Tax increases, pay freezes, spending cuts all on table

BRAD SHANNON, THE OLYMPIAN

Originally published Wednesday, February 20, 2002

OLYMPIA -- The state's budget shortfall has grown, officials said Tuesday, as a new forecast showed a $247 million decline in revenue from November's estimate.

An additional $100 million in expenses, much of it for Medicaid, is expected to be announced today, swelling the shortfall to $1.6 billion.

The news is pushing lawmakers to take a closer look at tax increases, and it prodded Gov. Gary Locke to order a hiring freeze.

Locke also is considering across-the-board spending cuts that could total 5 percent or 6 percent, he said.

Pay freezes for state workers, and possibly teachers, will be considered, he said.

"It remains my hope we can balance the state budget without a general tax increase," Locke said after the state's top economist, Chang Mook Sohn, outlined the growing budget crisis in a meeting of the Revenue Forecast Council.

"Today's revenue forecast and tomorrow's caseload forecast means that more painful and cost-cutting measures need to be considered," Locke said. "In addition, we will consider revenue options, such as closing outdated tax exemptions and loopholes."

Tax increases ahead?

In a sign that the budget debate at the Capitol is beginning to shift from a cuts-only approach, one Republican fiscal conservative, Rep. Jack Cairnes of Kent, agreed that budget cuts alone can't fix the problem.

Still, Cairnes warned that tax increases endanger job growth, and he called for cuts in spending.

"This is very sobering news. I guess it's impossible to face the reality of this news," said Cairnes, ranking Republican on the House Finance Committee, which is looking at potential increases in the sales tax to raise some revenue.

"I guess we have to see if any serious proposal is going to be made in addressing the bleeding, all the red ink, in the budget.''

Unions: no pay cuts

State employee unions praised Locke's hiring freeze but questioned why lawmakers don't look for alternatives to cutting employee pay.

"It's a knee-jerk reaction," said Greg Devereux of the Washington Federation of State Employees, who would not rule out a worker strike.

Fifteen of the other 39 states with budget problems are borrowing from their tobacco-settlement funds, Devereux said. He called on Washington to consider the same thing.

Devereux said it's also worth looking at a proposal by Sen. Jim Hargrove, D-Hoquiam, to enact a temporary "patriot" sales tax surcharge to replace revenue lost from the Sept. 11 attacks.

Hiring, pay freezes

Locke's hiring freeze might save $14 million to $24 million on top of the millions already saved by a net decrease of 1,685 state jobs made since July 1, Locke budget spokesman Ed Penhale said.

The governor's hiring freeze will not apply to prisons and front-line workers whose jobs protect public safety, Penhale said.

An order to state agencies will go out this morning, Penhale said.

Agencies under control of independently elected officials or citizen commissions don't answer to the governor, but they will be asked to voluntarily freeze employment, Penhale said.

That means the decision to limit hiring will be up to the state insurance commissioner and leaders in the Department of Natural Resources, Department of Fish and Wildlife, Parks and Recreation Commission and Department of Transportation.

Among Locke's other suggestions is a state worker pay freeze that could save $83 million.

An additional $92 million could be saved if teachers' pay is frozen, Penhale said, but that would require a two-thirds vote in the Legislature because it would overturn Initiative 732.

Across-the-board spending cuts could save upward of $350 million, said Marty Brown, Locke's state budget director.

Recession hits hard

Sohn delivered the bad economic news during the quarterly meeting of the Revenue Forecast Council.

The fall in tax collections mirrors the Sept. 11-driven recession that is hitting Washington state much harder than the rest of the country, Sohn said.

An upturn in employment won't happen for another year, Sohn said.

In fact, the revenue drop will leave the state with less income in the two-year budget cycle than it collected in 1999-2001, Sohn said.

"It is unprecedented to be down this much," said Senate Majority Leader Sid Snyder, D-Long Beach, chairman of the Forecast Council.

The best way lawmakers can boost the economy is to pass a transportation funding package that could create 19,000 jobs in the construction industry, Snyder said.

But Republicans repeated their call for a hiring freeze and limits on travel and equipment purchases, both of which Locke later announced.

Sen. Dino Rossi, R-Sammamish, the ranking Republican on the Senate Ways and Means Committee, said Locke's move was "better late than never."

"We need to continue to examine other places we can tighten our belts in government, so we can avoid making drastic cuts that will affect children and the elderly," Rossi said.

Cairnes, who also sits on the Forecast Council, left the door open to tax increases.

However, the biggest problem with the $22.8 billion budget approved by lawmakers last July was its overspending, Cairnes said.

That budget dipped into state reserves and spent $650 million more than the revenue known to be available at that time for the 2001-03 period, Cairnes said.

"I can't say it enough: We can't tax our way out of this," Cairnes said.

"I'm not suggesting we can get through this strictly with cuts."

Lost budget cushion

Sen. Dan McDonald, R-Bellevue, said the state's reserves had reached $1.2 billion a few years ago.

But lawmakers spent some of it to balance last year's budget, and voters helped themselves to hundreds of millions of additional dollars with initiatives to reduce car taxes and increase school spending.

"I think it's a great tragedy people couldn't keep their hands off of it," McDonald said.

Lawmakers now need to find a way to rebuild reserves for the next downturn in 10 years, McDonald said.

"We have to pass budgets that are sustainable," said Cairnes, who called for a hiring freeze that he thinks could cut 1,500 jobs a year through attrition.

Within four hours, Locke ordered the freeze.

Brad Shannon, political editor for The Olympian, can be reached at 360-753-1688 and at shannonbrad@hotmail.com.

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