State's 2009-’11 budget finished in the red

Sudden deterioration hit state’s revenue as cycle ended in June

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OLYMPIA — Washington state is finishing its latest budget cycle with a deficit for the first time in modern recordkeeping.

State accountants are finalizing the numbers, and they now expect that the two-year budget that ended June 30 will officially close about $90 million in the red. Records released to The Associated Press under state public records laws show it is something that hasn’t happened in any biennium dating back at least a quarter of a century, when accounting processes changed.

It’s not entirely clear whether the state is allowed to have such deficits.

One part of the law requires the governor to propose a balanced budget but does not say anything about the Legislature passing one or the governor signing one. However, another section says that “the governor shall make across-the-board reductions” in funds if the governor ever projects a cash deficit.

“It’s a violation of the law,” said Bob Williams, a former Republican lawmaker who supported new statutes in the early 1980s to ensure that the state didn’t end a budget in the hole. “But who has the standing or the money to challenge them?”

Internal emails released under public records laws show that Gov. Chris Gregoire's budget advisers were well aware that the state’s general fund was likely to finish in negative territory, but they decided that it wasn’t necessary to act because the budget cycle that started July 1 was projected to make up the shortfall — meaning the state was projecting a balanced general fund in the long term.

Gregoire’s budget director, Marty Brown, said in an interview that even if the state had completely shut down government over the final two weeks of June, it may not have saved enough to ensure a balanced budget cycle. He said while nobody wants to see negatives in the accounting, the deterioration in the revenue outlook was surprising.

“I don’t think anybody thought the drop was going to be that precipitous,” Brown said.

Either way, the failure to balance the budget in the last biennium is exacerbating problems in the current one. The deficit is carried forward, and the state is now looking for upwards of $2 billion in cuts in the current two-year cycle to ensure that the budget is balanced and that there are hundreds of millions of dollars left as a buffer.

The state had ended each of the previous five budget cycles with an average of about $500 million remaining, according to budget records at the Office of Financial Management.

Surplus was expected

Democratic Sen. Ed Murray, a top budget writer, noted that lawmakers had projected in May that they would end the last budget cycle with $100 million left over. Due to a deteriorating economic outlook, the state’s revenue projections abruptly changed over the following weeks, wiping out that surplus.

Murray said the negative cash is a small amount in the scheme of a $30 billion budget.

“If it had been significantly larger, I think we would have needed to act,” Murray said. Republican leaders also made no public attempt to address the issue.

The deficit does not mean the state is out of cash, only that it spent more than it brought in over the two-year period. The state treasurer has a variety of accounts, including cash and short-term investments, that totaled about $3 billion in October.