Special session should focus on revenue and reform

The Legislature resumes its work today with a special session. In addition to a number of policy bills, the most pressing task before legislators is to finalize and pass a budget for the 2011-2013 biennium.

There are a number of things the Legislature should do in the Special Session to help meet our short-term fiscal goals and ensure the long-term prosperity of our state.

Take a balanced approach to solve our current budget crisis

Curtail special tax breaks to preserve essential services--

All options must be on the table if we are to address our ongoing economic problems in a balanced and responsible way. In addition to enacting painful but necessary budget cuts, policymakers must also find new sources of revenue. Eliminating even a small fraction of the billions of dollars spent each year on special tax breaks would free-up resources needed to preserve our core investments in health care, education, and safe communities. 

Several bills have been introduced to close targeted tax breaks to fund education, healthcare, mental health services, and other public priorities.

While none of these bills would solve the entire revenue shortfall, passing one or several of them would be a step in the right direction.

Some have argued that I-1053 – which requires that any new revenues be approved by a supermajority (two-thirds) vote of the legislature or a vote of the people – prevents a balanced approach to the economy's impact on the state budget. However, given the magnitude of the cuts under consideration, two-thirds of legislators ought to agree on a package of sensible revenue enhancements to stave off the worst of the cuts. Failing that, the legislature should send such a package to the voters for approval in November.

Make long-term reforms that would make our state budget process stronger

Reform how special tax breaks are reviewed and evaluated--

As we have highlighted many times, our current state budget process fails to account for the billions of dollars spent each year on tax breaks or “tax expenditures” – the hundreds of special credits, exemptions, deductions and other tax preferences. The failure to do so has led to a distorted and incomplete view of our spending priorities as a state.

This year, the Legislature has an opportunity to enact common-sense tax expenditure reforms that would bring greater accountability and transparency to our state budget process.

Key reforms that would allow policymakers to routinely balance the costs and benefits of tax expenditures against other public priorities include:

• Establishing routine oversight by requiring expiration dates for all tax expenditures;
• Improving fiscal management by allowing tax expenditures to be modified via a simple majority in the legislature;
• Fostering transparency through an executive tax expenditure budget;
• Ensuring tax expenditures are cost-effective by enhancing audit and review structures; and
• Enforcing accountability by enacting strict eligibility requirements for businesses that receive tax expenditures.

Without long-term tax expenditure reform, policymakers will not have the flexibility or the tools needed to make practical and balanced choices.

Read more about tax expenditure reform in our policy brief, “Every Dollar Counts: Why It’s Time for Tax Expenditure Reform,” which provides detailed analysis on how we can reform our tax break system.

Account for the costs of cuts --

Our current state budget process does not fully account for costs associated with cuts. As policymakers evaluate the pros and cons of legislation, one factor that weighs heavily is the cost or savings expected to result from a particular policy decision. Senator Nick Harper has sponsored a bill (SB 5872) that would require state agencies to estimate how cuts to one program impact other areas of the budget. For example, cuts to in-home care services for the elderly and people with developmental disabilities can lead to increased usage of nursing homes, which cost nearly three times that of services provided in a client’s own home. 

SB 5872 would allow legislators to evaluate the full impact of cuts. Legislators should make choices that don’t undermine our future prosperity or leave us unprepared for the next recession.  The reforms contained in Senator Harper’s bill would be a step in the right direction.

Make changes to the Rainy Day Fund--

Washington’s Budget Stabilization Account or “Rainy Day Fund” (RDF) was created to secure our essential public structures during recessions, natural disasters, and other state emergencies. Our current state RDF does not adequately support education, health care, and other important public priorities in times of need.

Legislators could make sensible, long-term reforms that would make our state rainy day fund more adequate and accessible during future state crises.

These reforms could include:
• Improving the adequacy of the RDF by increasing annual deposits;
• Fostering improved access and accountability by eliminating the supermajority requirement and applying strict limitations; and
• Ensuring the rainy day fund does not hinder recovery efforts by modifying deposit requirements.

For more analysis on how we can create a more robust rainy day fund, read the Budget & Policy Center Analysis, “Strengthening the Rainy Day Fund.”

Whether the special session is two weeks or 30 days, lawmakers are not just solving a short-term problem. The decisions they make now will impact our state for years, perhaps even decades to come.