2017-19 State Budget

By Jason Mercier
Jul 8, 2017

After getting over the initial shock of nearly 1,000 pages of spending, taxes and education policy being released and acted on without any measure of transparency or time for public comment, I finally have had a chance to review the 2017-19 budget deal. Combined with yesterday’s shocking actions and statement by the Governor after vetoing a B&O tax cut, I’m sure many Washingtonians share Lando Calrissian’s frustration: “This deal is getting worse all the time.”

Before getting into an overview of the 2017-19 budget deal, let's recap the moment yesterday when relationships in Olympia went from Cold War to full out nuclear. There are many working parts of the 2017-19 budget deal: the spending policies, K-12 policy changes, tax increases and tax cuts. Included in these details are things that all lawmakers liked and hated but they combined to make the budget deal that avoided a government shutdown. When it came time to sign these various measures into law, however, the Governor decided to veto just one: the B&O tax cut.
Does this mean the Governor broke the budget deal?

The Governor says he wasn’t part of the final budget talks and thus wasn’t party to the deal reached (which brings up the question: with a shutdown looming, why wasn’t he part of the budget talks?). Republicans in the Legislature, however, believe the Governor broke the budget deal and going forward his action "makes future negotiations virtually impossible." There has already been comment that the legislature may try to override the veto.

While yesterday’s developments were stunning, it isn’t the first time the parties have had trouble executing an agreed to budget deal. In 2015 there was another breakdown when some in the Senate initially refused to vote to suspend I-1351 as assumed in the budget deal creating a $2 billion deficit in the newly adopted budget.

Among the reasons the Governor said he vetoed the B&O tax cut portion of the budget deal was due to the lack of transparency and time for public comment. This is a very legitimate concern but it also applies to all other parts of the budget deal (spending plan, McCleary plan, McCleary tax & new sales taxes). If a veto was to be issued for this reason, it should have applied to all parts of the deal – not just the B&O tax cut. This is why we believed the legislature should have adopted a temporary budget after the deal was reached to provide lawmakers, the press and the public adequate time to review the details and comment before it became law.

While the repercussions of this veto continue to reverberate, let’s take a moment to look at a high level overview of the budget deal.

On the bright side lawmakers rejected efforts to set up a constitutional income tax fight by not acting on the capital gains income tax proposal. Lawmakers also made historic investments in K-12 education (though important policy reforms are missing). From there, however, the rest of the budget balance sheet has serious dark clouds for taxpayers to worry about.

First the budget spends at twice the rate of the current revenue growth. In fact, combined with the 2015-17 budget, the 2017-19 budget will have increased spending by 29% (nearly $10 billion) since 2013-15. Then there are more than $2 billion in tax increases, more than $300 million in fund transfers from dedicated accounts, and a very curious decision to use more than $1 billion in savings to make the state’s pension payments.

Concerning that pension funding decision, the State Treasurer’s Office provided this comment:
“Using one-time revenue for an annually recurring expense is concerning. In the coming days there might still be ‘back of the budget’ explanations that will help put this transfer in better context.”

Among those expressing concern about the use of dedicated accounts for other purposes was the State Auditor’s Office. Here is their comment concerning the continue raids of the I-900 performance audit funds:
“We appreciate that the Legislature sees the value in performance auditing, but remain concerned with the extensive transfers for items that aren’t related to the fund’s intended purpose.”

There is also the very real threat that the revenue assumed from the online sales tax will not materialize due to lawsuits. This will put even more pressure on a fragile balance sheet.

The one thing that everyone can agree on is the way the budget deal was brought to the floor and voted on in a span of 24 hours was totally unacceptable and should never happen again.

As noted by Sen. Carlyle in this committee speech:

“The fine print matters, and I don’t think any of us knows what is truly in this, and I am just deeply unsettled . . . The implications for 7 million people are too serious and too profound to pretend that this is just the normal operation of government. It is not. This is outside the bounds of acceptability, and I think we owe the people of this state an apology.”

Sen. Fain agreed that the lack of transparency was “inexcusable,” saying:
“The process of waiting to the last minute to craft a compromise and the inexcusable lack of transparency in the final days of the session is something both Republicans and Democrats should agree flatly stinks.”

Already one major reform has been introduced to avoid this type of secrecy going forward. Sen. Palumbo has prime sponsored a constitutional amendment to provide at least 72 hours for public review before a final vote by lawmakers on a bill. Explaining the reason for the proposal Sen. Palumbo said in a press release:
“This year’s budget process has been a nightmare. With the threat of a government shutdown mere hours away, we produced and passed an operating budget without any public input. Not to mention, most legislators, myself included, were given only a few hours to review the budget – a document that is 620 pages long. This is unacceptable, especially when we are implementing monumental K-12 education reform that will have an impact for generations to come.”

Along with considering this proposal there are several reforms that should be adopted to avoid this type of situation again. They include using something like the Utah base budget process at the beginning of session, acting on legislative transparency reforms as proposed by SB 6560 from 2014, and providing the same type of negotiating transparency to the budget that our state public labor contracts should follow (COIN or Civic Openness in Negotiations).

We’ll have more to say on the various components of the budget deal in the coming weeks. In the meantime let’s hope we don’t experience too much more of this as more is learned about the implications of the 2017-19 budget deal and veto: https://www.youtube.com/watch?v=WpE_xMRiCLE