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Home / Washington Business - January/February 2007 / Policy and Politics: Establishing rainy day fund is the right thing to do |
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Policy and Politics: Establishing rainy day fund is the right thing to do |
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Written On: January/February 2007 |
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Written By: by Richard S. Davis, VP Communications |
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Good policy will usually rise above partisanship. Case in point: Gov. Chris Gregoire has endorsed a constitutionally protected rainy day fund that, in many respects, resembles a proposal floated over the past few years by Sen. Joe Zarelli, R-Ridgefield.
Gregoire’s proposed amendment, revealed in mid-December as part of her budget rollout, would begin with an initial infusion of $262 million. That’s about 1 percent of projected revenue for the 2008 and 2009 fiscal years. Voters would then be asked to guarantee the fund by passing a constitutional amendment requiring automatic annual deposits of 1 percent of the state’s general revenues.
It makes sense to me. As the governor told AWB’s Executive Committee last month, with the state currently running a healthy surplus it would be wise to put some money away now.
Sen. Zarelli made much the same point in an op-ed article in The News Tribune (Tacoma, Wash.) on Dec. 10. He wrote: "It’s time for our state to get off the budget rollercoaster that results in tax increases or severe program cuts when times are tough, and unsustainable spending and new entitlements when times are good."
No one—really, no one—believes that saving money in good times to cushion the effects of hard times is a bad idea. Lean years inevitably follow years of plenty, and the budget rollercoaster is nobody’s idea of a joy ride.
This idea is not new. Former Gov. Booth Gardner’s Committee on Washington’s Financial Future proposed a constitutionally required rainy day fund back in the late 1980s as part of a comprehensive tax and expenditure reform plan. Burdened with an income tax component, the package never got off the ground. Although Initiative 601—passed by voters in 1993 and amended beyond recognition since—also included a rainy day fund (called the emergency reserve fund), it never really worked. When money in the emergency reserve reached 5 percent the balance spilled into an education construction fund also established by the initiative. Without a direct deposit mechanism, like the plan backed by Gov. Gregoire and Sen. Zarelli, it became easy to channel money out of the reserve account. Moreover, since Washington’s constitution cannot be amended by citizen initiative, the I-601 reserve lacked constitutional protection.
The Tax Structure Study Committee, chaired by Bill Gates Sr. in 2002, also called for a constitutionally mandated rainy day fund. Like the Gardner-era proposal, the committee’s recommendation was tied to unpopular tax reforms and went nowhere.
Today, lawmakers have a clean shot at a simple, feasible solution. The details still need to be worked out, but the basic plan would allow funds to be tapped by a simple majority vote of the Legislature if the governor declares a state of emergency during an economic downturn or in response to a natural disaster. Otherwise, lawmakers would have to muster a 60 percent supermajority in both the House and Senate.
Skeptics may want to nail down just what constitutes an emergency. Initiative 601 defined emergencies as "natural disasters that require immediate government action to alleviate human suffering and provide humanitarian assistance."
Some folks may also want to fuss about how to use the interest money. The governor’s plan keeps it in the rainy day fund, as Sen. Zarelli proposed last year. The senator’s more recent proposal would let the interest flow into an education account.
In the end, the important thing is that the voters have a chance to pass a strong, constitutional rainy day fund. To get there, two-thirds of the members of the House and Senate must approve the amendment, which would then be referred to the voters in November. Senate approval seems likely; House support is less certain.
This should be an easy sell. It’s the right thing to do, and it’s the right time to do it.
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