by Don C. Brunell
President, Association of
Washington Business

With the states revenue surplus pegged at nearly $2 billion, Gov. Chris Gregoire had plenty of money to work with as she prepared her budget this year. In the end, she proposed a budget that boosts spending by 12 percent over the next two years.
The problem is revenues are projected to grow at only half that rate over the next six years. Even the state budget offices own projections show the state plunging into the red in just three years. The problem will get even worse if we run into a prolonged recession like the one that followed the 9/11 terrorist attacks.
When tax revenues fall short of spending levels, past remedies were to increase taxes and cut programs regardless of which party was in charge. That combination has been deadly for economic recovery and for people who became dependent on those programs.
The legislature needs to step forward and reduce the governors budget. That will action will buck tradition because, more often than not, lawmakers treat the governors budget as the low-water mark and spend more.
The economy is cyclical with its ups and downs. State revenues, which come from taxes on business owners and individuals, follow that same cycle. At the top of the roller coaster, it is easy to see nothing but possibilities and brighter days ahead. Right now, our state is enjoying one of those peak moments. Thats why we have the surplus and its why otherwise cautious politicians may suddenly shed their inhibitions and spend more today hoping the rosy economy lasts.
Naturally, a lot of folks are cheering them on — particularly those who stand to benefit directly from the new spending. Before things get out of hand, though, legislators would be wise to heed the warnings of their own budget office and trim the governors request.
Governor Dixy Lee Ray dealt with a similar revenue windfall in 1978 when the state had nearly a half billion in surplus revenues. Ignoring advice to hold onto most of it for a rainy day, she used half of the surplus to jumpstart an expensive education finance reform in 1979.
When the state economy hit the skids in the early 1980s, Gov. John Spellman and his fellow Republicans who took control of the legislature in 1980 were forced into several special legislative sessions to raise taxes and chop state spending. Remember, unlike the federal government, Washington is required to have a balanced budget.
Lawmakers can avoid the coming train wreck if they do two things. Control spending and maintain an adequate budget reserve.
Thats what voters told them to do in 1993 when they passed the Initiative 601 tax and spending limit in response to legislative tax hikes earlier that year. The initiative tied spending to population growth plus inflation and established a rainy day reserve. Unfortunately, it has since been gutted by state lawmakers.
While Gregoire calls for a constitutionally protected rainy day fund, a budget that spends twice the rate of revenue growth is likely to bring on a swell of heavy rains. By the end of the 2009-2011 biennium, the budget office projects a $650 million deficit even after blowing through the estimated $550 million rainy day account.
Its one thing to be caught off guard when the economy suddenly turns south, as it did in 2001. No conceivable rainy day account would have offset the decline in tax revenues that accompanied that recession. Whats troubling about the shortfalls projected to follow the governors budget is that they occur despite a strong economy. Throw in a slowdown and the problems compound quickly.
We do have some extra money to spend to invest to improve our schools, to allow more students to go to college, and to make it easier for folks to get good health care. But lawmakers must temper their enthusiasm for such spending with an appreciation of our fiscal reality. We cannot afford to rush headlong into a foreseeable budget crisis, one which could inflict severe damage on our economic competitiveness.