Article by Erik Smith. Published on Friday, March 18, 2011 EST.
Puts Foot Down on ’25th Month’ and All Those Other Not-So-Goodies
Yield not to temptation, Gov. Christine Gregoire warned Thursday.
By Erik Smith
Staff writer/ Washington State Wire
OLYMPIA, March 18.—If you thought Republicans sounded a little suspicious when they started denouncing Democrats for budget gimmicks and creative-accounting maneuvers – before the Democrats even had a chance to propose them – you should have heard Gov. Christine Gregoire Thursday.
Don’t even think about it, she said.
She did everything short of threatening a veto – and actually, depending on how you read her remarks, you might even say she did.
The governor was responding to widely repeated talk that majority Democrats in the Legislature may try to take the easy way out of their $5.3 billion budget nightmare, using budget trickery to avoid deep cuts to programs. No matter how you define the problem – whether you count big, expensive K-12 programs the Legislature had hoped to launch but probably never will – it looks like lawmakers will have to whack at least $3 billion in actual spending to bring the state budget into balance.
Fiddling with the numbers could get them at least part of the way, albeit at a substantial cost to the soundness of the state’s finances. Could Democrats really be considering such things? Republicans have been sounding the alarm since the beginning of the session.
Now Gregoire joins the chorus. The fact that she made a speech about it tells you something.
And when she was through, she said: “I think I’ve said what my opinion is on those. When I say I don’t like it, that means don’t bring it to me.”
As for the budget-writing Democrats in the Legislature, they’re still playing coy. House Ways and Means Chairman Ross Hunter, D-Medina, told reporters Thursday, “Some ideas are bad, some are really bad. Some are worse than others. We’re going to do the least bad ones we can do.”
Bad and Really Bad
The legislative Democrats haven’t put any of those ideas on the table in a formal way, but that doesn’t mean much. They won’t surface until a budget is proposed. Many are widely rumored in legislative corridors and hallways. The top contenders?
* The so-called ’25th month,’ a maneuver that allows the state to shove expenses into future budget periods so that future legislatures have to deal with it.
* ‘Securitization’ of revenue streams – issuing bonds against dedicated revenue sources, like tobacco-settlement money.
* Borrowing through other means.
* Going to the voters for a tax increase – and leaving the budget unbalanced in the meantime.
Said state Sen. Mark Schoesler, R-Ritzville, “I would be really amazed if Rep. Hunter’s budget does not include securitization, or kicking things into the next biennium with a 25th month. I would be shocked if it doesn’t include that. The revenue question, the fact that every leader on the other side of the aisle is hinting about it tells us a lot.”
Can’t Kick the Can
In prepared remarks to reporters at the start of her Thursday news conference, the governor said lawmakers would be foolish to count on a tax increase. They won’t get it in the Legislature. Last year’s Initiative 1053 imposes an all-but impossible two-thirds vote requirement. Going to the voters isn’t going to work, either, the governor said. Voters said no to new taxes three times with three different initiatives. Messages don’t get much clearer than that.
“Our challenge today is to create a budget that is both responsible and lives within our means,” she said. “We need a long-term plan that protects our fiscal integrity.
“Have no doubt – writing a budget that relies on no new taxes, low revenue and high demand for services is a tough challenge. But it must get done. This must be a year of decision, not deferral.
“We can’t kick the can down the road.
“Short term solutions may cause less pain now, but we need a budget that is both sustainable and long-term.
“History shows us that.”
Really Bad Ideas
“Let me address the idea of a 25th month.
“In 1971, the Legislature created a 25th month in the two-year budget. It gave budget writers an extra month’s worth of tax collections to fix their shortfall – but it gave the next month just 23 months of unspent revenue.
“It took 16 years – eight full biennial budgets – to buy back that quick-fix loan.
“Increasing state debt concerns me.
“In 1989, the state’s debt payments for bonds totaled about 3.7 percent of our general fund spending. In the current budget, debt payment has nearly doubled, to 6 percent of general fund spending – $1.8 billion.
“As our debt burden grows, we have less ability to address revenue shortfalls. Adding to the debt to pay short-term costs will not place us on a stable financial path.
Quick Cash is Expensive
“And I’ve already shared my concerns regarding securitization.
“In 2002, the Legislature borrowed money through securitization of tobacco settlement payments, giving the budget a one-time, $450 million boost.
“But quick cash is expensive. It will ultimately cost us about $1 billion in principal and interest. And now we have about $100 million less per biennium in tobacco settlement funds that we could be using for today’s needs.
“These fixes may look good now, but they won’t a few years from now. We’ve got to stand for our kids’ economic future as well as our own. That requires sacrifice on our part.”
Calls for Action
Gregoire pointed out that she laid out a number of budget-cutting plans in December and January, just before lawmakers returned to the statehouse. Now’s the time for lawmakers to run with them, she said. Among them is the elimination of automatic cost-of-living increases for retirees in the state’s oldest pension plans, a move that would save $2 billion over four years and reduce the state’s unfunded pension liability by 60 percent.
She made a distinction between the “25th month” tactic and a proposal contained in her own budget proposal to shunt $250 million in expenses from the 2009-11 budget to 2011-13, by delaying a payment to school districts by a single day. That doesn’t come anywhere near the $1.7 billion that would be raised by a full 25th-month maneuver, she said, and under her budget plan, the money would be repaid within two years. The $250 million isn’t so big and daunting that lawmakers would defer payback for 16 years.
Hands Off Public Employees
But the governor wasn’t embracing everything Republican critics have said. She rejected calls for further cuts in state-employee salaries and benefits. Critics complain public-employee unions negotiated a sweet deal with the governor’s office in the last round of contract talks. They got only a modest increase in health insurance premiums, and what amounted to a three-percent pay cut in the form of furloughs.
Gregoire disputes the idea that public employees got special treatment. They haven’t gotten a cost-of-living increase since 2008, she said, and critics of the health-benefit deal ignore the fact that co-pays and deductibles have increased dramatically. At this point, now that the unions have ratified the contracts, renegotiation would require their cooperation. That won’t happen, the governor said, and under the terms of the state’s collective bargaining law, if the Legislature says no to the deal, the older, more expensive contracts continue for another year.
“Rejecting those contracts would mean carrying on the current agreement through next year, meaning no savings. For health care, the current agreement would continue for 18 months with no savings. Rejecting the contracts would leave the Legislature to reach a better deal, which is a hard promise to keep.”Your support matters.
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