What good is the four-year balanced budget requirement?

Over the weekend, the Olympian editorialized against the four-year balanced budget requirement.

It’s typical that Washington’s Legislature strains to get its work done on time when there is divided government. It also strains mightily when economic downturns force cuts or tax increases. Both have been in play in recent years, accounting for a surge in special sessions.

But some, like Sen. Marko Liias, D- Lynwood, think the state’s somewhat new four-year budget rule is adding to the problem.

Special sessions have been the norm throughout the modern era (which began in 1980, when the Legislature started meeting annually for regular 60-day and 105-day sessions). To be sure, special sessions have taken longer in recent years. While the average number of extra days from 1980 through 2009 was 12.3 days, the average from 2010 through 2016 was 35.4 days.

The four-year requirement took effect in 2013. Looking at 2010 through 2012, the average of extra days in session was 35.3 days. Little has changed since the rule has been in place: The average from 2013 through 2016 was 35.5 extra days. (You may have seen reports that since 2013 the Legislature took an average of 47 days to finish—that excludes the 2014 session, which did not go in to overtime.) So, while it’s true that the four-year requirement constrains legislators, special sessions haven’t gotten longer, on average, since it became effective in 2013.

Of the four-year balanced budget requirement (RCW 43.88.055), the Olympian writes,

That rule requires that the two-year budget—if carried forward into the following two years—be matched by revenues that are expected. But this means decisions are based on sometimes unreliable or changing costs and somewhat speculative estimates of revenue.

Of course forecasts are going to be less accurate the longer the window. But it’s still good to base current decisions on your best estimate of how things will be in the future. (Should fiscal notes for legislation be limited to the first two years?) Incidentally, the requirement specifically allows for some leeway in the revenue estimates used: The available resources for the second biennium are the greater of the revenue forecast for the next biennium or the revenue forecast for the second year of the current biennium plus 4.5 percent for each year of the next biennium.

The Olympian also notes the exemption from the requirement of McCleary costs:

That’s what makes the four-year budget rule a sham.

The four-year rule has imposed some discipline on the budget process. But it’s been used to discourage early investments or honest debate that could have ramped up the amount the state puts into schools each budget cycle.

Is the solution to kill the four-year budget requirement? Maybe not. Perhaps it needs amending so that K-12 costs are included and uncertainty is better acknowledged.

First, I don’t know how you can say that basic education funding hasn’t been ramped up since 2012. In the 2013–15 budget, the Legislature added $982 million and in the 2015–17 budget the Legislature added $1.3 billion. Gov. Inslee noted earlier this year that “The Legislature has continually made progress on fully funding education.” Additionally, the Center on Budget and Policy Priorities found that state general fund spending per student in Washington increased by 16.5 percent from 2008 to 2016—the third-highest increase in the nation. (Washington’s spending increase from 2015 to 2016 was 8.3 percent, also third-highest.)

Second, the four-year budget requirement only excludes McCleary costs in 2013–15 and 2015–17. Amending it at this point to include those costs would be pointless, as they will already be included in future biennia. Moreover, the Legislature has made a point of including in the ensuing biennium’s maintenance level the costs of continuing the funded McCleary pieces. (Earlier this year, the House-passed supplemental budget would have reduced the 2017–19 maintenance level to exclude planned K–3 class size reduction spending. The final supplemental that passed the Legislature does not do so.)

In his Seattle Times op-ed, Sen. Liias writes,

If this rule had been in place before the Great Recession, projections would have been off by approximately $5 billion. Had we abided by a budget that missed the mark by this much, it would have required a combination of either devastating cuts or astronomical taxes to get the state back in the black.

But that was exactly what happened, even without the requirement. In response to the Great Recession, NGFS+ spending in 2009–11 was reduced by $2.2 billion. And in 2010, for example, $769 million in tax increases were enacted.

If the requirement had been in place, perhaps there would have been some moderation in spending before the downturn. Indeed, in 2007, the Research Council wrote that Gov. Gregoire’s 2007–09 budget proposal, on a general fund–state and related accounts basis, was in deficit by $1.239 billion (she proposed using reserves to cover the deficit). OFM prepared a six year outlook that year that showed that—even assuming 5 percent revenue growth—the general fund–state plus budget stabilization account reserves would be in deficit by $1.259 billion in 2009–11 and $1.244 billion in 2011–13. The Research Council warned that 5 percent “may well be too high. Reversal of the recent increase in construction’s share in the state economy could easily shave 1 percent from the revenue growth rate.”

Add new comment