Research Council: House and Senate budgets both “needlessly drain” the rainy day fund.

With just a handful of days remaining in the legislative session, it’s likely negotiators are close to agreement on a biennial state budget. When agreement is made, the votes will come swiftly. It’s important, nonetheless, to understand the extraordinary growth in state spending embraced in both the House- and Senate-passed budget. For a clear analysis, we recommend this new Washington Research Council policy brief

The Senate and House have passed broadly similar operating budgets. Both would impose a capital gains tax. Both would increase spending from funds subject to the outlook (NGFO) by double digits in 2021–23. Both would appro- priate billions of dollars in federal relief funds. Both would drain the rainy day fund.

Across the 2021 supplemental and the 2021–23 biennial budgets, policy spending from the NGFO plus federal relief would increase by $10.067 billion in the Senate budget and by $10.817 billion in the House budget.

Much more detail in the analysis. This chart clearly shows the dramatic growth in proposed spending.

The sustainability of this expenditure growth is clearly questionable. Although the economy is coming out of lockdown, recall that even before the pandemic the state budget had grown at an unsustainable pace. And in a global economy, plenty of non-COVID economic risks to the state budget remain in place. 

Ample budget reserves insulate against such risks. Yet, the WRC writes,

The Senate would leave an unrestricted NGFO ending balance of $50 million at the end of 2023–25 and the House would leave $63 million. At the end of 2023–25, the BSA balance would be $1.125 billion in both budgets.

The budgets would impose a capital gains tax to pay for new programs, but collections may never materialize if the tax is deemed unconstitutional or if voters reject it via referendum or initiative.

More to the point, the WRC concludes:

We have shown that with the increased revenue forecasts over the past year and billions in federal re- lief funds, new taxes are not needed this year to balance the budget (WRC 2021a). But the budgets passed by the Senate and House would use one-time federal relief for at least one new, ongoing pro- gram (child care). Including federal relief funds, the spending increases in these budgets are the high- est they’ve been going back to at least the mid-1990s. Overall, sustainability is a major concern.

Both budgets would needlessly drain the BSA. Funds taken from the BSA would be held as reserves in other accounts. But the funds could better serve that purpose if they remained in the BSA. Under the state constitution, a supermajority vote is required to tap the BSA unless the governor declares a state of emergency resulting from a catastrophic event (in which case the funds must be used for the emer- gency) or employment growth is estimated to be less than 1%. Because employment growth is forecast to be less than 1% in FY 2021, the Legislature currently needs only a simple majority to use the BSA for any purpose. Next year, if the economy continues to improve, they may need a three-fifths majority. The proposed Washington rescue plan transition account and the disaster response account are sub- ject to no such restriction. The proposed budgets are playing a shell game with emergency reserves, which undermines the sustainability of the budget.

A shell game. Well said.