Governor’s Forthcoming Revenue Proposal Only a Drop in the Bucket

In the 2010 legislative session, Washington State will have to address the continuing effects of the economic recession. Governor Gregoire has signaled a willingness to take a more balanced approach between cuts and revenue enhancements. In the context of the total size of the fiscal impacts of the recession, however, her revenue proposal will only be a drop in the bucket and will not save crucial services.

During the last session, the state cut $3.6 billion in public services—cuts that will hurt state priorities such as the quality of education at every level, the availability of affordable health insurance, and the quality of our health care infrastructure. There were a few pieces of legislation that raised revenue, but no meaningful tax increases.*

The Governor’s budget proposal that was released on Wednesday follows in the same vein, with no revenue increases and $1.6 billion in cuts. However, the Governor also announced that she would introduce a second budget in January that would include roughly $1 billion in cuts and $700 million in revenue increases.

The Governor's proposal is a start to the conversation, but a bolder, more balanced approach is needed.

First of all, the $700 million would do nothing to save programs that help working families pay for child care, prevent costly health problems by supporting at-risk pregnant women, and clean up toxic sites. These are just a few of many cuts proposed in the Governor’s first budget proposal that she has not signaled will be protected in her second proposal.

And even with the Governor’s forthcoming revenue proposal, the approach the state has taken to the total budget shortfall will still be severely imbalanced. Combining the Governor’s proposal with the previously enacted revenue policy, revenue increases would only make up eight percent of the total solution to an over $11 billion problem (see graph below). Cuts in core public services will total 40 percent.


* Revenue legislation passed in the 2009 session gave the Department of Revenue more oversight of purchases for resale, authorized multi-state lottery agreements, increased out-of-state auditing, and opened new liquor stores.

Governor's Budget will Create Costly Problems Down the Road

The budget cuts released yesterday by the Governor include several items that would only end up creating more costly problems down the road. This approach will diminish the quality of life for thousands of Washingtonians now and in the future. It also defers higher costs to the state that will inhibit our economic recovery going forward.

Budget cuts to state investments that focus on prevention and other longer-term benefits include the following:

• The budget would suspend all funding ($13.9 million) for non-emergency dental care for adult clients of Medicaid. This will have a direct impact on the health of 120,000 Washingtonians. Further, by not funding prevention and early treatment, the budget will likely increase the need for more expensive emergency dental care in the future.

• The budget proposes eliminating all state-funded early learning programs for three-year olds from lower income families ($10.5 million), directly affecting 1,500 children. High quality early learning programs set the stage for success in life and are expected to confer economic benefits to the state in the future.

• The budget significantly reduces funding for the Water Quality Program, a cut that will damage our ability to plan for healthy water. Ensuring the quality of our water through preventing and cleaning up water pollution has a direct impact on human and environmental health in communities throughout the state. Neglecting this government responsibility will be costly to reverse.

• The budget would mean that over 65,000 people would lose health coverage by eliminating the Basic Health program ($160.6 million) and sharply limit the availability of childcare assistance ($88.5 million) to working families. State investments in health insurance and childcare help to encourage and support employment for families that are struggling to stay out of poverty.

• Family preservation services seek to preserve or reunite families. They assist families in crisis by improving parenting skills and family functioning. Children are protected while being able to remain in their own families. The Governor’s budget would slash funding for these programs in half ($5.9 million).

• The budget would eliminate funding ($28.1 million) that reduces premature births and infant mortality by providing support for lower-income women with at-risk pregnancies. Without these support services, families and the state will inherit more costly problems down the road.

An Imbalanced Budget

Governor Gregoire released her 2010 supplemental budget proposal this morning. It includes $1.6 billion in cuts to essential public structures that promote health, education, economic security, and safe and thriving communities.

As required by law, the budget works inside existing revenue constraints. The Governor acknowledged her concern over this budget and plans to release a second budget that will include necessary revenue increases in order to avoid the most damaging cuts.

The Governor is right to be concerned about the effects this budget would have on Washington’s economy and people during these tough economic times. A balanced approach that includes meaningful revenue increases is a better alternative.

The budget released today proposes completely eliminating or suspending efforts including (this is only a partial list):

• Basic Health, which provides affordable health insurance to 65,000 people.
• General Assistance for the Unemployable, which provides help to people who are unable to work because of disability.
• Health insurance coverage for 16,000 lower income children.
• Benefits for Medicaid clients including vision, podiatry, physical therapy, occupational therapy, speech therapy, prescription drug assistance for elderly patients, hospice care, dental, and maternity support.
• Funding to send more than 1,500 3-year-olds to preschool.
• State support for all-day kindergarten in high-poverty areas.
• Class size reduction efforts.
• A program that equalizes school funding between wealthy and poor school districts.
• Tuition assistance for over 12,000 lower-income students.

Stay tuned to schmudget for more analysis of the Governor’s budget.

Raising Taxes Would Prevent Economically Damaging Budget Cuts

Later this week, the Governor is expected to release her supplemental budget to close the $2.6 billion deficit that is a result of the ongoing economic crisis. State lawmakers will have difficult decisions to make in the upcoming months, as they find a way to balance the state budget. We encourage them to take a balanced approach that includes revenue enhancements as well as spending reductions to protect essential public structures such as health care and education.

Raising revenue is a better alternative for our state economy than budget cuts. In a paper for the Center on Budget and Policy Priorities, Nobel Prize winning economist Joseph Stiglitz and Peter Orszag, now director of the Office of Management and Budget, wrote, “In the short run (which is the period of concern during a downturn), the adverse impact of a tax increase on the economy may, if anything, be smaller than the adverse impact of a spending reduction, because some of the tax increase would result in reduced saving rather than reduced consumption.”

Last February, the Budget & Policy Center released a letter signed by over 20 economists and public policy experts in Washington State urging lawmakers to take a balanced approach, including revenue increases, when addressing the state’s budget deficit. “Implementing deep cuts in government spending and declining to raise revenue through tax increases is not an effective strategy to guide Washington State out of this recession,” the letter states.

The letter remains a potent reminder to lawmakers to consider all options for balancing the budget in the challenging months ahead. We certainly hope that they will.

The Unprotected Budget

Primarily as a result of the recession, Washington State, like most states, is now facing a large deficit ($2.6 billion). As we pointed out in our recent slideshow on the state economic and fiscal outlook, most of the budget is off-limits to cuts. This means that an all-cuts budget would require elimination of entire programs and services.

A new presentation by the Senate Ways and Means Committee staff provides more detail on this issue. They estimate that only $7.7 billion of the state budget is vulnerable to cuts in the coming session, with programs that provide economic security for lower income Washingtonians being especially exposed.

They break down the $7.7 billion into three categories: 1) timing (nearly $10 billion will already be spent by the time the new budget is signed), 2) legal restrictions such as state constitutional requirements, federal law, and debt and pension obligations, and 3) strings attached to the federal recovery funds.


The graph below breaks down the vulnerable part of the budget into program areas.


They also provide a possible scenario (see table below) to illustrate what $2.6 billion in cuts could mean. It includes elimination of financial aid, the Basic Health Plan, in-home services for clients with long-term care needs or developmental disabilities, and money that is used to equalize school funding between rich and poor districts.

EOI releases "The State of Working Washington 2009"

Today the Economic Opportunity Institute is releasing its annual report, "The State of Working Washington." The 2009 edition focuses on economic security and the increasing difficulties that Washingtonians face to afford home ownership, health care, college tuition, and retirement savings. The report also highlights diminishing median family income over the last decade and reductions in employer provided benefits for many Washington workers.

To access the report, click here.

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.