Washington’s $9 billion balancing act

Washington’s $9 billion balancing act

How the Legislature closed a historic budget shortfall—without raising taxes

As vice chairman of the budget writing Ways and Means Committee, I had the dubious honor this session of playing the point for the Senate in the Legislature’s efforts to write a new, two-year operating budget. It amounted to being awarded a front row seat to a game with no winners.

Before it was over we found ourselves plugging a void in our state budget larger than any the state has seen since at least the Great Depression. We did so in large part by cutting government services deeper than any of us wanted to. And, defying past practices during such downturns, we balanced the budget without raising taxes.

This is the story of how we got into this mess and

how we started to pull ourselves out of it.

An economic storm blows in

Some will argue the investments we’ve made in recent years to bolster early learning, support the beginnings of all-day kindergarten and provide health insurance for poor children drove our budget shortfall. But the record shows something far different.

Thanks in part to a prolonged housing boom, Washington’s economy outlasted much of the rest of the country allowing the state to enjoy healthy budget surpluses well into 2008. But the economic storm that would ultimately shower red ink across 45 other states finally began creeping across our borders.

Credit markets froze nationally. Consumer spending slowed to a crawl. Unemployment began to creep up, then leap up. Home foreclosures climbed to historic highs.

The drop in consumer spending proved particularly damaging in Washington, a state that derives a little more than half (52%) its revenue from the retail sales tax. In September, the state’s forecast of anticipated tax collections plummeted by more than $500 million. In November it fell again — this time by a whopping $1.9 billion.

At the same time, demand for state services was climbing. In December more than 90,000 Washington residents applied for unemployment benefits, an all time record.

That month the governor unveiled a cuts-laden budget proposal to close what was then a $6.1 billion budget shortfall. In time, these would come to be referred to as the good old days.

Legislature convenes dreary session

There was nothing happy about the new year that dawned for lawmakers when the Legislature convened its 105 day session on Jan. 12. We were acutely aware that many tough decisions lie ahead, that many of us would have to support tearing down a standard of service that we’d spent legislative careers building. But the worst was yet to come.

I immediately began meeting three nights a week with a small group of select budget staffers and, sometimes, a fellow senator or two to pour over the budget. After a full day of legislative meetings, hearings and floor sessions we’d retreat to a conference room on the third floor of the Senate office building for three hours or more. At first we reviewed each functional area of the budget in detail. Later we graduated to deciding upon actual cuts.

On Feb. 13, just one month and one day after the Legislature convened, the Senate approved a series of administrative cuts to come up with our first $735 million in savings.

When it was sent to the governor’s desk five days later it was the earliest any Washington Legislature had approved steep budget cuts in modern history.

It was a good thing, too, because a month later a new forecast of tax collections added another $2.9 billion to our budget shortfall, pushing it to a previously unthinkable $9 billion, or about a quarter of our operating budget. Incredibly, in a span of just four months, $4.8 billion in anticipated tax revenue had evaporated into thin air, burned off by a flaming recession.

This proved particularly challenging for myself and budget writers in the House because close to half our budget was either legally or practically off limits for cuts. About 7 percent of our operating budget is dedicated to paying off construction debt for university buildings, schools, prisons and facilities at other state institutions. Those payments can’t be skipped.

Also untouchable was funding to support core education programs protected by our state constitution. And there was funding for other unprotected education programs and some medical programs that draw federal matching dollars that no one was eager to cut.

This would mean that what was left of the budget would have to shoulder a massive burden.

Solving the problem

To our great fortune, the Obama administration stepped up and provided $3 billion in stimulus dollars that greatly helped mitigate the cuts we had to make to state services. The budget we sent to the governor’s desk also assumed $1.5 billion in use of reserves and fund shifts — most notably one from our state’s construction budget that left us with fewer construction projects funded for the next two years.

But by far the single largest component to our budget balancing strategy was $4.3 billion in deep cuts to valued government services. Individual cuts are far too numerous to list. In the health care and mental health component of our budget alone there were 39 cuts of at least $1 million. But consider some of our biggest cuts.

• As many as 8,000 public employees, including some teachers, will lose their jobs. Management employees will have their salaries frozen and $449 million was saved by reducing pension contributions.

• Suspending two voter approved initiatives to reduce class sizes and provide teachers with a cost-of-living pay raise saved almost $1 billion.

• Some $557 million was saved by slashing state college and university budgets by 17 percent. Some of that will be made up with tuition increases ranging from 7 percent at community colleges to 14 percent at Washington State University and the University of Washington in each of the next two years. But the cuts required will eliminate 9,000 enrollment slots statewide from our colleges and universities.

• More than $255 million was saved by removing subsidized health insurance for 40,000 among the working poor. To save hundreds of millions more we slashed funding for hospitals, nursing homes and local health districts and assistance to those who are unemployable due to a physical or mental disability.

Again, these are just a sampling of some of the biggest cuts. In truth, virtually every functional area of state government took a hit.

But as much as there is to dislike about this budget, I can say that our approach was judicious and forward thinking.

We focused on saving prevention programs, such as some health care programs, that can head off higher costs in an emergency room at a later date.

We also favored programs that appear to be most sustainable well into the future. We maintained a safety net, albeit a smaller one, to provide for our most vulnerable citizens. And we left a healthy budget reserve — about $750 million — to help us weather any aftershocks of the economic earthquake that has rattled our state and nation.

Let’s hope our economy continues to improve, so that we never have to make this

level of cuts to such core, vital services again.