How the state's fiscal house can be put back in order

The budget deficit that will face legislators in January is likely to be the biggest in state history. The projected shortfall has reached $3.2 billion as of the Sept. 18 state revenue forecast and could get even larger before the 2009 legislative session begins.

While state budget shortfalls aren't new, only one has been near this size. That was in 2003, when Republicans and Democrats shared control of the budget and used a "priorities of government" process to reduce spending, erasing a $2.6 billion deficit without tax increases.

Such restraint hasn't been seen since one-party rule returned to Olympia, unfortunately. But the state government's fiscal house still can be put back in order through three steps.

First, those in charge must agree there's a problem. To put $3.2 billion in context:

• A 70-percent increase in state property taxes would raise $2.6 billion.

• Imposing sales tax on food would raise $1.5 billion.

• Imposing sales tax on medical bills would raise $1.4 billion.

• Doubling the estate tax would raise $250 million.

Gov. Christine Gregoire won't publicly acknowledge the magnitude of the deficit. But simply saying we'll "manage our way through" won't make the problem disappear. Mentioning the money in reserve and the voter-created rainy-day fund doesn't help either — there isn't enough to fill the gap.

Step two is the diagnosis. How did a government that was rolling in revenue so recently get into this pickle?

Some in Olympia blame the national economy, and it's true a weakening national economy affects the state budget picture. But when legislators adjourned in March, economic predictions were for a healthy economy, no recession and historically respectable revenue growth. Still, the nonpartisan Senate budget staff predicted a multibillion-dollar deficit.

The shortfall's cause is simple: Spending got way out of whack with revenue. You can't keep spending at nearly three times the rate of income growth. Yet the 2007-2009 budget did, raising spending by 16 percent against forecast revenue growth of 6 percent.

There was no question the bill for the latest spending promises would come due next year. The question was whether the state's extraordinary — and unexpected — economic growth would continue enough to cover it. The gamble failed.

The 2007-2009 budget isn't solely to blame. Since the 2004 session, spending has increased by 33 percent, or $8.5 billion. By comparison, spending under Gov. Mike Lowry increased 21 percent.

The final step is the cure: Reduce government's growth rate. While the governor can get defensive when her "investment" choices are questioned, the following are just a few of the many expenditures worth examining:

• Employee growth. State government budgeted for an increase of more than 8,000 employees over the past four years. Only eight counties in the state gained that much in population in the same period. Expenses are up also, exemplified by the quadrupling of governor's office employees earning more than $100,000.

• Health-care costs for state employees. Four years ago, state workers paid 16 percent of their health-care premiums. Now it's 12 percent. Private-sector workers pay 28 percent of premium costs, on average.

• State-funded health-care expansion. Health-care eligibility for children was expanded to families making up to $62,500 a year. Fully 75 percent of enrollees are either citizens who were insured yet dropped their coverage (6 of 10) for the cheaper state option or illegal immigrants.

• Bilingual education policy. The state recently began keeping students in bilingual instruction rather than letting them enter regular classrooms even after passing the grade-appropriate WASL. This policy affects just under 5,000 students who are academic equals of their peers but remain in bilingual instruction.

• Life Sciences Fund. In 2005, the state committed $350 million over 10 years to a grant program for bioscience research. The program was recently called a "joke" by Leroy Hood, one of the state's premier bioscientists, who said it has "made every single wrong decision a fund can make."

The projected deficit doesn't include other costs lurking around the corner, such as the paid family leave entitlement, all-day kindergarten and education-funding reform, to name a few. And there's a potential wild card that should concern taxpayers: Senate Majority Leader Lisa Brown's lawsuit to overturn the stronger tax-vote standards set by Initiative 960 [See Brown's accompanying commentary, below].

Regardless, change is coming for the many legislators who have known only good financial times at the Capitol. Difficult decisions lie ahead, but the experience of 2003 proves our state can pull through — if we get our priorities right again.