The legislative session is halfway over and the discussion over what to do about the unprecedented deficit is not much further along than when the session started. Lawmakers have been waiting to hear the final shoe drop on the budget deficit, and today it did.
Earlier this morning, the Economic and Revenue Forecast Council released the official revenue forecast upon which budgeting decisions will be made. It includes an additional reduction in revenue of $553 million for fiscal years 2009 through 2011. Now that we have this number, the caseload forecast, and more clarity on the federal stimulus package, policymakers should have the information they need to write a budget.
That budget will most certainly include deep cuts in public programs and services. Hopefully the budget process will provide a basis for a broader public discussion about the importance of those investments and the need to have an open conversation about revenue.
One of the most striking things about the forecast released today is that the ERFC now expects general fund revenue to remain flat from 2007-09 to 2009-11. This means we will have more children to educate, more elderly to care for, and more unemployed families in need of health insurance, but no additional money to pay for that growth.
We can change that outcome by considering other ways to increase revenue. Thirty Washingtonian economists and public policy experts signed a letter last month agreeing that revenue options should be on the table. "Implementing deep cuts in government spending and declining to raise revenue through tax increases is not an effective strategy to guide Washington State out of this recession," the letter said. We have all the information we need. Now it’s time to act.
An updated March forecast from the Economic and Revenue Forecast Council shows further weakening of the economy.
Since the November forecast, the projected unemployment rate for next year has risen from 8.3% to 10%. We have not had an annual unemployment rate that high since 1983.
In addition, the leap from 5.3% in 2008 to 9.2% in 2009 would be the largest one-year leap in unemployment in at least three decades.
The ERFC notes that the downward revision is largely due to lower federal infrastructure funding than was expected, and is somewhat offset by higher funding for Hanford clean-up.
What is the unemployment rate? It's the share of the labor force that are looking for, but unable to find, work. This measure does not include people who have been discouraged from actively seeking work or people who are working part-time because they cannot find fulltime work.
I'd like to take this opportunity to announce that economists Mark Long from UW and Kelly Cullen from Eastern Washington University signed on to our letter to lawmakers to consider all options in addressing the state budget crisis.
He counts 11 non-economists. I'm not sure I'd call that nearly half.
But more importantly, his claim is off-base. He doesn't name names, but he does describe the 11 and he seems to be including people who have degrees in Economics, teach Economics, and have been published in peer reviewed Economics journals. For example, Prof. Melissa Ahern, a well-respected economist at WSU who teaches Economics and has a PhD in Economics, but whose title reflects her specialization in health.
On other matters, we welcome a lively discussion on the merits of the letter.
Today, we'll be in Olympia hand-delivering a letter signed by over twenty economists and public policy experts from across the state that urges the Governor, the Speaker and the Senate Majority Leader to “consider the full range of options, including revenue increases, when deciding how to close the state budget gap.”
We will be meeting with Senate Majority Leader Brown to discuss the serious concerns outlined in the letter regarding the state's growing budget deficit.
This afternoon's preliminary revenue forecast is a wake-up call. It signals the need for a new approach to the economic crisis here in Washington. While the Budget & Policy Center has been calling on policymakers to consider all reasonable options for a long time, this forecast crystallizes the inadequacy of trying to address a budget deficit of this magnitude through cuts alone.
In terms of the state economy, the economists and policy experts note that "reducing government spending will have a more deleterious effect on Washington State's economy than would increasing revenue." In fact, as our Research Director Jeff Chapman notes, severe cuts to public investments in economic security and health would undermine the strong federal response that was just enacted into law on Tuesday.
What is needed now is a thoughtful discussion among policymakers that considers all options.
1. Since the letter was released, six new economists signed on to the letter! The updated letter can be found here.
2. The meeting with Senator Brown went very well.
(From left to right: Jeff Chapman, our Research Director, Peter Dorman from Evergreen, Senator Brown, Ralph Murphy from Evergreen, David Batker from Earth Economics, and me. Two more economists - Dr. Marjolein van der Veen from Bellevue & Shoreline Community Colleges and Alexander Rist from King County - were on the phone.)
For workers with lower and moderate hourly wages, the current recession comes at a precarious time. The losses in income that workers are expected to incur now come on the heels of an insufficient recovery from the last recession in 2001.
The graph below shows the growth in average hourly wages for the lower-earning half of the Washington State workforce. Wages are adjusted for inflation.
There are three very different time periods:
BOOM: Low unemployment and robust job growth translated to strong wage growth in the last half of the 1990s.
BUST: After adjusting for inflation, there was no wage growth among lower and moderate wage workers.
BUSTED BOOM: When job growth started to rebound after the 2001 recession, wage growth improved, but stayed very anemic.
We only have comparable wage data through 2008 at this point, but it’s a safe bet that wages are taking another hit. Looking ahead, not only can workers not afford this recession, they can’t afford another recovery like the last one.
* Data is based on analysis of CPS-ORG microdata, following the methodology used in State of Working America. Want more detail? Let me know.
Last year, the State Legislature passed, but did not fund, the Climate Action and Green Jobs law.
Investing in green jobs is an important part of a strategy to strengthen our economy. Coming out of the recession, we will need a trained and qualified workforce earning living wages and participating fully in the economy. Training those workers for growing targeted industries such as renewable energy is smart for the economy and good for the environment.
The green jobs initiative would include the creation of pilot green industry skills panels to ensure that trained workers will be able to meet the needs of local industry. It also calls for an increase in the opportunity grants program for green industry training to provide tuition assistance and support services for lower income students as well as funding for curriculum development in this sector.
Many of these initiatives would not be new programs. Community colleges across the state already have existing wind, solar, and biofuel programs that could be scaled up. Federal money is expected to help states embrace the green energy movement. State investments in this area could be used to leverage money from the federal stimulus package.
The need for investments in community colleges and training is especially great during a recession. The graph below shows what happened to enrollment in workforce training programs during the last recession - it rose sharply along with the state unemployment rate.
Funding the green jobs bill would not be enough to offset the deep cuts in community colleges in the Governor's 2009-11 budget proposal. These cuts would place limits on enrollment, raise tuition, reduce classes and services and diminish the ability of lower income workers to prepare for and find jobs in the new economy.
Most of the focus around the budget deficit has been on the next biennium (the two-year budget cycle that will begin on July 1). It’s easy to overlook the fact that we have a deficit right now, estimated to be about half a billion dollars.
It's time to stop overlooking the current deficit. Despite the fact that the legislature has not yet passed a supplemental budget to deal with the current deficit, the Governor has already been ordering cuts in spending. And legislative leaders are weighing in. Yesterday, Senate Democrats proposed $105 million in cuts for the current biennium and House Democrats have signaled that they are working on $300 million in cuts.
When the Governor released her budget proposal in December, the documents outlining the supplemental budget were light on details, with most cuts being grouped into very large categories. For example, in the budget for the Department of Social and Health Services, there was a $55 million cut labeled only "Governor-Directed November Reduction."
Additional information is becoming available. Not surprisingly, the details are important. Hiding in the "November Reductions" are numerous cuts like the elimination of funding for Adult Day Health and an increase in child care co-pays for lower income working parents.
A good place to find the details on the Governor's supplemental proposal is on my new favorite website: Washington Fiscal Information. It's not for the faint of heart (and doesn't seem to work well in Firefox), but you can create spreadsheets with detailed budget comparisons by accounts, sources, and agencies. We'll keep putting up more information on the supplemental budget as it develops.
Well, that's the end of our first "special series." Let us know what you think and what you'd like to see next.
As an aside, Adam Wilson's blog has a video that you won't see in other coverage of the Senate Democrats' press conference.