Democrats' budget reserves might be illusory

OLYMPIA — Democratic lawmakers congratulated themselves for being frugal when they passed a state budget this month that reserves $935 million to deal with future expenses. What they didn't say is they've essentially spent that money already.

State estimates show lawmakers created programs, tax breaks and improvements in state services this year that are expected to cost about $940 million over the next two fiscal years.

That basically blows away the money set aside by the Legislature — some of it earmarked for other things, such as pensions and schools — and leaves a projected $500 million shortfall next session.

Republicans say it also belies claims made by Democrats — who control the House, Senate and governor's office — about being "fiscally responsible."

"How can you say that's fiscally prudent? You just can't," said Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee. "If you put it into a two-year budget cycle, they really spent all that money."

House Majority Leader Lynn Kessler, D-Hoquiam, argues that her party passed "perhaps the most responsible budget I've ever taken part in."

Kessler points out that the Legislature has had to make budget cuts year after year because of shortfalls.

"We felt it was time for taxpayers to see a little investment. You can't just keep cutting, cutting, cutting. At some point you have to make investments in the future," she said.

A $1.6 billion budget surplus this year allowed lawmakers to add programs and services while still setting aside money for next year.

Kessler said Democrats did "exactly what we thought we'd do, be fiscally conservative and have the money ready for us when we needed it."

As for the projected shortfall, Kessler predicted the state's healthy economy will make up for that by the time lawmakers write their next two-year budget, in 2007.

Senate Majority Leader Lisa Brown, D-Spokane, said Republicans would have ended up spending about as much money as the Democrats if they had controlled the Legislature, possibly through tax cuts.

She also maintains Democrats were prudent. Her caucus' Web site contends lawmakers "left a responsible reserve — nearly $1 billion — to pay for future costs we can already see coming."

It doesn't take a psychic to see those future costs. Just look in the supplemental budget.

The costs include tax breaks expected to cost about $120 million in the next biennium. They also include about $410 million in additional spending for the current fiscal year in areas such as education and health care. That amount is expected to double to $820 million when the programs are paid for in the next two-year budget.

For example, a program to help students pass the Washington Assessment of Student Learning (WASL) is expected to cost $57 million in the next two years. A 0.5 percent cost-of-living increase for teachers will cost an additional $39 million. And lease payments for a University of Washington research facility is projected to cost nearly $5 million next biennium.

The state works on a two-year budget cycle. Last year the Legislature passed a $26 billion operating budget for 2005-07. The supplemental budget is supposed to cover unforeseen costs, such as health-care caseload increases, but it also creates an opportunity to spend money on other things.

Critics of this year's budget say the Legislature was justified in spending some of the money, such as helping students pass the WASL. Their beef is with the sheer size of the budget.

The Legislature has set itself up for increasing budget deficits in the future, said Richard Davis, president of the business-backed Washington Research Council, which monitors public-policy issues, including state budgets.

The governor's office projects lawmakers will face a $500 million shortfall when they convene next year, in part because expenses such as health-care costs are growing faster than tax collections. The shortfall prediction also includes a $300 million ending balance left in the state general fund.

And the deficits could get much larger. Projections going out to 2011 show a shortfall of more than $1 billion.

"It's difficult to look at any budget that sets you up for a shortfall ... and say that it was a prudent budget. A prudent budget would be one that's sustainable," Davis said.

As recently as last year, Democratic leaders spoke of the need to bring spiraling costs under control to have a sustainable budget. Gov. Christine Gregoire and others warned, for instance, about medical-assistance costs outpacing state revenue growth.

The additional tax revenue that poured in this year seemed to allow lawmakers to temporarily push aside those long-term concerns, Davis said.

They can't be put off forever, he said. "At some point you cannot continue to have the [economic] growth we've had," he said. "Right now they have a budget that depends on good fortune continuing. It relies on no bad news."

Gregoire said she is keeping in mind the potential for shortfalls. The governor said she has told interest groups there's no guarantee programs the Legislature paid for this year will continue, if tax revenues can't keep up.

Zarelli notes that interest groups are persistent in asking for more money. "Olympia politics is an add-on game. It's not a deduction game. So whatever you give in one year, those same groups expect more the next year," he said.

Republicans argue that if the Legislature had limited itself, for the most part, to taking care of higher costs in existing programs, such as growth in the public-school population, the state could have a surplus of several hundred million dollars instead of facing a shortfall.

Kessler said the state needs to have more confidence and take steps, such as passing certain tax breaks, that can spur the economy and make life better in the long run.

This year's budget, she said, "was a great investment in our future and a great optimistic approach, instead of 'Oh my, it may all be awful, let's hunker down and save.' "

Andrew Garber: 360-943-9882 or agarber@seattletimes.com