Gregoire’s Final Budget Defeats Shortfall in a Few Quick Moves, But Proposes More Than $1 Billion in New Spending, Taxes

Outgoing Governor Suggests New Taxes on Oil Industry for 5th Year in a Row, Also Would Extend ‘Temporary’ Taxes from 2010

By Erik Smith
Washington State Wire

Gov. Christine Gregoire unveils her final budget proposal Tuesday.

OLYMPIA, Dec. 18.—Gov. Christine Gregoire presented her final budget Tuesday, a parting gift for next year’s Legislature that would raise about $1 billion in new spending for education and about $1.2 billion in new taxes – and perhaps no surprise given her proposals of the last four sessions, much of the tab would be borne by the oil industry.

Like any proposal from a lame-duck governor, Gregoire’s last major budget plan is doomed to the dustbin. Her successor, Democrat Jay Inslee, will propose a budget of his own when he assumes office in January. This one comes because Gregoire is required by the state constitution to propose a budget by Dec. 20. It would be bound for trouble in any case – because this year’s Initiative 1185 has reimposed the two-thirds vote requirement on the House and Senate for tax hikes, because a coalition of Republicans and Democrats in the Senate is opposed to tax hikes, and because Inslee has promised to veto any tax increase the Legislature passes. But those little problems aside, her $34 billion blueprint raises a point, that the immediate problem with the state’s budget – a nearly $1 billion shortfall – can be dealt with relatively easily, and the real question before lawmakers next year is how deep a hole the state will dig for itself with new spending for K-12 education and other programs.

Gregoire is proposing that the state boost spending on K-12 schools by about $1 billion over the next two years in order to meet the requirements of the state Supreme Court’s recent McCleary decision. The ruling earlier this year held that the state is not meeting its constitutional duty to fully fund basic education, and Gregoire’s $1 billion figure is at the bottom end of the range that might satisfy the court – some proposals have ranged as high as $2.5 billion. She also is advocating about a half-billion in new spending for Puget Sound cleanup, most from the state capital budget – a personal crusade during her eight years in office.

Gregoire said she doesn’t expect the Legislature to swallow her tax-and-spending plan whole. “That’s not what they have done with anything that I have ever produced. But I think what they will find, much to their surprise, is that we have literally lived within our means, but for our responsibility to fund the constitutional mandate for K-12 education, as articulated now by the Washington State Supreme Court.

“I can’t get there with more cuts. I simply can’t. So the only way you can do it is with revenue. I’ve tried to give them a path to move forward that will let them not have to pack up their toothbrush when the Washington State Supreme Court tells them that they have failed miserably to live up to their constitutional mandate. If they do what I have suggested, I think they can responsibly report to the court that they are on their way with a $1 billion down payment and will continue to make progress for three biennia.”

One thing Gregoire didn’t do – she didn’t advance a transportation-tax proposal, as had been trumpeted earlier in the press. The various interest groups couldn’t reach an agreement, she said, but added she hopes they will put something before the Legislature next year.

Some Easy Choices

An Office of Financial Management chart explains Gregoire’s plan. (Click for enlarged view.)

The immediate problem for lawmakers next year is a shortfall now estimated by Gregoire’s budget office at $975 million – that number keeps fluctuating. What that means is that existing state taxes will generate an estimated $32.5 billion during the 2013-15 budget period, but the cost to maintain current state programs is $975 million more. The trouble with that shortfall figure is that it assumes lawmakers will make no decisions at all.

Gregoire’s spending plan makes a number of relatively painless choices that essentially bring the deficit down to zero and leave the state with money in the bank. She would once again suspend Initiative 732, the oft-suspended 2000 ballot measure that requires cost-of-living increases for teachers. That saves $360 million. She would once again postpone the never-implemented state family leave program, saving $14 million. And she would re-enact a hospital bed tax known as the “safety net assessment,” which is due to expire on June 30, leveraging an additional $276 million for the state. Other cuts and efficiencies total $575 million, including $140 million of assumed savings from the implementation of the federal Affordable Care Act. So much for the shortfall.

It should be noted that Gregoire wouldn’t touch the half-billion dollars that is expected to flow into the state’s rainy-day account over the next two years, and that her spending plan would leave a reserve of about $300 million – basically giving lawmakers $880 million in wiggle room just in case of economic trouble.

New Taxes, New Spending

So here’s the part of the plan that may be the subject of debate, if the Legislature or the new governor decide to talk taxes after all. To pay the $1 billion McCleary tab, Gregoire is proposing two big things – a pair of new taxes on the oil industry totaling $430 million, and a continuation of “temporary” taxes imposed in 2010 that are due to expire next year. Those include a business and occupations tax surcharge imposed on service businesses, on doctors, lawyers, accountants and others. That’s worth $534 million. And a 50-cent-a-gallon beer tax worth $100 million.

