State Budget Deficit Estimates Jump Higher

State Budget Deficit Estimates Jump Higher
Estimated budget deficits have jumped higher for the next two biennia in Washington State. This raises the stakes for a showdown between advocates of new revenue versus fiscal conservatives. At issue now in the early stages are secretly-negotiated labor contracts with state workers, and how to fund a shift of local school district costs to the state. (Photo: outsidethebeltway.com).

The budget stakes have risen for Washington lawmakers. A report last week from the Office of Program Research states the expected budget deficit for the 2017-19 biennium will now be almost $1.5 billion (p. 7), up from the previous estimate of $89 million. Additionally, a House Appropriations Committee summary also released last week now shows the expected shortfall for the 2019-21 budget is $7.4 billion. That’s sharply higher than the $2.6 billion projected recently in a report from Senate Ways and Means Committee staff.

Adding in presumed – but already hotly debated – K-12 spending hikes accounted for the bulk of the deficit growth. While the projected fiscal gaps might galvanize House Democrats looking for new revenue sources, they could also intensify demands of Senate fiscal hawks for financial reforms.

Kristiansen: Prioritize K-12 Via Budget Shifts, Not New Taxes

About the continuing K-12 funding challenge, House Minority Leader Dan Kristiansen (D-39) wrote last week in his newsletter: “Nearly five years ago, the state Supreme Court ruled in…’The McCleary Decision’ that the Legislature had not been meeting its constitutional duty to fully fund basic education…the Legislature has provided an additional $4.6 billion for K-12 education during the last four years…the largest increase of education funding in the history of our state and…a permanent increase of 34 percent.”

Kristiansen added, “The biggest remaining question of McCleary is how to shift the cost burden for K-12 teacher pay and other basic education expenses away from voter-approved levies…What that means is that state government will need to take on the responsibility of those expenses…I believe we must prioritize K-12 in the operating budget rather than resort to raising taxes to satisfy the court’s McCleary expectations.”

State Labor Contracts At Center Stage

With budget exigencies at top of mind, Sen. John Braun (R-20), Vice Chair of the Senate Ways and Means Committee, wrote a letter last week to Governor Jay Inslee emphasizing that secretly-negotiated labor contracts with public employee unions need a gimlet-eyed perusal.

Braun is calling for Office of Financial Management (OFM) Director David Schumacher to certify whether or not the new collective bargaining agreements (CBAs) between public labor unions and Inslee meet the state legal requirement that they be financially feasible. Those CBAs, which are negotiated secretly, are expected to add $1.7 billion in new state spending over the next four years.

Braun cautioned Inslee not to drum up the money for CBAs, as the governor proposed for the 2015-17 biennium, by cutting corners with government services. Some examples cited by Braun include releasing state prisoners 150 days early, reducing higher education support by $150 million, and slashing levy equalization by $250 million.

‘Financial Feasibility’ Of CBAs At Issue

The purpose of the state law requiring the feasibility determination, RCW 41.80.010, “is to have the Governor submit a real budget that could be enacted without devastating consequences to the citizens of Washington state,” Braun wrote.

In his Nov. 28 letter, Braun said that adding assumed McCleary spending while certifying the CBAs as “financially feasible” would make a “mockery of the term.”

Braun told Lens that the message he hoped to send Schumacher is that ‘if you take your responsibilities seriously with regard to determining financial feasibility, you’ve got a real challenge on your hands. I’m not going to tell them (OFM) what to do,” he said. “I was trying to insist that they don’t just ‘make believe’ it.”

The governor’s proposed budget is required to be released by December 20 and likely to come sooner.

If Schumacher sent CBAs back to the bargaining table, it would not be the first time OFM has done so.

In 2010, then-OFM Director Marty Brown under Democratic Governor Christine Gregoire declared the CBAs made that year to be financially infeasible. Two years prior, OFM had declared the CBAs for the 2009-11 biennial budget to be financially infeasible as a result of the Great Recession.

Over Brown’s tenure, according to Braun, 33 different CBAs were rejected by OFM as infeasible.

However, other Senate Republicans such as Senate Majority Leader Mark Schoesler are not holding their breath. “I think that OFM will rubber stamp anything the governor hands them, which is unfortunate because when you actually have to pay for everything it’s not very feasible,” he said.

The governor’s office and OFM declined to respond to requests for comment.

Asked about the $1.7 billion in CBAs, Schoesler told Lens “you’d only make this deal if you were hell-bent on raising taxes. When you get to negotiate a sweetheart deal with your campaign contributors, you just make it more difficult (to balance the state budget).”

Senate Resolute Against Big New Taxes

However, the new deficit numbers won’t shake the Senate Majority Coalition opposition to big new taxes, said Schoesler. “I don’t think any of my senators campaigned on raising taxes,” he said.

Sen. Karen Keiser (D-33) is the assistant ranking minority member of Ways and Means. In her latest newsletter, she wrote in opposition to the idea of a tax levy swap between state and local school districts as part of a McCleary funding solution. She called a levy swap “a zero sum game,” and said it “only benefits a few districts while disadvantaging many others.” Some observers note the swap might provide most of the required revenue to fund McCleary.

If the levy swap doesn’t fly, House Democrats may push for a capital gains tax. However, a recent report from the California State Legislative Analyst’s Office noted the volatility of that state’s capital gains tax, which along with the state income tax, the state general fund heavily relies upon for revenue. The report concluded that if a 2018 recession were to occur, the state would suffer a $40 billion loss, driven by declines in several revenue sources, including those two.

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