Initial Thoughts on the Budget

At the time I write this the national economy is in free-fall, with banks and other businesses failing right and left. The car companies may be next. So far the two biggest employers in WA — Boeing and Microsoft — are still in good shape, but there are concerns if the overall economy is in a funk.

The federal government does not seem to have even the faintest connection between tax receipts and expenditures. They are spending a trillion here, a trillion there, everywhere a trillion. My calculator doesn’t go this high. With a trillion dollars you could give every high school student in America a full-ride four year scholarship, or you could pave the entire interstate highway system with gold. Someone actually figured this out.

Like both my family and yours, Washington state does not have this freedom. We have to balance our budget. The decline in consumer confidence has devastated our sales tax receipts, and the housing meltdown has had a huge impact on our real estate excise tax receipts.

The current forecast predicts a $5.1 billion difference between expected revenue and “planned” expenditures. What is included in the “planned” expenditures trend is open to lots of interpretation, so you will hear lots of different numbers around this. All of them are probably reasonable interpretations, and ALL show that we have a horrendous problem. We could have dealt with the $2-3 billion shortfall we expected with relatively little pain, but this much larger shortfall will require major surgery.

Washington does a 2-year budget, so the biennial numbers tend to mask important things. The budget in the second year of a biennium is usually larger than the first year. The forecast for the first year of the next biennium (fiscal year 2010) actually declines about 4.5% from the last year of the current biennium. This is not a common occurrence, and is significantly worse than the short recession we faced in 2001-2003.

Governor Gregoire’s budget proposes pretty drastic cuts in many key services. Overall I like her prioritization choices, though I’m unhappy about the level of cuts in some areas I care about a lot. (This is not unique to me – everyone hates their stuff to be cut and wants everyone else to take all the pain.) My biggest concern is that I fear she has understated the problem pretty significantly.

First, her budget assumes $1.1 billion in federal largess. I hope the federal governemnt realizes that the states can be part of the solution for the economic stimulus, but I worry about depending on a particular level of funding. If we get none, or if we don’t know how much we get we will have to cut another $1.1 billion. Second, there is an assumption of a change in the pension actuarial system that “discovers” $400 million in money we don’t need to contribute to the pension system. I was opposed to this change in 2003 and am opposed to it now. I think it adds significant risk in the out years that I don’t want us to take. Lastly, I think we need at least $1 billion in an “ending fund balance,” the money we leave in the bottom of our checking account if things don’t turn out how we plan. This is a judgement call, and I am very concerned on the downside.

We’ll look at all of this as we write our version of the budget, and we’ll benefit from knowing more about the federal intentions.

We will come out of this with a significantly leaner government. I hope that it will be one that tries to do fewer things well, rather than one that insists on doing many things poorly. I will work on this.

About the Author

I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.