Additional state budget limits are right call

Gov. Chris Gregoire has ordered another round of state government spending cuts in response to yet another revenue forecast that shows fewer tax dollars flowing into the state treasury.

As difficult as it is — especially in the capital city — Gregoire’s action is the right decision. She cannot further deplete state reserve accounts. The state must have a cushion in the event that the economy does not rebound as expected.

The June revenue forecast by Arun Raha, Washington’s chief economist and chairman of the state Economic and Revenue Forecast Council, is not a surprise. In fact when Gregoire visited The Olympian’s editorial board at the conclusion of the 2009 legislative session, the governor said she expected revenue to continue its slide in both the June and September forecasts. The key, she said, was reacting quickly.

That’s precisely what she did last week when Raha said tax collections over the next 25 months will be $487 million lower than what he predicted back in March.

Without action, the forecast would have left the state with a mere $53 million in reserves. That’s not much of a cushion considering the state expects to collect $29.83 billion in taxes for its general fund between July 1, 2009, and June 30, 2011.

Drawing down state reserves to $53 million is simply too risky and the reason the governor and budget director Victor Moore ordered state agencies to cut their payroll costs by about 2 percent. That’s expected to generate $200 million to $250 million in savings.

Basically, the governor will be imposing a “hiring cap,” Moore said. “If the (2009-11) budget said an agency could hire 100 people, now they will be limited to 97 or 98 people,” he said.

In her letter to agency directors outlining budget reductions, Gregoire said:

“Although Engrossed Substitute Senate Bill 5460, the spending freeze, expires on June 30, based on the current revenue forecast, I expect that agencies will continue to exercise the same discipline on spending decisions. You must manage within your hiring cap. This may necessitate furloughs, reductions in force, and reductions in overtime.”

The governor said she expects her managers and statewide elected officials to determine how best to achieve the reduction in state payroll.

“If agencies need to hire,” Gregoire said, “I want to reiterate my direction that agencies should not hire from outside state government until efforts to consider qualified candidates from among those affected by layoffs are exhausted.

“We cannot underestimate the value of trained and experienced state employees.”

As the seat of state government, the South Sound economy is heavily reliant on a stable state government workforce. The budget adopted by lawmakers in April calls for the reduction of 2,000-3,000 state jobs. Those cuts don’t start until July 1. Last week’s 2 percent payroll cut is on top of those reductions.

If there is a bright note in this otherwise gloomy forecast, it’s that the governor has instructed agency officials to draw from the list of terminated employees as they fill vacant slots. That could ease the local economic effects and result in more people keeping a job.

The unanswered question is how many additional cuts to state government employment will be necessary before state revenue rebounds.

Raha said the economy is giving mixed signals, which is typical of the beginnings of a recovery.

Raha did offer the opinion that, “The free fall of the economy is behind us.”

While the free fall may be over, Raha said Washington’s jobless rate is not likely to peak at 10.6 percent until a year from now.

As the governor said, “We will get through these tough economic times but it will continue to be very challenging.”