Article by Erik Smith. Published on Friday, February 10, 2012 EST.

House Leaders Eyeing Bonds, With Support From State Labor Council – Could Eliminate Need for Public Tax Vote, Reduce Leverage for Reforms

House Majority Leader Pat Sullivan speaks Thursday in Olympia at the state Labor Council’s Committee on Political Endorsements convention. To his right are state Sen. Jeanne Kohl-Welles, D-Seattle and Labor Council president Jeff Johnson.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Feb. 10.—House Democrats are thinking of borrowing against the future to help plug the big $1.5 billion hole in the state budget, a scheme that could eliminate the need for the Legislature’s much-talked-about plan to go the voters for a tax increase.

            By bonding against some of the state’s big revenue streams – perhaps tobacco-settlement money and lottery revenue – majority Democrats could raise just as much cash as the governor’s half-billion-dollar proposal for a half-cent increase in the sales tax. Perhaps even more. And not only would they avoid a dicey public vote on a tax increase that might well fail, the plan also could blow all talk of big reforms this session out of the water.

            Critics are aghast. They say it’s a bit like paying the grocery bill with a credit card. Eventually the bill comes due, and if the state can’t afford it now, it’s going to be even harder paying it later. Meanwhile minority Republicans would have little leverage – the thinking is that these bonds would require only a simple majority vote.

            The put-it-on-plastic solution has been rumored for days now in the hallways of the statehouse, but it went public Thursday morning when it became a leading topic of discussion at the state Labor Council’s political-endorsement convention in Olympia. Labor Council leaders said revenue bonds might be the best way to get the state over the hump, and they will be asking lawmakers to say yes.

            “Ordinarily it is not the sort of thing we would be particularly in favor of, but given the depth and the magnitude of the crisis that we are having now, our folks, and I don’t just mean labor folks, are hurting,” said Labor Council president Jeff Johnson.

            House Majority Leader Pat Sullivan, D-Covington, appeared to endorse the idea in his remarks to the union delegates. “In the short term, revenue bonds are part of the [solution] to get us through this crisis right now, but we need progressive revenue options for the future to make sure we are not faced with the same situation in future years,” he said.

            A Big About-Face

            The idea upends just about everything lawmakers have been contemplating this session. Since November the gameplan has been to craft some sort of tax plan for voter approval, perhaps sending it to the ballot as soon as the April election. That eventual revenue package has dominated all the dickering and dealmaking at the statehouse so far this year, giving Republicans and moderate Democrats the ability to demand big reforms in state-government policies. Their goal has been to make state government more sustainable without forcing big tax increases in the future – but it means goring some of the most sacred cows at the statehouse, including pension and health-benefits policies for unionized state employees.

            By borrowing their way out, House Democrats could shortcut that painful debate before it even gets started. They have a wide enough margin in the state House to easily pass a bill with a simple majority vote. The Senate might be more of a problem, where the moderate faction of “Roadkill Caucus” Democrats may have enough votes to block the idea. But it could turn the session’s endgame into a massive clash between House and Senate.

            For now, consider it talk, Sullivan said in an interview following his address. “There is no proposal right now,” he said. “There is just a lot of discussion about how we can move the state forward without the kind of cuts that would devastate programs, particularly when you look at the Basic Health Plan and critical-access hospitals, the kinds of things that would decimate whole communities, not only urban communities but rural communities.

            “Again, there is no proposal that has been offered. But there are lots of ideas, I can tell you that right now.”

            State Has Done it Before

            It’s actually the second big-debt idea to surface this session. Lawmakers are considering a billion-dollar construction plan that also would use revenue bonds. This idea wouldn’t conflict, because the bulk of the construction debt would be issued against other sources of money, the state Public Works Trust Fund and the Model Toxics Control Act account. The capacity of the latter account to finance debt is sharply limited by a lawsuit filed by a service-station trade association challenging the use of some of its receipts on constitutional grounds.

            It also was not immediately clear how the plan would get around a constitutional requirement for a 60 percent vote of the House and Senate before bonds may be issued. Ordinarily that 60 percent requirement would give Republicans some say in the decision.

            But history shows how lawmakers might get around it. Ten years ago, in the midst of another budget crisis, lawmakers “securitized” 29 percent of the state’s $4.5 billion settlement with big tobacco companies. Washington was among 46 states that settled claims against tobacco manufacturers in 1998 for a whopping $206 billion. The highly controversial budget-balancing deal gave the state a half-billion-dollar lump-sum settlement up front, but it sold the revenue stream for about 36 cents on the dollar.

            Though bonds were issued to implement that idea, they weren’t quite the same thing as traditional revenue bonds and the securitization wasn’t quite the same thing as traditional debt – even though the effect was the same. The most important distinction is that the Legislature didn’t authorize the issuance of the bonds directly – instead the duty was left to a separate state agency, the state Tobacco Settlement Authority. And so it required only a simple majority vote of the House and Senate.

            Faces Opposition

            There’s plenty more tobacco-settlement money the state could tie up in a new bonding or securitization scheme. Lottery revenue offers even more. The construction proposal already gets some of its money from that source – by issuing revenue bonds against just eight percent of the revenue stream, it raises about $100 million.

Senate Majority Leader Lisa Brown, who shepherded the securitization plan through the Legislature 10 years ago as chairwoman of the Senate Ways and Means Committee, is a bit cooler to encumbering the remaining tobacco money this time around. “I think that’s where the House may be, but I’m not sure that’s where the Senate is headed,” she said. “We’re trying to look at sustainability questions.”

            And House Ways and Means chair Ross Hunter, D-Medina, who has called bonding for the operating budget a bad idea in the past, isn’t saying a word this time. As for any talk of a specific plan, he said, “There is a rumor about everything in the world going on here, and in fact every idea in the world that has ever been invented is being drafted into a bill by somebody in this vast pile of marble. It doesn’t mean they are going to go anywhere.”

            Must Have Done Polling

            Republicans, meanwhile, have been saying all along that the budget can be balanced without new taxes – it just takes a bit of steel. And they say borrowing against tomorrow is as irresponsible as can be. The more money the state ties up now, the less money there will be for future Legislatures, they say, and all talk of putting the state on a sustainable path this year goes out the window. “If this is their approach to balancing the budget, I don’t think it is a very responsible one,” said Gary Alexander, R-Olympia, the House Republican point-man on the budget.

            Said House Minority Leader Richard DeBolt, R-Chehalis, “You’re taking money away from people who need services in the future to bond your incompetency today.”

            And state Joe Zarelli, R-Ridgefield, Alexander’s counterpart in the Senate, reflected the wide speculation at the statehouse that internal polling may have something to do with the new approach. “What I’ve heard is that they’ve been doing a lot of polling on what taxes will work, and the only thing on which they can get any kind of response that’s 50 percent or better was the sales tax. But that starts at about a 53 percent yes-vote, and that’s not a good place to start a campaign from.

“So I think they’re beginning to see the light – that there is no value in sending something out to the public. So they are just trying to find just another way to get through today and deal with it tomorrow.”

For his part, Johnson acknowledged that the Labor Council has been polling voters on the tax question, but added, “I am not at liberty to say what the results were or our analysis of those polls at this time.”

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