State grapples with $2 billion projected budget shortfall

OLYMPIA – Wednesday was filled with so many economic numbers for state government that Washington’s legislative leaders had to overwork a metaphor about toothpaste to debate how to deal with some of them.

Legislators got estimates on how much money they’ll have available for the next two years. It’s more than they thought when they adjourned in March because more workers are on the job and people are spending a bit more, which means sales tax collections are up. Business tax collections also are up and real estate sales are stronger, particularly in metropolitan Seattle.

Legislators also got estimates of how much more the state salaries and programs will cost over the next two years. A court mandate to spend more to improve public schools hangs over their heads, and voters just told them to do even more by shrinking the number of kids per classroom. Proposed contracts with state employees would provide those workers with their first cost-of-living raise in seven years.

Left alone, the differences between money coming in and projected expenses would create a budget “hole” of about $2 billion. But the state can’t run a deficit, so legislators can’t leave it alone. They’ll have to cut costs or bring in more money by raising taxes and fees. Or both.

How to fill the hole prompted a colloquy between the House and Senate budget leaders over toothpaste tubes.

Sen. Andy Hill, R-Redmond, the Senate budget leader, said he would hold off on discussing tax increases as long as possible. “I’m the kind of guy who, with toothpaste, I squeeze the tube as empty as I can and then I cut it open and scrape out the rest, then I buy a new tube.”

Rep. Ross Hunter, D-Medina, the House budget leader, doesn’t see a solution without some new revenue, even if that’s not the first thing legislators look at. “I think we’ve squeezed the tube pretty dry,” he said.

That prompted Hill to say he’s heard that before: “There’s other ways we can get more toothpaste out. For the last four years I’ve heard that tube of toothpaste has been squeezed all it could be squeezed.”

The economy overall is slowly recovering from the recession, state economist Steve Lerch told the Economic and Revenue Forecast Council. Lower oil and gasoline prices are helping slightly, but higher food prices are costing the average family more than it’s saving on gas.

Employment and housing construction is expected to grow steadily through 2019.

For the first time since September 2012, the state’s unemployment rate of 6 percent in October was higher than the national unemployment rate for that same period. That’s not a big concern, state labor economist Paul Turek said, because the state added about 5,600 jobs in October, which wasn’t quite enough to keep up with the rise in people entering or returning to the job market. Overall the state and national jobless rates are tracking pretty steadily downward.

Next year the Legislature will set a state budget for the 2015-17 fiscal cycle based on projections of what the state will take in and what it will have to pay out. The slow economic recovery means the state can expect to take in about $36.9 billion for the 2015-17 cycle, compared to about $34 billion for the 2013-15 cycle that ends June 30.

The state also is expected to have about 11,000 more students in public schools by 2015 and 36,500 more Medicaid recipients. It also expects to have more children in foster care and more criminals under community supervision. Contracts with the state employees unions would cost about $500 million if both union and non-union workers got cost-of-living raises for the first time in seven years.

Court-mandated improvements to the public school system could add $2 billion to the budget, depending on what the Legislature approves and when it decides to phase them in. Initiative 1351, which voters approved this month to reduce the number of students per classroom, could cost another $1.9 billion for extra teachers and staff.

Hunter said it would be a “significant problem” to come up with the money for I-1351 plus the other expenses the state faces. He doesn’t think the Legislature will do that solely with budget cuts or solely with tax increases, but, he said, “I don’t see a solution that doesn’t involve new revenues.”

The Legislature could try to delay or cancel I-1351, he said, but that would require a difficult-to-obtain two-thirds majority in both houses.

“It’s hard to get two-thirds of the Legislature to agree on when we should take a lunch break,” Hunter said.