems down the road.
But we would be remiss if we didn’t note that Gregoire, herself, is guilty of budget gimmickry. In her request to the Legislature to balance the remainder of the 2009-11 budget, Gregoire proposed shifting the June payment for school teachers from June to July.
Realize that June 30 is the last day of the 2009-11 spending cycle. Kicking the payment from June 30 to July 1, saves the state $253 million in this biennium — money that must be made up in the 2011-13 budget. It essentially creates a 731st day in the 2009-11 budget cycle.
So, it’s a gimmick.
It won’t take 16 years to correct, but it’s another example of how easy it is for the governor and legislators to pass the buck instead of facing the music — to use two clichés.
The budget deficit is horrible. It will require sacrifices at almost every level of state service. But if they are committed to an “all-cuts budget” lawmakers must stick to that plan and forgo any temptation to use budget gimmicks to lighten their budget balancing burden.