Budget Discipline Collapses in Washington State

Exercising complete political control for the first time in years, Washington state Democrats pushed through a record $26 billion budget for the state’s 2005-07 budget cycle on April 24. The legislature relied on nearly half-a-billion dollars in tax increases and one-time revenue sources and left $200 million in reserve, less than 1 percent of the total budget.

The vote on the budget in the state Senate was 25-22. All 25 votes in favor were by Democrats, with only one Democrat voting no. All 21 votes cast by Republicans opposed the budget. In the House, 55 Democrats and 1 Republican voted yes, and 42 Republicans voted no, for a 56-42 majority for passage.

Creative Accounting Used

To reach $26 billion in spending, legislators resorted to creative accounting to artificially increase the spending limit formula approved by voters in a 1993 initiative.

For example, they transferred $250 million from a dedicated fund–the health services account–to the general fund, then appropriated $250 million from the general fund to the violence reduction and drug enforcement account. Then they transferred money from there back to the health services account.

When money is transferred into the general fund and appropriated, the spending limit is raised. In this case, money was simply moved among accounts, raising the spending limit even though no more money was available.

Legislators also deferred paying $325 million in pension obligations for state employees.

TABOR Ignored

Besides artificially increasing the spending limit approved by voters in I-601, a statutory Taxpayers’ Bill of Rights enacted in 1993, Democrats also approved a bill that redefined the remaining taxpayer protections. Approved on a strictly party-line vote, SB 6078 removed the two-thirds vote requirement for the legislature to raise taxes during the 2005-07 biennium.

The budget also redefined the spending limit growth factor to allow state spending to grow at a faster pace than previously authorized. This allowed Democrats to implement nearly half-a-billion dollars in tax increases with a simple majority vote and without any Republican support.

Budget Maneuvers Create Furor

“Welcome to Democrat control of the legislature, folks. Here we go again,” said Sen. Don Benton (R-Vancouver). “If you are a business considering moving to Washington, stay away. If you want to buy cigarettes or extended warranties, cross the state border.”

Gov. Christine Gregoire (D) countered the Republicans’ description of the budget, saying, “If you’re not a millionaire, not a smoker, and you don’t drink hard alcohol, there’s no impact on the citizens of the state of Washington at all.”

Rep. Eileen Cody (D) told a House Appropriations hearing on March 24 that the spending limit adjustments were “necessary in order to live within the very narrow constraints of our state expenditure limit.” Cody said the spending limit maneuvers were legal and should be utilized “until the state has a more meaningful expenditure limit that might be able to accommodate the growth of vital state programs.”

School Funding Drove Increases

Supporters of the increase in the voter-approved spending limit said the move was necessary to meet the funding requirements of another voter-approved initiative to reduce class sizes in the public schools. Known as I-728, the class size reduction measure was approved by voters in 2000 based on promises made by former Gov. Gary Locke (D) that the initiative would not raise taxes.

The state’s billion-dollar surplus disappeared in 2001.

With I-728 causing a drain of more than $800 million from the state’s budget, Democrats voted to dedicate portions of an increased cigarette tax and new estate tax to cover part of the cost.

According to Bob Williams, president of the Evergreen Freedom Foundation, overriding the voter-approved spending limit to fund I-728 was unnecessary.

“Democrats were not prevented from raising taxes and spending at any level they want, but under the law, voters were to be given the opportunity to approve expenditures in excess of the spending limit,” Williams said. “By playing budget games, the Democrats simply denied the people their right to reaffirm that the budget actually reflects their priorities.

“Rather than resort to budget gimmicks to thwart the will of the people, the Democrats should have referred the full costs of the ‘free’ education initiative to a vote of the people with a corresponding revenue source,” he said.

Tax Increase Initiative Failed

“Last year’s failure of Initiative 884, which would have increased the state’s sales tax by a billion dollars a year to fund the provisions of I-728 along with other education proposals, helps explain why the Democrats did not want a vote of the people,” said Jamie Daniels of FreedomWorks.

“A tax here, a tax there, everywhere a tax tax,” Rep. Barbara Bailey (R-Oak Harbor), told the Everett Herald. “We’ve taken everything we can take. The taxpayers have no more to give.”

Criticism of the Democrats’ $26 billion tax-and-spend budget was fierce and swift in coming.

“It is outrageous the legislature raised taxes by nearly $500 million in adopting its unsustainable budget. We do not have a revenue problem, we have a spending problem,” said Daniels. “There is no need for higher taxes; there is a need to curtail spending, prioritize, and invest in targeted programs that work. The voters overwhelmingly rejected new taxes with the defeat of I-884 on the November ballot and nothing has been done since then to restore their confidence in state spending accountability.”

Dann Mead Smith, president of the Washington Policy Center, agreed. “Simply taking more tax money from citizens won’t help, but thorough budget reform, like spending limits, competitive bidding for government services, and legal safeguards against tax increases, would finally ease the chronic sense of crisis in state finances.”

Washington’s business community also voiced disapproval of the Democrats’ budget.

“Democrats in Washington State are completely out of touch with the rest of America. While the U.S. Congress is eliminating the estate tax, Washington is embracing it,” said Erin Shannon of the Building Industry Association of Washington. “This will have a devastating effect on family farms and small businesses. Knowing they’ll have to pay this tax gives other family-owned businesses one more reason to stay out of Washington State.”

Jason Mercier (jmercier@effwa.org) is a budget research analyst for the Evergreen Freedom Foundation.