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Home / Washington Business - January 2006 / Be Cautious About Spending the Surplus |
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Be Cautious About Spending the Surplus |
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Written On: January 2006 |
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Written By: by Charles Henry Thomas |
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With Washington’s economy hitting full stride, the state’s revenue forecaster, Dr. Chang Mook Sohn, warns lawmakers there are potential storm clouds on the horizon.
"In simple terms," AWB President Don Brunell said, "Dr. Sohn is saying save the money because you may need it in the future."
Gov. Christine Gregoire announced in December that she plans to sock much of the $1.4 billion surplus revenue away for the next state budget, which will be written in 2007. She indicated she may consider contributions to the state’s troubled pension fund and may allocate some money to help students and teachers with the Washington Assessment of Student Learning, but that’s it.
The state has about $50 billion in retirement-fund investments. Forecasters presume an annual return of 8 percent. In recent years, the Legislature allowed a $4 billion unfunded liability to build up. That’s how short the pension system is from being able to pay off all earned benefits. The state needs to make a contribution and some, like Rep. Helen Sommers, D-Seattle, chair of the House Appropriations Committee, want a $300 million payment from the surplus.
The governor is also looking at a $40 to $50 million allocation to help students pass the WASL. This year’s sophomore class will be the first required to pass the tests in order to graduate, and the governor would spend the money for retesting and additional remedial programs.
Groups like the Washington Education Association and some school districts want to abolish the WASL, but the governor, the Superintendent of Public Instruction, AWB and the Washington Roundtable are committed to making it work.
"A high school diploma must signify that students have certain facts, skills and processes mastered," Brunell said. "The days when students simply went to school for 12 years and out of shear endurance got a diploma are gone."
Sohn believes the housing and construction market, responsible for nearly half the surplus, is softening. Revenue from Washington’s Real Estate Excise Tax, collected at the time of a home sale, and sales taxes on labor and construction materials are projected to level out this year.
Add to that, Washington’s salad days when energy costs were low are gone, Sohn says. That hurts our state because low energy costs used to offset higher taxes, labor rates and regulatory compliance costs. Prices for gasoline, diesel, home heating oil, natural gas and electricity will remain relatively high in 2006.
Sohn also expects the feds to raise interest rates. He expects to see the prime to go up by at least one-half percent this year. That could trigger a whole new round of inflation and cool off the economy.
Finally, Sohn believes the Iraq War and natural disasters such as hurricanes Katrina and Rita will negatively impact prices and the availability of goods.
Brunell believes the governor is right to bank the excess revenues. "Our state needs a rainy-day fund. We encourage our families to save for emergencies, and most businesses, including AWB, put money away for bad times or disasters."
Brunell said a good example is in Louisiana. AWB’s sister organization, the Louisiana Association of Business and Industry consistently saved. "When Hurricane Katrina hit, LABI remained financially whole and is helping its members to recover.
"For us the question is not if a natural disaster will occur, it is when," Brunell added. "We could see a huge tsunami or a massive earthquake hit at anytime. Businesses as well as state and local governments must be positioned to deal with disaster and rebuild as quickly as possible. That takes money."
The next state revenue forecast will be in March. Meanwhile, legislators will consider a supplemental budget this year to deal with changes occurring since the two-year state operations budget passed last May.
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