With a $1.45 billion ending fund balance projected for the remainder of the 2005-07 budget biennium, Washington Gov. Christine Gregoire (D) is proposing $503 million in new spending in her 2006 supplemental budget request. If adopted, the supplemental budget would add more than 500 new state workers to the payroll. Approximately $900 million of the budget request is earmarked for savings.
“My goal is to sock away a good amount in savings. Any family would do that, and that’s what I’m asking the legislature to do as well,” Gregoire told the Seattle Times. “I don’t want to make draconian cuts in one year. I don’t want to have to look at taxes in one year. I want to keep the economy growing and make sure we’re paying the bills.”
Democrats in the legislature sounded positive about Gregoire’s proposal.
Senate Ways and Means Committee Chair Sen. Margarita Prentice (D) told the Seattle Times, “Overall, I’m very supportive of it.”
Spending Exceeds Revenue Forecast
Despite the projected surplus earmarked for savings, the governor’s proposed spending actually exceeds forecasted revenue for the 2005-07 budget cycle by nearly $120 million, not including $591 million in appropriations to new accounts.
That is possible because the surplus includes funds left over from previous years, plus money transferred into the general fund from off-budget accounts that truly are in surplus. Since the 2003-05 biennium, the state has transferred approximately $948 million from off-budget accounts to the general fund to balance the budget. This is the bulk of the projected “surplus.”
The projected carry-forward costs of the additional spending, however, result in the state’s Office of Financial Management projecting a $1.7 billion deficit for the 2009-11 biennium.
“We are right back on board the tax and spend merry-go-round. This year’s spending will inevitably lead to higher taxes down the road,” warned outgoing state Republican Party Chairman Chris Vance.
Some in the business community believe the projected surplus should be used to repeal last year’s adoption of a new stand-alone estate tax, also known as the “death tax.” Washington previously had a “pick-up” death tax tied to the federal tax code. “We’re discouraged that the governor’s supplemental budget continues the unnecessary death tax passed last year, which can kill small business growth and survival upon the death of the owner,” said Carolyn Logue, Washington State director for the National Federation of Independent Business.
Ignores Budget Reform
Bob Williams, president of the Evergreen Freedom Foundation, questioned Gregoire’s commitment to the state’s recently implemented budget reform process. “Though the governor claims her half-a-billion in new spending is only on targeted priorities, this spending was not offset with reductions in the state’s lower priorities. This is the opposite of a Priorities of Government budget.”
Initiated by former governor Gary Locke, Priorities of Government (POG) budgeting means budgets are built within forecasted revenue based on a priority “buy” list of state activities. Each activity is measured with quantifiable performance indicators and is ranked high, medium, or low. To avoid labeling everything a high priority, one-third of each agency’s activities (including program costs) must be labeled high; one-third medium; and one-third low. For any new priorities added to the buy list, the rankings would change to reflect the additions, with offsets and tradeoffs.
“Every imaginable expenditure is a priority to someone. That’s why under a POG budget, all these priorities are weighed against each other to create a buy list of activities to purchase within forecasted revenue. This means that as new priorities are added to the buy list, others fall off,” said Williams. “The very fact the governor’s proposal exceeds forecasted revenue by $120 million is proof enough POG wasn’t followed.”
Spending Limit Rising Again
In 1993, Washington voters approved Initiative 601 to control the growth of state spending and taxes. Though promising to create a “more meaningful spending limit,” state officials all but eliminated I-601 last year. That enabled nearly half-a-billion dollars in tax increases to occur. (See “Budget Discipline Collapses in Washington State,” Budget & Tax News, June 2005 and “Washington State Sued for Overturning Tax Cap,” Budget & Tax News, July 2005.)
Notwithstanding the more than $1 billion legislative increase in the I-601 spending limit last year, the governor’s supplemental budget hopes to increase the I-601 spending limit once again. Gregoire’s proposed new I-601 changes would allow the state to spend an additional $914 million above the current limit.
“Are the Democrats incapable of putting together a straightforward, transparent, gimmick-free budget?” asked Rep. Gary Alexander (R-Olympia), ranking member on the House Appropriations Committee. “Stashing money in new accounts with responsible-sounding names is not the same as accountability. This supplemental budget just adds more shells to the shell game represented by the original budget signed this spring.”
I-601 Lawsuit Pending
In response to last year’s changes to I-601, a coalition was formed to challenge the legislature’s spending limit actions. Consisting of the Washington Farm Bureau, National Federation of Independent Business, Washington State Grange, Building Industry Association of Washington, Evergreen Freedom Foundation, and Washington Association of Realtors, the “Saving I-601” Coalition last year filed a lawsuit to have the artificial increases in the spending limit invalidated.
One of the issues being challenged is the effect a $250 million “merry-go-round” fund transfer between three state accounts had on the spending limit. The state contends the transfers increased the limit. The coalition argues the transfers should have had no impact on the limit because each account had the same balance as before the transfer occurred.
Adding to the drama, in response to a coalition request for copies of state documents concerning the $250 million in fund shifts, the state is claiming executive and legislative privilege to deny disclosure. Those two privileges have not been previously recognized in Washington State.
The I-601 legal challenge is expected to be heard in Superior Court in March.
Jason Mercier ([email protected]) is a budget research analyst for the Evergreen Freedom Foundation.
