WashACE Blog

With revenue and certainty down, biennial spending plans should undershoot forecasts

Chief state economist Arun Raha announced this morning that estimated revenues available for the 2011-13 biennium are down an additional $700 million from earlier forecasts.

Governor Gregoire, responding to Raha's report, urged the Legislature to develop long-term budget solutions, avoiding one-time fixes. 

“We can’t rely on short-term solutions,” Gregoire said. “Short-term solutions may cause less pain now, but we need a budget that is both sustainable and long-term.”

WRC President Richard Davis wrote in January that the earlier $4.5 to $5.5 billion budget deficit should more accurately be understood to be about $2.5 billion. This is because the higher deficit estimates include about $2 billion in spending that has never actually been spent...on programs like voter-approved initatives 728 and 732 (class-size reduction and teacher pay). These programs, as well as more recent education finance reforms, are on hold due to insufficient funding. 

Nonetheless, even without counting these items, the budget hole has now deepened to more than $3 billion and there is no reason to believe that future forecasts will improve the revenue outlook. On the contrary, global economic conditions are more likely to contribute to a worsening revenue picture yet. Anticipating continuing reductions in revenue forecasts, Davis wrote earlier this week that lawmakers "should underspend the forecast..." for the next biennium.

We can't afford the government we've created, says Davis. Savings outlined in Thrive Washington papers being produced jointly by the Washington Research Council and the Washington Roundtable provide a roadmap for how to prioritize spending within the budget shortfall that exists.  In dialing back the state's spending commitments we should...after funding those mandated activities like basic education and public safety and health...maintain our commitments to the greatest extent possible to those activities, like higher education and transportation infrastructure, that will contribute to the state's long-term economic recovery.

Governor proposes regional ferry district ...

In what has become Gregoire's reform week, the governor today rolled out ... make that floated ... the idea of a regional ferry district, along with a proposal for consolidating information services. Here's the ferry district crux:

The governor will introduce legislation to create a Puget Sound Regional Ferry District to operate the ferry system. The district would consist of all or a portion of the following counties: Clallam, Jefferson, Kitsap, Island, San Juan, Skagit, Snohomish, King and Pierce counties. The district’s funds would come from fares, a state subsidy to fund a core level of service, and regional taxing authority to ensure service levels are consistent with local and regional needs.

The IT plan:

Her proposal would create a new “charter” agency, Consolidated Technology Services (CTS), to begin to privatize and further standardize the basic technology that state agencies use. The new agency’s guiding principal will be to procure whatever services it can’t provide internally, much like what occurs in the private sector. In order to do this effectively, CTS will be provided more flexibility to hire staff and procure materials and services outside of state government.

Initial coverage in the Puget Sound Business Journaland SeattlePI.com. The latter reports stiff opposition from a key caucus:

Democrats in the state Senate sent out a statement slapping down Gregoire's idea. Democrats control the Legislature.

"Our ferries are part of our state highway system, just like roads, rail and transit," the statement said. "Isolating the needs in our ferry system and creating another layer of government to address them is not the solution. Users of ferries already pay into the highway system just like everybody else when they pay gas taxes, in addition to ferry fares.

Commenting on earlier proposals this week, Crosscut's David Brewster asks, Does our state suddenly have a "reform governor"?  It's probably too early to tell, but she's off to a good start.

Seattle Politics Stifling Job Creation

The Washington Research Council has written about Seattle's "lost decade" of declining private sector employment. It seems as if the city's political leaders still haven't received the message.

Consider this Crosscut article describing how the decision to add bike lanes in an industrial area will cause businesses to relocate. Peter Philips, a small business owner, makes an essential observation:

Businesses do not make relocation plans lightly. When they do leave, they don’t come back. Those that don’t have the ability to move their employees simply leave them behind, without jobs.

The city's decisions on vehicle capacity have already chased some employers out. The Seattle Times editorial board urges the city to table plans for a new transportation taxing district.

...City Council talk of a new transportation taxing district that could prompt a slew of tax requests elicits one response: Are you kidding?

And the city's famous process-stuff-to-death-and-then-resurrect-it-for-another-round politics continues to plague construction of the bored tunnel to replace the Alaskan Way Viaduct. The swirling debate caught the attention of Stateline.org.

Seattle has a history of going back and forth on big transportation projects, or as one commenter calls it, a knack for “snatching incompletion from the jaws of completion.”

That's a national reputation the region could do without.

State Senate Proposes $918 Million in New Taxes UPDATE Make That $950 MM

The Senate is releasing its budget now. Here's a link to the overview. They went higher than I thought they would on taxes.

