Deficit Rending

Throughout last fall’s epic Washington state gubernatorial campaign, there was a single issue that loomed larger than any other: the oncoming state deficit, which seemed to be growing by the day.

Dino Rossi, the Republican candidate, was merciless in his criticism of Gov. Christine Gregoire’s spending, claiming that she had turned a “$2 billion surplus” in 2007 into a projected $2.7 billion deficit. While Rossi called on voters to usher in a new era of fiscal conservatism, Gregoire was able to associate the ailing deficit with the Bush administration and its unpopular economic strategies.

Meanwhile, as the politicos slugged it out, the deficit projections continued to grow to almost $4 billion by the time Gregoire had won re-election; by late November, the figure was amended to $5.1 billion. Today, the budget shortfall, which may reach $6 billion, still hangs like a storm cloud as the single largest challenge to Gregoire and the newly convened Legislature.

This kind of impasse tends to make business groups nervous, since a tax hike is often prescribed as a quick solution. The Legislature has not officially indicated whether it will work to uphold Gregoire’s oft-repeated campaign pledge to not raise taxes, but many insiders feel that to advocate a tax hike would be political kryptonite. The combination of empty state coffers, Gregoire’s no-tax pledge and a state Constitutional requirement that all projected deficits be eliminated by the start of each fiscal year (beginning in July) leaves the Legislature with one painful solution: massive spending cuts.

State senators and representatives from both parties are anxiously approaching the upcoming session. With a biennial budget of $33.7 billion and a $5 billion to $6 billion shortfall, the Legislature will be forced to reduce spending by 15 to 18 percent. State Rep. Hans Dunshee (D-44th District), who serves as vice chair of the House Appropriations Committee, says there’s no easy way for the Legislature to determine what spending to eliminate.

“There’s no magic pot of money that we’re going to find. It just isn’t there,” he says. “You could completely wipe out all natural resources–all the state parks, all land management programs–and all you’d get is 5 percent of the problem.”

So how did Washington find itself in such a deep hole so quickly? The short answer is that spending on state programs increased by 33 percent over the last four years while its revenue fell off a cliff. The state’s primary revenue streams–sales, property and gross receipts taxes (commonly known as business and occupation taxes)–have been reduced to a trickle by the economic crisis that began last fall, yet the spending commitments have continued.

Dunshee also points out that if the Legislature had not cut taxes by $3.7 billion since 2003, today’s projected budget shortfall would be much easier to manage.

State Sen. Joseph Zarelli (R-18th District), the ranking Republican on the Senate Ways and Means Committee, is prescribing a sobering dose of fiscal conservatism. “Businesses that spend more than they take in don’t stay in business for long, but that’s exactly how state government got into this situation,” Zarelli says. “A tax increase on businesses would be like asking them to help bail out the state.”

While Washington’s legislators certainly aren’t pleased with the prospect of making massive cuts, they’re confident that a budget agreement will be reached. “There are things which government needs to do, and things that it wants to do,” Zarelli adds. “Our families and employers sometimes have to wait to afford the things they want, versus the things they need. Shouldn’t state government have to do the same?”