Dear Prudence: The Budget Is In Play

Dear Prudence: The Budget Is In Play
Money: Washington state government's not exactly swimming in it. How much to lever from the vaults for an off-year supplemental budget has lawmakers in overtime as Easter approaches. Photo: technabob.com

Washington Senate fiscal watchdogs vow that any state supplemental budget, now likely to be resolved not until some point after Easter, will have to comply with the state’s four-year balanced budget requirement.

Sen. Andy Hill (R-45) told Lens it is the “best budgeting tool in a generation in terms of enforcing discipline.”

It’s also one of the few issues on which the entire Senate Majority Coalition sees eye to eye, he added.

“They’re (House Democrats) going after a core tenet that we will not budge on,” he said.

‘Aspirational’ Spending Tougher Under Four-Year Balanced Budget

The requirement has come under fire this session by House Democrats like Appropriations Committee Chair Hans Dunshee (D-44). He told TVW’s Austin Jenkins these projections aren’t always accurate. A four-year outlook greatly hampers the state’s ability to be more “aspirational” in its spending, he said.

The balanced budget requirement was passed in 2012 with bipartisan support and signed by Gov. Chris Gregoire. It uses a four-year fiscal projection to determine how much spending is permitted by the legislature.

Exceptions Permitted But Require Political Capital

Lawmakers can technically bypass this by drawing from the rainy day fund via a supermajority vote. They can also approve new taxes or reverse already-enacted tax incentives to make up the difference.

Republicans may prevail on limiting new spending during the 2016 special session. But policy experts are worried the balanced budget requirement may not survive the next two-year budget.

It ensures the state properly plans ahead, said Eric Lohnes, director of Government Affairs for Tax and Fiscal Policy for the Association of Washington Business. Fiscal restraint is all the more critical when the state anticipates an economic downturn, he added.

“They’re not using the “R” word, they’re not saying recession, but they’re not optimistic about the growth potential in the future or near future,” he said of state revenue forecasters.

State’s Credit Rating At Issue

Adhering to the balanced budget and maintaining a healthy rainy day fund could also protect the state’s high credit rating.

A January 2016 Standard and Poors report warned that “allowing the state’s reserve balances to decline precipitously” could result in “downward pressure on the rating.” Fitch and Moody’s have made similar remarks in recent reports.

The S&P report also stated the balanced budget requirement “should help insulate the state rating from unexpected economic or revenue weakening.”

Dunshee has also taken aim at exemptions made in the requirement for K-12 spending lawmakers have to meet by 2018 under the Washington Supreme Court’s McCleary ruling in 2012. That exemption will end for the next two-year budget. The legislature will then have to include basic education spending currently covered by local levies as part of their budget spending. On top of that it will have to match projected revenue over four years.

Dunshee introduced a bill this session that would remove the McCleary exemption from this year’s budget. It was an attempt to show how it isn’t really balanced over four years when all spending is accounted for. No action has been taken on the bill since it was referred to the Appropriations Committee.

Dunshee’s point was a valid one, said Jason Mercier, director at the Center for Government Reform with the Washington Policy Center. However, it would have been better for the state to have included these basic education costs previously, he added.

Fiscal Prudence A Priority

The four-year outlook is still needed to prevent the same fiscal problems that led to the legislature creating it in the first place, he said.

Both Mercier and Lohnes said next year a fight over the balanced budget is bound to happen. If it’s challenged during a supplemental year the threat will be even worse for a biennial budget, Mercier said.

“I view this (current session) as sort of a taste of things to come,” Lohnes said.

The Senate released its latest supplemental budget proposal the first day into the special session March 11. Two weeks later the talks continue. Budget negotiators now say there’s no foreseeable end in sight.

The Senate Republicans latest budget proposal already makes several compromises in an effort to reconcile the $500 million spending difference between the two budget proposals. It scraps a planned state pension merger and the use of mental health service reserves. It also draws $190 million from the rainy day fund to pay for last year’s wildfires as proposed in the House budget.

Some Progress, But No Deal

Negotiations are down to two major issues, said Hill. He declined to go into specifics but said once agreement is found on them the rest will quickly fall into place.

One state think tank speculates lawmakers might be fighting over a bill capping overtime pay for state-paid individual provider home care aides (IPs). Without its passage, they say it could put a $300 million hole in the budget.

The House Democrats’ budget relied on new tax proposals to cover increased education spending, but the bill never made it out of committee. Their other new spending measures would be paid for with rainy day funds. But nonemergency use of those funds requires a supermajority in both houses they’re unlikely to get.

At this stage, humor may be the best salve. State Sen. Joe Fain (R-47) Wednesday compared the talks to a recent incident in downtown Seattle where a man lodged himself in a tree, and harassed passers-by.

In addition to Hill and Dunshee, the other budget negotiators are Senators Sharon Brown (R-8), Bruce Dammeier (R-25), Judy Warnick (R-13), Jim Hargrove (D-24) and Kevin Ranker (D-40), and Representatives Bruce Chandler (R-15), J.T. Wilcox (R-2), Pat Sullivan (D-47) and Kristine Lytton (D-40).

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