Legislative Update, February 22,
Reality reared its head this week in Olympia, and it was ugly. The
governor's Forecast Council reported that revenue projections for the
state had dropped by nearly a quarter of a billion dollars. The
following day, the caseload report, which measures costs for
low-income programs, schools and prisons, indicated that spending in
those areas will be $120-150 million more than expected. Combining the
two numbers means the state budget deficit is about $1.7 billion and
may likely end up closer to $2 billion. In a letter to the governor,
the state treasurer warned that Washington will run out of money on
November 19th if nothing changes. Meanwhile, unemployment rose nearly
a full percentage point to 8.2 percent and House Democrats unveiled
their statewide transportation funding package. The deadline passed
for bills to be approved in their House of origin and, after
persistent Republican pressure, the full House approved a Senate bill
eliminating the local transit portion of license tab fees.
The budget hole keeps getting deeper. Governor Locke's response to
the worsening budget situation was too little and much too late. Last
summer, the governor vetoed a Republican amendment to the original
budget bill that forced him to first make across-the-board spending
cuts, then spend reserve funds, in the event of a projected cash
deficit. That would have exposed the state's cash flow problem last
By August, the state treasurer had warned the governor that the
state was running a negative cash balance of $99 million. By the
middle of February, the negative balance had ballooned to $813
million, prompting the treasurer's most recent warning letter.
The governor ordered a flexible hiring freeze and placed limits on
travel and spending on new equipment and machinery. He told a news
conference that he might ask the Legislature to rescind scheduled pay
increases for state employees and teachers, prompting a predictable
response from the organizations representing them.
He also said he is considering an across-the-board spending cutback
of 5 to 6 percent on top of the cutbacks he ordered back in December
when revenue forecasts indicated a looming budget shortfall of $1.25
Now, however, the deficit is getting close to the $2 billion mark
and the longer House and Senate Democrats wait to make their new
budget proposals, the deeper the hole will be.
The governor blames September 11th and the national recession for
the state's predicament and points out accurately that about 40 other
states are facing budget problems as well. But as the state treasurer
made clear in his letter to the governor this week, the governor knew
in August that the state was running in the red. Even worse, like
everyone else, he knew a year ago that the state's economy was
slumping badly. It wasn't strong enough to produce the revenue he
wanted to spend, a point made repeatedly by House Republicans.
We argued then that the budget was not sustainable, and contained
too many accounting tricks and questionable revenue sources to be
realistic. Unfortunately, our warnings were ignored. Certainly, the
national recession has hurt Washington's economy, but by all
indications, the national economy is rebounding nicely, leaving
Washington and Oregon behind. Even the governor's own economist said
this week that it will be two years before the level of economic
activity in Washington returns to the level it was at during the first
quarter of 2001.
Proposals for higher taxes have new life. The budget news stunted
some business on the House floor this week. Nevertheless, House
Democrats continued to pass legislation that will spend more money if
those bills become law. Meanwhile, our state's bureaucracy has
continued to grow under the Locke administration, adding 1,000 jobs in
the last quarter of 2001.
In fact, state and local governments are one of few sectors of our
economy to show job growth in 2001. Everything else fell.
Manufacturing, construction and warehousing all dropped by more than
ten percent. Overall, Washington had a net loss of 65,000 jobs last
year. The mix of jobs in the state also is evolving rapidly. It wasn't
all that long ago that about 40 percent of all jobs were in
manufacturing. Today, less than ten percent are and that figure
continues to fall.
Even with businesses closing and jobs being eliminated, Democrats
are speaking more loudly than before about raising taxes. Gov. Locke
says he doesn't want to try to balance the budget with a general tax
increase, but his fellow travelers in the Democrat caucus are talking
about increasing the sales tax and perhaps imposing a state income tax
for the first time. They also continue to speak loudly of closing
"loopholes," which is Democrat-speak for raising taxes on employers,
nonprofit organizations, organ donations, cemeteries and even
House Democrats unveil their statewide transportation funding
package. House Democrats proposed to raise the gas tax by 8 cents a
gallon over a two year period, increase the sales tax on vehicle
purchases by eight-tenths of 1 percent (also over two years) and to
increase the gross vehicle weight fee that truckers pay by 20 percent.
The total package is designed to raise $5.6 billion over ten years,
only $3.7 billion of which is aimed at improving major roadways in the
Their proposal also creates a new Transportation Accountability
Board, which is supposed to be an oversight watchdog on how the new
money is to be spent. However, most of the membership would be
appointed by the governor to watch the governor, and is really nothing
more than an attempt to pay lip service to the idea of accountability
while adding another layer of bureaucracy that the state can do
The only good thing to come out of the plan is that it is to be put
before the voters (perhaps on June 20) so that the taxpayers can make
the decision as to whether or not they think it is a good idea.
There is nothing in the proposal to address Republican concerns
about permit streamlining, more efficiency, higher performance levels,
privatization of highway rest areas or opening up HOV lanes to all
traffic on weekends. All of those things have been critical element to
gaining Republican support for a funding package.
I-695 - at last - becomes a reality. House Democrats finally
allowed a vote to eliminate the local transit portion of the motor
vehicle tax this week and, with unanimous Republican support, Senate
Bill 6036 passed the House 77-21. The Senate approved the bill last
year, but it died in the House when the Democrat leadership refused to
call it up for a vote. The Senate approved the bill again during this
session, but House Democrats continued to stall the matter. Earlier
this month, the Washington Supreme Court ruled the local transit
agencies were still entitled to their portion of the MVET. This would
cost the owner of a $20,000 vehicle $145 a year. Since the state has
not been collecting the MVET, it threatened to blow another $760
million hole into the state's budget.
House approval of the bill takes care of that problem. It goes on
to the governor, who says he will sign it.