Washington state government dodged a bullet two weeks ago with voters’ rejection of Initiative 1033, a revenue cap that would have slashed future state revenue by an estimated $5.9 billion over five years.
But a minefield awaits lawmakers as they gird for more budget carnage in the 2010 legislative session, which begins Jan. 11.
The 2009 Legislature slashed higher education, social services and other programs by $4 billion last spring to help close a $9 billion budget deficit. But revenue, particularly from the state sales tax, continued to fall short of projections throughout the summer and fall. Meanwhile, the state’s Medicaid and welfare cases have ballooned as the economy struggles to recover from the Great Recession.
Now, with the pain of the 2009 session still a fresh memory, Gov. Chris Gregoire’s budget office says the state faces another budget shortfall that could exceed $2 billion by June 2011, the end of the current budget cycle.
And those close to the numbers expect the situation to get much grimmer when a new revenue forecast is released Thursday.
“I’m pessimistic,” said Rep. Tim Probst, D-Vancouver, who sits on the House Education Appropriations Committee. “I think it will be a bad one.” He predicts the Nov. 19 forecast will show revenue down by as much as an additional $800 million.
The Legislature has $250 million set aside in a rainy day fund and a cushion of $570 million in unreserved funds out of a $35 billion two-year budget to work with as it sets about closing the new gap.
This time, federal stimulus funds won’t be available to help fill the breach.
That means the 2010 Legislature will face another agonizing round of budget cuts. Already, the governor is considering cuts in social services and early childhood education and a retreat on the state’s promise to insure all children by 2010. Cuts to school levy equalization, which could cost Clark County schools millions of dollars, also are on the table.
State Sen. Joe Zarelli, the Legislature’s perennial voice of fiscal caution, is calling on the governor to convene lawmakers in a special session when they meet in Olympia Dec. 3-4 so they can get a head start on making cuts.
If they wait until the end of the fiscal year June 30, they’ll need to cut more deeply to balance the two-year budget, Zarelli said. “Each dollar saved in January is equivalent to a cut of $1.50 in July,” he said. Budget reductions equal to $67 million per month enacted in January would erase a $1.2 billion gap in 18 months, but cuts implemented in July would have to equal about $100 million per month to achieve that same result, he said.
The Ridgefield Republican, who sits on both the Senate Ways and Means Committee and the State Economic and Revenue Forecast Council, made the identical argument last year at this time, but his advice wasn’t heeded then. And he’s found little support for it this time.
“I have not heard anything from the other four corners of government,” he said. “The governor’s office said thanks but no thanks.”
Lukewarm response
Marty Brown, Gregoire’s legislative director, said a special session called by the governor could quickly get out of hand.
“There have been a slug of people talking about a special session,” he said. “There is no agreement on what they would cut. And if the governor calls it, she can’t limit it to less than 30 days” or restrict the topics lawmakers could consider, he said.
The Legislature could call itself into special session, but that would require a two-thirds vote in each chamber, and both the House and Senate are in firm control of Democrats, who take their lead from the governor.
Gregoire and her budget staff are working to write a supplemental 2010-2011 budget for the 2010 Legislature by December, Brown said.
“Already, travel has been restricted, and purchasing is being watched a lot closer,” he said. “Those cuts will be part of the budget. The education process will start in full force after we get the revenue forecast.”
Rep. Kelli Linville, a Bellingham Democrat who chairs the House Ways and Means Committee, says a two-day special session in December is not the time to cut the budget.
“My concern is that we will not have had a chance to hold any hearings on the impacts of proposed cuts,” she said “It’s a public process to make budget decisions.”
Linville added, “If it was July and (proposed budget cuts) were well-worked out, and there was an agreed-to agenda amongst the caucuses, I could see us doing something.”
However, cutting the budget — again — will be at the top of the agenda when the 2010 Legislature does convene, she said. “We’re very close to January, and our plan is to immediately start budget hearings on the governor’s budget, which we’ll have in December.”
Senate Majority Leader Lisa Brown, a Spokane Democrat, is open to a special session in December but not to cut the budget. Brown “is considering a special session for the purpose of authorizing school districts to collect previously voter-approved levies that exceed the statutory maximum collectable,” said her spokesman, Jeff Reading. “She is in favor of doing this during the December committee days if there is agreement with the House and governor, and to limit the session to just that one issue.”
Early lobbying
Budgeting is not an exact science. The widening state budget gap is due to a combination of recession-driven increases in Medicaid, welfare and other social service programs; lower-than-projected state revenue; and unrealized savings from the failure of cost-cutting legislation.
