New Washington Research Council analysis finds state budget sustainability policies “work when followed”

A new report from the Washington Research Council underscores the importance of maintaining – and honoring – Washington’s several budget sustainability requirements.

A little background: Back in 2016, in our first foundation report, we emphasized the importance of predictable, sustainable fiscal management.  

Priority III.B: Budget for long-term sustainability and prosperity

Why This Matters: Over time and throughout various economic conditions, the State of Washington has experienced cycles of boom-and-bust budgeting. Programs have been expanded during the good times — sometimes at rates exceeding the growth in revenues — and then sharply contracted in the downturn. That uncertainty has taken a toll on students, families, public employees, and those relying on public services. These fluctuations also directly impact the employer community as increased taxes and fees are often proposed to generate the additional revenues required to maintain these programs.

A commitment to sustainable budgeting replaces this uncertainty with stability, supporting long-range planning and assuring that a consistent level of vital services can be maintained in varying economic conditions.

Our state has benefited from prudent policies designed to mitigate the inevitable ups and downs in the state economy. Such policies include the four-year balance budget requirement and constitutional rainy day fund. A few years ago we cited a report from The Lens that focused on a Tax Policy Center analysis. The Lens reported,

…stability is critical not only for accurate [revenue forecasts], but also for state lawmakers whose purse strings are tightened or loosened based on those estimates as part of the Balanced Budget Requirement (BBR). That fiscal stipulation was first implemented during the 2013-15 biennium, by restricting budgeted state spending to four-year revenue forecasts.

The state’s budgeting practices have helped Washington maintain high credit ratings. According to the latest reports, Fitch gave Washington a rating of AA+ with a stable outlook, Moody’s rated Washington an Aa1 with a stable outlook and Standard & Poor rated the state an AA+ with a stable outlook.

The WRC analysis finds,

Washington’s four-year balanced budget requirement and constitutionally-protected rainy day fund promote state budget sustainability. The requirement that budgets balance over four years helps to limit the use of budget gimmicks and to prevent unsustainable bow wave spending. Reserves improve sustainability by providing a cushion for emergencies and limiting major program cuts during economic downturns. Because the rainy day fund is protected in the constitution, deposits are mandated, and withdrawals are limited.

To work, though, the policies need to be honored. And, the WRC writes,

Still, the Legislature plans to withdraw $2.044 billion from the rainy day fund in 2017–19. On top of that, it diverted $711 million before it could be deposited in the fund in order to avoid the limits on withdrawals, setting a bad precedent that Gov. Inslee has already attempted to repeat. By making these withdrawals, Washington is less prepared for a recession, should one occur in the next biennium.

It’s a good, timely analysis, concluding with good counsel to legislators as they prepare the 2019-2021 budget.

Washington is very fortunate to be experiencing strong revenue growth, but it won’t last forever. And, despite extraordinary revenue growth, expected revenues are not high enough to fund Gov.Inslee’s 2019–21 spending proposals. When enacting the 2019–21 budget, in addition to being cautious about increasing spending in light of the potential for an economic downturn, the 2019 Legislature should be cautious about changing provisions that help make the budget sustainable for the future.