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Home / Washington Business - July/August 2007 / Budget: State needs responsible budgeting now |
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Budget: State needs responsible budgeting now |
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Written On: July/August 2007 |
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Written By: by Sen. Joseph Zarelli |
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Sen. Joseph Zarelli, R-Ridgefield, is the ranking Republican and former chair of the Senate Ways and Means Committee. He serves on the Economic and Revenue Forecast Council, the Caseload Forecast Council, and the State Expenditure Limit Committee.
If you were a shareholder of a large corporation, would you be pleased with a financial report showing company expenses growing twice as fast as revenues? That new expenses were added at an unprecedented rate while the CEO announced, "There really isn’t much left to cut?" And that recent record profits were forecast to turn into red ink in the next fiscal cycle?
Probably not. Yet, that’s the financial prospectus of Washington’s state government following the recently concluded 2007 legislative session.
Building a budget is the focal point of every session, and legislators were greeted this year with unprecedented good news. Revenue increases led to a record $2 billion surplus thanks to a booming housing market. Better still, revenue growth in the upcoming budget was expected to more than cover existing program costs. A rosy scenario.
Reserves down two-thirds
But prudence was not well-served. The final budget drained reserves by two-thirds to just over $700 million, an amount budget writers touted as evidence of fiscal discipline. What they understandably failed to point out was the following:
• The growth in state spending was double the growth in revenues.
• Nearly $2.2 billion worth of new programs were created, but only $100 million in spending reductions were made.
• The governor’s budget office forecasts a billion-dollar deficit in the next budget cycle as a result of the adoption of this budget.
That is not what most would consider responsible budgeting, but even this understates the true impact. Many new programs are in the early stages of financing and will require dramatically higher expenditures in the future.
In Olympia, this is commonly referred to as a "bow wave." Standard budgeting wisdom is to avoid bow waves, since they hide the true costs and adversely impact future legislatures. But this budget is replete with them. Here are some examples:
Children’s health care expansion: One-seventh of fully-implemented costs
The Legislature expanded eligibility for state-funded children’s health care to 300 percent of the federal poverty level, or $62,500 per year for a family of four. Citizens and non-citizens alike will be eligible. Estimates are that 60 percent of the new enrollees will have private insurance for their children but will drop it for the cheaper state option.
The expansion costs $30 million now, but $200 million once fully implemented. (To put the cost in context, the state parks budget is $75 million.) Budget writers hid the true cost by waiting to expand eligibility until the last quarter of the budget cycle.
All-day kindergarten: One-eighth of fully-implemented costs
The Legislature also began state-funded all-day kindergarten, offering it to 10 percent of schools next year and 20 percent the year after. The goal is to eventually fund all schools at a cost of nearly $400 million per biennium.
Pension reforms: Yet another bow wave
What about the $100 million in total reductions noted earlier? They’re overstated. They come from enacted pension reforms, which yield only a quarter of that savings in future biennia due to creation of a new earlier-retirement-age benefit.
Studies: Unknowable impact
Finally this budget authorized 98 different studies, costing $17 million. Many will result in recommendations for more funding.
Make no mistake, the budget is full of good things. Thinking of things to spend money on is the easy part, after all. Where this budget fails is in its failure to critically examine existing programs and prioritize new expenditures. It creates costly new obligations, yet knowingly and intentionally funds only a fraction of their eventual costs.
Perhaps Olympia will get lucky and be bailed out by faster-than-forecasted growth. But budgets should be built on what is expected, not what is hoped for.
Turning a record surplus into a deficit during good economic times is not the hallmark of responsible budgeting.
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