Washington Research Council draws lessons for today from budget experience during the Great Recession.

Released on the first day of the fiscal year, a new policy brief from the Washington Research Council offers sound guidance to policymakers confronting the current budget crisis. In State Budgeting in the Great Recession, and Lessons for Today  the WRC analyzes steps taken to address the revenue losses in 2007 – 2011 and recommends actions that can be taken now to mitigate the fiscal damage.

From the report, here’s what lawmakers did then.

From the September 2007 forecast through the November 2011 forecast, revenues declined by a total of $12.640 billion (the 2007–09 forecast was reduced by 6.9 percent, the 2009–11 forecast was reduced by 20.2 percent, and the 2011–13 forecast was reduced by 11.0 percent). To address the revenue shortfalls, the Legislature cut policy level spending, used federal stimulus funds, increased taxes, made transfers to the GFS from other funds, and tapped the rainy day fund.

Already, the WRC notes, the state is in a stronger position.

The state has already learned two major lessons from the Great Recession: A constitutional amendment was approved in 2011 requiring the transfer of three- quarters of any extraordinary revenue growth to the rainy day fund. And beginning with the 2013–15 biennium, the Legislature has been required to balance budgets over four years.

The short form recommendations:

A close examination of the state’s response to the Great Recession reveals other lessons for policymakers responding to the COVID-19 economic crisis:

  • Use the rainy day fund.

  • Don’t lead with tax increases.

  • Treat federal aid as a temporary stopgap.

  • Cut spending early.

  • Eliminate low-priority programs instead of just suspending them.

  • Anticipate additional revenue reductions.

  • Maintain the four-year balanced budget requirement. Going forward, the Legislature should also:

  • Perform fiscal stress tests as a regular part of the budget process.

  • Make Medicaid spending more transparent.

Among the informative charts and graphs in the report is this one summarizing the state’s response.

Note most of the response involved policy reductions. Revenue increases amounted to just 12% of the budget solution. The WRC writes,

Tax increases in 2009 and 2010 made up 11.9 percent of the response to state revenue shortfalls…

  • Don’t lead with tax increases. Tax increases were a minimal part of the Great Recession response. Even if the Legislature could agree to increase taxes, in cases like a capital gains tax the revenues might not be collectible for some time, making them unhelpful in the near term. (Moreover, the part of the tax response to the Great Recession that brought in the most revenue was an increase in the B&O tax surcharge on service businesses. The Legislature has already gone to that well this year, for the workforce education investment account.)

It’s not unreasonable to believe that the limited use of tax increases helped businesses recover more quickly, fueling the revenue surge following the recession.

There’s a lot of rich detail in the 16-page report. Rather than try to summarize it, we recommend reading the report. The advice is sound.