Article by Erik Smith. Published on Monday, August 08, 2011 EST.

Anticipating Another Awful Forecast, Governor’s Office Orders Agencies to Prepare for a 10-Percent Cut  
 

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Aug. 8.—This year the folks in charge of state government said they were cutting things to the bone. Now it looks like they’ll be scraping off whatever meat was left. And they might have to do it in a special session.

            The governor’s office, anticipating another awful revenue forecast in September, is telling state agencies to gear up for cuts of up to 10 percent. That’s as much as $1.7 billion. Blame it on Wall Street, a tsunami in Japan, a reduced national bond rating, and an economy that just keeps on tanking.

            It just goes to show that the next state tax-revenue forecast is going to be a doozy. The next one is due from the state Economic and Revenue Forecast Council Sept. 15. The implication of the announcement is that the forecast will put the state in the red. And if the experience of the last year is any guide, there are no easy cuts left, and lawmakers may have to return to Olympia to do the job.

            “In other words,” said Gov. Christine Gregoire in an email to all state employees, “should more bad news happen, we must be prepared.”

            In a memo from the state Office of Financial Management Monday, director Marty Brown is directing state agencies to prepare either for a worst-case scenario or something even worse than that. His office is talking about either a five percent cut or one of 10 percent. The move follows a similar exercise a year ago. Back then it turned out there wasn’t enough fat left in the budget for an easy trim, and lawmakers had to return for a special legislative session last December. After six months of action, they wound up cutting actual state spending by about $3 billion.

            And now, after one of the most excruciating sessions in state history, the bad news just keeps coming. A nasty post-session forecast wiped a half-billion from the books in June, and the state was left with just $163 million in projected revenue in reserve. For the last couple of months, many in Olympia have been betting that the September forecast would wipe out that tiny margin of safety. With the announcement from the governor’s office Monday, it appears that Gregoire has joined the club.

            Special Session Likely

            In an interview, Senate Republican budget chief Joe Zarelli, R-Ridgefield said the announcement comes as no surprise. It’s not as if the economy shows any sign of rebounding anytime soon. Zarelli said he thinks the governor may be forced to call lawmakers back into session sometime before the scheduled 2012 session, which begins in January.

That’s because the governor has the authority to order across the board cuts, but she is forbidden to implement them with precision. Last time many of the cuts required legislation to go with them. Same would apply this time. So Olympia hotels may be booked up for a day or two this fall as lawmakers make a grudging return to the Capitol.

            “There is no way she can make these cuts without us, so while Marty is preparing, there is nothing of this substance she can do on her own,” Zarelli said. “That would be my thinking. I don’t know how she would be able to make across-the-board cuts of this nature, that could potentially make up for the number we’ll have to get to in September. We’ll have to see. Maybe she can do enough so that we don’t have to do anything until January, but maybe she can’t.

“Remember, we got all tied up in knots last year because so much of where she had to go required changes in statute to allow her to do certain things. So she is limited in where she can cut. She has to do things according to law, and if she can’t get there in a comfortable manner, then we would have to come back.”

            Bad News on the Horizon

In his memo, Brown says the bad economic news can’t be ignored. For now, it’s a simple planning process. But all state agencies are involved. The only areas that are off-limits are basic education and debt service, which are awarded priority under the state constitution.

Brown explains: 

“In June, the state reduced its General Fund-State revenue forecast for the current biennium to reflect concerns about the national economy, high gasoline prices and supply chain disruptions from Japan. Although the forecast continues to indicate improvement this biennium, the near-term economic outlook has weakened since June. Given economic conditions, as well as the uncertain impact on states of pending federal budget reductions, there is a distinct possibility we will face further revenue losses in the coming year.  Therefore, the governor is asking agencies to prepare for possible cutbacks by submitting 5 percent first-priority reductions and a second 5 percent for a total of 10 percent in GF-S reduction options as part of their 2012 supplemental budget requests.

“I recognize this is a daunting task, especially considering how little time has passed since enactment of the current 2011-13 budget.  Although challenging, we are not starting this analysis from scratch.  Agencies should revisit the essential services assessments that were compiled last year, as well as the budget reductions included in the Governor’s 2011-13 budget proposal but not enacted by the Legislature.  Of course, we also need to consider new or additional policy choices and structural or business process changes that allow us to further improve our efficiencies and reduce our GF-S expenditures.”

Your support matters.

Public service journalism is important today as ever. If you get something from our coverage, please consider making a donation to support our work. Thanks for reading our stuff.