Washington is facing a potential budget deficit of $2 billion and state legislators are actively soliciting recommendations on how to resolve the state’s financial woes. Recently, EFF was asked for specific suggestions on how to make delivery of government services more efficient, what services to cut, and how to meet the needs of people in communities who truly benefit from the services that end up cut or reduced.
In order to effectively offer solutions, the true scope of the problem must be realized. News reports focus on a $1.25 billion deficit when the extent of the problem is actually $2 billion. Look at it two ways: Add the $761 million appropriated from the reserves last January to the $1.25 billion stated deficit, OR subtract the estimated 2001-2003 revenue of $21,208 million from the estimated expenditures of $23,217 million ($22,783 million budget plus the projected $434 million supplemental budget needed in 2002). Either way, it’s a $2 billion problem. If state leaders only deal with the $1.25 billion deficit, the bow wave for the 2003-2005 budget cycle will be large.
What caused the $2 billion deficit?
$300 million – declining revenue
$650 million – out-of-balance 2001-2003 budget
$600 million – estimated effect of September 11th on state’s economy
$434 million – estimated 2002 supplemental budget (OFM)
To resolve the current budget crisis and avoid future deficits, seven steps must be taken:
The budget system is byzantine and needs to be fixed.
Details can be obtained in our publication Reducing the Size and Cost of Government, January 1996, pages 36-40, or in the "Smart Budget" In-Brief on our website. While the process cannot be overhauled in one session, certain things can be done this year to create significant savings.
Much legislation with a fiscal impact is passed each session in abstract parts, with little or no consideration as to how the legislation affects the total state budget, or whether or not the legislation is a core government function. Legislative standing policy committees rarely conduct in-depth reviews of the program budgets under their committee’s jurisdiction. As a result, new programs are approved without analyzing the effectiveness or efficiency of existing programs.
Savings for this session could be obtained if the caucuses establish budget parameters for each standing committee and if the committees then carefully match funding requests against current program performance (efficiency, economy, effectiveness).
As the governor, state auditor and many lawmakers have noted, the legislature needs to look at agency mission statements, goals and objectives, and agency programs.
First, the question must be asked: Does each agency’s mission statement accurately reflect its statutory obligations and intent? Second, are the agency’s service or product goals a core function of government and, if so, should another level of government provide the service(s)? No sacred cows here!
If the service or product is deemed a core government function, it becomes a "make or buy" decision. For example, public health and safety is considered a core function of government, but many of the services necessary to accomplish public health and safety may be better provided by the private sector, or by putting certain services up for competitive bidding.
Each agency needs to re-examine its budget and give state officials "decision packages." These would rank agency programs and projects according to their absolute value in accomplishing the agency’s mission statement.
This type of deliberative process is far more responsible than making grand pronouncements about 15 percent across-the-board cuts. That type of reduction will cripple some agencies while barely scraping the dust off the waste in others. Again, this cannot be completed in every agency in one session, but immediately tackling two or three major state agency budgets in this fashion will identify millions of dollars in potential savings that can be accessed right now. Great effort needs to be made to review the top 15 agencies (in terms of budget size) as soon as possible.
Carefully examine the delivery systems of each agency beginning with those suffering the greatest budget strain right now.
Most agency delivery systems are dysfunctional, meaning funds appropriated by the legislature for specific purposes reach the ultimate client/student/customer tattered, shorn or late. Incorporating common sense changes could save hundreds of millions of dollars: for example, it might make sense to allow the counties to perform more social services (as opposed to the state) since the needs in each county differ. Counties could be given a ½ to one cent of the sales tax to perform these services. And certainly, no one can believe that allowing 468 government entities to be involved in transportation is the most efficient way to deliver services!
Identify specific savings that can be marshaled right now.
Many will jump out as steps one through three are pursued. Though legislators will argue over many spending priorities this year, below are a few suggestions for specific savings:
Freeze state spending at the June 30, 2001 level, thus freeing up $1.7 billion. The current budget is $1.7 billion higher than the previous one. Even though the state faces a potential $2 billion budget deficit and even though we know cutbacks will have to be made soon, more state employees are being hired every day and new or expanded programs are being created. This is foolish.
Consider multiple suggestions related to state employees. Salaries for state employees are up by 10.1% over the past two years. It is doubtful lawmakers know this surprising statistic, but the governor sure does. Average total compensation for state employees is now $53,437. During Locke’s administration the number of state employee FTEs has increased by 8,433.5.
Sen. Fairley suggested a five percent cut in state employee salaries effective July 1, 2002. This would save $218,260,245.
Cap the number of state employees (102,041.8 FTEs in 2001 – up 2,112.6 over 2000).
Reduce the number of management, non-line state employees (management salaries range from $36,320 to $108,800).
Delay COLA increases for one year while steps one through three are completed.
Immediately change certain unemployment insurance processes.
Empower employers to actively monitor job searches of UI claimants; require check-ins to former employers.
Initiate disqualifications against claimants not willing to participate in job search monitoring programs and who will not accept offered jobs from former employers.
Allow employers to place UI claimants in job referral programs as a condition of UI benefits.
Resist the urge to blame voters who passed initiatives affecting the economy.
I-747 (property tax) is expected to remove $25 million from state revenues; I-773 (tobacco tax), $9 million. This is hardly a doomsday loss of revenue compared to the $2 billion we need.
Treat the supplemental budget as the plague, not as a Christmas tree that needs to be decorated.
Last year’s supplemental contained funding for 280 new or expanded programs.
Jumpstart the economy.
More than 60 percent of state revenues are dependent upon consumption taxes. This means government needs to "do no harm" to businesses. EFF’s Business Matters series outlines ten major problems facing employers in this state. In the series we recommend solutions to Washington’s anti-business climate that will create jobs and provide state revenue rather than create greater unemployment and more demands for state services.
The most important step in eliminating this budget crisis is to take immediate action. The deficit will not reduce itself nor will increasing taxes serve to bring the state financial relief. However, if these seven steps are taken, saving our budget from future deficits will not become a fixture of legislative sessions.
Contact: Bob Williams, President, (360) 956-3482 or effwa@effwa.org
At a March 23, 2005, House Appropriations hearing on a bill to gut the voter-approved I-601 spending limit, Rep. Jim McIntire (D) asked a supporter of I-601’s two-third supermajority requirement for the legislature to raise taxes the following question:
"Can you name a time when we [legislators] have actually not just set it [supermajority requirement] aside by majority vote? I mean, this is in many respects a procedural motion that has no bearing. It’s a statutory constraint that cannot constrain any legislature that chooses as a majority to set it aside . . . have we ever used a supermajority [to raise taxes]?"
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