Back in January, I wrote about the McCleary bow wave, which is largely responsible for the enormous increase in the maintenance level (the cost of continuing current services) for 2019–21. As I noted, the McCleary spending has been included in the outlook for the upcoming biennium, and it—along with other maintenance level spending—can be funded within existing resources. The November outlook showed an unrestricted ending balance for 2019–21 of $689 million.

But a January presentation to the Appropriations Committee from the Office of Program Research showed that 2019–21 revenues would not be enough to cover the maintenance level and would leave a shortfall of about $1.1 billion (see page 19). This estimate ignores the resources the state has in addition to revenues (the beginning balance, planned fund transfers).

Further, we have new information since January. In February, the Economic and Revenue Forecast Council reported that general fund revenue collections are $154 million higher than forecast in November. The Senate has also passed two bills that would increase revenues significantly (if also passed by the House):

• SSB 5581 would make a number of state tax law changes (including to conform with the U.S. Supreme Court’s decision in South Dakota v. Wayfair, which had to do with state taxation of online sales). According to the fiscal note, the bill would increase general fund revenues by $116 million in 2019–21.
• SSB 5734 would extend the hospital safety net program. (Under the program, hospitals pay assessments, which are then used in lieu of the general fund–state to make payments for hospital services for Medicaid patients, which generates federal matching funds.) The fiscal note is not yet available, but during the bill’s hearing in Ways and Means, Senate staff said that the bill would save $292 million in the general fund in 2019–21.

Working from the November outlook and accounting for all available resources (including the collections increase and the impact of the two bills) the estimated unrestricted ending balance increases to about $1.3 billion.

If you assume that the Legislature will fund the collective bargaining agreements with state employees and non-employees who bargain with the state (which would increase spending by $652 million) and the new system for school employee benefits (which would increase spending by $646 million), the unrestricted ending balance would be negative $46 million.

Given all this, it is unlikely that the Legislature will have trouble funding the maintenance level. But its ability to increase spending for new policy items will be informed by the March revenue forecast, which will be released March 20. Regardless, the Legislature should be cautious about new spending. As Opportunity Washington noted yesterday, a recession could be coming.

For more on Washington’s recent history of spending and revenues, see these reports:

• Washington Revenue Review: Revenues Are Still Growing Strong, But for How Long?
• Washington Spending Review: Spending Up 44 Percent Since Pre-Recession Peak
• Washington’s Budget Sustainability Requirements Work When Followed