Neither Democrats nor Republicans have created a budget that would start Washington state on an even footing for the next two years.
As legislators begin another special session to grapple with budget issues, they need to start by leveling with themselves and their constituents. If budget “sustainability” means that the costs of essential programs and services are balanced by sufficient revenues at least through the next biennium, none of the budgets under consideration are sustainable.
Senate Republicans passed a supplemental operating budget with the help of “Roadkill” Democrats that delays $133 million needed to fund the closure of old state employee and teacher pension plans and cuts another $75 million from K-12 and higher education. Senate and House Democrats have adopted budgets that postpone $330 million in state support for K-12 schools until July 2013 and into the next budget cycle.
But more significantly, all operating budgets under consideration avoid the reality that they depend on revenue from a temporary B & O tax surcharge on several service industries that was adopted in 2010. The surcharge, used to reduce cuts to K-12 and higher education, is scheduled to sunset at the end of this biennium. Unless re-enacted, and that would require under current rules a two-thirds majority vote in both houses, budget writers will start the next fiscal cycle with an estimated $527 million less to work with.
Also, the transportation funding can was kicked down the road. Gov. Chris Gregoire’s task force recommended a $21 billion, 20-year package that included funding for a large backlog of roadway maintenance and pavement replacement projects and increased ferry service. Since the Legislature was unable to agree on new revenue sources to replace the state’s declining gas tax revenues, the supplemental transportation budget maintained spending at current levels. Again, fiscal reality postponed.
And then there is the looming issue of "amply" funding basic education. The state Supreme Court has given legislators until 2018 to define basic education, design funding formulas, and find a substantial amount of new revenue in the form of "dependable and regular tax sources." The court is clearly holding the legislature responsible for selecting one or more taxes that are sufficient to fund a larger K-12 budget that will not be subject to the uncertainty witnessed in the last session, which saw a patchwork of cuts, budgeting gimmicks, and proposals for short-term revenue "buybacks" that could be submitted to voters.
The bill for full funding of basic education will be substantial. In addition to the instructional program for basic education, it’s likely to include the costs of reduced class sizes, all-day kindergarten, replacement of local maintenance and operation levies, expanded student transportation, and increased MSOCs (materials, supplies, and operating costs).
How much new revenue? No exact fiscal estimate can be made until the definition of basic education is established and funding allocations are agreed to. But media reports quoting unnamed “education finance experts” put it in the $4 to 9 billion range.
Whatever the final amount, the financial impact on state taxpayers would be lessened if new revenues to cover these costs were phased-in over the next three biennia, and not postponed to 2018.
Lawmakers are clearly hoping for better times. They are betting on an economic recovery that will generate more tax revenue, reducing the need to ask constituents to approve new tax sources.
Sustainable budgeting might be achievable — more than rhetoric — if there were no uncertainty in the fiscal arena. Or if the state’s economy and revenues always improve and the risk is only upside. But the state’s Economic and Revenue Forecasting Council predicts both upside and downside risks.
In its most recent Economic & Revenue Outlook (March 8), ERFC concluded: “The level of uncertainty in the baseline remains extremely high, and downside risks outweigh upside risks.” Much of this uncertainty is outside of our legislators’ control, and depends on what happens in Washington, D.C., and the Euro-zone.
All of this makes "sustainable budgeting" an elusive goal.