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Editorial: State budget fixes should be long-term solutions

Sat., Jan. 16, 2010

First, the good news. Arun Raha, Washington state’s economic and revenue forecaster, reported the other day that tax receipts for October and November were $51.8 million more than expected.

Could this be the non-lagging indicator we’ve been looking for? Is real economic recovery about to appear?

Maybe, but it doesn’t begin to solve the immediate problem, a $2.6 billion revenue pothole that the Legislature must patch to get through the remaining 15 months of the 2009-11 biennium. How that’s done will have a major impact on how solid a recovery we can expect.

If lawmakers decide to rely mostly on increasing taxes, the long-term consequences could cause the recovery to sputter under a combination of curtailed spending and hiring.

As Gov. Chris Gregoire put it, “Jobs are the way out of this recession.” Commendably, she has proposed a package of tax incentives designed to spur hiring.

However, she and the Legislature need to be thinking about how they cannot just revive the economy but reinvigorate it. That will require a serious look at reforming the industrial insurance and unemployment compensation programs that discourage hiring.

The governor and lawmakers should also reopen contract talks with state employee unions as a possible way to achieve savings while sustaining service levels.

No one can dispute that the state faces severe difficulties. This year’s revenue shortfall comes on the heels of a $9 billion gap last year. In the existing-revenues budget required by law, the governor used $1 billion of the Rainy Day Fund and $1.6 billion in spending cuts to produce a package she called unacceptable. Once the Legislature convened she offered a revised plan that restored half the cuts and left the door open for revenue hikes.

The remaining cuts are real and would be felt by fragile populations, victims of a crushing economy. The governor wisely vowed, however, to do everything she could “to avoid any new taxes that slow our economic recovery.”

In the Legislature, however, talk turned right away to repealing or amending Initiative 960, the voter-passed measure that requires tax increases to get two-thirds approval in both House and Senate. Not that 960 is good law, but the Legislature’s urgency to overcome it at this time in these circumstances signals too much enthusiasm for tax increases as the favored solution.

Some selective tax measures may be inevitable this year, but they need to be accompanied by structural reforms to promote an economy that can sustain both jobs and revenues for years to come.