The state released its revenue forecasts today and thanks to the bad economy, the projected deficit for the  2010-2011 biennium (plus 2009)—just to meet current levels of service—is now more than $11.6 billion—$2.6 billion worse than the approximately $9 billion the state was facing during the last legislative session.

Here's what that means: To balance the budget last session in the face of the projected $9 billion deficit, Olympia made $3.6 billion in real cuts, transferred around $2.3 billion in costs, and relied on $3.2 billion in Obama stimulus money. The result was a $33 billion budget with about a half billion set aside as surplus.

Zap. The deeper hole—$11.6 billion, compared to $9 billion—wipes out that budget and means the state is facing more cuts.

And here's another problem: Rather than taking the scalpel to the whole $33 billion budget, there's only about $9.3 billion of "fat" to look at for cuts (including um, the basic health plan). The rest of the budget is mandatory funding for things like basic education requirements, federally matched programs, and stimulus-related programs.

The $2.6 billion shortfall is tied to the recession. Consumer spending is limper than expected, which is hurting tax revenues. And the social costs of the recession are draining the budget, too. Specifically, caseloads (health care coverage in particular) are higher because more people are unemployed.

The left-leaning Washington Budget & Policy Center and conservative ideologue Tim Eyman both responded promptly.

The WBPC says new revenues—taxes—must be on the table. Eyman says new taxes would deepen the crisis.

I've linked their press releases below the fold.

Washington Budget & Policy Center press release:

New revenue forecast reinforces need for balanced approach with budget

Today’s updated revenue forecast only made it more essential for the governor and lawmakers to take a balanced approach between spending cuts and revenue increases this upcoming legislative session.

The new forecast lowered the state’s expected revenue by another $760 million, bringing the total shortfall to $2.6 billion.

The continually worsening outlook comes at a time when Washingtonians need public structures more than ever. With the unemployment rate at its highest level since 1984, the need for the health care system, education and job training, and income supports become more important than ever.

We need a balanced approach to dealing with impacts of the recession on the budget, one that combines careful cuts with smart revenue increases, such as a combination of a retail sales tax increase with the Working Families Rebate.

When the Governor signed the current budget on May 19th, it was expected that the budget would leave an ending fund balance of nearly half a billion dollars plus $250 million in the rainy day fund. The last six months have not been kind to those assumptions. The recession has continued to pummel away at the budget.

At the same time, costs have gone up, due to the worsening economy. Between the March caseload forecast and the November caseload forecast, the number of people expected to access family medical assistance rose by nearly 14% and the number of children expected to access children’s medical assistance programs rose by 11%.

Because of the worsening outlook, the Governor’s budget will necessarily propose deep cuts in core public structures, on top of those already passed last session.

But these cuts come at a time when Washingtonians can least afford them, said Washington State Budget & Policy research director Jeff Chapman. A number of other factors point to the need for a balanced approach:

• 70 percent of the budget is protected. So filling the $2.6 billion shortfall would mean cutting unprotected areas of the budget by 27 percent.


• A recent memo from the Department of Social and Health Services' Health and Recovery Services Administration—written in response to the Governor’s request for budget reduction proposals—gave a glimpse at what might be cut. The memo acknowledges that “these are serious cuts, and cuts on top of cuts.”


• Possible cuts include eliminating important benefits for lower income adults receiving Medical Assistance, including maternity support services, hospice, hearing, non-emergent dental, vision, podiatry, physical therapy, occupational therapy, speech therapy, interpreters for medical services, and Medicare Part D (prescription drugs) copays. Funding for school-based Medicaid services would also be eliminated.

Remy Trupin, director of the Washington State Budget & Policy Center, noted that a more balanced approach “reflects sound policy judgment.”

He quoted Nobel economist Joseph Stiglitz and current OMB director Peter Orzag that “Tax increases can be less harmful to families and less damaging to state economies than the likely alternative: deep cuts in services.”

Trupin also noted that:

• Over 30 economists signed a letter noting that "reducing government spending will have a more deleterious effect on Washington State's economy than would increasing revenue."In response to the current recession, at least 30 states this year have enacted tax increases so far.  And In the recession of the early 1990s, some 44 states raised taxes. In the early 2000s, some 30 states did so.

• There is no evidence that tax-raising states from the 2001 recession were any faster or slower to recover from the recession than those that did not raise taxes.

• According to analysis by the Center on Budget and Policy Priorities, states that raised taxes were just as fast to rebound from the recession as states that did not, even though they were typically climbing out of a deeper hole.

Trupin said state lawmakers should consider raising revenue to avoid deep budget cuts that will harm the state and use the Working Families Tax Rebate to offset the disproportionate impact of a tax increase on lower income families. This approach was included in HB 2377.

Under the Working Families Tax Rebate:

Families with kids whose income is $28,000 or less would actually see a net decrease in sales tax.  The rebate would also significantly lower the cost of the sales tax increase for the next bracket of earners (those earning between $28,000 and $52,000) so that their total tax increase would be about $29 annually.

Trupin said, “The values of Washingtonians are reflected in our state budget, a sense of our shared history as state, and of the importance of public support for things that will promote future economic growth. If we don’t invest in education, transportation, job training, and health care our state will be poorly positioned for when prosperity returns.”

Tim Eyman press release:

RE:  Democrats in Olympia committed to raising taxes during the session guaranteeing an even longer recession

Listening to today's Economic & Revenue Forecast Council hearing, Gregoire and the Democrats in Olympia couldn't have been clearer about their top legislative priority:  raising taxes during the session guaranteeing an even longer recession.

It is willful economic suicide but it's what the unions demand, and so the fix is in.

Republicans Ed Orcutt and Joe Zarelli were correct when they highlighted the insanity of this approach.  Raising taxes will only hurt taxpayers and make the recession last longer.  But the Democrats weren't listening.

The person who said the emperor had no clothes was very likely very unpopular with the emperor -- nonetheless, it's important to note what caused this problem:  Gregoire and the Democrats adopted completely unsustainable budgets and always counted on the taxpayers to bail them out.  Now that the bill is coming due, they're looking around to see who will pay it.  But the taxpayers and the economy can't afford it.  And even if they could, what message does that send?  That the government is too big to fail so let them get away with a taxpayer-financed bailout?  Taxpayers are sick to death of bailouts.

Citizens understand that raising taxes will only make this bad situation worse.

Every newspaper has editorialized that raising taxes will only make the recession last longer.

Gregoire and the Democrats made this mess -- they need to clean it up themselves with existing revenue.

They need to realize that by declining to support Initiative 1033, citizens gave government an extra $9 billion – over and above inflation-and-population growth – to resolve its fiscal challenges.  Governor Gregoire and the Democrats who control the Legislature should simply say “thank you” and not push their luck by trying to take even more.