$400 million federal bailout not invitation for increased spending

President Bush's new tax cut plan, approved last week by Congress, includes billions of dollars in federal bailouts for the states. Washington stands to gain $400 million, and special interests are already clamoring for handouts. Many of our state legislators are approaching the funds cautiously, for which we applaud them. For those who may view the bailout as an opportunity to plan a spending spree, there are a few important things to remember:

1. This is one-time money.
If lawmakers use these one-time funds to increase spending, the state will be facing a much larger problem ("bow wave") in the next budget cycle. The new programs will still be around; the money won't. Spending will outpace available revenue.

2. Current budget proposals already spend more than forecasted revenue.
The least expensive budget proposal being considered by the legislature right now spends $350 million more than the state expects to collect in 2003-05. This is before the June 19 revenue forecast, where revenue predictions are expected to drop. With current budget proposals already relying heavily on reserves, draining them further to pay for ongoing programs won't be an option in the 2005-07 budget.

3. Initiatives will create their own bow wave.
Some initiatives (home health care bargaining, cost-of-living increases for teachers, and class size reduction) are either suspended or not fully funded in 2003-05 budget proposals. If they are fully funded in the next budget, the cost will result in a dramatic bow wave.

4. State employee collective bargaining contract has serious implications.
Legislators will be presented with the first collective bargaining proposal by state employee unions in the 2005 session. Since the power to collectively bargain is new, legislators should carefully analyze any proposal for its long-term implications before making a decision.

5. There is no federal money tree.
We must not forget what the federal bailout amounts to: taxpayers from other states being forced to pay for past mismanagement of Washington's budget. Since the money is coming despite this fact, legislators should make sure these dollars are used prudently. They should use them to rebuild the state's emergency reserve, so the state will be prepared to weather the next economic storm.

State by state breakdown of federal bailout

Prepared by 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