The State Budget and the New Economic Reality
Posted by Amber Gunn - December 09, 2009Very rarely does a politician ever acknowledge that a massive tax increase will not solve the problem, and that, in fact, we’ll have to do this whole exercise all over again in a year. This is bad news for everyone.
For most of the last decade, the state has collected artificially high revenue, fueled by consumer debt. Fortunately for consumers (but not for state and local governments), the recession has caused people to slow down or stop debt spending. As a result, governments are not just feeling the pinch of extra high unemployment costs, but also reduced tax collections.
This change in consumer behavior and various other factors has caused the amount of revenue the state receives to reset at a level that can no longer support current services and programs. Governor Gregoire and I agree on at least one point: This problem is no longer solvable with a million here and a million there. It will require reorganizing the budget process around the priorities of government.
As Jason Mercier of the Washington Policy Center points out, the Governor’s short-term budget “solutions” are missing the mark, and this could have negative ramifications for the state’s credit rating.
The governor herself acknowledged the urgency of the situation, saying “For every day a dollar is lost, I have to make up two.” We said that last year and again last month. And yet, she is choosing to wait until January to offer the legislature her ‘real’ budget.
To complicate matters, the general fund budget makes up less than half of total state spending. A good portion of the other half comes from the federal government. Soon, that money may not be there either.
The road ahead leaves only two viable choices:
1. Reset the level of state spending to reflect the new economic reality. This means Washington citizens have to acknowledge that they aren’t going to get everything they want out of government. It also means unions and other special interest groups can’t cut to the front of the line. This choice acknowledges that government cannot be all things to all people, meaning that some of the new roles and services government has taken on in the last five years will need to be eliminated. We have detailed how this can be done using the Priorities of Government process in our Stewardship Series. The choice to reduce spending rather than raise taxes means faster economic recovery.
2. Raise taxes in 2010 and raise them again 2011. Governor Gregoire does not like her current budget proposal, so she is presenting a new budget in January to propose approximately $700 million in new taxes. That’s $700 million collected in about one year, and compounded down the road. Despite that heavy increase, the state would face another multi-billion dollar hole in 2011. The choice to raise taxes would result in lost jobs in the targeted industries, slowing economic recovery and possibly resulting in a double dip recession, depending on which tax is chosen.
State spending was unsustainable before the recession. In 2007, after nearly two years of solid economic growth, the state’s planned spending levels outpaced forecasted revenue by nearly $1.3 billion. We sounded the alarm, but were ignored.
Today, taxpayers are being told that the choice is between people losing their feet and going homeless, or higher taxes. Is this really the debate we are going to have this session? Then perhaps the governor’s budget team could quantify how many feet could be saved with money the state is spending on the $20,000 capitol holiday tree, the $30,000 state poet laureate, the $3 million capital investment in the Museum of Flight Space Gallery in Seattle or $511,000 for the Chambers Bay golf resort in Tacoma. Sure, these few waste items won’t save the budget, but it does illustrate the dysfunction of a system that puts those priorities above the ones the governor is claiming will have to be cut. Does she really want to go on record that everything the budget is so sacrosanct that we have to keep it all?
Thoughts? Add Comment -
J Hilton said on Dec 10 2009 at 8:10am
Thinking back to 2008, it was Gov Chris Gregoire who gained $650,000 campaign contribution by nixing a 2005 gambling compact reportedly worth $140M to the state. http://www.seattlepi.com/local/366900_gregoire13.html
Instead of doing the hard work and adjusting concessions made to left wing special interest groups, she is saying 'they'll all die if we don't have a state income tax'. The question asked of candidate Bill Clinton in his last unscripted town hall is still unanswered . . . can anyone name a country that has taxed it’s way to prosperity?
R. Hagel said on Dec 10 2009 at 5:45pm
Why do these politicians keep spending like a teenager who's found their parents' credit card? Because they can, I guess. I love it when a State is finally brought up hard by reality so they must cut spending (e.g. California).
Jim Wolfe-Jeffersonian Radical said on Dec 12 2009 at 1:20pm
“reorganizing the budget process around the priorities of government” And just what are these priorities? Let me think…Oh here it is; now I get it! “governments derive their just powers from the consent of the governed, and are established to protect and maintain individual rights” and “a frequent recurrence to fundamental principles is essential to the security of individual right and the perpetuity of free government” Unfortunately, Goo-Goos (http://en.wikipedia.org/wiki/Goo-goos) often object to a consistent application of these “principles”.