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Thursday, January 8, 2009

The Governor's budget (released last month) proposes deep cuts to the state budget that would limit our ability to pursue public investments in health, economic security, and education.

The stark proposal is in response to a large budget deficit. In part, this deficit is the product of the economic crisis. But, as the attached graph shows, the economy is only part of the story. The ability of the state tax structure to pay for normal growth in government spending has been deteriorating for over a decade.

This graph follows the standard of showing budget amounts as a share of total personal income. This provides insight on the resources we have to fund public investments and also recognizes that the cost of government grows along with economic and demographic trends.

The purple line shows that revenue has been eroding since long before the recent economic downturn. It’s a combination of significant tax cuts, spending limitations, and a tax system that doesn’t grow along with the economy even during good times. So while the current fiscal crisis has obviously been exacerbated by the economic crisis, it’s a longer-term problem.

The green line shows spending trends. Up to now, the state has been able to use reserves and stopgaps to hold spending a little steadier than our revenue stream, but we’re out of reserves now and are facing the largest deficit since the 1980s.

The budget cuts proposed by the Governor (shown here by the dashed green line) would be the largest, relative to the economy, in over a decade.

So what does that mean for Washington? Can a budget of this size truly reflect our values and move our state in the right direction?


John said...

I notice your organization's whole argument about state spending is based on permutations of this factoid. Kudos on your abilities to recycle.

However, this is based on the premise that the state is somehow entitled to more of my money as my prosperity grows. Why? So the state government should decide how prosperous I can be?

Kati said...

Ditto John. In absolute terms, Washington state spending has radically outpaced population and inflation growth.

Anonymous said...

I'm g to have more dialogue and analysis of state budget issues -- but for the layman, can you explain exactly what the "share of total personal income" number represents?

Jeff Chapman said...

Personal income is an estimate of the total income received by all Washingtonians from all sources (employment, dividends, interest, etc.). It is one measure of the size of the state economy and is the standard way to analyze the size of state and local government over time. For more, see the Bureau of Economic Analysis.