Article by Erik Smith. Published on Monday, December 21, 2010 EST.
One-Day Delay in School Payment Makes Big Difference to Gregoire’s Plan – Final Budget Gets Quiet Release After Week of Big Policy Pronouncements
Gov. Christine Gregoire.
By Erik Smith
Staff writer/ Washington State Wire
OLYMPIA, Dec. 20.—Looks like Gov. Christine Gregoire’s plan to balance the state budget over the next six months relies on a great big gimmick – a plan to pay school districts one day late, and push $253 million in expenses into the next budget.
Gregoire announced the spending plan in a quiet way Friday with a press release, after a week of big policy announcements about state pensions, salaries, reorganization plans and huge cuts to state programs over the next two years.
The governor’s plan calls attention to something that seemed to escape everyone’s attention amid the hoopla last week about her big 2011-13 spending plan. It assumes the state will balance the books with an enormous budget trick. It technically saves the state a quarter-billion dollars over the next six months, but really doesn’t save a dime. And if it works as it has in the past, the state could be playing catch-up for years.
Think of it like this. Lawmakers right now are cracking down on payday loan companies, because they think cash advances encourage weak-minded people to borrow irresponsibly. But it will be as though they are paying a multi-million-dollar electric bill with an advance from the neighborhood check cashery. And because money will be that much shorter next time, they’ll probably have to do it to pay the next bill, too. And the next one. And so on.
It’s not the only trick you’ll find in the new set of budget proposals, just the biggest.
Two Budgets, One Big Problem
It gets a little confusing, because the 2011-13 spending plan is the one that gets all the attention. But that’s not the only one the state has to deal with. Lawmakers also have to balance their current budget, which runs through June 30. The one they passed last spring wound up $1.1 billion out of whack, mainly because they counted on a quick economic rebound that never happened.
They’ve covered most of the gap already. Across the board cuts ordered by the governor last fall and other cuts ordered during a one-day special legislative session a week ago took care of about $700 million. But there is still about $400 million to go. Lawmakers are expected to begin work quickly when they return to Olympia for their next session Jan. 10.
What a Difference a Day Makes!
Here’s how the trick works. Ordinarily the state pays school districts on the last day of June. By delaying the payment by a single day, the state pushes the expense into a new budget period.
It should be noted that that the governor’s math is just fine. The added expense shows up in the spreadsheets her budget office released last week for the 2011-13 budget. You just have to hunt for awhile to find it. The item isn’t mentioned in the press releases that came with the 2011-13 budget or in the budget highlights briefing book, and it’s not the sort of thing the governor chose to bring up in her remarks last Wednesday. To be fair, nor did anyone ask about it at her news conference.
But when the idea first came up, a few weeks ago, Gregoire said:
“Yes, it’s a gimmick, and I despise it, but the fact of the matter is I can’t get there without doing it.”
No Other Major Surprises
The spending plan also contains a few other big-ticket cuts, all of which were expected.
n The state Basic Health Plan would be eliminated March 1, cutting off state-subsidized health insurance for about 66,000 Washington residents.
n The state “Disability Lifeline” program – monthly stipends and medical benefits for the disabled and unemployable – would also be eliminated March 1.
n Levy equalization payments to less-wealthy school districts would be cut by 6.3 percent.
n All previously budgeted money for class-size reduction in grades K-4 would be eliminated.
Memories of ’25th Month’
By pushing current expenses out into the next budget period, the state is using a time-tested technique – but not exactly a time-honored one. There’s a comparison to be drawn with a similar technique this state and others have used in the past – the notorious “25th month.”
To balance the state budget during another significant downturn in the ’70s, lawmakers counted tax revenue from the month after the budget closed. Effectively that gave them 25 months of revenue. The only problem was that the next budget had only 23 months of revenue. And so the next time lawmakers wrote a budget they had to go a month forward as well. The problem continued, budget after budget, until finally the economy recovered enough for the state to “buy back” the remaining month.
Using the technique here raises the possibility that another $250 million in expenses might be shunted to the budget the state writes for 2013-2015. All depends on how the economy does, and whether lawmakers a couple years from now decide to bite the bullet or restore some of the programs they’re whacking now. But let’s just say the smart money isn’t on fiscal discipline.
Not the Only Trick
It’s not the only trick in the budget. The spending plan passed by lawmakers a week ago takes $208 million that had been allocated by the federal government for teacher salaries, and uses it to prop up the budget.
It also assumes about $64 million from “fund transfers” – money from dedicated accounts, where special taxes and user fees were earmarked for a special purpose.
The same thing happens in the governor’s 2011-13 budget plan – about $389 million comes from fund transfers.
Indeed, the whole idea of fund transfers is nothing new – lawmakers have been doing that for years whenever there’s a hiccup in the state budget. Certainly they’ve been raiding the dedicated funds over the last two years. The only time they have to keep their mitts off is when bonds are issued against the funds, and lawmakers generally resist that, to preserve their “flexibility.”
Are fund transfers a good idea? It might be argued that propping up the state budget is a more important goal than, say, funding hazardous-waste cleanup programs that might be done at any time. But the argument never satisfies the special interest groups those special accounts serve. Last year, for instance, green groups tried to convince the Legislature that a big increase in the hazardous-waste taxes was needed – in part because lawmakers were diverting all the hazardous-waste money they already were taking in. That would have meant, in part, a big tax increase on oil that would have been paid by every motorist in the state. It’s a proposal likely to come back in some form, with the argument that current taxes just aren’t enough to meet the needs. But there’s no telling whether that money would reach its intended destination, either, and plenty of reason to think it wouldn’t.
Tax Amnesty Accelerates Tax Payments
Lawmakers also passed a bill a week ago that enacts a tax-amnesty program. For three months this next spring, delinquent taxpayers will be allowed to settle their outstanding tax bills in full without paying additional penalties and interest. The financial incentive is expected to get businesses to cough up tax payments sooner. About 10,000 out of 50,000 delinquent businesses are expected to settle, and generate $24 million for the state.
The thing is, nearly all of them would have paid eventually anyway. So what it does is accelerate payments to the state in the current budget and reduce them in the next. If the state generates any additional money through the measure, from delinquent taxpayers the state didn’t know about, it will be offset by the loss of fines and interest.Lawmakers Grouse About Tricks
Such maneuvers always bring grumbles from lawmakers, even though they know precisely what they’re doing. Typically Republicans complain and Democrats defend – but it depends less on the party label than on who’s in power.
A week ago, Senate Majority Leader Lisa Brown, D-Spokane, said Republicans and Democrats decided not to argue in the interest of getting things done. As for covering the remaining gap, “[Senate Minority Leader Mike] Hewitt was just saying, ‘no more bills with fund transfers,’ and that’s a good thing for him to say, but it’s tough when you’re talking about cutting programs like education and children’s health.”
And last week, state Sen. Joe Zarelli, Senate Republican point-man on the budget, offered this comment on the governor’s 2011-13 budget proposal: “Her budget includes more fund transfers, but at least we’re not seeing every budget gimmick in the book.”
Turns out he was looking in the wrong place – the biggie was in the supplemental budget. Whether it prompts debate in the next session – and a serious effort to find another solution – is a question for the 2011 Legislature.
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