Analysis: House and Senate budgets “fall short” of meeting sustainability test.

The Washington Research Council has released a detailed analysis of the biennial state budgets passed by the House and Senate. (A side-by-side comparison was released earlier.) With just over a week to go in the regular legislative session, reconciling the differences between the two budgets is one of the remaining major challenges confronting lawmakers. 

For those concerned with sustainable budgeting, splitting the differences won’t do the trick. Each budget poses a sustainability problem, so meeting in the middle won’t work. The WRC concludes,

Washington’s recent run of strong state revenue growth won’t last forever. Indeed, the Economic and Revenue Forecast Council expects revenues to grow more slowly in the coming years, and many economists expect a recession sometime in the four-year budget window. With that in mind, the Legislature should carefully consider whether proposed spending levels are sustainable and build adequate reserves.

Unfortunately, the budgets passed by the House and Senate fall short. The high spending levels in both budgets would require new taxes, which the House and Senate have yet to vote on. The House budget depends on a capital gains tax that will be challenged as unconstitutional. Even if it is found to be constitutional, the state would not be able to collect revenues while the case is ongoing, meaning that there would not likely be any collections in 2019–21. This would put the House budget out of balance for the biennium. (Emphasis added.)

Yesterday, we urged readers to contact their legislators and ask them to tap the brakes on spending. The WRC report underscores the importance of that request. 

Other highlights from the report, which we recommend be read in its entirety:

State revenues from current sources are estimated to reach $50.555 billion in 2019–21, enough to cover the 2019–21 maintenance level (the cost of continuing current services). On top of the maintenance level, the House has passed a 2019–21 operating budget that would increase appropriations by $2.421 billion from funds subject to the outlook and the Senate has passed a budget that would increase appropriations by $1.697 billion.

To fund the new policy spending, the House would impose a capital gains tax, and both the House and Senate would change the real estate excise tax so its rate is graduated and increase taxes by repealing tax preferences (the state’s term for exemptions, exclusions, deductions, deferrals, credits, and preferential rates).

Some of the major spending items in both budgets include school employee health benefits and the collective bargaining agreements with state employees. Substantial increases would also be made in human services.

The proposed spending increases are historically large at 19 percent in the House and 17 percent in the Senate. They rank among the highest spending increases of the last 25 years. Given the likelihood of an economic downturn, the Legislature should carefully consider whether this level of spending is sustainable and build adequate reserves.