The state released its revenue forecasts today and thanks to the bad economy, the projected deficit for the 2010-2011 biennium (plus 2009)—just to meet current levels of service—is now more than $11.6 billion—$2.6 billion worse than the approximately $9 billion the state was facing during the last legislative session.
Here’s what that means: To balance the budget last session in the face of the projected $9 billion deficit, Olympia made $3.6 billion in real cuts, transferred around $2.3 billion in costs, and relied on $3.2 billion in Obama stimulus money. The result was a $33 billion budget with about a half billion set aside as surplus.
Zap. The deeper hole—$11.6 billion, compared to $9 billion—wipes out that budget and means the state is facing more cuts.
And here’s another problem: Rather than taking the scalpel to the whole $33 billion budget, there’s only about $9.3 billion of “fat” to look at for cuts (including um, the basic health plan). The rest of the budget is mandatory funding for things like basic education requirements, federally matched programs, and stimulus-related programs.
The $2.6 billion shortfall is tied to the recession. Consumer spending is limper than expected, which is hurting tax revenues. And the social costs of the recession are draining the budget, too. Specifically, caseloads (health care coverage in particular) are higher because more people are unemployed.
The left-leaning Washington Budget & Policy Center and conservative ideologue Tim Eyman both responded promptly.
The WBPC says new revenues—taxes—must be on the table. Eyman says new taxes would deepen the crisis.
I’ve linked their press releases below the fold.
Washington Budget & Policy Center press release:New revenue forecast reinforces need for balanced approach with budgetToday’s updated revenue forecast only made it more essential for the governor and lawmakers to take a balanced approach between spending cuts and revenue increases this upcoming legislative session.The new forecast lowered the state’s expected revenue by another $760 million, bringing the total shortfall to $2.6 billion.The continually worsening outlook comes at a time when Washingtonians need public structures more than ever. With the unemployment rate at its highest level since 1984, the need for the health care system, education and job training, and income supports become more important than ever.We need a balanced approach to dealing with impacts of the recession on the budget, one that combines careful cuts with smart revenue increases, such as a combination of a retail sales tax increase with the Working Families Rebate.When the Governor signed the current budget on May 19th, it was expected that the budget would leave an ending fund balance of nearly half a billion dollars plus $250 million in the rainy day fund. The last six months have not been kind to those assumptions. The recession has continued to pummel away at the budget.At the same time, costs have gone up, due to the worsening economy. Between the March caseload forecast and the November caseload forecast, the number of people expected to access family medical assistance rose by nearly 14% and the number of children expected to access children’s medical assistance programs rose by 11%.Because of the worsening outlook, the Governor’s budget will necessarily propose deep cuts in core public structures, on top of those already passed last session.But these cuts come at a time when Washingtonians can least afford them, said Washington State Budget & Policy research director Jeff Chapman. A number of other factors point to the need for a balanced approach:
- 70 percent of the budget is protected. So filling the $2.6 billion shortfall would mean cutting unprotected areas of the budget by 27 percent.
- A recent memo from the Department of Social and Health Services’ Health and Recovery Services Administration—written in response to the Governor’s request for budget reduction proposals—gave a glimpse at what might be cut. The memo acknowledges that “these are serious cuts, and cuts on top of cuts.”
- Possible cuts include eliminating important benefits for lower income adults receiving Medical Assistance, including maternity support services, hospice, hearing, non-emergent dental, vision, podiatry, physical therapy, occupational therapy, speech therapy, interpreters for medical services, and Medicare Part D (prescription drugs) copays. Funding for school-based Medicaid services would also be eliminated.
Remy Trupin, director of the Washington State Budget & Policy Center, noted that a more balanced approach “reflects sound policy judgment.”He quoted Nobel economist Joseph Stiglitz and current OMB director Peter Orzag that “Tax increases can be less harmful to families and less damaging to state economies than the likely alternative: deep cuts in services.”Trupin also noted that:
- Over 30 economists signed a letter noting that “reducing government spending will have a more deleterious effect on Washington State’s economy than would increasing revenue.”In response to the current recession, at least 30 states this year have enacted tax increases so far. And In the recession of the early 1990s, some 44 states raised taxes. In the early 2000s, some 30 states did so.
- There is no evidence that tax-raising states from the 2001 recession were any faster or slower to recover from the recession than those that did not raise taxes.
