Searching for solutions in Washington budget crisis

STATE budget writers are in uncharted territory. Three years after the Great Recession began — and more than a year after it ended, if you believe the experts — lawmakers will return to Olympia facing a budget shortfall of $5.7 billion. Closing the gap is an unenviable task. They are to be commended for accepting the challenge.

The budget shortfall is not simply a problem for the governor and Legislature. It affects us all — individuals and families dependent on social services and health-care programs; students preparing for productive and fulfilling careers; employers looking for a talented, educated work force; all of us wanting safe communities and reliable transportation. The list goes on.

Our expectations have not diminished. But we realize state government must do what so many families, private-sector employers and nonprofits have done: fundamentally transform how it operates.

We all have a stake in the coming legislative session. We have a responsibility to engage constructively. That's why we at the Washington Roundtable, working with the Washington Research Council, have sponsored Thrive Washington to broaden the public discussion about how to achieve economic vitality and sustain essential public services.

Roundtable members have experienced challenges similar to those confronting state government. The global recession has taken a toll on virtually every industry. Survivors adapt.

Adaptation, however, requires a simultaneous commitment to reduce costs and maintain investment in the elements of business that determine ultimate market success. We've sharpened focus on core activities, outsourced operations that can be more productively handled by others, made difficult but necessary changes in employee compensation, abandoned lines of business, and trimmed head count.

A singular principle guides business leaders: What must we do to succeed in a competitive marketplace?

State government, though it operates in an environment constrained by constitutional and statutory mandates, must apply a similar standard. Gov. Chris Gregoire's approach to budget transformation explicitly acknowledges the fiscal reality.

The goal must be to restructure operations to create a sustainable budget that focuses on services that drive economic growth.

In "Nine Steps to Budget Sustainability," a new Thrive Washington research paper, we present concrete recommendations for achieving that goal. The recommendations flow from best practices in the private sector and borrow from experiences in other states.

For example:

• Integrate priority-based budgeting with performance reviews. State officials have effective tools for managing the budget, from the "priorities of government" process established by former Gov. Gary Locke, to the Government Management, Accountability and Performance (GMAP) system instituted by Gov. Gregoire.

As the state develops its budget, these systems must be integrated and agencies held accountable for performance, with full transparency. Reviews should encompass all funds, revenues and expenditures, including a thorough assessment of commitments launched by citizen initiatives and legislative promises made without identified revenue sources.

• Manage the size and compensation of the state work force. Labor costs drive a substantial share of spending in any service industry. State government is no different. Any budget solution will entail work-force reductions and adjustments in employee compensation.

There must also be a move toward achieving benefits parity with private and public-sector norms. Currently, state workers pay an average of 12 percent of individual health-insurance premiums. Most private and other public-sector employees pay 19 percent on average. The gap between what Washington state employees pay and the private and public-sector norm for family coverage is considerably wider.

• Inventory assets for possible sale. Holding onto underused or unnecessary assets increases state costs without contributing revenues. The state should inventory real-property assets to see if they serve an essential purpose. If not, they should be sold and the revenues used to pay down long-term obligations.

• Use competitive sourcing. Nearly a decade after passing legislation allowing state agencies to contract out for service delivery, there has been virtually no expansion in competitive sourcing. Significant savings and improved efficiencies can be realized by doing what many private-sector employers do routinely: contract with firms that have specialized expertise in activities from grounds maintenance to information technology. The state should move swiftly to identify activities that can be better handled by outside contractors.

No one should minimize the challenges ahead. We do not. We are three years into the recession and last week's state revenue forecast tells us the pain is far from over. There will be significant budget reductions made next year. However, we must also look to the future.

If Washington is to emerge from the recession a more competitive, stable state — and I believe it will — lawmakers must act decisively and with an eye toward restoring long-term economic vitality. And, we must support such efforts. We are in this together.