COMMENTARY

January 7, 2005

No more budget savings to be found?

Departing Governor Gary Locke says his proposed 2005-07 $26.2 billion budget has been scrubbed clean and only important state priorities are funded. This contention is crucial since his budget calls for a $2.9 billion spending increase over the 2003-05 budget (including a proposed $161 million 2005 supplemental budget) and is built on the assumption of a $598 million tax increase. With inflation for the next biennium forecasted at under four percent, Locke's 12.5 percent spending increase is more than three times the forecasted rate of inflation. Even without a tax increase, forecasted revenue for 2005-07 is actually up by nearly seven percent, a $1.5 billion increase over 2003-05 forecasted revenue.

Locke's 2005-07 budget was built without the benefit of independent and comprehensive performance audits to measure the economy, efficiency and effectiveness of state programs. This makes it nearly impossible to determine if current programs are operating in the most cost effective manner and if new revenue is truly needed.

Rather than float tax increases as the first option, the governor and legislature need to return to the priorities of government model and budget by desired outcomes. These outcomes should be clearly included as performance indicators in the budget. Independent and comprehensive performance audits of all state spending (including tax incentives) are required. Similar performance reviews have identified $16 billion in potential savings in Texas since being authorized in 1991 and California's recent performance review identified $32 billion in potential savings that could be assumed over a five-year period.

By focusing on core functions of government, many possible savings exist. Locke's problem is that there is not a single conceivable government activity that does not fall within one of his eleven "core" functions. To remedy this, the Evergreen Freedom Foundation (EFF) has developed an alternative set of core functions based on EFF's guiding principles of advancing individual liberty, a free-market economy, and limited and responsible government.

Using these core functions, EFF reviewed Locke's 2005-07 budget and identified potential savings opportunities. EFF's detailed analysis will be available in the next few weeks. EFF's recommendations will include a list of programs/agencies to eliminate or consolidate, competitive contracting opportunities and tax incentives reform.

Among other savings opportunities, education spending initiatives 728 and 732 deserve closer scrutiny. These two big ticket items contribute significantly to the current budget difficulty, and legislators should consider repealing them. This is why:

Student Achievement Fund/other I-728 diversions - $809,200,000
In the 2000 election, voters approved I-728 (class size reduction) based on the following statements made by I-728 supporters during the election and in the voter's pamphlet:

• "Without raising taxes, I-728 lets schools reduce class sizes, expand learning opportunities, increase teacher training, invest in early childhood education, and build classrooms for K-12 and higher education."

• "We can afford to invest in our schools and our future without raising taxes or taking money away from other programs. I-728 is funded by lottery proceeds, surplus state revenues and by returning a portion of state property taxes to local school districts."

• "I-728 is both necessary and fiscally sound. It invests surplus revenues in education without hurting the state budget."

• "I-728 does not raise taxes. I-728 maintains ample reserves and funding for other state services."

When these statements turned out to be untrue and surplus budget revenues no longer existed, the legislature wisely suspended funding for I-728. The voters recently had the opportunity to address the lack of a funding mechanism in the original I-728 by supporting I-884, which would have, in-part, provided funding for I-728's objectives. The electorate rejected I-884 by a 2 to1 margin. I-728 was not supposed to necessitate a tax increase or harm the fiscal soundness of the state budget, but it is now accounting for $809.2 million in potential revenue that is being diverted from the general fund state for the 2005-07 budget. If repealed, this means Locke's $598 million tax increase is unnecessary.

In addition, numerous studies have demonstrated that sweeping class size reduction is not an effective or efficient way to improve student achievement.

Automatic Cost of Living Adjustments (COLA) For Teachers (I-732) - $120,100,000
In the 2000 election, voters also approved I-732 (COLA for teachers) based on the following statement made by I-732 supporters during the election and in the voter's pamphlet:

• "With a $1.1 billion surplus, let's use existing resources for more competitive salaries."

As was the case with I-728, when surplus budget revenues disappeared the legislature suspended I-732. I-884 also would have provided the funding mechanism originally lacking in I-732, but was rejected by voters.

Regardless, most teachers in this state will receive automatic step increases this year. While teacher pay needs to be addressed, an automatic COLA is the lazy way to do it. Instead legislators should consider California Governor Arnold Schwarzenegger's proposal to institute merit pay for teachers. Teacher pay should reflect the contribution individual teachers make in increasing student achievement. Excellent teachers should receive excellent pay.

Until every possible budget savings and program efficiency opportunity has been realized, no justification exists for increasing the tax burden on Washingtonians. $1.5 billion in new revenue (not including the $809.2 million I-728 cash diversion) is already forecasted for the 2005-07 budget.

Contact: Jason Mercier | Budget Research Analyst | 360.956.3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org