New Projections Highlight Long-Term Revenue Crisis
By Andy Nicholas and Kim Justice
June 21, 2012 update: Several of the inflation rates used to calculate future shortfalls were corrected this morning. This post has been updated to reflect the revised estimates. The change resulted in a modest downward revision of the shortfall estimates, but the overall story remains the same: without reform, we're headed for years of severe revenue shortfalls.
Washington will bring in just enough revenue over the next year to cover our current commitments to health care, education, and other public priorities, but the longer-term picture is not as rosy. If we don’t reform Washington’s revenue system, funding will consistently fall short of the amount needed to sustain these and other vital public investments that boost our economy and create jobs.
Despite deep cuts to health care, public safety, and other shared priorities since the start of the Great Recession, the State Economic and Revenue Forecast Council projects state tax revenue will barely cover current investments through June 30, 2013. After that, our ability to maintain public investments will quickly start to unravel.
As shown in the graph below, the Budget & Policy Center projects revenues will fall short of spending needs by $811 million in the two-year budget cycle that begins on July 1, 2013. This revenue shortfall will increase to $1.6 billion in the 2015-17 budget cycle.
To address these revenue shortfalls, policymakers must make tough choices in the years ahead. Continuing down the current path – one that relies almost exclusively on cuts to core public services – would be a disaster for Washington. It would further weaken our economic recovery by eliminating the very public health and education investments needed to create jobs and build long-term prosperity.
It doesn’t have to be this way. Lawmakers can adopt reforms that will create a more robust and stable revenue system capable of supporting the demands of the 21st century economy. Long overdue reforms, such as enacting a state capital gains tax and increasing scrutiny of state tax breaks, would go a long way toward building a prosperous future for all Washingtonians.