Thank you for allowing me to represent you in the Washington State Legislature. It’s an honor and a privilege. This year was pretty “special.” There’s nothing like a little drama to spice up a legislator’s life. This session had it all – defections on budget votes, protesters requiring hearings to be shut down, people being arrested, and a sleep-over to end the session.
This newsletter only addresses operating budget issues. Lots of other interesting things happened or are happening (520 bridge construction, for example) and I will address those in the next document.
The Operating Budget
We left the 2011 regular session with a budget that most neutral observers thought was a pretty reasonable product. It was balanced and had a healthy reserve of over $700 million. The final vote was a bipartisan one, with significant participation from Republican Senate members. Since then we’ve had pretty significant declines in our revenue projections due to the economy and faced about a $2 billion projected shortfall coming in to the December special session.
In that session we solved about $500,000,000 of the problem, leaving about $1.5 billion left to fix in January. We got good news in the forecasts, reducing the problem to about $1 billion, which we addressed in this year’s supplemental budget. Our negotiating process was bi-partisan, as was the final voting pattern.
The budget has no cuts to education. This means early learning, K-12, and higher education were left whole. This is a miracle, and was not accidental. I felt strongly that in light of the Supreme Court decision on school funding we could not in good conscience make reductions here, and as the budget committee chairman my opinion was able to prevail.
We worked very hard to preserve a functioning safety net, including maintaining healthcare for 50,000 people that the governor’s initial proposed budget and the Senate Republican budget eliminated.
The final package included several reforms that will help stabilize the budget in the long run:
- A significant reduction in early retirement pension provisions for new employees, saving $1.3 billion over 25 years. This is on top of almost $10 billion in (25 year) savings implemented in the past few years.
- A new balanced budget requirement for both the current and the subsequent biennium. The important reform here is the new process for producing long-term outlooks with assumptions that will be clear and adopted by the legislature.
- Added transparency in school employee healthcare purchasing. We spend $1.2 billion on this annually and it has been very opaque.
Like any budget chairman I worry all the time. Did we leave enough ending fund balance? Will the economy recover, or will Europe repeat the great depression, dragging us down with them? Did we not understand some big driver in our caseloads that all of a sudden turns around? Despite my worrying, we made a good set of decisions and the budget is much better than I would have expected in the fall.
As part of our efforts to resolve the budget difficulties we made significant long-term changes in how the state operates.
- In the past decade state population has increased by over a million people, resulting in a new congressional seat, so we are growing faster than other states, but the number of general government state employees per state resident has declined 13.4% over the past decade, and that’s before over a thousand FTEs were eliminated in this budget.
- Last year we adopted a process to regularly consider outsourcing of various functions, mostly administrative. The state printer comes up all the time – we’ll be taking a serious look at it this year.
- Over $11 billion in 25-year savings in the pension system made in the past several years. As a result of these changes and responsible actuarial work we have one of the top (#3) funded pension systems in the country.
- Repeal Initiative 728. Our re-write of the basic education funding model makes better use of the money than the original initiative did and leaving it in place resulted in double-counting in future biennia. This was painful to me personally, but we will make better use of the money in “basic education,” and the school community agrees.
The budget we adopted meets the “balanced” test in the new balanced budget requirement, both in this biennium and in the next. However, there are some deep structural concerns about our revenue structure.
- Revenue as a percent of the economy has declined significantly over the last few years.
- We are paying the lowest state tax rate since 1962 when we started keeping comparable records.
- We are back to the same per-capita general fund spending adjusted for inflation as we had in 1986. Most of our medical costs have increased much faster than inflation in that time.
Our long-term expenditure model has some serious concerns as well, concerns that will have to be addressed in the next few years.
- In the McCleary decision, a unanimous supreme court held that we were not meeting our constitutional requirement to adequately fund our education system. Between now and 2018 we will need to come up with around $1.5 – $2 billion per year in new money to meet this requirement. This is equivalent to 1.5 to 2 additional points on the sales tax, or some other solution.
- Our population is aging rapidly, and the number of people eligible for Medicaid funded long-term care is exploding. We need to come up with a funding model that works – what we have today does not.
- Many people in my district are deeply concerned about our flagging investment in higher education.
- Our children must have the ability to compete in the economy of the 21st century, an economy with a huge premium on higher education.
- Our economy needs talented, educated workers to make it go. We are no longer a timber and agricultural state – only 2% of the state’s economy is driven by the entire agriculture sector but 8% comes from Microsoft alone, and another 4% from Boeing.
- We’re under federal court supervision for our lack of support for the foster care system. The outcomes here are terrible – only 3% of our foster kids complete college. We can (and should) do better.
There is some good news though – the federal Affordable Care Act will, we think, wind up about neutral on the state’s cost structure, but result in over 700,000 new people being insured. We don’t know how to model the impact this will have on the private healthcare system, but it’s hard to imagine that there won’t be less uncompensated care in emergency rooms and hospitals – this will result in significant savings to both the state and private hospitals and insurers, and consequently to all of you.
What’s Next on Budget?
In the final budget negotiations my Republican Senate negotiating partners didn’t ask for additional cuts (other than a symbolic cut to family planning funds that we didn’t do;) they asked for a handful of buy-backs that their members needed. There’s not much more room in the human services budget for additional structural reductions.
We are going to have to make some substantive changes in what we do, in how we raise revenue, and how we run the state. To keep Washington a great place to live we need to have a strong economy, but also a strong education system, a clean and safe environment so high-tech workers want to live here, and a functioning safety net. These decisions will be made in a tumultuous political environment that requires cooperation and negotiation.
I look forward to the discussion.
I love to hear from you about your issues, suggestions, or concerns. We can solve a lot of problems for people, direct you to resources, etc. During the time between legislative session my assistant Marilyn Pedersen and I have an office in Bellevue and it’s best to contact us there.
312 John L. O’Brien building
Olympia, WA 98504
Phone: (360) 786-7936
16011 – 116th Ave NE Suite 206
Bellevue, WA 98009
Phone: (425) 453-3064
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