A two-thirds majority is required under most circumstances for legislators to dip into the state’s budget stabilization account (BSA), a.k.a. the rainy-day fund, which is meant to pay for unexpected state costs such as wildfires or issues related to economic downturns.
However, a recent court ruling upheld a provision in the 2018 supplemental operating budget that maintained a legal loophole that could undermine that two-thirds voting protection by making preemptive raids into the account easier when the state experiences unanticipated revenue.
“Goes to show once again the difficulty in building a strong budget stability mouse trap that the legislature can’t find a way out of,” Washington Policy Center Government Reform Director Jason Mercier wrote in an email.
In the Aug. 3 decision, Thurston County Superior Judge John Skinder ruled in favor of Washington state in a lawsuit filed by frequent initiative sponsor Tim Eyman. The suit concerned an amendment to a school funding bill that redirected $935 million in property taxes to the education legacy trust account. Of that, $700 million was unanticipated revenue originally meant for the rainy-day fund. The bill narrowly passed in the Senate, 25-23.
Under a state constitutional amendment approved by the voters in 2007, 75 percent of unanticipated or surplus revenue “shall be transferred to the budget stabilization account.” The technical maneuver was criticized by Republicans legislators as an attempt to circumvent the two-thirds requirement due to insufficient votes.
Ultimately the crux of the legal debate during the Aug. 3 hearing revolved around whether the money met the definition of “general state revenues” or not. State Treasurer Duane Davidson’s counsel Jeffrey Even told Skinder that “the state constitution defines general state revenue not by restricting what revenue must go into…but simply by making reference to it and providing consequences of legislative choices.”
“The definition of general state revenue is quite clear that this revenue is not general state revenue,” Even added.
However, Eyman’s counsel Joel Ard argued that the legislature made a “conscious attempt to avoid what is a dedicated fund.”
Although he conceded that “the constitution doesn’t have a definition of a dedicated fund…what the legislature consciously and intentionally did…was to try ensure they had revenue that did not fall into the definition of general fund state. It’s not a fund, it’s an accounting trick.”
Ultimately, Skinder sided with the state while noting “there are strong feelings (against that)…which is understandable. But this court has to follow the law, and the law…leads me to a clear conclusion. These are issues that our legislature has to struggle with.”
He added that while he appreciates efforts to keep the legislature within their constitutional bounds and “there are certainly are times when the court has to weigh in and do exactly that, in this case I don’t find that that would be appropriate.”
Although named as the defendant in the lawsuit, Davidson has previously warned the legislature against raiding the rainy day fund.
Skinder’s decision was praised in a statement by Senate Ways and Means Chair Christine Rolfes (D-23), calling the lawsuit a “political distraction.”
“Earlier this year, we worked closely with our expert staff to write a budget that met our state’s pressing needs while also providing needed tax relief,” she added. “The budget was certainly unique by including the first general property tax cut in decades, but in no way was it unconstitutional.”
However, Sen. Michael Baumgartner (R-6) blasted the ruling in a series of tweets on social media. In one tweet he wrote that this “effectively means Washington no longer has a Constitutionally enforceable Rainy Day Fund to force saving for emergencies like Tsunami/wild fires. #FelonyGimmick.”
“Bad day for the state constitution and fiscal responsibility when an absurd perversion of the Rainy Day fund gets justified like this,” he wrote in another tweet. “RD (rainy day fund) is for emergency, Unfortunate to see Christine justify manipulation that essentially makes its protections moot.”
The view is shared by Sen. Mike Padden (R-4), who told Lens that the ruling sets “a horrible precedent.”
“The spirit of the constitutional amendment was violated,” he added. “That was the whole purpose of the constitutional amendment when it passed. It passed in every county in the state. People have their own family budgets and they try to save for unforeseen events; and we know from history that it’s not going to be a bed of roses forever and ever. There’s going to come a time when you need it.”
According to the State Treasurer’s Office, the general fund’s projected end balance at the end of the 2021 fiscal year will be a mere $103 million.
In a January 2018 brief, Senior Research Analyst Emily Makings at the Washington Research Council noted “since the budget stabilization account (BSA, or rainy day fund) was established in 2007, the Legislature has transferred or appropriated funds from it in each biennium except 2011–13.”
The brief further notes that “since 2013–15, the state has experienced ‘extraordinary revenue growth,’ most of which is required to be saved in the rainy-day fund. Instead, the Legislature has spent almost all of it.”