35 States Face New Budget Shortfalls, More Federal Fiscal Relief Needed

A new analysis from the Center on Budget and Policy Priorities (CBPP) finds that 35 states – including Washington State – face new budget shortfalls in the current 2010 fiscal year as a result of the national recession.* Each of these 35 states had already acted to close significant budget shortfalls, but have seen new gaps open up as the economic outlook worsened over the summer and fall.

Even after the economy begins to recover, state fiscal problems are likely to linger for several years as a result of persistent unemployment. According to the report, “High unemployment and economic uncertainty, combined with household’s diminished wealth due to fallen property tax values, will continue to depress consumption, thus sales tax receipts also will remain low. These factors suggest that state budget gaps will continue to be significantly larger than in the last recession, and last longer.”

The graph below shows the total size of state budget gaps closed during the recession of the early 2000s and current recession. In aggregate, states are projected to face sizeable shortfalls at least through 2012.



It is important to note that the measures taken to fill state budget gaps earlier this year – that is, cuts in services and tax increases – would have been much more severe were it not for state fiscal relief provided as part of the federal American Recovery and Reinvestment Act (ARRA), also known as the federal stimulus act.

However, the state fiscal relief provisions of ARRA are scheduled to expire on December 31, 2010. Another recent CBPP analysis calls for extending these provisions into 2011. “By taking action now to extend ARRA assistance to states into 2011, lawmakers can reduce the drag that very large state budget cuts and tax increases would otherwise impose on economic activity and jobs and thereby give the recovery a better chance of gathering strength.”

* The size of Washington State’s deficit has grown significantly since this report went to press. It will be updated in the next edition.

New Slideshow on State Economic and Fiscal Outlook

Watch the 12-minute slideshow (audio included) below to get a better understanding of the state economic and fiscal outlook, including ideas for a balanced solution to the budget shortfall.

Click on the green “play” button on the bottom to begin the narrated slide show. The large black arrow on the right-hand side just skips forward to the second slide.

Note: if you cannot see the presentation try using the Firefox browser instead of Internet Explorer.

The economy wreaks more havoc on the state budget

Today’s updated revenue forecast only made it more essential for the governor and lawmakers to take a balanced approach between spending cuts and revenue increases this upcoming legislative session.

The new forecast lowered the state’s expected revenue by another $760 million, bringing the total shortfall to $2.6 billion.

The continually worsening outlook comes at a time when Washingtonians need public structures more than ever. With the unemployment rate at its highest level since 1984, the need for the health care system, education and job training, and income supports become more important than ever.

We need a balanced approach to dealing with impacts of the recession on the budget, one that combines careful cuts with smart revenue increases, such as a combination of a retail sales tax increase with the Working Families Rebate.

We’ll have a lengthier analysis of the economic and budget situation tomorrow.

Wait list for the Basic Health Plan now exceeds enrollment

There are now more Washingtonians waiting to receive health coverage through the state’s Basic Health Plan (BHP) than are actually enrolled in the program. As of today, the number of people on the wait list for the program reached 79,013, while the number of enrollees stands at 78,830.

The Basic Health Plan provides affordable health insurance coverage for low-income adults in Washington State. According to the Bureau of Labor Statistics, nearly 130,000 jobs have been lost in Washington since the start of the current recession, which began in December of 2007. The BHP provides a crucial backstop for Washingtonians that have lost employer-sponsored health coverage.

Though demand for BHP coverage continues to rise, monthly premiums and annual deductibles charged to enrollees are scheduled to increase sharply in January as a result of budget cuts enacted earlier this year.

Revenue Forecast Tomorrow Will Show Growing Deficit

The Economic and Revenue Forecast Council will release tomorrow their latest projection of how much revenue the state will raise in the 2009-11 biennium. It will likely be the ninth straight revenue forecast that has brought bad news to Washington State, revealing a deficit that could be as high as $2.5 billion.

Over the last six months, the ongoing economic recession has pummeled away at our state’s budget outlook. Last May when the Governor signed the current budget, lawmakers expected an ending fund balance of nearly half a billion dollars plus $250 million in the rainy day fund for the 2009-11 biennium. Since then, the recession and other factors have instead combined to create a $2 billion shortfall.

