The Budget

Economic Hurricane

Lawmakers have known for a while that tough economic times were in store for our state. When we left Olympia last March, we dedicated $850 million towardsstate savings accounts.

In 2007, we adopted a similar strategy when we created the constitutionally-protected Rainy Day Fund, and put $724 million in savings.

And before that in 2006, we set $825 million into three reserve accounts to pay for future pension, health care and education obligations for a total savings of $935 million.

Since the 1980s, the average of annual total state reserves has been $400 million. For three years in a row, we've doubled that.

While we saw storm clouds on the horizon – and prepared as best we could – no one could have predicted that the storm would turn out to be an unprecedented category five economic hurricane.

The national and international financial crisis is the greatest of its kind since the Great Depression.

By now, we’re all familiar with the headlines about the subprime mortgage crisis, and how the unsound lending practices that upended homeowners’ finances all across the country would eventually take down the country’s financial market as well.

Today, it’s well-understood that this has had a chilling effect on the flow of credit to consumers and businesses, and that this credit squeeze – which hampers businesses’ ability to meet payroll or make inventories – has crippled state economies across the nation.

At least 46 states are facing operating budget shortfalls, including Washington. The combined shortfall for the states over the next two-year cycle is estimated at over $350 billion.

Even though Forbes ranked Washington the nation's third-best state to do business in, and the Pew Research Center for the States named Washington the best-managed state in the nation in 2008, the economic downturn and credit crisis has significantly impacted our state economy and state government.

In Washington, where there is no personal or corporate income tax, retail sales make up over half of state revenue in the operating budget. As you can see, our sales tax collections have plummeted during the economic crisis:

This has contributed to the negative growth of overall revenues in the operating budget (NGF):

This, in turn, has created a $8.3 billion gap between our current commitments in education, health care, public safety and environmental protection on the one hand, and the current revenues needed to support those commitments on the other.

In other words, just like the many families in our state that are struggling to stay atop of their growing daily expenses, our state income is lagging more than 25 percent behind what is needed to fund essential public services. 

This is an unprecented challenge. The shortfall is the largest in modern state history, both in terms of total dollars and in percentage of the overall budget.

But this alone doesn’t begin to illustrate the magnitude of the problem.

Continue to "Cut our way out"