Time to stop Washington's gambling ways and match spending to revenue

DURING the 60-day legislative session that begins tomorrow, state lawmakers must concentrate on resolving the $2.6 billion budget shortfall by aligning state spending with current revenues. As they do, they must focus on laying the foundation for long-term economic growth.

What's been called the state's structural deficit — an enduring mismatch between revenues and spending — may be better understood as a durable legislative appetite for betting on windfall revenues to bail out overextended budgets. To a remarkable degree, budgetary gambles have paid off over the past decade, as the tech, housing and construction bubbles swelled state coffers.

In 2007, lawmakers raised the stakes, writing a two-year budget that increased spending at twice the forecast rate of revenue growth. Because of the Great Recession, however, 2007-09 revenues came in well below forecast. Only the 2009 federal stimulus windfall averted an even greater budget disaster. The federal monies will be gone in 18 months.

The National Governors Association estimates state budgets will be in the tank through at least 2014. Recent statistics from the Philadelphia Federal Reserve Bank peg Washington's economy as the fourth-weakest in the nation at present.

It is past time for lawmakers to reset spending and focus on economic growth.

The budget the governor proposed in December provides lawmakers a starting point. Yes, her "current revenues" budget erodes the social-safety net and cuts too deeply into education. But it's also true that our state has been unusually expansive in extending subsidized health-care benefits to families who might otherwise find coverage in the private market. And, while the cuts in tuition assistance for lower-income college students break the agreement implicit when the schools were given increased tuition-setting authority, hard times make other reductions unavoidable.

There are alternatives to some of the choices she made. Although the Legislature suspended negotiated pay hikes last session, some 21,000 employees will still receive automatic longevity or "step" increases of up to 5 percent. State workers also enjoy extraordinarily generous health-care benefits. Voters won't accept tax increases to preserve a status quo that holds public employees harmless. Critics warned that the 2002 legislation expanding public employee collective bargaining would tie lawmakers' hands during fiscal crises. It has.

The legislation also expanded the state's ability to contract with the private sector to provide state services. Little has been done. Credible research has documented the cost savings, efficiency and quality enhancements possible through smart contracting. State Auditor Brian Sonntag's recent performance review of state government highlighted computer services and real-estate lease management as areas where it could save money. It's past time to get serious about contracting.

Sonntag's performance review also found the state could raise as much as $350 million over five years by privatizing liquor sales and distribution.

As lawmakers consider program reductions, they should also look at what can be accomplished by doing things differently. Competitive contracting and privatization offer crucial opportunities. So, too, do education reforms — charter schools, performance pay — that would increase the state's chances of qualifying for hundreds of millions of federal Race to the Top funding.

Ultimately, economic recovery must be led by the private sector. Lawmakers must avoid increasing business costs. Employers here have already seen their workers' compensation costs and unemployment-insurance taxes increase for 2010. Sensible reforms in the workers' compensation system have been proposed that will reduce system costs without cutting benefits to injured workers.

The coming year will be transformational, for state government and the state economy. It's critical that lawmakers look beyond the immediate crunch to the opportunities to spur growth and innovation for the long term.

Richard S. Davis is president of the Washington Research Council and Kriss Sjoblom is the council's economist and vice president of research. (www.researchcouncil.org)