- According to analysis by the Center on Budget and Policy Priorities, states that raised taxes were just as fast to rebound from the recession as states that did not, even though they were typically climbing out of a deeper hole.
Trupin said state lawmakers should consider raising revenue to avoid deep budget cuts that will harm the state and use the Working Families Tax Rebate to offset the disproportionate impact of a tax increase on lower income families. This approach was included in HB 2377.Under the Working Families Tax Rebate:Families with kids whose income is $28,000 or less would actually see a net decrease in sales tax. The rebate would also significantly lower the cost of the sales tax increase for the next bracket of earners (those earning between $28,000 and $52,000) so that their total tax increase would be about $29 annually.Trupin said, “The values of Washingtonians are reflected in our state budget, a sense of our shared history as state, and of the importance of public support for things that will promote future economic growth. If we don’t invest in education, transportation, job training, and health care our state will be poorly positioned for when prosperity returns.”
Tim Eyman press release:
TweetRE: Democrats in Olympia committed to raising taxes during the session guaranteeing an even longer recession
Listening to today’s Economic & Revenue Forecast Council hearing, Gregoire and the Democrats in Olympia couldn’t have been clearer about their top legislative priority: raising taxes during the session guaranteeing an even longer recession.
It is willful economic suicide but it’s what the unions demand, and so the fix is in.
Republicans Ed Orcutt and Joe Zarelli were correct when they highlighted the insanity of this approach. Raising taxes will only hurt taxpayers and make the recession last longer. But the Democrats weren’t listening.
The person who said the emperor had no clothes was very likely very unpopular with the emperor — nonetheless, it’s important to note what caused this problem: Gregoire and the Democrats adopted completely unsustainable budgets and always counted on the taxpayers to bail them out. Now that the bill is coming due, they’re looking around to see who will pay it. But the taxpayers and the economy can’t afford it. And even if they could, what message does that send? That the government is too big to fail so let them get away with a taxpayer-financed bailout? Taxpayers are sick to death of bailouts.
Citizens understand that raising taxes will only make this bad situation worse.
Every newspaper has editorialized that raising taxes will only make the recession last longer.
Gregoire and the Democrats made this mess — they need to clean it up themselves with existing revenue.
They need to realize that by declining to support Initiative 1033, citizens gave government an extra $9 billion – over and above inflation-and-population growth – to resolve its fiscal challenges. Governor Gregoire and the Democrats who control the Legislature should simply say “thank you” and not push their luck by trying to take even more.
How about, you know, we actually put in place an income tax. Sure Eyman and crew will attempt to repeal it by initiative or referendum, but at least we can fight for it, and honestly, if done right, I think we would stand a chance of winning. Hell at worst it means we are fighting Eyman on our turf instead of trying to keep him from destroying the state.
Why can’t we ever take real political risks in this state. You never win if you are always playing defense and constantly afraid of what the other side will do.
Eyman was clearly rejected by voters earlier this month, and not just in Seattle. He has no power any longer. The question is whether Olympia Dems will recognize that reality or rehabilitate him by taking him more seriously than he deserves.
Keep in CA has an income tax, as do dozens of other states mired in treacherous budget crises despite siphoning resident income. Having a steady source of revenue alone won’t solve the problem. How effectively is the money being used?
^ Keep in mind
@2
Well if the Legislature is true to form they’ll enact the key portions of I-1033 into law anyway because they are scared of a “taxpayer revolt”.
Or to put this in language the right gets, it’s time for the state to get a second job. Or start robbing banks….
Confused — why are you saying $11.6 billion deficit when Budget & Policy Center seems to be saying $2.6 billion?
Must raise taxes or create new taxes (income tax time!)
@1 – that would be nearly impossible to do. First, it would require a constitutional amendment, and voter support.
@3 – CA budgetary issues have more to do with legislation by the people (the initiative process), and the constraints that past initiatives have placed on budgets (require supermajority votes by the legislature), revenue increases (I believe require 75%, but I could be wrong), and marrying revenue to programs (which is one thing that we also have, but not as bad as CA). They have other issues, but the income tax isn’t what led to their downfall.
Oh, and @7 – the deficit is an ADDITIONAL $2.6b
hmm, let me think…which white-elephant infrastructure project was it that had a $2.4-2.8B line item associated with it in the State’s budget?
@7 $11.6 figure is $9 billion deficit from last year + $2.6 for this year which = $11.6 for the two-year budget biennium.
