OLYMPIA – State agencies will prepare plans to cut their spending by as much as 10 percent as Washington braces for the prospect that the next state economic forecast could be worse than the last one.
Orders were sent Monday to agencies that rely on the state’s general fund to identify what they would cut if their budget was reduced by 5 percent, and what they would cut if it was dropped another 5 percent beyond that.
Marty Brown, director of the Office of Financial Management, said the instructions are indirectly related to the federal debt debate. But the fact they came on a day when the Dow Jones industrial average dropped more than 600 points was a coincidence, he added.
“I wish we were that well-prepared,” Brown said when asked about a link to the stock market plunge.
The downgrading of the nation’s bond rating by a major rating agency over the weekend isn’t connected to the call for possible cuts, and doesn’t directly affect the state’s bond rating of AA+, he added.
The cuts agency officials submit as a result of Monday’s order are advisory, Brown said. Gov. Chris Gregoire doesn’t have the legal authority to make them unilaterally; they’d have to be part of a supplemental budget approved by the Legislature.
State officials usually receive instructions in July on how to prepare budget requests for the upcoming year as the governor readies a spending plan that’s released in December. This year, however, state finance officials waited to see what would happen in negotiations between Congress and the White House on raising the debt ceiling.
As July passed, there was no certainty a deal would be reached, and if it was, “we didn’t know what they were going to cut,” Brown said. Congress passed and President Barack Obama signed legislation last week to raise the debt ceiling and cut more than $2 trillion from the deficit over the next 10 years.
The state’s June economic forecast was for slow growth for much of this year but getting stronger late in the 2011-’13 biennium, with an expectation that car sales and home construction would improve. The state was projected to have a slight cushion, or surplus, when the biennium ends June 30, 2013.
But the economy continues to struggle and state officials are now preparing for a more pessimistic outlook on Sept. 15 when the next economic forecast is released.
Based on the June forecast, most members of the Economic and Revenue Forecast Council said the Legislature could wait until it returns in January to make any cuts needed in the two-year budget that began on July 1.
If the September revenue forecast is bad, there could be a push for a special session this fall, Brown said, to make cuts sooner and save more money over the course of the biennium.
“After (Sept.) 15th, all bets are off,” Brown said.