Schmudget Blog


House Proposal Makes Deep Cuts; Comparison With Governor's Proposal Difficult

Posted by jeffc at Jan 27, 2009 07:45 AM |
Filed under: State Budget

The House Ways and Means Committee will hear the House Democrats' supplemental budget proposal (PSHB 1694) this afternoon.

Three important things to note:

  • The House proposal does not assume any maintenance level changes, making comparisons with the Governor's proposal potentially misleading.
  • The House proposal reduces the current budget by $172 million more than the Governor’s supplemental budget.
  • Both budgets assume the same level of federal stimulus money (assumptions that may be too low given recent developments in D.C.); the House proposal assumes less total federal contribution.

The table below summarizes the key big-picture components of the House Democrats' proposal and the Governor’s proposal. Details follow.

tableone012709.jpg

The House proposal does not assume any maintenance level changes

Caution should be exercised when comparing the House proposal with the Governor’s supplemental proposal. Here’s why: the Governor’s budget follows the standard maintenance level approach to supplemental budgets while the House proposal does not.

The maintenance budget is intended to account for changes in the cost of doing what we’ve committed to doing in the current budget. The most significant maintenance budget changes are public school enrollment, enrollment in medical assistance programs, and corrections caseloads.

For example, the state now expects over 1,700 more students in the current school year then was expected when the current budget was passed. Because the House proposal does not account for the increased enrollment, it already starts with a reduction in services. The same money has to be spread between more students. So, for example, while neither budget explicitly proposes cuts in the general apportionment (the primary pot of state money for local school districts), the House proposal would actually spend $21 million less than the Governor’s proposal. In total, the House proposal would spend $44 million less on K-12 education than the Governor’s budget.

In medical assistance, the House Democrats propose $160.1 million in cuts, compared to $164.7 in the Governor’s budget. But that difference is misleading. Because of the lack of a maintenance level in the House proposal, it would spend $70 million less than the Governor’s proposal.

The House Democrats propose deeper cuts in total than the Governor's proposal

While there are important differences within certain programs, the 2007-09 state budget would be $172 million lower under the House proposal than under the Governor's budget. The bulk of the difference is in the three areas where the Governor responds to caseload increases and makes significant maintenance changes: medical assistance, public schools, and corrections. (see graph below).

pie012709.jpg

Both budgets assume federal stimulus; the House proposal assumes less total federal contribution

Both budgets assume that $205 million in state Medicaid spending will be replaced by federal funds made available in a federal stimulus package. Prospects for significant federal funding are good and funds may be much more than initially anticipated. We'll be posting more on that soon. See Joe Turner's post in the meantime.

Both budgets also assume that $133 million in federal contingency funding for TANF will be available to allow for an equal reduction in state spending.

While both budgets assume the same new Medicaid and TANF funding, the House proposal assumes $92 million less in total federal funding. This seems to be largely because lower health care spending in that proposal would result in lower federal contribution.

Data comes from the Washington Fiscal Information website. The title of this post has changed since first published.

Green Jobs and the Economy

Posted by staceys at Jan 26, 2009 05:55 AM |

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.

greenjobs012709.jpg

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.

Five Facts About the Economy and Deficit Fact 5: The Deficit Is Already Here

Posted by jeffc at Jan 23, 2009 10:50 AM |
Filed under: State Budget, State 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.

 

Five Facts About the Economy and Deficit Fact 4: The Economy Needs a Big Push

Posted by jeffc at Jan 22, 2009 12:40 PM |
Filed under: State Budget, State Economy

As everyone knows by now, our state economy is in a recession. People are feeling the pinch at home and so are retailers and manufacturers. The question we all want answered is, how do we get the economy moving again?

It helps to understand what exactly is meant by the term “recession.” The economist Jared Bernstein, who is my former boss and is now Vice President Biden’s Chief Economist, sums it up well:

Economies depend on robust demand. When folks stop buying, when investors leave the room, when governments stop building and improving public goods, growth grinds to a halt. And when that happens, the job machine stalls, unemployment rises, those with jobs work fewer hours, wages rise more slowly, and incomes decline, especially for the lowest earners and many minorities.

Lately there has been much talk of a federal stimulus plan to quickly get more money flowing in the economy. There are lots of ways to do that, but some of them are better than others. Mark Zandi from economy.com suggests the best route is to target dollars at lower and middle income households who need the cash and will quickly spend it.

In fact, he estimates the biggest “fiscal economic bank for the buck” (his phrase) comes from increasing unemployment benefits and food stamps. Spending on infrastructure would come next, followed closely by aid to state governments. By comparison, tax cuts seem like a waste of money in terms of stimulus.

When it comes to state government, economic recovery can be more difficult because most states need to balance their budgets. Basic economics says that both tax increases and spending cuts are harmful to the economy during a recession. Using our nascent Rainy Day Fund helps a little. Washington also expects federal aid for health care, economic security, and education, but there’s still a large gap.

So what do we do? Do we choose tax increases or spending cuts?

The Governor’s budget proposal comes down on one side of this question. During the election campaign last fall, she promised not to raise taxes and her budget plan for 2009-11 calls for deep spending cuts to the tune of $3.6 billion.

This is not a position backed up by economic research. Nobel Prize winner Joseph Stiglitz who is the new head of the federal Office of Management and Budget says, “Tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run.”

The Governor has also made some smart decisions to help get the economy moving. She has proposed using money from the Unemployment Insurance Trust Fund to temporarily increase benefits for unemployed workers. That plan does not require tax increases and puts money quickly into the economy. It also helps struggling workers. The Governor and legislative leaders have also proposed moving quickly on ready-to-go capital infrastructure improvements.

