OLYMPIA – Facing an unprecedented budget shortfall, Washington officials are scrambling to shave billions of dollars in state spending.
That likely means layoffs and deep cuts in state programs.
“We are not immune to these immense headwinds that are buffeting the economic landscape,” said Arun Raha, the state’s chief revenue forecaster.
Raha on Wednesday predicted that state revenues will be $5.1 billion less than expected over the next 2 ½ years. That’s $1.9 billion worse than expected just two months ago.
The state budget helps pay for schools, prisons, colleges, medical coverage for the poor and hundreds of other things. Gov. Chris Gregoire must propose a two-year state budget in a few weeks.
“I think this has not hit home with people,” said Sen. Margarita Prentice, chairwoman of the Senate’s budget-writing committee. “The cuts that we’re going to have to make are going to be awful.”
Gregoire in August ordered a hiring freeze, cuts to out-of-state travel and delays in state equipment purchases. She has since called for deeper cuts at state agencies, for a total expected savings of $330 million by next summer.
Clearly, much deeper cuts likely lie ahead. Lawmakers and state officials are also saying that layoffs look likely, although they’re not sure how many.
“I don’t think you can cut state government without cutting jobs,” said Senate Majority Leader Lisa Brown, D-Spokane. “It’s not like we purchase a lot of things. We mostly purchase services.”
At prisons, colleges, state offices and Eastern State Hospital, there are nearly 10,000 state-paid employees in Eastern Washington. About a third of those work at community colleges and two state universities. Thousands more home health aides, child care workers and other workers in the region are paid largely through state programs.
“Our members are on edge, just because of the uncertainty,” said Tim Welch, spokesman for the Washington Federation of State Employees, which represents 40,000 workers. “There really is a fear that the Legislature will try to take a meat-ax approach.”
Reversal of fortune
The budget shortfall is a dramatic turnaround. In recent years, the state treasury collected hundreds of millions of dollars more than expected, largely in real estate taxes. Over the past four years, state budgets grew more than 30 percent, with Gregoire and Democratic lawmakers launching initiatives in education, health care and programs to help struggling families.
Some of those hopes are now on hold. Gregoire last month halted a multimillion-dollar project that would have issued $250-a-week checks to parents who stay home from work for up to five weeks to bond with new children. She’s also delayed plans for a new state tax refund to low-income families.
“Lawmakers made promises that they are finding that they can’t keep,” said Paul Guppy, research director with the conservative Washington Policy Center. “The bright spot is that this will give Olympia something it hasn’t had in a number of years: a seriousness about how it spends people’s money.”
Guppy noted that the state is still expected to collect more money over the next two years than the amount in the current two-year budget. It just won’t be as much as originally expected. Republicans on Wednesday argued that overspending, not the economy, is the problem.
“No one can say they didn’t know a huge deficit was coming, because the warning signs have been up for at least the past year, when revenues began to drop,” said Sen. Joe Zarelli, R-Ridgefield.
“This is now the largest dollar deficit in the 119-year history of the state of Washington, and all of it created during Gov. Gregoire’s first term in office,” said a statement from state GOP Chairman Luke Esser.
Majority Democrats say they’re focused on trying to cut responsibly, without worsening things.
“There will be folks out there saying, ‘I told you so,’ ” Brown said. “But I don’t think they can say with a straight face that they would have had the pre-existing budget reduced by $4 (billion) to $5 billion.”
Sen. Craig Pridemore, D-Vancouver, said lawmakers are also hoping for a national stimulus plan, they hope by the end of the year, to give the state’s economy a boost.
Much of the decrease in expected revenue, Raha said, comes from sales and use taxes. With jobs uncertain, home values declining and a plummeting stock market, he said, it’s clear consumers have decided “to just sit on their wallets.”
“The problem is not employment or personal income,” Raha said in an interview. “The real problem is consumer confidence and access to credit.”
Less spending means less sales tax, on which Washington relies heavily. But Raha also had some good news. Washington has lagged the nation in entering this recession, he said, and is also likely to recover faster. The housing bubble has not been nearly as bad in Washington as in other parts of the country.
Also, the job decline in Washington is likely to be half the national rate. Raha predicts about 34,000 lost jobs from last spring to next spring, mostly in construction and manufacturing.
Asked when the economy is likely to bottom out, Raha said this quarter is probably the weakest. But because employment tends to lag a recovery, he said the state is not likely to see robust growth in personal income until 2011.
Taxes vs. cuts
During her re-election campaign, Gregoire repeatedly said she wouldn’t increase taxes during a weak economy. Republicans are urging her to stick to that pledge. But others, like the liberal Washington State Budget and Policy Center, argue that deep cuts to state services amid a recession would be worse than modest tax increases.
“If $5 billion is cut from the budget, it would undermine the state’s ability to ensure economic security for all,” the private think tank said in a statement Wednesday.
Brown said lawmakers will “absolutely” scrutinize current tax breaks to see if some could be repealed or changed. She also pointed out that Gregoire made her pledge when the expected budget shortfall was much smaller.
“Massive cuts in health care, human services and education are not going to help people struggling in this economy,” Brown said.