State mimics Enron

Treasurer projects $1.75 billion general fund cash deficit as of 6/30/03

As if Washington’s compounding budget crisis wasn’t enough, Governor Locke’s refusal to obey the Budget and Accounting Act (Chapter 43.88 RCW) has resulted in the almost unimaginable prospect of a $1.75 billion cash deficit in the state’s checkbook, the General Fund, by June 30, 2003.

Locke should have issued the across-the-board cuts mandated by state law (RCW 43.88.110 (8)) before September 30, 2001. Former Governor Spellman was forced to issue these cuts in 1981 and 1982 as a result of complying with the law. The "trigger" of across-the-board cuts in the Budget and Accounting Act is designed to stop the bleeding (cash deficits) in the General Fund before it gets out of control. If the governor does not like the results of those cuts, he can call a special session of the legislature to develop an alternative.

Locke’s blatant violation of the Budget and Accounting Act has not only prolonged and worsened Washington’s budget crisis, but has led to the prospect of the state’s credit rating being downgraded. This would cost state taxpayers millions of dollars in increased bond interest.

Budget crisis timeline:

June 19, 2001: Official revenue forecast drops by $116.4 million. (No corrective action taken)

June 26, 2001: Governor signs 2001-03 budget that spends $650 million more than the estimated revenue for biennium and cuts state reserves in half.

August 22, 2001: General Fund runs cash deficit of $99 million. (No corrective action taken)

August 31, 2001: General Fund runs cash deficit of $179.2 million. (No corrective action taken)

September 11, 2001: Terrorists attack

September 18, 2001: Official revenue forecast drops $77.3 million. (No corrective action taken)

September 30, 2001: General Fund runs cash deficit of $555.3 million. (No corrective action taken)

October 31, 2001: General Fund runs cash deficit of $803.2 million. (No corrective action taken)

November 14, 2001: Caseload forecast increases $182 million. (No corrective action taken)

November 20, 2001: Official revenue forecast reduced by $813.1 million. (No corrective action taken)

November 30, 2001: General Fund runs cash deficit of $394 million. (No corrective action taken)

December 31, 2001: General Fund runs cash deficit of $521 million. (No corrective action taken)

January 25, 2002: General Fund projected to run cash deficit of $800 million as of June 30, 2003. (No corrective action taken)

January 31, 2002: General Fund runs cash deficit of $607 million. (No corrective action taken)

February 15, 2001: General Fund runs cash deficit of $812 million, projected to reach $2 billion by November 19, 2002. State Treasurer is concerned he does not have enough money in all other funds to offset projected shortage. Treasurer expects even larger General Fund cash deficit by April 2003. (No corrective action taken)

February 19, 2002: Official Revenue forecast reduced by $247 million. Locke sends email to state workers ordering an immediate freeze on hiring and equipment purchases, and placing restrictions on travel expenses. (No Executive Order issued)

February 20, 2002: Caseload forecast increases $115-150 million. (No corrective action taken)

February 21, 2002: Governor issues hiring freeze Directive dated February 21 – two days after allegedly ordering the freeze. (A Directive according to a 1991 Attorney General opinion does not have the full force and effective of law)

February 22, 2002: OFM puts out implementing instructions related to freezing hiring, travel and equipment purchases. "OFM is not requiring special reports from agencies." OFM Director Marty Brown encourages "agency directors to maintain sufficient internal records for monitoring and implementation of the freeze." (The OFM memo gives agency directors a loophole to get around OFM approval for new hires that renders the Directive meaningless)

February 26, 2002: EFF President Bob Williams informs the Governor and Treasurer that they are in violation of the Budget and Accounting Act (RCW 43.88) by permitting the existence of non-temporary and unauthorized cash deficits in the General Fund.

February 28, 2002: Governor accuses Bob Williams of "flawed reading of state law and misunderstanding about the intended role of the Governor in these fiscal circumstances." Williams wrote the applicable revisions to the law with the assistance of the former Budget Director and staff from the Attorney General’s office to specifically avoid these circumstances. Former Governor Spellman twice was forced to comply with the law and issue across-the-board cuts in 1981 & 1982 (special sessions were also called).

February 28, 2002: General fund runs cash deficit of $726 million. (No corrective action taken)

March 8, 2002: EFF receives a copy of the Treasurer’s cash flow forecast generated February 25, 2002, showing projected cash deficit in the General Fund of $1.75 billion for June 2003. Despite a public records request sent February 21, 2002, EFF does not receive copy of 2/25/02 cash forecast from Treasurer’s office until March 11, 2002.

Contact: Jason Mercier, Budget Research Analyst, (360) 956-3482 or jmercier@effwa.org

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