POLICY HIGHLIGHTER

Volume 13, Number 34
December 19, 2003

Consequences of governor's supplemental budget

If the legislature adopts the supplemental budget proposed yesterday by Governor Locke, the next governor and the 2005 Legislature will be facing a multi-billion dollar budget deficit. Locke's proposal nearly doubles the current deficit and turns away from his widely-acclaimed Priorities of Government (POG) budget model. It is a return to budgeting-as-usual.

Governor Locke's Proposal
Expenditures: $23,274.2 million
Forecasted Revenue: $22,820.9 million
Deficit: <$453.3 million>

The governor manages to patch the deficit temporarily by transferring money from other funds and eliminating the state's emergency reserve. He drains general reserves to $172 million, which is less than one percent of the budget, an amount not sufficient to respond to a major disaster or downturn in the economy.

The governor justifies his $193 million proposed increase in spending (general fund only — increases in all funds are $809 million) by declaring that Washington's budget crisis is over. Six-year budget forecasts by both the Office of Financial Management (OFM) and the Senate Ways and Means Committee, however, tell a different story. These budget analysts forecast a $3.1 billion deficit six years from now if budget-writers do not prioritize spending within forecasted revenues. If spending is limited and prioritized, the state may instead see a modest ($380 million) surplus.

In light of these facts, increasing spending by $193 million does not make sense. The carry-forward costs will mean a nearly $1 billion deficit in the next budget cycle, without considering salary increases for state employees and teachers, or other potential adjustments.

Just last year, Governor Locke received well-deserved praise for structuring the budget debate around the POG model. This allowed the state to build a budget around program results (output) instead of simply looking at increased costs and demands and scrambling to find more money. Using POG means building a budget much like hard-working individuals and families do, starting with the question: How much money is available and which spending needs are the highest priority?

Governor Locke's supplemental budget proposal considers only increased costs and demands, and fails to evaluate priorities and make the decisions necessary to keep spending balanced.

Not only does Locke's supplemental budget add to the state's deficit, it violates the principles of POG by rewarding poor performance and agency overspending. For example, state universities have enrolled more students than the legislature allocated in funding, so the governor is bailing them out by increasing their funds. He is also increasing spending for learning assistance and standardized test retakes, which amounts to rewarding the K-12 system for failing to do an adequate job educating students before they move on to college.

The governor did not include any performance measures for these increased funds, such as setting standards for reducing the number of community college students who must take high school level courses (currently 55% of Washington high school graduates who enroll in community colleges); reducing the additional time it takes many students to finish what should be a four-year college degree; increasing college faculty productivity; increasing K-12 standardized test scores; etc.

Priorities of Government (POG) is a simple, common sense model. It has four key steps:

1. Identify available revenue. How much money does the state have? The governor's supplemental budget increases spending far beyond modest increases in forecasted revenue.

2. Identify the results that matter most to citizens. What do citizens need from government? The governor did not answer this question before proposing new spending.

3. Decide how to allocate limited funds to achieve the state's highest priorities. How can the state use its resources to deliver the best results? The governor's original budget listed funded and unfunded priorities, ranking them from least to most important. The supplemental budget does not.

4. Show how results can best be delivered. How does the state get necessary services to citizens as efficiently and effectively as possible? The governor did not consider options for eliminating waste or increasing efficiency. EFF believes hundreds of millions of dollars can be saved by more effective delivery of state services.

Under the POG model, if the governor decided increased funding was necessary in some areas for increased caseloads or new programs, he would find a corresponding reduction in lower priority items to offset the new spending, or would create savings by delivering services more efficiently. In either case, the budget would remain balanced. Expenditures would not exceed revenue.

The governor did not make these necessary decisions. It will now be up to legislators. If they do not find a way to prioritize and balance their spending, they will face a much larger problem in the next budget cycle.

Prepared by Bob Williams (President) and Jason Mercier (Budget Research Analyst)

Contact: Jason Mercier | Budget Researsh 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