This makes the 5th year in a row that Gregoire has backed some sort of a tax on the oil industry. In previous years her proposals have been earmarked in whole or in part for Puget Sound cleanup. This time out, the stated purpose is school-bus transportation – though the fact that she is advocating a big increase in cleanup spending at the same time, and that much of it would be financed indirectly by the general fund budget in the form of bond payments, demonstrates a certain degree of connection.

Gregoire told reporters that her half-billion-dollar Puget Sound cleanup plan would jump-start efforts that were stymied by recession. “It is time to get people back on track,” she said. And she insisted that the oil industry could easily absorb the tax hikes without passing higher costs along to motorists at the pump. “Let’s be clear, the top five oil companies in America, in the first six months of this year, had over $60 billion in profits. So I expect them to do this without passing this on to consumers.”

Snub for SEIU, Pop Bottlers

One other facet of Gregoire’s plan might also cause a few gulps for a couple of well-heeled interest groups – for the Service Employees International Union, which twice now has promoted and won an initiative launching a training program for home-care workers, and for the state’s soda-pop bottlers, which spent millions in 2010 on an initiative that rolled back a tax hike on soda pop and candy. A recent decision by an arbitrator declared that home-care workers deserved a raise that would cost the state $125 million. Gregoire noted that SEIU’s last initiative says the state can’t declare the ruling “financially infeasible” and ignore it. So she’s suggesting that the Legislature can take care of that problem by passing another soda-pop tax just like the last one – SEIU and the pop bottlers can fight it out themselves. “I leave it to my friends in the health care union, SEIU, to make sure that this gets funded, if they are to have their contract,” she said.

A Volatile Tax

State Rep. Gary Alexander, R-Olympia.

Naturally the oil industry is less than amused by Gregoire’s tax proposal. “I think the governor’s comment indicates she understands, whatever her view on business profits might be, that it is a tax on the businesses and consumers of the state of Washington,” said Tupper Hull, spokesman for the Western States Petroleum Association in Sacramento. “It is not a simple issue Washington is facing in balancing its budget, but if they want to generate revenue from taxes on transportation fuels, they should be forthcoming and tell consumers what they are doing.”

And Gary Alexander of Olympia, the House Republican point-man on the budget, said a few of Gregoire’s choices seem wise – suspension of I-732, renewal of the hospital assessment, and capping McCleary spending somewhere around $1 billion. But he noted that it would tie education funding to fuel taxes, which fluctuate wildly, that voters shot down the pop tax in 2010 – and in the end, a lame-duck budget proposal is really just a suggestion. “I don’t think her proposal is going to stand up to much scrutiny,” he said. “I don’t think it is one that will be considered very strongly by the Legislature.”

Other Polite Responses

As is typical when a big announcement is made in Olympia, statements flowed all day.

Ross Hunter, House Democratic budget chair: “I’d like to thank Governor Gregoire for the thoughtful work she’s put into this budget. Her proposal exposes the basic structural problems that will make it difficult to build an operating budget that meets the needs of Washington’s citizens and business community without changing the revenue picture.”

Sterling Clifford, spokesman for Gov.-elect Jay Inslee: “Gov. Gregoire’s budget reflects the seriousness of the challenges ahead and Gov.-elect Inslee appreciates her thoughtful effort and determination to address Washington’s fiscal reality.”

Andy Hill, Senate Republican budget chief: “I appreciate the time and thought Governor Gregoire and her staff put into the budget she proposed today. Seeing how this is the eighth and final state budget she will offer, it’s a great time to thank the governor for her decades of dedicated service to the people of Washington. What she submitted will be a useful reference as the Senate Majority Coalition Caucus moves forward on developing a sustainable budget that lives within the state’s means.”

Gerald Reilly, Eldercare Alliance: “She has sent a strong, loud and clear message that in order to build a smart and responsible budget we need to seriously consider new revenues. She pointed out that $11 BILLION has been cut over the last three years, and that there is NO HUMANE WAY to provide the K-12 education funding required by the recent Washington Supreme Court McCleary decision by further cuts to other essential programs.”

Jason Mercier, Washington Policy Center: “Based on Governor-elect Inslee’s tax veto pledge, the positioning of the Senate ‘Coalition Caucus’ and the voters’ approval for the fifth time of the supermajority for taxes requirement, Gregoire’s proposal is likely D.O.A. in Olympia. That said, remember this proposal the next time someone mentions a “temporary” tax surcharge.”

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  • Edward

    Reducing public employees compensation on the top 50% by $50/month, and $20/month on the bottom 50% would save approx. $100,000,000. – Just saying.