House Ways and Means Chairman Ross Hunter and state Rep. Jeannie Darneille announce the House Democratic budget proposal Tuesday.

OLYMPIA, Feb. 21.—House Democrats announced their new budget strategy Tuesday, and it’s starting to look quite a bit like an old one – a budget gimmick known as the “25th month” that makes old-timers shudder in horror.

To get themselves out of a billion-dollar budget hole, House Democrats are proposing a spending plan that would shunt some $405 million in expenditures to the next budget, in 2013-15. That seems to end all talk of going to voters for a sales tax increase this spring, which until now has been the leading gameplan under consideration by the Legislature.

But the new borrowing plan basically means that the Legislature next year would have $405 million less to spend – and if times are as tight next year as they are today, the 2013 Legislature might have to do the same thing again.

And there’s plenty of reason to think it could happen. Lawmakers did the same thing last year, too. To pay back the last loan, the House budget plan would take out another one – and borrowing would quadruple. In a back-door way, the House budget plan is starting to mirror the notorious ’70s-vintage budget-balancing strategy that brought the state to the brink of default, forced the state to seek bridge loans from Wall Street, and took a full 16 years to wipe off the books.

The strategy, known as the “25th month,” is sort of a payday loan that only lawmakers can sign for, requiring future Legislatures to pay back the money at the same time that they are scrambling to meet current expenses. If they don’t have the money, they have to do it again, and again, and again. That’s what happened the last time. It should be noted that the House Democrats’ plan doesn’t go quite as far as the gimmick that got the state in hot water back in 1971. It generates about a third of the amount that would be generated by a full-bore 25th-month strategy.

Yet lawmakers certainly seem to be heading in that direction. Already they have approved one bill that borrows from the next budget to make the current one whole, delaying a $49 million payment to school districts for school bus depreciation. Now the House plan brings total borrowing to $454 million.

And it points to an emerging pattern. Projections indicate the state will be in deep trouble next year as well, perhaps running $2 billion short, raising the prospect that lawmakers would not only have to borrow again to cover the new loan but get in even deeper. For now, however, House Ways and Means Chairman Ross Hunter says it seems the best way to balance the state’s recession-battered budget without making deep cuts in state programs. “We thought it was a better set of choices than other choices,” he said.

Added state Rep. Jeannie Darneille, D-Tacoma, “It doesn’t hurt anybody.”

Tactic is at Core of Spending Plan

The Senate is expected to release a budget proposal of its own next week, and because minority Republicans are at the table it likely will look substantially different. Republicans have traditionally taken a dim view of such borrowing strategies. And it could set up a battle over the amount that lawmakers leave in reserve – House Democrats would leave unspent about a half-billion dollars in projected revenue, to provide a cushion against emergencies.

The budget proposal released they released Tuesday relies heavily on the deferred expenses. Lawmakers are scrambling to rewrite the $32 billion budget for 2011-13 that they passed last year, when economic recovery seemed just around the corner. Turned out they were basing it on overly optimistic tax-revenue forecasts. Later forecasts showed the state’s estimates were about $1.8 billion off.

It is difficult to describe the scope of the current problem with precision, because lawmakers closed part of the gap during their December special session, new forecasts have given them more money to play with, and everything depends on how they leave in the bank. But in round numbers, most lawmakers describe the problem in the billion-dollar range.

That means that the House plan solves about 40 percent of the remaining problem by shunting some of the state’s expenses to the next biennium, rather than by making cuts.

The House does it by delaying payments that are supposed to be made to school districts toward the end of the current budget period. Some “apportionment” payments to school districts are delayed from June 2013 to July 2013, which places them in the next budget period. Likewise, levy equalization payments for May and June 2013 also would be delayed.

That amounts to $405 million. Add to that the school-bus depreciation bill that has already been signed into law and the total comes to $454 million.
Lawmakers did the same thing in the last budget, shunting about $115 million in school-district payments from 2009-11 to 2011-13. So all told the borrowing under the House plan increases 394 percent.

Better Than Alternative

At a news conference Tuesday, Hunter said the tactic is necessary in order to stave off big cuts and leave an adequate reserve.

“Would I prefer not to do that? Absolutely. But I prefer it over the other set of choices that we are presented with, which otherwise we would have done. Would you completely eliminate large swaths of your safety net and think that actually results in a healthier state, rather than shifting the date of a payment by three or four days? I think we are okay. I think it is the right set of choices.”

Overall, House Democrats would cut about a half-billion dollars from existing state programs – substantially less than the other proposals that have been seen so far.

Unlike the budget proposed by Gov. Christine Gregoire last year, the House Democratic budget preserves the Basic Health Plan, the state’s subsidized health-insurance program for the working poor, and the “Disability Lifeline,” which provides medical assistance and housing vouchers for disabled adults. It rejects another Gregoire proposal for early prisoner release.

And unlike a budget plan released by House Republicans last week, requiring that state employees take 24 unpaid furlough days, this one leaves state-employee compensation intact. Also left intact is the Puget Sound Partnership, the Puget-Sound cleanup agency for which the Republicans had proposed eliminating state funding.

The House plan also would give local governments the ability to raise taxes on their own, with up to a tenth-of-a-cent sales tax increase in the state’s seven largest counties, and two-tenths of a cent elsewhere. The taxes could be imposed by city councils and county commissioners, without a vote of the people.

A Notorious Strategy

The House plan recalls the way lawmakers dealt with a similar budget crisis some 41 years ago, back when Republican Dan Evans was governor.

To prevent huge cuts during the “Boeing Bust,” lawmakers essentially rewrote the calendar and added the revenue from July 1973 to the 1971-73 budget period, which ended on June 30. The 25th-month strategy worked in the short term, but when it came time to write the next budget, lawmakers had to cover 24 months with only 23 months of revenue.

So they borrowed from the future again, and again, and again, to the detriment of the state’s bond rating. While lawmakers said repeatedly that fixing the problem was a top priority, pressing needs kept prompting them to push it off to the future. And when the economy tanked again in 1981, the state found itself in a massive cash-flow problem, and was required to borrow to make ends meet. The same happened again in 1983. It wasn’t until the economy was going gangbusters in 1987 that lawmakers made the final payment to end a problem that had been created 16 years before. At the time, they vowed never again.

By doing the same thing to the tune of $400 million in this budget, lawmakers would be creeping toward the same level. Based on projections released last week by the state Economic and Revenue Forecast Council, the state expects to get $1.35 billion each month during the 2013-15 budget period. So if the school-bus payment is added to the House plan, that represents precisely 33.6 percent of a full 25th month.

The idea drives more fiscally-conservative Republicans crazy. Gary Alexander, House Republican point-man on the budget, said Democrats are venturing into the realm of irresponsibility to save the Basic Health Plan and the Disability Lifeline, “two programs [that] simply no longer fit into the long-term future of our state.

“Frankly, with all due respect to the House Ways and Means chairman, this budget kicks two cans down the road. One, it shifts education apportionment payments into the next biennium, making it the responsibility of future legislatures to deal with. And two, it makes severe reductions to local governments, but then allows local governments to buy back those cuts.

“It looks a little like they are trying to do an end-run around the two-thirds vote requirement for raising taxes at the state level.”

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