New WRC policy brief makes clear the high price of delaying legislative action on the state budget shortfall.

The governor and legislative leaders have said they see no reason for an early special session of the Legislature to address the state’s nearly $9 billion budget shortfall over the next four years . Inaction has consequences, as the Washington Research Council makes clear in a new policy brief, Delaying Budget Action Would Deepen the PainThe price of delay is high. 

Depending on how many budget areas are subject to spending cuts, we estimate that necessary cuts could be from 8.8 percent to 28.2 percent if the Legislature waits until the regular session to address the shortfall. Had the Legislature acted in June, the necessary reductions would have ranged from 2.9 percent to 9.4 percent. The same concept applies to tax increases: To reach a target level of collections, a tax rate would need to be higher if applied over a shorter period.

The Council summarizes the present projections. These a not trivial numbers.

The Office of Program Research (OPR), in an unofficial budget outlook, estimates that the unrestricted ending balance of funds subject to the outlook will be negative $3.403 billion in 2019–21 and negative $8.465 billion in 2021–23 (OPR 2020).

The WRC examines some action and estimates not factored into the OPR estimates, which slightly improve the outlook.

The net effect is to improve the unrestricted ending fund balance in FY 2021 from negative $3.403 billion to negative $2.725 billion.

Still a lot of money. 

Assuming no resource changes and that the Legislature uses the funds in the budget stabilization account (BSA, or the rainy day fund), appropriations would have to be cut by $809 million to get the FY 2021 ending fund balance up to zero. (This would not be enough to balance the budget over four years.)

And as the WRC reports, making that adjustment becomes more difficult over time. Further, depending on how expansive a view lawmakers take of what categories of spending are “off limits” for spending cuts, the depth of the reductions are quite deep in the narrower slice of the budget available to them.

If the Legislature exempts budget areas deemed protected by OFM, the cuts would need to be 11.3 percent if effective Sept. 1 and 28.2 percent if the Legislature waits until the regular session.

This table from the report shows how the options play out.

Legislative leaders have signaled an interest in raising taxes. The same timing problem exists.

To reach a target level of collections, a tax rate would need to be higher if applied over a shorter period. 

Several of the options under consideration for revenue increases – a capital gains tax or a Seattle-like payroll tax – also face implementation problems. Even if the tax hikes survive possible (probable?) legal challenges, it takes time to put a new tax regime in place. 

It’s a short brief, which examines several scenarios for erasing the deficit. The Council also acknowledges the gamble lawmakers are taking by hoping for a federal bailout and draining the rainy day fund. The conclusion:

Waiting to address the budget shortfall not only delays inevitable difficult decisions, it also makes them more painful. The rainy day fund and any federal relief funds should be used to help solve the problem, but those are one-time funds that only delay eventual challenges. Any spending reductions in 2019–21, on the other hand, would also help to reduce the looming shortfall in the 2021–23 biennium. The Legislature should act sooner than later to enact a new budget that is sustainable within current resources over four years.