Stage Set For Two State Budget Battles

The state's recently adopted four-year budget planning process is pointing to some difficulties down the road. K-12 education and labor contracts are big pieces of the puzzle. Lawmakers have differing views on what to do about the $2.6 billion deficit anticipated in the 2019-21 biennial budget. Starting in January, they'll be grappling with that, along with the 2017-19 budget. Photo: Lake Washington School District.

The Washington legislature already faces a projected $2.6 billion deficit for the 2019-21 biennial budget, as it digs in this coming January to fashion the 2017-19 state spending plan. The latter must under a state high court mandate in the McCleary case include a roadmap to shift at least $1.45 billion per year in K-12 basic education spending from local districts to the state.

According to a recent Senate Ways and Means Committee staff report, major contributors to the envisioned 2019-21 deficit are planned “current law spending” of $1.9 billion for delayed implementation of Initiative 1351, a voter-approved classroom size reduction measure, plus almost $300 million to renew hospital safety net funding.

Rising Price Tags

Adding to 2019-21 budget pressures are what the Ways and Means report calls “other major cost drivers” including $2.5 billion for K-12 caseloads and teacher cost of living adjustments, plus another $1 billion for increased low-income health care spending, and an anticipated $1 billion in as-yet un-budgeted additional wages and benefits for public employees. Under current state law the contracts are negotiated secretly between state public employee unions and the governor, and cannot be amended by legislators.

Some state lawmakers say they want to help balance the 2019-21 checkbook by axing the planned I-1351 spending. A survey of 53 peer-reviewed studies by the Washington State Institute For Public Policy found that additional spending for class size reduction yielded a 1.5 percent improvement on average in academic outcomes in kindergarten but that gain drops to less than .5 percent by 2nd through 12th grades.

I-1351 isn’t the only potential target. The secret contract talks with state worker unions may be due for change. Some lawmakers including key fiscal conservatives in the Senate majority want greater public transparency, plus amendatory powers.

Secret Labor Negotiations Hit

“I think they (labor negotiations) should be wide open to the public,” Senate Majority Leader Mark Schoesler (R-9) said. “The second thing is they (the agreements) should have to be sustainable within our means.”

Sen. John Braun (R-20), vice chair of Ways and Means, told Lens that it was “nuts” to create a $1.7 billion state collective bargaining agreement when the legislature already has to figure out a McCleary funding solution. Like Schoesler, he also favors making the labor negotiations public.

“I’m not opposed to paying our state workers equitably,” but “there’s no reason to have cost of living increases of 50 to 100 percent larger than actual inflation,” he said.

State Expects $570 Million Surplus Revenue

Along with belt-tightening and procedural reforms, budget pressures in 2017-19 and perhaps the following biennia could be partly addressed with surplus state revenue. There’s often a fair chunk of it, although some key senators don’t like the idea. In the 2013-15 budget, almost $1 billion more landed in state coffers than originally forecasted. For 2015-17, $570 million more in revenue is now projected than forecasted in the initial biennial budget.

According to the state Office of Financial Management, the vast majority of the surplus revenue goes into the general fund by default. It does not require a vote to go there. Two supplemental budgets within each biennial cycle allow for adjustments. A small portion of surplus revenue goes into the rainy day fund, the opportunity pathways account, and the education legacy trust account.

The Way and Means focus on the next two biennial budgets, rather than just the 2017-19 spending plan, is not a random act of probity. In 2012, then-Senator Jim Kastama, a Puyallup Democrat, won approval from colleagues of SB 6636 which established the four-year balanced budget requirement. Starting with the 2013-15 biennium, it restricts budgeted state spending to revenue forecasts and imposes a four-year budget horizon.

State data show that pre-recession, biennial budgets underestimated end-of-cycle revenue. However, in the three biennia covering 2007 to 2013, initial budgets overestimated revenue by about $2 billion each time. Since SB 6636 took effect in 2013, biennial budgets have not led to any unpleasant surprises based on inflated expectations.

The four-year requirement is the “single most important budget tool the state has and has had for some time” says Braun. “It has kept us disciplined and honest with our budgeting practice,” he said.

Lawmakers such as Sen. Kevin Ranker (D-40) say the four year outlook is important but ultimately “it’s not reliable” in determining a balanced budget. “It forces us to take a look at that longer scope” but “we really don’t know where something’s (revenue) going to be in four years” he said.

A ranking minority member of the Senate Ways and Means Committee, Ranker is also opposed to delaying or repealing I-1351. He said he believes smaller classroom sizes do enhance learning opportunities, and that the legislature should respect the will of the voters.

Approved by a slim majority of voters in 2014, I-1351 caps the maximum number of students per classroom at 15 to 17 for grades K-3, and 22 to 25 for grades 4-12. However, the legislature in 2015  delayed fully implementing 1351 by applying it only to K-3. The full measure would have required hiring about 25,000 new K-12 employees, but only 7,400 of them teachers.

State Rep. Matt Manweller (R-13) is opposed to extending I-1351. “We’re not going to implement I-1351, period, end of discussion,” he said. “We don’t have the money for it, we don’t have the classrooms for it, and we don’t have the teachers for it.”

The sentiment is shared by Schoesler, a member of the Senate Ways and Means Committee. He told Lens “clearly, we never could afford” to pay for I-1351.

“If you really want to work on a McCleary fix, you simply have to say ‘It was a nice idea, but outside of K-3 class size, it just doesn’t fly,’” he said.

Budget Solution Remains Elusive

Asked by Lens how lawmakers will address the anticipated 2019-21 deficit on top of McCleary, Ranker said, “ask (Sen. John) Braun.” Braun told Lens that “I’m not sure I have the answer just yet.” He doesn’t believe surplus revenue should be used to reconcile possible deficits, but instead should be directed to the budget stabilization account, also known as the rainy day fund. It is projected to have $1.6 billion for the 2017-19 biennium and $2.2 billion for 2019-21.

Said Schoesler, “Using one time money for ongoing expenses never works,” he said. “We’re learning how to budget just like every successful corporation does.”

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