Gov. Chris Gregoire was in the KUOW studios Friday for a "Weekday" interview and she had the printout of a PowerPoint presentation created by the Office of Financial Management to help her explain, in layman's terms, the upcoming budget crunch.
Earlier this year, the Legislature and governor had to face a $9 billion budget gap, which was addressed with draconian cuts (like reducing Basic Health Plan enrollment by 36,000 people), belt-tightening (class size increases) and help from the feds with Recovery Act money. Now, the state faces the need to whack another $2.6 billion, or find some new dough to pay for stuff. A chart indicates what we've all heard: Revenues have fallen off a cliff, down $6 billion from February '08 to March '09, and still dropping.
Gregoire's document puts Washington in some national context: We're enduring an historic recession and, she says, we're weathering it well with high bond ratings and studies showing that the state is not close to meltdown like our friends in sunny California. Forty-eight states face revenue shortfalls for 2010, excepting only Montana and North Dakota (what did I tell you!). OFM says 49 states saw tax revenues fall during the second quarter, with 36 reporting double-digit declines. At least half the states are facing shortfalls after balancing their budgets just months ago. In other words, we're not alone, and not as bad off as some.
The future, according to the governor's talking points, is grim. According to the state Economic and Revenue Forecast Council, state revenues will lag the economic recovery (whenever that is), so will job growth. Unemployment will remain high, and the 2009-11 biennium will see less revenue collected than 2007-09. In the meantime, some costs are rising because of demand for health care, prison populations, emergencies (forest fires, dam fixes), etc.
As with any organization in such circumstances, you have to slash expenses and increase revenues, and Gregoire says she'll be looking at closing tax loopholes, and eliminating state agencies, boards, and commissions. But the options for big-ticket items are few and far between. At least the palatable options.
You'd think having faced a $9 billion gap months ago, a $2.6 billion one would be easy, but all the "easy" cuts have been made, some horrible ones too, so, as Tina Turner might sing, nothing coming up is nice or easy. Plus, according to the governor's PowerPoint, cuts will have to come from a fairly small piece of the spending pie. Why?
The majority of the $31 billion state budget, says the OFM doc, is protected by "state constitutional and federal requirements." You can't eliminate public education, for example, because it's mandated in the state constitution. You can't cut spending for federal programs either, like Medicaid. The state is the conduit for money from the feds, and also required to meet certain standards that the feds require. What it amounts to is that 70 percent of the state budget is protected. Which means you have to hack away at the $9.3 billion that's left. Can you cut $2.6 billion from $9.3 billion? Increasing taxes and increasing revenues aside, that's the picture.
The governor's outline gives a sense of perspective: If Washington, for example, eliminated all state-funded environmental and natural resource protection, the anti-regulation Building Industry Association of Washington might be happy, but it would "save" only $364 million. All state arts funding and all early-learning programs? Only $164 million. Abolishing the 23 smallest general-fund state agencies? Another $52 million. In other words, even draconian cuts get you only part of the way. There are big areas to whittle at that would make a bigger impact: mental health and services for the disabled, prisons, elder care for low-income people, K-12 education, higher ed, juvenile justice. But none of it falls into the non-essential category.
Tim Eyman's I-1033, which would have capped government revenues and spending at city, county, and state levels, was rejected soundly in November, with surprising "no" votes in parts of conservative Eastern Washington. This suggests that there is a bottom beyond which even devoted Republicans will not go. Olympia is not popular in the hinterlands, and the initiative might have passed if it had been a state spending cap, but there is also the possibility that the Great Recession has reminded even government skeptics, except perhaps some Eugene anarchists, that some government is better than no government at all.
If true, will any of that translate to the state this time around? Will Washingtonians become a bit tolerant of efforts to work on the tax and revenue side of the equation in order to keep basic services? Gregoire is certainly not betting on that: She's making the case that this historic economic downturn is going to require creative belt-tightening that doesn't jeopardize the state's future financial position (no crazy borrowing like California, for example). If the state has to be leaner and meaner, so be it.
At the same time, even if increasing sin taxes (on tobacco, alcohol) won't raise much and if there's no appetite for adding an income tax or raising other taxes significantly, one avenue is getting companies and industries to pay more of their fair share by closing loopholes and letting the sun set on tax breaks and incentives (Grgeoire says she's meeting with the Department of Revenue on this). So, for example, benefits for biofuels might be curtailed. She's also determined to eliminate more boards and commissions because the state simply can't afford to staff them anymore (some will likely survive because they are mandated by statute and woven into the legal fabric).
But the time seems right for zeroing in on corporate behavior, and it has revenue potential far beyond X-ing out the Dry Pea and Lentil Commission. Seattle blogger/activist and tech entrepreneur Jeff Reifman has been writing about Microsoft's questionable and possibly illegal dodging of taxes by selling software through a Nevada company. If they paid proper taxes, it could mean tens of millions of dollars a year in tax revenues. Reifman, himself a former Microsoft manager and millionaire, has long been concerned about whether the company is doing its civic duty, to put it mildly. If Microsoft were found to have broken the law and forced to cough up back taxes, Reifman estimates it could mean nearly a billion dollars or more for the state treasury. Would Gregoire go after those who circumvent the tax system with the same enthusiasm she showed toward confronting Big Tobacco? Of course, the Big Software lobby is local.
Washington's business community is powerful, and some, like Boeing and even Microsoft, can threaten to take their business elsewhere. Too much pressure, it could be argued, would jeopardize the economy and make recovery more perilous. But companies like Microsoft benefit because of the type of community, the type of state, Washington is, which has been a most habitable environment for growing techies and attracting the "creative class" they need and thrive on. If the Great Recession and budget cuts and tax avoidance combine to threaten the larger civic structure, maybe it's time to step up. As Reifman says, "Pay your tax, Bill."
Gregoire herself is arguing for a Depression-era attitude of taking unusual steps to help our neighbors. Why not start at the top? If you look at her PowerPoint, it's clear it's going to take some big moves to come through this mess and do minimal damage in the process. Salvation will be in the details, but some details have larger dollar signs than others.