This forecast is particularly important because it will set the parameters for the Governor’s budget proposal, which is expected to be released in about three weeks. Because of the worsening outlook, the Governor’s budget will likely propose deep cuts in core public structures, on top of those already passed last session. These cuts come at a time when Washingtonians can least afford them.

It's time to talk about a more balanced solution that includes revenue in order to protect our essential investments in public priorities.

Stay tuned for new analysis of the state budget and possible solutions in the coming days.

BPC hires new Communications Manager

Hi. After 19 years in journalism - most recently at the Seattle Post-Intelligencer -- I'm joining the Washington State Policy & Budget Center, as the Communications Manager. I'm looking foward to sharing with you all the excellent policy analysis the analysts here at the center do.

I wrote extensively about politics during my journalism career, covering such issues as welfare and health care reform as state government for The Seattle Times. I also covered City Hall and the monorail measure for the P-I. I also founded a news site, seattlepostglobe.org, with other former P-I journalists.

New BPC report: Federal Estate Tax Supports Public Priorities

The federal estate tax provides billions a year for essential priorities like education, the environment and national security. It’s also the most progressive of federal taxes, applying to only the wealthiest two of every 1,000 estates.

But misconceptions surround the tax. And efforts are afoot in Congress that would weaken it.

The tax has already been steadily weakened since the Bush tax cuts in 2000, as rising exemptions have meant that less of an estate’s value is subject to the tax. In 2000, the exemption was $675,000. Only two of every 100 estates nationally were subject to the tax. The exemption is now $3.5 million for an individual, and only one in every 500 estates across the country owes any tax.

While, the rhetoric is that the estate tax hits the little guy, the reality, according to an analysis by the Tax Policy Center (TPC), is this: only about 110 small farms and busi¬nesses across the country would owe any estate tax in 2011, if the 2009 parameters were made permanent. In Washington State, only two small family farms or businesses would owe any estate tax in 2011, under those parameters.

Now some proposals in Congress would weaken the tax even more. According to an analysis by the Washington State Budget & Policy Center, only the wealthiest estate owners would stand to benefit from a proposal by Senators Blanche Lincoln and John Kyl (along with a similar proposal from Representative Shelley Berkley in the House).

For estates valued at $20 million, it would mean an average tax cut of $3.5 mil¬lion. This would cost the nation $153 billion more in lost revenue and increased interest on the higher national debt than a more fiscally responsible proposal by President Obama.

Read the entire report here:

DSHS Budget Proposal would Harm Health Care, Cost Federal Funding

Even with the specter of I-1033 behind us, the state budget situation is bleak because of the lingering impact of the economic recession. The deficit facing the Governor as she prepares her budget could be as high as $1.8 billion.

A recent memo from the Department of Social and Health Services' Health and Recovery Services Administration—written in response to the Governor’s request for budget reduction proposals—helps illustrate the size of the problem. Acknowledging that “these are serious cuts, and cuts on top of cuts,” the Department proposed deep reductions in key health care programs:

• The largest reduction ($69.2 million) would come by eliminating important benefits for lower income adults receiving Medical Assistance, including maternity support services, hospice, hearing, non-emergent dental, vision, podiatry, physical therapy, occupational therapy, speech therapy, interpreters for medical services, and Medicare Part D (prescription drugs) copays. Funding for school-based Medicaid services would also be eliminated ($5.6 million).

• The proposal would eliminate access to state programs that provide health care to lower income children between 205 percent and 300 percent of the federal poverty line, taking a step backward on the state’s commitment to “Cover All Kids” in order to save $11.6 million.

• Reductions in mental health care ($12.9 million) would include eliminating funding for the Program for Adaptive Living Skills and eliminating funding for community support services for individuals discharged from state hospitals.

• The proposal would also eliminate drug and alcohol treatment for all low-income adults not enrolled in a separate DSHS program ($5.5 million).

• There are also $8.3 million in administrative cuts and staff reductions included in the proposal.

The reductions in state spending are only part of the story. These proposed cuts would cost the state an estimated $101.4 million in federal matching funds.