Research Council looks at fiscal policy after the pandemic recession and federal aid.

The Washington Research Council has published several recent blog posts examining state and local fiscal conditions as we move beyond the pandemic recessions. They provide useful context for evaluating some of the decisions to come in the months ahead.

Including federal relief, Legislature increased operating appropriations to $67.365 billion for 2021–23

Operating appropriations passed by the Legislature from funds subject to the outlook (NGFO) are $52.562 billion for 2019–21 and $59.213 billion for 2021–23. (NGFO appropriations for 2021–23 are $20.0 million higher as passed by the Legislature April 25 than as proposed in the conference agreement. The difference is due to appropriations in ESB 5476.)

The Legislature also appropriated $8.782 billion in federal relief funds across 2019–21 and 2021–23. That’s on top of an estimated $7.237 billion in federal relief that had previously been allocated or appropriated for 2019–21 (this number does not include unobligated funds at the end of 2021). Including the NGFO and federal relief, the Legislature appropriated $60.429 billion in 2019–21 (an increase of 35.2% over 2017–19) and $67.365 billion for 2021–23 (an increase of 11.5% over revised 2019–21 appropriations).

Despite revenue growth, could Washington use the coronavirus state fiscal recovery fund to replace “lost revenue”?

If it turns out that Washington qualifies for this use of the CSFRF, it could use funds (to the extent of the revenue loss) for “maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.”

The 2021–23 transportation budget appropriates $600.0 million from the CSFRF to backfill lost transportation revenues. Transportation revenues did decline from FY 2019 to FY 2020. However, the guidance notes that revenue reductions must be calculated “on an aggregate basis”—not by source. It will be interesting to see whether the state determines it experienced a revenue loss given this methodology, and whether the transportation revenue backfill is determined to be an allowable use of the CSFRF.

Strong budgeting practices will help governments manage coronavirus state and local fiscal recovery funds

Levin and Josh Goodman of Pew elaborated here. They also caution states against using the [new federal recovery] funds “to create new ongoing programs.” (Washington is using child care funding from the American Rescue Plan Act to begin a new child care program, even though the budget bill specifically says the state does not have the “fiscal capacity to make these investments.”)

Additionally, in March, Pew ran a series of articles on how “decision-makers can learn from recent events to make progress on structural reforms that will improve state fiscal health over the long run.” An overview of their recommendations is here.

Washington already has some of their recommendations in place. We have a dedicated rainy day fund (though legislators needlessly drained it this year). Regular deposits to the rainy day fund are mandated by the constitution, and a portion of any extraordinary revenue growth is automatically deposited as well (a way to help manage revenue volatility). With the four-year balanced budget requirement, Washington’s “multiyear budget plans can help ensure that this year’s budget decisions do not create future deficits.”

A useful, informative series of posts.