Five Facts About the Economy and Deficit Fact 3: People Are Losing Their Jobs

Posted by jeffc at Jan 20, 2009 06:00 PM |
Filed under: State Budget, State Economy

Washington State is facing a sustained period of high unemployment. The unemployment rate is projected to rise to 8% or higher (see graph below). That would mean that one of every twelve Washingtonian workers would not be employed despite their efforts to find work.

unemp012009.jpg

Additionally, the Economic and Revenue Forecast Council projects that the number of jobs in the state began to fall in the second quarter of 2008 and will continue to fall until the second quarter of 2009—five straight quarters of job loss. Employment will start to grow in the third quarter of 2009, but will not reach the previous level until the end of 2010 (see graph below). In the meantime, the size of the labor force will have grown and many more jobs will be needed to lower the unemployment rate.

jobs012009.jpg

Lasting spells of unemployment can be devastating. Families and individuals rely on employment to provide basic necessities including food and housing. When people lose their jobs, they often lose their access to affordable health insurance as well. The negative impact isn’t limited to the unemployed; it also drags down wages and economic activity more broadly.

Shoring up programs that provide economic security should be a top priority of the state budget in these tough times. As we’ve discussed, the Governor’s budget would do the opposite; it would harm the ability of the state to provide economic security.

A potential bright spot is the Governor’s proposal to provide a temporary increase in benefits for unemployed workers. More on that tomorrow in "Fact 4: The Economy Needs a Big Push."

Underlying data come from the Economic and Revenue Forecast Council.

Five Facts About the Economy and Deficit Fact 2: People Aren't Buying Real Estate

Posted by jeffc at Jan 20, 2009 12:30 PM |

The boom and bust of the real estate market in recent years has had a significant impact on the Washington State budget. The extreme volatility of the real estate market in recent years has given a relatively small tax—the real estate excise tax (REET)—a disproportionate role in the state fiscal situation.

When the current budget was passed, a precipitous drop in revenue from the REET was expected and built into budget projections. The real estate market further deteriorated, however, and it became clear that the pessimistic projection had been overly optimistic.

The graph below shows the REET as a share of general fund revenue from 2003 to 2007 and the current projections for 2008 through 2011. From 2003 to 2007, revenue from the REET grew quickly alongside the booming real estate market, moving from 4.4% of general fund revenue to 7.4%. The real estate bust has had the opposite effect. The REET is expected to raise $560 million less in 2009 that it did in 2007.

reetshare012009.jpg

As I pointed out yesterday, the total amount of general fund revenue in the 2007-09 and 2009-11 biennia has fallen by $2.7 billion since the current budget was passed. Declining retail sales tax revenue explains 68% of that change. Declining REET expectations are the second largest factor, explaining 19%.

The direct effect of the real estate slump on state revenue isn’t limited to the REET, however. While autos are the most significant factor in declining retail sales, sales in real estate-related industries such as home furnishings, building materials, and specialty contractors have also fallen dramatically.

There has also been a direct impact on employment. The Economic and Revenue Forecast Council (ERFC) projects that construction employment will decline by 12% between the fourth quarter of 2007 and the 1st quarter of 2010.

We’ll talk more about employment tomorrow in Fact 3: People Are Losing Their Jobs.

Underlying data come from the Economic and Revenue Forecast Council and the Department of Revenue.

Five Facts About the Economy and the Deficit Fact 1: People Aren't Buying Stuff

Posted by jeffc at Jan 19, 2009 07:50 AM |

The Washington State budget relies heavily on the retail sales tax. When people buy less stuff, the state collects less revenue. Much of our current deficit problem can be attributed to the precipitous drop in retail sales tax revenue over the last year.

The graph below shows taxable retail sales for each quarter from the first quarter of 2007 through the second quarter of 2008. The percentages are the change in sales from the same quarter in the previous year. At the beginning of 2007, sales were growing by 8% year-over-year. During the last half of 2007, they were growing by less than 6%. By the second quarter of 2008, sales were falling by 2%.

retailall.jpg

The Department of Revenue will be releasing data for the third quarter of 2008 in a few weeks, but it’s a safe bet that sales have continued to fall. The Economic and Revenue Forecast Council (ERFC) expects that taxable retail sales will be lower in fiscal year 2009 than the prior year. That’s only happened twice in recent history: in 1984 and 2002. The current decrease is expected to be deeper than the two previous times.

The recession has hurt some industries more than others. The graph below shows taxable retail sales at auto dealers. Sales of automobiles, which make up about 8-9% of total sales, have plummeted.

retailauto.jpg

Remember a year ago, when we were worried about a $2.4 billion deficit for the 2009-11 budget? It’s more than doubled since then to become the largest deficit since 1981-83.

Most of the difference between the deficit expected last spring and the current projection is due to reduced revenue expectations. The total amount of general fund revenue expected in the two biennia has fallen by $2.7 billion since the current budget was passed. Sixty-eight percent of the difference is from falling retail sales tax revenue.

Another important factor is the real estate excise tax. More on that tomorrow in Fact 2: People Aren’t Buying Real Estate.

Document Actions
HIGHLIGHTS

Sign Up for #BudgetMatters17!

Our Budget Matters Seattle Policy Summit is on December 6. Find out more and sign up now!  (And a big thank you to all those who made our first-ever Spokane Budget Matters Policy Summit in October a big hit.)

Our Policy Priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance to build a better Washington.

Testimonies in Olympia

To advance our legislative priorities, the Budget & Policy Center team was in the state capitol throughout session testifying on a wide range of bills. Watch our testimonies on TVW:
Misha TVW