Also, Eyman does not have a place at this table and doesn’t deserve to be referenced in articles like these. How about a link to Sen. Zarelli’s statement -http://src.leg.wa.gov/news/2009/Zarelli/111909NovForecast.htm – instead?
@9, Not necessarily http://dor.wa.gov/Content/AboutUs/StatisticsAndReports/WAtaxstudy/Appendix_B.pdf
As for the voters, yeah its going to come before them one way or the other. I think its a battle we can win. Maybe not, but if we don’t go for it now, we never will.
I am tired of being timid when it comes to progressive issues in this state. Because, really, what the fuck is the point of doing otherwise?
9. Line items and caps alone don’t produce a significant portion of a $25 billion hole.
@10 and @12 – But the $9 billion gap from last year is already closed in the budget passed last year, no? So the gap the leg. has to deal with next session is $2.6 billion? Which will be painful in addition to the billions cut last year, but they’re not taking the budget they have now and reducing by $11 billion — or are they?
#11, gas tax money can not be used to fill the general budget requirements. It can only be used for roads infrastructure.
Any specific tax collected for a given purpose must be spent on that thing.
That darn constitution.
@15 Correct. The current gap is roughly $2.6 billion. That said, it will be at least as tough to fill this year’s gap as the $9 billion deficit from last year because:
1. There (presumably) will not be federal funds to help out this year, and;
2. Any cuts or new revenue options will have to be more drastic than if introduced last year, as they will likely have only 12 months to take effect, rather than 24 if passed last year (or 18 if passed at beginning of session, rather than end).
There are already working sessions for the legislature scheduled for the first week of December, those were posted a couple weeks ago. Not unusual., but they should be able to get a running start at the process.
These are projected deficits. And even with last session’s balanced budget, we’re looking at an $11.6 billion deficit when you look at 2009, 2010, and 2011 in terms of delivering services at previous levels.
So, $11.6 provides the context of how behind the state is.
But yes, the state has made cuts to meet a $9 billion shortfall…and now has to cut $2.6 billion more.
@17 and 19 Ah, thank you for the clarification. I wanted to make sure I understood WTF was going with the budget. Either representation seems accurate enough to me. Of course if you’re arguing for revenue increases, you probably want to be arguing for $2.6 billion of new revenues, not $11.6 billion…
Then again, the logic of calling it $11.6 billion might actually point to an even higher #, b/c clearly there would be an even bigger gap right now if things like Basic Health hadn’t already been slashed last year, leaving the new hole higher than $2.6 billion. Maybe we just call it an umpteen-billion dollar budget gap?
@12 Are you referring to Sen. Joe Zarelli who collected unemployment benefits while on active duty in the reserves? The Sen. Joe Zarelli who collected unemployment benefits while the Legislature was in session and he was being paid as a state legislator? That Joe Zarelli, the welfare queen? The Joe Zarelli who had an encounter with the State Patrol for possession of Meth? I don’t pay attention to what Joe Zarelli says and nobody else should either.
What if, in exchange for bi-partisan support on a modest taxes-and-fees increase, Gov. Gregoire were to undo executive orders that give unions extra-ordinary bargaining power on state (and state-funded municipal) contracts?
Over time this would result in a decrease in fixed costs without significantly reducing the amount of services provided by the state.
Meanwhile, the revenue increase would help the state bridge the gap it faces now.
One thing to note: A common argument suggests that if an income tax is proposed, sales taxes and property taxes will come down.
Actually, the budget deficits will likely be used to either not cut those latter taxes, or to subsequently raise them down the road after the income tax takes effect.
State Income is only part of the problem.
ALL OF THAT SAID, I could support a WA income tax if like our Federal income tax it was tiered by income. I gather a proposal would do so instead of asking a flat rate across the board? I shouldn’t pay a dime if I’m making $9 an hour full time. If I’m making $30-40K, I should only have to pay a shred, maybe 1.5%. Someone above the median should be paying 5-15%.
How does all this business of the state budget and economy get reported over and over again without the name of an economist — State Senate majority leader Lisa Brown — coming up even once. I think her primary strategy for higher office is to keep her fingerprints off things.
@22 — Could you provide more detail regarding your statements about Sen. Zarelli receiving unemployment benefits while the legislature was in session as well as having a methamphetamine related encounter with law enforcement?
@2
Well if the Legislature is true to form they'll enact the key portions of I-1033 into law anyway because they are scared of a “taxpayer revolt”.
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