The budget shortfall is a spending problem

By: Emily Makings
2:48 pm
August 6, 2020

State spending has increased substantially in recent years. Much of this growth was driven by the increases in school funding made to comply with the state Supreme Court’s McCleary decision. The Court found the state in compliance in 2018, but state spending hasn’t slowed.

Including the 2020 supplemental (and the governor’s vetoes), 2019–21 appropriations are $9.016 billion (20.2 percent) higher than in 2017–19. (The numbers in this post are in terms of funds subject to the outlook, or NGFO: the general fund–state, education legacy trust account, opportunity pathways account, and workforce education investment account.)

For 2019–21, the maintenance level alone increased by $5.938 billion (13.3 percent). (The maintenance level is the cost of continuing services, adjusted for caseload, inflation, and enrollment changes.) New policies enacted in the original 2019–21 budget totaled $2.388 billion and new policies enacted in the 2020 supplemental budget (net of vetoes) totaled $690.1 million.

Meanwhile, in June, the Economic and Revenue Forecast Council reduced estimated 2019–21 revenues by 8.7 percent over the February forecast and 2021–23 revenues by 7.8 percent over the February forecast. Despite these large reductions, 2019–21 revenues are still expected to be 4.4 percent above 2017–19 and 2021–23 revenues are expected to be 12.7 percent above 2017–19.

According to the Office of Program Research, the unrestricted ending balance of the funds subject to the outlook is now expected to be negative $3.403 billion in 2019–21 and negative $8.465 billion in 2021–23. With some adjustments to account for more recent information, we estimate that the 2019–21 shortfall is negative $2.725 billion. Assuming the state will use the rainy day fund, that shortfall shrinks to $809 million. More cuts will be necessary to balance 2021–23.

To the extent that 2019–21 spending is cut (rather than only relying on one-time funds), those cuts will help with the 2021–23 situation, as they will no longer add to the maintenance level for that biennium. As we’ve documented, some parts of the budget are harder to cut than others, but nothing is completely off the table. To balance the budget, the Legislature could cut spending at the maintenance level and from new policies enacted this biennium.

This could be done through a Priorities of Government process. As the Office of Financial Management describes it, “the administration conducts a government-wide assessment of services to establish a clear set of results that citizens expect from state government and then reprioritizes state spending to focus on services most instrumental in achieving those results.” This process was used by Gov. Gregoire in response to the Great Recession and by Gov. Locke in response to deficits in the early 2000s.

We have previously argued that the 2019–21 spending level is unsustainable. Now, with revenues expected to be much lower than previously estimated, the enacted level of spending is no longer even attainable. The Legislature should cut spending to bring it more in line with expected revenues.

Categories: Budget.