NEW REVENUE -- $918 MILLION
 
The Senate budget incorporates a net increase of $918 million in new revenue.  The main
components of the Senate revenue package are three pieces of legislation that:  (1) narrow or
eliminate numerous current tax preferences or "tax loopholes" ($518 million); (2) impose a temporary 0.3 percent sales/use tax increase ($313 million); and (3) the cigarette tax by $1 per package ($86 million).       

 Next ... the House at noon.

UPDATE The Senate plan raises $950 million, reduced to $918 after accounting for the costs of the working family tax credit they use to offset the sales tax hike and a tax credit for small businesses that add jobs.

Initiative 985 Widens State Budget Deficit

That's the conclusion reached by the Washington Research Council in a new policy brief. WashACE doesn't take positions on ballot issues, but I thought readers here would appreciate the Council's thoughtful, objective analysis. The looming $3.2 billion budget shortfall represents a serious competitiveness challenge in the next legislative session. Read the WRC brief to understand how I-985 plays into the budget debate.

Here's the crux.

Redirecting a share of motor vehicle related sales tax from the general fund to the new Reduce Traffic Congestion Account would add about $290 million to the budget shortfall  projected for the general fund in the 2009?11 biennium. 

... Last month, following the release of the  Economic and Revenue Forecast Council?s quarterly
update to the forecast of General Fund revenue, Senate Ways and Means Committee staff projected a $3.2 billion shortfall in the General fund by the end of the 2009-11 biennium. (Fully draining the state?s rainy day fund would reduce the shortfall to $2.4 billion.) Prospects for the economy have darkened significantly in the last month, and the next forecast update will
show a much larger shortfall for 2009?11.

Now is simply not a good time to divert money away from the General Fund.

As they say, read the whole thing.

The Washington Policy Center published a "citizen's guide" to the initiative in August.

Reason on the Roads

The Reason Foundation that is. And yet another ranking study, this one on transportation. The 17th Annual Report on the Performance of State Highway Systems (1986-2006) just came out (h/t the Spokesman-Review's editorial page blog).

Here's what Reason says about us:

Washington ranked 39th in overall performance and cost-effectiveness. In last year?s rankings, Washington ranked 32nd overall. Washington is 24th in urban interstate congestion, with 42.76 percent congested. The state ranks 42nd in rural interstate condition and 45th in urban interstate condition. Washington ranks 32nd in deficient bridges?26.18 percent of the state?s bridges are deemed structurally deficient or functionally obsolete. Washington is 13th in the nation in fatality rates per 100 million vehicle miles traveled.

Although we've made progress, infrastucture investment in the state remains well below documented needs. High gas prices, which have reduced gas tax revenues and boosted the costs of asphalt and other construction materials, have guaranteed that there will not be enough money to cover projects already approved by the voters and lawmakers.

Two Ballot Initiatives May Deepen Budget Hole

Credit to Chris Mulick of the Tri-Cities Herald for bringing to light the effects Initiatives 985 and 1029 could have on the state's $2.7 billion budget hole. Both initiatives apparently gathered the required number of signatures for the fall ballot. If both should pass, the budget problems worsen, with the deficit expected to exceed $3 billion. Here's how Mulick reports it.

Preliminary estimates from the Department of Revenue indicate that professional initiative promoter Tim Eyman?s traffic congestion measure? Initiative 985?would cost the state about $290 million during the next two-year budget cycle and the rest of the current one.

And the campaign for Initiative 1029, a home-care worker training measure backed by the powerful Service Employees International Union, believes its measure would cost at least $23 million during that time. That number?s based on a nonpartisan analysis of similar measures before the Legislature this year.

Tim Eyman was quick out of the blocks this morning with an email arguing that I-985 would be good for the state's economy.

Nothing slows down our economy more than traffic congestion.  Nothing would boost our economy more than reducing traffic congestion.  State Auditor Brian Sonntag's performance audit report on transportation confirms that implementing his recommendations will result in a $3 billion boost to our state's economy.    

I-985 will boost our state's economy both by the implementation of its policies and by illustrating the public's support for making reducing traffic congestion the top transportation priority.

Stopping short of claiming that their initiative will be a boon to the economy, SEIU argues that, well, it's about more than the money. From Mulick's story:

Worries about its costs don?t stand up to its benefits, campaign manager Jeff Parsons said.

?How can we not afford to take care of our seniors?�� he asked.?They need to have the best care we as citizens of the state of Washington can afford to give them.��

It's early days yet. And more analyses of the initiatives will be available before the election. It is safe to say, however, that it is about the money. (Cross-posted at Olympia Business Watch)