How to stretch our dollars

By Sen. Joseph Zarelli

It was the next-to-last day of the 2008 legislative session. A news reporter had asked budget leaders from the Senate and House majorities about the sustainability of their plan to raise, to a record $33.7 billion, a state spending level that already had shot up 33 percent since 2004.

The response from one of my fellow Clark County legislators, who was then Senate budget vice chairman, included this candid and now-prophetic observation: If a significant economic slowdown were to occur, he said, state government would “struggle to balance its books.”

Barely six months later such a slowdown hit in the form of the national credit crisis. Three-plus years later, the struggle to balance state government’s books continues. Another round will begin Nov. 28, when the Legislature gathers for a special session to discuss and hopefully act on options for closing at least part of the gap that has already opened in the 2011-13 budget.

The budget, which took effect July 1, allocates $32.2 billion from the state’s general fund and associated accounts for day-to-day state government operations. At the time of the budget’s passage, state government expected to take in $32.5 billion in revenue over the next two years. That would have been enough to cover the spending plus a modest cushion.

Unfortunately, the revenue picture has darkened. The projection fell to $30.5 billion in mid-September and is expected to be lower still after the final quarterly revenue forecast for 2011 is issued Thursday. So the gap facing the Legislature is already around $2 billion, just six months into the two-year budget cycle.

Broadly, the options for closing the gap are familiar: reduce spending, increase revenue or some combination of both. No one expects a repeat of 2009, when the legislative majority avoided the unpopularity that goes with austerity measures — see Greece — by balancing its budget through diversions of revenue from the job-creating capital budget and other sources, and infusions of money from the federal government.

In 2010 the majority gave itself the power to raise taxes with a simple-majority vote, then closed that year’s budget gap by pushing through the largest package of tax increases in state history. Fortunately, that option is unavailable now, thanks to voters who pushed back a year ago and reinstated the rule that requires either a two-thirds legislative vote or a public vote to approve tax hikes.

I’d prefer to rebalance this budget using the same bipartisan approach that created it earlier this year — when, in stark contrast to the “other Washington,” a philosophical majority emerged in Olympia to adopt a budget that allocated less than the amount of revenue anticipated at the time. That hadn’t happened in 14 years.

The Senate budget chairman has already made clear his desire to see a tax package go before Washington voters, possibly during the spring. Even so, he knows the Legislature can’t count on ballot-based revenue to put the budget back on solid footing. That’s why he and I are again working together to prepare for the upcoming special session.

The bipartisan approach we came up with asked majority and minority members of key Senate policy committees to develop three sets of recommendations: changes that will result in spending reductions of 5, 10 and 15 percent in their policy areas; reforms that will make delivering services more efficient and less costly over the long term; and agency programs or services that might benefit from performance audits.

The lists aren’t in yet, but the spending reductions my fellow senators will recommend are sure to include options none of us like. We can go back and forth about whether some of the spending decisions made between 2005 and 2008 were good policy or just good politics. However, that doesn’t particularly matter now. Commitments were made and expectations were created, and those aren’t easy to undo.

There may be instances when it makes sense to eliminate funding for a program or service entirely, even though we would have preferred a partial reduction. That’s because sometimes you reach a point where downsizing a program would make it such a shadow of its original self that it makes more sense to drop it completely and free up money to keep another program whole.

Frankly, the threat of legal action also has become a threat to programs and services. We’ve seen a proliferation of lawsuits by those who are on the receiving end of spending reductions; unfortunately, if reducing a program’s funding means risking a lawsuit yet eliminating its funding means no risk of a lawsuit, the answer to that all-or-none decision is increasingly likely to be “none.”

Reforms are generally preferable to outright reductions in funding. I give the governor credit for having provided us this past month with her list of money-saving options, but curiously, only one is described as a reform. That has to do with supervising criminal offenders, which hardly seems the only state program capable of becoming more efficient.

If there is to be bipartisan support for closing the budget gap, reforms will need to be front and center. That’s consistent, because the reforms reflected in this budget — for instance, more choice for injured workers, a refocusing of the Basic Health Plan and disability lifeline, and clamping down on fraud and abuse involving food and cash assistance to low-income people — had much to do with the bipartisan backing it received.

A good place to look for reform opportunities going forward is among the long-term obligations that are huge cost drivers, such as state-worker pensions, health-care services, paying off the state’s debt and efforts to bring our K-12 education system into compliance with court rulings.

I agree with the governor that everything has to be on the table for discussion, including reforms that would affect services for non-citizens, state liability, non-Indian gaming, state workplace efficiencies such as competitive contracting and defined-contribution pensions, and how the state subsidizes low-income child care. Some of those were identified as reform opportunities on our side of the aisle earlier this year, but sidelined for lack of support. It’s time to look at them again.

While our state doesn’t offer a tax preference involving corporate jets, contrary to assertions, I’m also open to looking at reforms of tax incentives that aren’t creating jobs as intended.

The question of whether the Legislature should ask voters for more revenue has come up plenty; it’s worth pointing out that the $30.5 billion revenue projection from September, while down from earlier in the year, will still be a record should it pan out. That equates to an anticipated revenue growth rate of around 7 percent for this budget cycle, an increase most Washington employers would be more than satisfied to see.

It’s also worth noting that this budget already contains new revenue, in the form of things like the Discover Pass and higher license fees for hunting and fishing, proving that under the right circumstances there can be bipartisan support for creative revenue sources.

My preference is to talk about reforms — better yet, enact reforms — before talking about revenue. Experience has shown that once the discussion turns to increasing revenue, it’s pretty much impossible to go back to talking about becoming more efficient with the revenue already being collected.

Done right, reforms also can stimulate private-sector job growth in ways that government spending cannot, which in turn will generate revenue through the increased consumer confidence that employment brings.

Finally, much has been said about who is responsible for the ongoing struggle to balance the state’s books. “Wall Street” was used as political cover for the fund transfers and tax increases and program cuts of the past few years; with more unpopular decisions around the corner the list of culprits has recently expanded to include Congress and Europe. Truth is, the Legislature had a considerable amount to do with creating this situation. It’s time to acknowledge that the problem belongs to us — no one else — and is ours to solve.

My goal for the special session and beyond is to build, on the foundation of trust established earlier this year, another bipartisan plan that supports the priorities of government without hindering the economic recovery for which Washingtonians have waited so long. Let’s call it an “all-priorities” budget, and starting in two weeks, let’s get it done.

About the author

Sen. Joseph Zarelli, R-Ridgefield (southwest Washington), is Republican leader on the state Senate Ways and Means Committee.

Next Sunday: Rep. Hans Dunshee, D-Snohomish, will write about an approach from the left to the state budget crisis.