WA Research Council examines state spending in new budget, identifies vulnerability stemming from reserve transfer.

Consider the growth in state spending as documented in this chart from the Washington Research Council, particularly the decline during the Great Recession. Contrast it with the surge in spending during the pandemic. There are a lot of reasons spending is up, of course, primarily the faster-than-anticipated revenue recovery and the infusion of federal dollars. But, just as we were concerned about sustainability before the pandemic, we remain concerned that the Legislature’s new spending plan also charts an unsustainable course.

The Washington Research Council writes,

…spending cuts weren’t necessary this time around because current revenues are expected to keep growing (even without the new capital gains tax). In the Great Recession, on the other hand, revenues actually declined. Spending reductions (in addition to tax increases and federal funding) were required to balance the budget following the Great Recession’s revenue losses. That wasn’t the case this year.

Still, the WRC in its informative blog post writes,

Although revenues recovered, the budget passed by the Legislature still drains the BSA in 2019–21. The $1.820 billion balance is transferred to the general fund–state (this can be done with a simple majority—instead of a three-fifths majority—because employment growth is forecast to be less than 1% this year). Then, $1 billion is transferred from the general fund to the new “Washington rescue plan transition account.” This account will not be subject to constitutional restrictions.

The BSA balance grew so high because of the mandatory deposits and the constitutional limits on withdrawals. But the limits are not insurmountable: legislators have agreed to make many withdrawals over time (in each biennium except 2011–13), as we showed in this policy brief. By moving reserves to an unrestricted account, as we wrote earlier this month, legislators “are playing a shell game with emergency reserves, which undermines the sustainability of the budget.”

An unnecessary risk, it seems to us. The WRC in another post notes the policy-driven growth in state spending.

he Legislature also passed a 2021–23 operating budget. Because the governor has not yet signed the budget, these numbers are not final. Additionally, future posts will look at the federal relief funding allocated in the budget. This post is solely about appropriations from funds subject to the outlook (NGFO).

As passed by the Legislature, 2021–23 NGFO appropriations are $59.193 billion. Of that, the maintenance level (the cost of continuing current services, adjusted for inflation and caseloads) is $55.980 billion. New policies add $3.214 billion.

The post goes on to detail major new expenditures.