Legislature Back in Olympia
A special session of the Legislature, called by order of Gov. Chris Gregoire, began November 28th against a backdrop of the state’s continuing budget crisis.

The Legislature approved a two-year budget last May, which was designed to get the state through the ensuing two years in the black, with several hundred million dollars to spare.  However, that 2011-13 budget was dependent upon collecting the amount of revenue that was anticipated in March. 

As it turned out, the amount of revenue the state’s chief economist expects will actually be collected was reduced by $565 million in June, and reduced sharply again in September, bringing the shortfall to $1.4 billion.  A further slight reduction in the revenue forecast was made in November.  All told, in order to balance the budget and re-build a reserve, state lawmakers are expected to try to fill a budget gap of nearly $2 billion.

The special session is just the latest round of state budget cutting.  The 2011-13 budget included $4.6 billion in spending cuts.  Over the past three sessions, as shown in the chart below, $10 billion in cuts has been part the response to a cumulative $18 billion budget gap.  The state has also used $3.4 billion in federal funds, made over $3 billion in fund transfers and approved $1.1 billion in new revenue over these three years.

As part of the previous budget cuts, public colleges and universities have seen the state contributions to their budgets reduced by up to nearly half.  Most financial aid programs for students have seen their funding levels substantially reduced or eliminated entirely.  For example, funding for the State Work Study program has been cut by two-thirds.  And in the case of the largest program offering aid to college students – the State Need Grant – while actual dollar amounts provided have increased, the program has fallen far behind student needs.  

One in four students eligible for the Need Grant is not receiving this crucial aid because the program is so substantially under-funded. About $196 million more would be needed to fully fund the program, given the number of currently enrolled college students who are eligible.  

The governor proposed, as is required by law, a series of budget changes that would bring the current budget into balance without new tax revenue.  Among the $2 billion in cuts proposed by the governor, funding for State Work Study in 2012-13 would be eliminated.  The good news is the governor has proposed keeping State Need Grant funding at current levels.

The governor has also proposed a temporary (three-year) increase in the state sales tax of one-half penny.  This would mean a five cent increased cost on a $10 purchase.  The proposed tax increase would generate $494 million in new revenue.  The governor proposes using that new revenue to avoid some of the $2 billion in proposed cuts. 

Specifically, the governor suggests using $411 million of the new revenue to avoid three cuts in education – a reduction in the budgets for public colleges, a four-day reduction in the length of the school year for K-12 education, and a major reduction in state support for school districts with lower relative property valuations.  (The balance of the new revenue the governor proposes using for programs in public safety - $41 million - and services for people with developmental disabilities - $42 million.)

While the governor and some members of the legislature favor raising some new tax revenue as part of the budget solution, other legislators remain opposed to raising new revenue and advocate balancing the budget through spending cuts alone.  This tension will be at the heart of the debates during the special session, and likely into the regular session, which convenes on January 9.

Many observers believe about two-thirds of the budget is virtually off-limits for cuts  - for example, K-12 basic education is constitutionally protected, debt service payments and pension costs are difficult to avoid, and federal requirements for state matching funds apply to programs such as Medicaid.  Higher education in general, including student aid programs, are among the largest items left in the most unprotected one-third of the budget.  Thus, higher education is expecting to be targeted once again for proportionately larger cuts.    In August the governor requested state agencies suggest ways of cutting all budgets by 10%.  Such a cut translates into a $22 million annual reduction to the State Need Grant.  This would mean 6,000 more eligible unserved students, on top of the more than 25,000 currently unserved students. 

The governor has asked the Legislature to adopt a new balanced budget plan before Christmas.  Some legislative observers believe a more incremental approach is likely, in which the Legislature might try to identify perhaps $500 million in budget cuts by some time around the middle of December, and then tackle the remainder of the problem beginning in January.