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Why there won’t be a special session this summer – or at all

Recently, Joe O’Sullivan reported what had been increasingly clear in recent weeks: there will be no special session this summer to address the fiscal shortfall.

I’ve been writing about what I thought was the need for a special session for some time. The earlier the state re-adjusts its tax revenue and tax expenditures to close the deficit, the easier it will be to manage through the downturn, some argue.

However, there is another approach that is also pretty logical. And, it leads to not having a special session this summer – or at all.

In fact, it suggests the legislature won’t have to come back into session until next January. I think this is the logic that’s playing out over the next six months.

Here’s how that logic goes.

First, the size of the shortfall depends on how you count it. There is the revenue shortfall that was recently announced of about $4.5 billion over the rest of the biennial budget.

If you count the projected shortfall in revenue vis-a-vis new expenditures, it gets even larger: about $5.7 billion fewer dollars in than expected dollars out.

Here’s how I explained this

The total two year budget includes new revenue projections totaling $47.8 billion. From the release:

Total Near General Fund revenues are now projected at about $47.8 billion for the current two-year state budget cycle, which began July 1, 2019. The dramatic decline in projected revenues would leave the state with a net $1.4 billion shortfall — including reserves — at the end of biennium.

However, the scope of the shortfall may be worse than those numbers state.

For perspective, the legislature adopted a supplemental budget in the 2020 session of about $53.5 billion. The projected two-year revenues of $47.8 billion creates a shortfall of $5.7 billion over adopted expenditures. This does not account for utilization of reserves, as the OFM statement does. 

Since the two-year shortfall will now need to be made up in one year, since the revenue and expenditures of FY ’20 are now mostly booked, this leaves the estimated $5.7 billion deficit of the two-year budget to be borne mostly in the single year of FY ’21.

That creates a $5.7bn shortfall to be made up from expenditures of about $27 billion, or a single year deficit of around 20% – again, not counting the one-time use of reserves.

However, the state does have reserves. In fact, it has about about $3.5 billion in reserves that it can spend down to meet this $5.7 billion shortfall for the remainder of the fiscal year.

To make up the difference, the governor can hold off on new spending that had otherwise been appropriated, like canceling pay raises for public employees.

By managing those two things – using reserves and tamping down on spending – the state can make it through the need for a special session.

Remember that that fiscal year runs from July to June. So, if we assume linear rates of spending and no off-setting cuts, the state will burn through its reserves in early February, 2021. This is, of course, after the legislature will have started its regular session.

So, one plank of this logic is that the legislature can wait until it gets back to the regular session before it has to pass a supplemental budget to get through FY 21, ending in July.

There are two other key points to this logic.

First, by going back into special session at all, the legislature will be talking about key cuts. Cuts are not politically palatable. And, Republicans would likely try to force votes on a range of issues that have more to do with electioneering than budgeting. It’s been known to happen.

And, since the 2020 election could be a once-in-a-generation “blue wave” for Democrats, why do anything that could undermine that?

It’s reasonable logic, if you believe you have time to address the budget issues in January.

Moreover, the kind of fiscal solutions that Democrats want, ranging from capital gains taxes to corporate payroll taxes, are never easy votes. So, having expanded Democratic majorities in Olympia, as may well be the case following November, makes these votes easier for everyone.

It would also allow Democrats to claim a mandate for those tax increases as a result of the election.

So, if you’re a Democratic legislator, why not hold off on a special session?

You can remove the opportunity to create wedge issues for Republicans, and simply wait until November to increase your partisan position for policy solutions even more. And, given the reserves available, time is arguably on your side.

You don’t have to agree with it, but it’s pretty good logic for not having a special session.

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