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Washington needs to cut more spending because tax collections are expected to get $500 million worse over next 2 years

Post by News Tribune Staff on June 18, 2009 at 10:16 am with No Comments »
June 18, 2009 10:16 am

Here’s the story I wrote for Friday’s paper. Here is the revenue report.

Also, here is a follow-up posting that shows the letter the governor wrote to her cabinet and others, telling them to cut their payrolls by the equivalent of 2 percent.

And below my story are news releases from Gov. Chris Gregoire‘s budget office, and from Sen. Joe Zarelli, top Republican on the forecast council. I’ll post other viewpoints below them as they come in.

BY Joseph Turner

The News Tribune

Gov. Chris Gregoire plans to order another round of state government spending cuts after Thursday’s revenue forecast showed the state will almost run out of money by mid-2011 unless those cuts are made.

Arun Raha, Washington’s chief economist and chairman of the state Economic and Revenue Forecast Council, said he now expects tax collections over the next 25 months will be $487 million lower than what Raha predicted back in March.

The bottom line: Without any changes to state spending, the state’s main checking account will have negative balance of $194.5 million). There still would be $247 million in an emergency savings account, so overall the state budget would be a positive $53 million.

That’s not much considering the state expects to collect $29.83 billion in taxes for its general fund between July 1, 2009 and June 30, 2011.

Victor Moore, the governor’s budget director, said he can’t count on tapping into the savings account so his office will tell state agencies to cut their payroll costs by about 2 percent to trim $200 million to $250 million in state spending.

Basically, the governor will be imposing a "hiring cap," Moore said.

"If the (2009-11) budget said an agency could hire 100 people, now they will be limited to 97 or 98 people," he said.

Democrat and Republican budget-writers said there appears to be no need for a special session in advance of January 2010, when the Legislature is scheduled to convene a 60-day session. However, they will take another look at that possibility if the September or November revenue forecasts show a worsening budget situation.

Sen. Joe Zarelli of Ridgefield, top Republican on the Senate budget committee and a member of the forecast council, noted that almost all of the money the Legislature put in reserves for the 2009-11 budget is almost all gone. And the budget cycle doesn’t even start for two more weeks, he added.

Although the Legislature had planned to set aside $822 million in savings, their failure to pass some last-minute bills, the governor’s vetoes and a consolidation of other budget accounts have combined to reduce that to only $53.2 million.

He predicted the budget situation will be even worse by September.

Raha said the economy is giving mixed signals, which is typical of the beginnings of a recovery.

"The freefall of the economy is behind us," he said.

Nonetheless, he said, Washington depends heavily on retail sales taxes and consumer confidence must rebound so they start buying more big-ticket items, such as houses and cars.

Raha now predicts Washington’s jobless rate will peak at 10.6 percent in the second quarter of 2010. That’s even higher than the 10 percent figure he predicted in March.

"We will continue to lose jobs, but at a slower rate," he said.

The state already has lost 122,000 jobs from its high point in 2007, he said. He expects a total of 145,000 jobs will be lost in Washington before the state reaches its trough in April-June 2010, and "construction jobs will continue to decline into late 2010."

Rep. Kelli Linville, D-Bellingham, chairwoman of the House’s main budget committee, said she doesn’t think the Legislature will have to come back early for a special session to address the budget.

"I think the governor is going to be able to make those cuts (to balance the budget)," Linville said.


Joseph Turner: 253-597-8436


Washington quarterly revenue projection down $482 million

Governor directs agencies to further slow spending in response

OLYMPIA – The June revenue forecast for Washington state government shows projected General Fund revenue down a combined $482 million for the remainder of this biennium, which ends June 30, and the next two-year budget period.

Dr. Arun Raha, chief revenue forecaster, said that while the overall economic outlook for the next biennium is slightly bleaker than it was in March, the prospect for a recovery beginning in late 2009 is more certain. He noted, however, that consumer spending and tax collections are lagging the recovery, as consumers pay down debts and wait for more evidence that the economy is on stronger footing. The bleaker revenue forecast is related to weak revenue collections and consumer caution.

"Like most other states across the nation, Washington has not yet experienced the economic turnaround needed to stabilize our revenues," Gov. Chris Gregoire said. "While we have already demonstrated that we can make the hard decisions to develop and enact a responsible budget, we will have to take additional actions."

The governor signed a balanced budget in May to close a nearly $9 billion shortfall. The budget left a total of $739 million in savings, with $248 million in the constitutionally protected rainy day fund and $491 million in unobligated revenue.

"The budget I signed in May requires everyone to sacrifice," Gregoire said. "Those cuts and the further action I am taking today will have real effects on the people of our state. It will take all of us working together, with shared responsibility and a sense of community, to get through this downturn."

To manage the reduced revenue projected in this forecast, Gregoire is directing agencies to further curtail their spending for the 2009–11 biennium.

"We have been aware of the likelihood of a negative forecast and are prepared to take action," Gregoire said. "I am directing Cabinet state agencies to decrease their General Fund employee costs by 2 percent from what was budgeted. Agencies can hire employees where needed to accomplish their core business and enact the reforms I am asking for, but they cannot exceed the cap I am instituting today."