Gregoire vetoed some legislatively approved budget cuts, others failed to pass, and still others are on hold due to legal challenges, said the governor’s spokesman, Glenn Kuper. The state also lost a case before the Washington Supreme Court involving taxation of out-of-state businesses that forced it to take a $290 million revenue hit.
The governor has asked state agencies to scour their budgets and recommend “all possible options” for cuts.
In a replay of last year, lobbying to head off possible cuts has begun as well.
The Department of Social and Health Services has proposed eliminating community support for mental patients leaving the state’s psychiatric hospitals, ending adult hearing, vision and dental benefits, cutting money for medical interpreters, and rolling back eligibility for children in the state’s insurance program for children, called Apple Health.
The governor reportedly is considering limiting eligibility for Apple Health to families earning 205 percent or less of the federal poverty level, or $44,100 for a family of four. The current cutoff is 300 percent.
That would hit newly poor families who are struggling with job losses as a result of the recession, said John Gould of the Children’s Alliance, a Seattle advocacy group.
“This budget cut would undo 10 years of progress on children’s health and prevent us from reaching the goal the Legislature and the governor have adopted of covering all kids by 2010,” Gould told the Spokesman-Review newspaper of Spokane. The state currently provides health insurance to about 600,000 children.
The alliance also sent out an alert last week calling on supporters to flood Gregoire’s office with 5,000 postcards urging full funding for early learning programs.
“Falling revenue means that more cuts are expected, on top of the all-cuts budget passed in the spring,” Gould said. “We can’t set Washington — and our children — back with more cuts to early learning now.”
Because early childhood education is one of the state’s discretionary programs, it is vulnerable at budget time. It is also part of the social safety net.
Joel Ryan, executive director of the association that represents Head Start and early childhood learning programs, said the most recent data from the Department of Early Learning finds that 41 percent of children currently enrolled in those program live in families with incomes of less than $10,000 per year.
Core programs in grades K-12 are likely to escape deep cuts because the Washington Constitution defines the provision of basic education as the state’s paramount responsibility, Probst said.
“I think every part of government will see more cuts,” Probst said. “I think the K-12 system will see far fewer than other parts of government because the vast majority of its funding is constitutionally protected.”
The revenue question
Will new taxes be on the table in 2010?
Under state law, the governor is required to submit a no-new-revenue budget to the Legislature. For 2009, with the state in the throes of recession, she kept a pledge from her 2008 campaign and vowed to veto any new state taxes.
Marty Brown said Gregoire hasn’t yet decided whether she will also submit a 2010 supplemental budget that includes new sources of revenue.
Gregoire isn’t ruling it out. In late September, she told reporters she would entertain revenue proposals if lawmakers or interest groups brought them to her, but added, “I don’t want to do anything that adversely impacts our economic recovery.”
On her blog, Sen. Lisa Brown questioned what’s left to cut. “We already cut too much from critical health services and education and public health to balance the budget last session,” she wrote. “Making more cuts risks real and lasting damage to our families and communities.”
Sen. Craig Pridemore, D-Vancouver, also a member of the Revenue Forecast Council and the Ways and Means Committee, says it’s time to consider “a wealth-based, income-based” tax to help balance the budget. “There is no way I want to walk out of this session after making an additional $2 billion in cuts,” he said.
The Legislature will have a freer hand to raise taxes this year.
For the first time, lawmakers will be able to amend or suspend anti-tax activist Tim Eyman’s 2007 state spending limit.
Initiative 960 required that any state tax increase must pass the Legislature by supermajority votes or be sent to voters for approval. After two years, lawmakers can change voter-approved initiatives like I-960 with a simple majority vote.
House Majority Leader Lynn Kessler, D-Hoquiam, acknowledged that some House members favor that option. But she told The Olympian that it would not be “an easy vote. It would have to be something very unique and special,” such as an unfavorable court ruling on education funding.
The state’s largest unions are calling on state Democratic leaders to raise taxes to avert more program cuts or risk losing union support at election time.
Rep. Ed Orcutt of Kalama is among those pushing back.
Orcutt, ranking Republican on the House Finance Committee and a member of the Revenue Forecast Council, says he’s one of only eight House members who have signed the Americans for Tax Reform State Taxpayer Protection Pledge, vowing to “oppose and vote against any and all efforts to increase taxes.”
“Until we get back to the priorities of government process and address the overspending of the last four years, we’re going to find ourselves in a vicious cycle,” he said.
Probst, a Democrat, says he will oppose new taxes as well.
“That’s off the table for me,” he said. “We’ve got a lot of people trying to figure out how to live their lives with half the money they used to have. Government has to learn how to reprioritize.”
Kathie Durbin: 360-735-4523 or kathie.durbin@columbian.com.
