POLICY HIGHLIGHTER

Volume 14, Number 24
October 14, 2004

Budget deficit or surplus?
Answer depends on fate of state's I-601 spending limit

The billion dollar question facing Washingtonians for the 2005-07 budget is whether or not Initiative 601's (I-601) remaining spending restrictions escape further weakening or outright repeal by state officials. Under current state law, Washington is forecasted to have a budget surplus of approximately $193 million. Forecasted revenue for 2005-07 is expected to be nearly $1.7 billion more than was available for the 2003-05 budget (a seven percent increase).

2005-07 forecasted revenue	$24,776,000,000
2005-07 I-601 spending limit	$24,583,000,000
Surplus	$193,000,000

This means that if the governor and legislature follow the Priorities of Government budget model (POG) that was used to develop the 2003-05 budget, they will prioritize spending within the I-601 spending limit and within forecasted revenue.

However, state policy makers are currently planning to spend more that the state is forecasted to collect for 2005-07, resorting back to the broken pre-POG budget system of focusing on inputs and more money (i.e. taking the current budget and adding caseload and inflationary increases). This results in a projected $1.3 billion deficit.

This level of "deficit" spending would break the I-601 expenditure limit by $1.5 billion. To reach the projected 2005-07 spending level, I-601 will have to be significantly altered or eliminated. With a $193 million surplus under current law, it appears the only reason for eliminating I-601 would be to increase taxes.

Major factors contributing to the $1.3 billion "deficit" include: $502 million for planned cost of living increases (COLAs) for state employees (including I-732 teacher COLAs, vendor increases, and home health care workers); an additional $440 million for state pension contributions; and $371 million for state employee health insurance coverage, including K-12 employees.

Select forecasted 2005-07 expenditures

Source for all tables: OFM's September six-year budget forecast

Gubernatorial candidates' positions on I-601
The Spring Hill Review recently asked gubernatorial candidates Dino Rossi (R) and Christine Gregoire (D) the following about I-601: "Voters passed Initiative 601 to limit state spending increases. In recent sessions, legislators and the governor have considered overturning the I-601 spending limits. What is your position on I-601 spending limits? If you support overturning or relaxing the limits imposed by the initiative, what taxes or fees would you increase or adopt to close the budget gap?"

Christine Gregoire: "The best way to deal with budget shortfalls is to grow our economy. Right now, we have 200,000 people out of work, and far too many without health insurance. The best way to increase revenues in our state is to get those people back to work. We're also going to take a hard-nosed and long overdue look at some of the tax loopholes in our system. There are more than 430 tax exemptions on the books now, totaling more than $45 billion per biennium. They reduce state revenues by billions of dollars every budget period. For example, we need to ask the question: do we really need to be exempting gold bullion?"

Dino Rossi: "I support the I-601 spending limits. The people of Washington must have confidence that their state government is spending taxpayer dollars efficiently and effectively. One of the things I've learned after seven years as a citizen legislator is that if there's extra money somewhere someone will figure out a way to spend it. The other side of the I-601 spending limit is the requirement to put money in reserve for future emergencies and economic downturns. When our economy started to go downhill after the dot-com bust, and when we went into recession after the 9/11 attacks, we didn't have any funds in reserve because previous Legislatures had spent everything. That's irresponsible, and that's why we need a change in Olympia."

Whichever candidate is ultimately elected, the next governor will play a large role in determining whether I-601 remains in effect. The executive branch's commitment or lack thereof to I-601 and performance-based budgeting will determine the answer to the state's billion dollar budget question: tax increases or living within forecasted revenue and the state's spending limit?

Prepared by: Jason Mercier & Bob Williams | 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