In a letter to agency leaders, Gregoire also directed that controls on spending be maintained for equipment purchases, out-of-state travel and personal service contracts. She also asked that higher education and separately elected officials voluntarily follow her hiring and purchasing directives.

Revenue for the current budget period, 2007–09, is projected to decrease $185 million, resulting in total projected General Fund revenue of $27.7 billion. Revenue for the next budget period, 2009–11, is projected to decrease $297 million, resulting in total projected General Fund revenue of $29.8 billion.

"The latest estimates are that 42 states continue to experience declines in revenue," said Victor Moore, director of the state’s budget office. "Some states are making additional cuts just to get through the current budget period."

State fiscal conditions deteriorated for nearly every state during fiscal 2009, according to the National Governors Association and the National Association of State Budget Officers.

Here is Zarelli’s take on things.

Sen. Zarelli statement on state’s June revenue forecast

OLYMPIA… Sen. Joseph Zarelli, Senate Republican leader on the state Economic and Revenue Forecast Council, issued this statement regarding the June quarterly revenue forecast he and other council members adopted this morning at the Capitol:

"The new budget doesn’t take effect for almost two weeks and it’s already projected to be in the red two years from now. The governor’s budget staff believes it can find another 200 million or so in savings to move it back toward positive territory; I hope they bring those actions forward sooner rather than later, because if there’s one lesson that should have been learned from the 2009 session, it’s that making reductions sooner rather than later is the fiscally responsible thing to do.

"I certainly hope an economic recovery is on the horizon even though the majority party has done little to help our job creators feel welcome and be competitive. But for today the question is whether the governor can do enough on her own to get the state’s feet back on firm financial ground, or whether the Legislature needs to act. I suspect as new caseload numbers come in, the projected imbalance of almost 200 million dollars – which is understated by 70 million because of legislation that did not pass – will double.

"Let’s remember the Legislature could have saved billions of dollars, and put this forecast in a completely different light, if it had acted quickly to reduce spending back in January. By failing to grab what the governor called its ‘opportunity to reform’ – which could have followed the approach we laid out – the majority party ensured our ride on the ‘budget rollercoaster’ would continue.

"We may be in better shape than California, but that isn’t saying much. This new budget is propped up with stacks of money supplied by the federal government and diverted from other state accounts. That’s looking pretty shaky today, and it is likely to look much worse two years from now."

From Rep. Gary Alexander:

Rep. Gary Alexander’s statement on today’s revenue forecast

‘The band aid approach that we used to close our budget deficit this past session continues to bleed’ says Alexander

Rep. Gary Alexander, R-Olympia and ranking Republican on the House Ways and Means Committee, issued the following statement today regarding Washington’s new revenue forecast.

“This revenue forecast continues to show how a house of cards cannot stand. We missed opportunities this past session to create a structurally-sound budget and we continue to see the ramifications of our inaction. The band-aid approach that was used to close our budget deficit continues to bleed.

“The governor has the authority and ability to make across-the-board reductions in s=her cabinet agencies, and she should exercise this option.

“We cannot let this forecast lead us down the road to tax increases. Our budgets need to be based on the revenue the we have, not the revenue we want. Our hard-working families cannot afford any kind of tax increase.”

Majority Senate Democrats:

Senate leaders to monitor budget closely as revenue forecast drops

OLYMPIA — Senate budget leaders said Thursday they will continue to monitor the state’s financial situation closely after the release of a new revenue forecast that dropped anticipated tax collections by $685 million, and pointed out that prudent actions during the 2009 session helped to weather the drop and keep the state in the black.

The forecast drops projected reserves to $53 million by the end of the 2009-11 budget cycle.

This continues a string of negative revenue forecasts that forced the Legislature this spring to plug a $9 billion shortfall with a no-new-taxes budget, while leaving $850 million unspent to weather further economic downturns.

"When we left Olympia in April, we placed a large amount of money into state savings accounts to brace for a continued slide in the economy," said Senate Ways and Means Committee chair Sen. Margarita Prentice, D-Renton. "Today’s news is no surprise, and we’ve prepared ahead of time to deal with it. No one is operating under the assumption that this recession is over."

"Leaving $850 million in the ending fund balance gave us the flexibility that we need to absorb these kind of shocks that we knew might be coming down the road," said Sen. Rodney Tom, D-Bellevue, vice chair of the Ways and Means Committee. "We made some very tough decisions. We made even further cuts than some wanted because we wanted to make sure we had a responsible bottom line."

Tom said the forecasted revenue drop will not require the Legislature to convene in a special session this summer, though the Legislature’s committee meetings in Olympia on Oct. 1 and 2 were deliberately scheduled to follow the release of the next revenue forecast on Sept. 17. It is possible that lawmakers could act to address the state budget then if the economic situation worsens, Tom said. Otherwise, the Legislature is scheduled to amend the state’s two-year budget for 2009-11 when it convenes for its 2010 session in January.

State Government
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