POLICY HIGHLIGHTER

Volume 15, Number 9
March 23, 2005

Gregoire's "unsustainable" budget

(updated 3/24/05)

Governor Christine Gregoire has chosen not to proceed with former Governor Locke's widely acclaimed priorities of government (POG) budget model. Instead Gregoire drafted a $25.8 billion budget for 2005-07 that sets up serious fiscal problems for the 2007-09 budget, and which she herself calls "unsustainable."

Forecasted revenue for the 2005-07 budget is projected to be $1.7 billion higher than the current biennium. But Gregoire's 2005-07 budget proposal increases spending by $2.6 billion (including her requested 2005 $219 million "emergency" supplemental budget). This increase is more than three-times the expected rate of inflation.

Expenditures
(All dollars in millions)

Governor's Priorities
Gregoire increases funding for public schools by 6.4 percent, higher education by 11.8 percent, the Department of Social and Health Services by 17.9 percent and the Department of Corrections by 8 percent. Additionally, Gregoire's budget:

• Increases funding for the Governor's office by 28 percent and full-time equivalent (FTE) employees by 21 percent (please see Correction: OFM reforms FTE budget reporting);
  
  
• Increases funding for the Office of Minority and Women's Business by 53 percent and FTE employees by six percent;
  
  
• Increases funding for the Horse Racing Commission by 82 percent;
  
  
• Increases funding for the Commission on Asian-American Affairs by 50 percent and FTE employees by 67 percent;
  
  
• Increases funding for the Commission on Hispanic Affairs by 46 percent and FTE employees by 67 percent;
  
  
• Increases funding for the Commission on African-American Affairs by 48 percent and FTE employees by 67 percent; but
  
  
• Decreases funding for the State Auditor's office by 4.2 percent and includes no funding for performance audits; and
  
  
• Defers $524 million in payments to the state's pension system.

The governor also decided not to provide a vendor rate increase to doctors who serve Medicaid patients. At the same time, the governor increases the state's expenses by $33 million by not reviewing client eligibility every six months, a cost-saving measure approved in the last budget.

Tax Increases
The governor's budget also includes a proposed $203 million tax increase earmarked to fund Initiatives 728 and 732. This directly conflicts with promises made to voters in 2000 when these measures were approved. At that time, voters were told the initiatives would not require a tax increase or harm the state's budget. When asked last year in I-884 to raise taxes to fund the provisions of I-728 and I-732, voters rejected it by a 2-1 margin.

Even with the $203 million tax increase, Gregoire's projected 2005-07 ending fund balance results in a reserve fund of less than one percent of her total expenditures. This means, should we have another earthquake or any other unforeseen emergency, the state will be ill-equipped to respond.

Ignoring Intent of Voter-Approved Spending Limit
To reach the $25.8 billion record level of spending, Gregoire exploits a loophole in the I-601 voter-approved spending limit. The loophole allows for increasing the spending limit by making fund transfers from dedicated accounts to the general fund. Additional budget expenditures (such as a supplemental budget) also increase the spending limit.

By requesting a $219 million 2005 supplemental budget and making $244 million in fund transfers in her 2005-07 budget proposal, Gregoire greatly expands the voter-approved I-601 spending limit from $25.1 billion to $25.9 billion ($810 million increase). With only three months remaining in fiscal year 2005, the governor is claiming that the $219 million in expenditures she is requesting are emergencies that can't wait until the next budget (July 1, 2005). However, the governor hopes to transfer $45 million from the general fund to the Health Services Account in her supplemental budget. She then plans to transfer $86 million from the Health Services Account to the general fund for her 2005-07 budget. This budget slight of hand enables her to artificially increase the I-601 spending limit.

Under the law, if taxes or expenditures in excess of the I-601 spending limit are proposed, a vote of the people is required to approve the increase. By increasing the I-601 spending limit by $810 million—the governor is denying the people their right under the law to vote on her tax and expenditures increases.

I-601 spending limit
(All dollars in millions)

Governor Gregoire has repeatedly stated that "we must change the culture of state government." It is clear from the governor's $203 million in tax increases, $244 million in fund shifts, and $524 million in pension deferments, she is not committed to the POG budget process and fighting for a "sustainable" budget. The governor is instead repeating the same budget mistakes of the past. By falling into the past traps of using one-time revenue and other "unsustainable" budget gimmicks, Governor Gregoire is demonstrating that she is unable to exercise the budget leadership needed this session to resolve the state's spending "structural budget problem."

Prepared by: Bob Williams (President) & 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