Washington state business advocates are warning against proposals by lawmakers to raid the state’s “rainy day fund” or raise any new taxes to plug holes in this year’s supplemental budget. If recent state revenue forecasts are any indication, they say, storm clouds may be on the near horizon.
Last week the state House and Senate released their supplemental operating budget proposals. The House operating budget approved by the Appropriations Committee would increase 2015-2017 spending by $467 million.
The Senate version approved by the Ways and Means Committee would only increase spending by $33 million, a mere seven percent of the House’s proposed bump. The Senate’s budget does not call for any new taxes and would not tap into the state’s Budget Stabilization Account, known to most as the “rainy day fund.”
‘An Opportunity To Put Important Reforms In Place’
“This year’s budget update is simply an opportunity to put important reforms in place to improve our state agencies in order to deliver better results for both taxpayers and those receiving critical services,” Ways and Means Committee Chair Sen. Andy Hill (R-45) said in a statement.
Senate Republicans are training their green eyeshades on the state Health Care Authority, the Department of Corrections, the Department of Transportation and the Department of Social and Human Services. All have encountered high-profile management problems.
The House Democrats’ budget lean heavily on the state’s rainy day fund. Its balance was recently reported by the Office of Fiscal Management to be $892.5 million.
Breaking Down The Draw-Down Of The Rainy Day Fund
Around $190 million of the House Democrats’ draw-down of the fund would pay for combating last year’s devastating wildfires, while $38 million would pay for homeless programs. The remaining $239 million would go toward addressing the school district “levy equalization cliff” issue ($90 million) and pay for K-12 school construction ($149 million).
An accompanying “necessary to implement the budget” measure, HB 2996, would generate $123.8 million in increased K-12 spending by rescinding an array of existing tax incentives. That proposal has gotten a rocky reception from major industries and employers in Washington.
On last summer’s wildfire-fighting expenses, the Senate budget proposes to shuffle $173 million from the state’s General Fund to the Disaster Response Account, to cover costs.
Neither reversing enacted tax incentives nor tapping the rainy day fund are smart, says Gary Chandler, vice president of Government Affairs for the Association of Washington Business (AWB). He believes the proposed rainy day fund raid would deprive the state of money it could need to fill budget gaps in the near future.
Last month, the state’s Economic and Revenue Forecast Council predicted a $442 million revenue shortfall in the 2017-2019 budget. The forecast also projected a $67 million shortfall for the 2015-17 biennium.
‘True Emergencies’ Warrant Use Of Reserves
“Our economy is slowing down,” Chandler said. “If our economy is slowing down…is now the time to go into the rainy day fund, or is now the time to protect that fund when we’re not sure how far our economy may slide?”
“There are going to be true emergencies” where lawmakers will have to tap the rainy day fund, said Emily Makings, senior research analyst at the Washington Research Council.
“But I think down the road,” if they do draw down the rainy day fund, “and then in the next biennium there are major economic problems in the state, the next recourse is to increase taxes, which would probably fall on businesses,” she added.
Democrats say the Senate Republican budget neglects K-12 spending. State Sen. John McCoy (D-38) said that if it isn’t increased, the legislature will just be kicking the can down a road.
“We’re going to have one hell of a session next year,” he said.
Because it’s an election year, some Democrats expect Senate Republicans won’t compromise much on new taxes.
“They don’t want to do anything to inflame their base,” McCoy said. “There are always paths to common ground. I’m not seeing at the moment on the other side any move to common ground.”
Charter Schools Dicey As Leverage For House Dems
One possible bargaining tool for House Democrats might be charter schools, currently at risk of elimination in their budget. But that could backfire on them, said State Rep. Hans Zeiger (R-25).
“The problem is charter schools have become more popular in this state since the initiative passed,” he said. “The Democrats are the ones who stand to lose if they kill charter schools. And they also lose if they take a stand for taxes that sends us into a special session. They don’t have a lot of good PR on their side on those issues.”
The primary leverage House Democrats have is that Senate Republicans will need at least 50 votes in the House to side with them in order to pass the budget, said Eric Lohnes, director of Government Affairs for Tax and Fiscal Policy for AWB. Democrats control the House narrowly.
New Taxes Would Be Minimal
House Democrats like State Rep. Larry Springer (D-45) think it’s likely that they won’t get quite the spending levels they’re seeking, but the Senate will have to meet them somewhere in between. If there are new taxes, he said, they would be minimal. If there are no new taxes, Springer said, the money for increased spending will come from somewhere else.
That somewhere else could be the rainy day fund. Lohnes anticipates that spending from this account will “likely be a key discussion point.”
With the legislative session scheduled to end March 10, the clock is ticking. While last year’s legislative session was the longest in state history, many lawmakers don’t think a repeat is on the table.
“I don’t think there are many people who are going to tolerate going into overtime,” Zeiger said.