Washington’s cash flow woes

Washington’s cash flow woes
Washington state is projected to run a cash deficit starting this month and through the rest of the fiscal year. However, Governor Jay Inslee has yet to call a special session or issue across-the-board cuts as required by state law.

On top of a $4.5 billion revenue shortfall in its operating budget, the state of Washington is now facing a cash flow problem that some state officials and tax policy analysts say will only grow worse without a special session.

According to the state Office of Financial Management (OFM), the state is projected to run a cash deficit of $277 million in August and continue to have deficits each month through the rest of the 2021 fiscal year.

However, that doesn’t mean the state is running out of money soon. State Treasurer Duane Davidson wrote in an email that the despite the cash flow imbalance “we will be able to cover ongoing financial expenses/obligations. The State Treasury as a whole is adequately funded and in the black.”

But he added that when certain accounts in the State Treasury go into the red, money from other accounts are used to cover it. So in effect, the state is borrowing money to cover the operating account, which in turn must pay interest to those funds “until it gets out of the hole. Interest is paid monthly until the account returns to black. The longer this takes, the more interest is paid.”

Reflecting on the 1980 recession and how the state used interfund loans to cover cash deficits, Washington Research Council (WRC) Senior Research Analyst Emily Makings concluded “that borrowing (whether from private banks or from other state funds) is costly and tends to compound.”

One result of the 1980 recession was the passage of a state law requiring that the governor issue across-the-board cuts, or call a special session, in the event of a cash deficit. In September 2010, Governor Christine Gregoire responded to a cash deficit by issuing spending cuts.

However, Governor Jay Inslee has yet to issue cuts or call a special session as other West Coast governors have done, even with OFM’s cash deficit projections.

Makings estimates that spending cuts would have to be significantly greater than in 2010.

Washington Policy Center Government Reform Director Jason Mercier told Lens that the current inaction by Inslee has left him baffled. “I just can’t comprehend what is currently happening.”

He noted that the state law in question uses the  word “shall,” which a recent State Supreme Court ruling concluded is “presumptively imperative and operates to create a duty.” Under state law, refusing to comply is a misdemeanor.

“The governor is refusing to follow the law,” Mercier said. “There are real fiscal problems facing the state. Every day delayed makes the problem worse.”

Senate and Ways and Committee Ranking Member John Braun (R-20) told Lens “the governor’s breaking the law – it’s as simple as that.”

He added that “we have had some discussion about litigating this. Not surprisingly, the House and the Senate majorities aren’t interested in that.”

Even if Inslee eventually issued across-the-board cuts, Mercier said “it’s not a good policy. It’s a sledgehammer. You want the legislative branch to…make thoughtful deliberation.”

Both he and Davidson favor a special session of the state legislature to address the revenue shortfall, which many lawmakers have also called for. However, House Minority Leader J.T. Wilcox (R-2) wrote in a tweet that “at this point it doesn’t look like there will even be a #waleg work session…,” and a July 30 draft committee schedule for September shows no meetings for the House Appropriations Committee.

Wilcox told Lens that “it cannot be good for them (Democrats) to be talking about a budget before the general election. There are a number of House and Senate Democrats who said they won’t support any cuts. The only thing they seem to be willing to support is tax increases. If you cannot get Seattle elected leaders…to stand up for peace and justice in their own city, how are you going to expect them to stand up for budgeting for the whole state of Washington?”

Braun said proposing new taxes to cover the shortfall is “tone-deaf to the challenges that real people face.”

Wilcox said that “we do have a sizeable rainy day fund, and it would be nice if that could be used over multiple years. However, with no response by the governor or a special session, 100 percent will be consumed in the current biennium.”

Unless Inslee calls the legislature to session or a lawsuit is filed forcing him to follow the law, the only other way for a special session to occur is by a supermajority vote of the legislature. Mercier said 25 senators and 47 state representatives have voiced support for a special session, which “falls short of supermajority but just short of majority.”

As the state delays action, Davidson says the cost to taxpayers will rise. “The longer the state waits to address the current cash deficit and revenue shortfall, the more expensive it will be.”

Wilcox said: “By failing to address this, they’re making the problem much larger. The people that will pay a price…will be hurt far, far worse than what would happen if we addressed it now.”

Braun, who previously chaired Senate Ways and Means in recent years, said “it’s going to be a disaster” if the legislature waits until January. “It will be enormously painful for everybody. I think it’s (revenue shortfall) solvable, but I think the key to solving it is starting now. We should have been working on this collaboratively in a bipartisan fashion for months. It baffles me.”

The regular 2021 legislative session is scheduled to start in January.

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