Budget outlook provides official accounting of governor’s 2020 supplemental vetoes—based on the dated February revenue forecast

By: Emily Makings
2:18 pm
April 30, 2020

The Economic and Revenue Forecast Council met today to approve the official budget outlook for the 2020 supplemental (as signed by the governor).

The Legislature passed the supplemental on March 12, when the effects of the coronavirus outbreak were just beginning to be felt. Gov. Inslee then partially vetoed the budget on April 3, and he vetoed some of the revenue bills that had been passed by the Legislature. All in all, his vetoes improved the balance sheet.

According to the official outlook, the unrestricted ending balance of funds subject to the outlook is estimated to be $1.292 billion in 2019–21 (an increase of $374 million over the supplemental as passed by the Legislature) and $1.679 billion in 2021–23 (an increase of $820 million over the supplemental passed by the Legislature). Total reserves (including the unrestricted balance and the rainy day fund) are estimated to be $3.271 billion in 2019–21 and $4.277 billion in 2021–23).

However, it is important to understand that this outlook is based on the February revenue forecast. There was no discussion at today’s meeting about how much revenues could drop given the downturn we’ve been experiencing over the past few months. The next revenue forecast will be adopted in June, at which point the unrestricted ending balances expected in this outlook could easily be wiped out.

Still, following are some notable points from the outlook, the methodology document, and the meeting.

First, the official outlook includes the estimated revenues from ESB 6690 ($134.0 million in 2019–21 and $229.0 million in 2021–23), which increases the manufacturing, wholesaling, and retailing business and occupation tax rate for aerospace. The Legislature had not included these revenues in its conference report outlook, so the inclusion also improves the balance sheet.

Second, the budget had transferred $41.3 million from the general fund–state (GFS) to the workforce education investment account (WEIA) to ensure the WEIA remained solvent in 2019–21. The governor vetoed the transfer. Consequently, the outlook methodology document notes, it “may impact the financial health of the WEI account.”

Third, reversions are much higher than normal in this outlook. Reversions are appropriations that are not expected to be spent, and the outlook typically assumes that they will total about 0.5 percent of appropriations. That would indicate about $253 million for 2019–21, but the outlook includes reversions of $420 million. Three items make up the difference:

  • As of FY 2020, K–3 class size funding is only provided to school districts based on their actual class sizes, but not all districts have lowered their class sizes to the funded level. The outlook assumes that $128 million of this funding will not go out to districts in 2019–21.
  • The governor vetoed a provision in the budget that increased allocations for guidance counselors for high poverty elementary schools, but there wasn’t a specific dollar amount attached to the allocation in the budget bill. Thus, after the vetoes the funds could technically be used for other purposes, but the Office of Financial Management (OFM) directed the amounts to be put in reserve status. Given that, the veto is accounted for not as a reduced appropriation but as a reversion of $32 million in 2019–21.
  • Similarly, the governor vetoed a rate increase in the early childhood education and assistance program. The veto is accounted for in reversions rather than in appropriations for the same reason as the guidance counselor veto.

Fourth, according to a footnote, the outlook assumes that the federal government will continue to delay reductions in disproportionate share hospital payments to states through the 2021–23 biennium, resulting in savings to the state. (As I wrote here, one of the federal aid bills included a delay until Dec. 1, 2020.)

Finally, during the meeting Treasurer Davidson pointed out that the outlook includes a transfer from the state treasurer’s service account to the GFS of $16 million in 2019–21 and $12 million in 2021–23. He noted that his office has been reducing the treasury service fee to agencies (saving the agencies money), which will mean there is less in the account going forward. (For background, see here.) The treasurer also noted that they hope to continue to decrease the fees going forward.

Categories: Budget.