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Home / Washington Business - Current Issue / Policy and Politics: Economy took center stage in 2008 |
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Policy and Politics: Economy took center stage in 2008 |
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Written On: March/April 2008 |
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Written By: Richard S. Davis, VP Communications |
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Making his final revenue forecast Feb. 15, Dr. ChangMook Sohn had two messages to deliver. In a less somber context, he might have been tempted to begin the press conference with the clichéd crutch of a stand-up comic: “I’ve got good news and bad news. The good news is that the economy is strong. The bad news is I’m reducing my estimate of state revenues by $425 million.”
So what does that say about weak economies? Well, all you have to do is look around a bit. The liberal Center on Budget and Policy Priorities reports that at least 25 states face significant budget shortfalls going into the next fiscal year. The National Conference of State Legislatures last December wrote that weakening revenues threatened many state budgets.
Pleading for federal assistance in the stimulus package, the National Governors Association said, “Despite the fact that it is the beginning of the economic downturn, 18 states already face budget shortfalls totaling $14 billion in 2008 and 17 states project shortfalls totaling more than $31 billion in 2009.” Then they say they expect it to get worse.
But here Sohn says, “The outlook for the state economy is significantly brighter than for the U.S.” He adds, though, that we’ll feel the effects of the national slowdown and our own woeful housing market.
So the good news is that others have it worse.
There’s more to it. Even with the February cut, lawmakers still have $200 million more than they thought they’d have when the passed the biennial budget in 2007. And Sohn figures that revenues for the 2009-2011 budget period will be 8.3 percent higher than for the current biennium.
Simply put, Washington’s more than just well off relative to other states. The economy, while not accelerating at the hyperactive pace of the past couple of years, has calmed down to take a breather. But lawmakers continue to spend breathlessly.
Last year, AWB urged lawmakers to trim spending to match revenues. Instead, the Legislature adopted a budget that boosted spending by about 15 percent, while revenues were growing at about 7.5 percent. When you spend money at twice the rate you take it in, reserves quickly disappear.
Even before Sohn added to lawmakers’ February gloom, the state’s fiscal future looked dark. A nonpartisan budget projection by the Senate Ways and Means committee identified a potential shortfall of $2.5 billion by 2013. And that was using revenue estimates that have turned out to be too rosy. Of course, the state will not — it cannot — spend into a hole that size. Assumptions can be shaky. Budget adjustments will be made as necessary. Spending will be trimmed. Taxes may be increased.
As the old saw goes, “Forecasting is awful difficult, particularly about the future.” Given the current economic volatility, it’s especially difficult now. But there’s utility in looking ahead, if only to get an idea of where current patterns would take you.
You needn’t look as far out as 2013 to identify major problems with the state budget. The Ways and Means forecast said it would cost about $34.1 billion to maintain current programs through the next budget cycle, the 2009-2011 biennium. Sohn’s February forecast put revenues at $31.9 billion. The gap: $2.2 billion. With less than $1 billion in reserves, lawmakers come back in January looking at a major budget problem.
Famously, a sign hung in the 1992 campaign war room of candidate Bill Clinton. Placed there by political whiz James Carville, it carried three simple messages: “Change Versus More of the Same; It’s the Economy, Stupid; And Don’t Forget Health Care.”
In 2008, politics looks much the same, with this exception: In our state, even a relatively healthy economy provides inadequate buoyancy to keep the state budget from sinking into the red. Here, the right message is: “It’s not the Economy — It’s the Spending.”
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