October 1, 2009 in City

Ruling hits state budget

Lost tax lawsuit leaves legislators with another financial issue to fix
By The Spokesman-Review
 

OLYMPIA – More bad news for the state budget: A lawsuit the state lost recently over a portion of the business and occupation tax could cut another $237 million out of revenues.

Victor Moore, director of the state Office of Financial Management, told state legislators gathered for a series of committee hearings Wednesday that’s the possible price tag of a state Supreme Court ruling that could require a $100 million refund to certain out-of-state companies that sell products in Washington through representatives in the state, and drop yearly collections by $137 million.

“We were surprised by the ruling,” Moore told reporters after the hearing. “We thought we were doing it the right way.”

Trying to fix a problem with the law, which led to the high court overturning lower court rulings that were in favor of the state, will be just one budget-related task for the Legislature when it convenes for a 60-day session in January.

The Legislature also faces declining revenue projections, which are now about $925 million less than when the 2009-11 budget was adopted in April.

It faces about $225 million more than expected in costs for Medicaid, a combination of new cases and increased use of the program.

The Legislature may be required to add hundreds of millions of dollars to state pension funds to keep them sound.

And there are other lawsuits in the courts challenging reductions to state services.

After a drop in revenue forecasts last June, Gov. Chris Gregoire ordered state agencies to make more cuts, including employee reductions and a cap on hiring.

There are limits on how much more can be cut from state schools and colleges without falling below federal regulations, Moore said.

Some legislators questioned whether the agencies have gone too far, cutting programs that have been authorized and funded.

“The decision whether that program is going to be cut is up to the Legislature,” Rep. Phyllis Kenney, D-Seattle, said.

Rep. Jeannie Darneille, D-Tacoma, said legislators can’t see the decisions that are being made: “We’d like to know what we’re coming back in January to do.”

Moore assured members of the House Ways and Means Committee they’d have to make decisions on what programs should be abandoned, arguing some of the programs are being watered down into “thin soup” by budget cuts.

“Program reductions need to be part of the discussions. You folks are going to be dealing with it,” he said.

He said he has no directions from Gregoire to study possible tax increases to forestall those cuts.

“I’m going to put together a budget that is all savings or reductions,” Moore told reporters after the hearing. That has to be completed before there’s any discussion of a tax increase.

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