Dear Governor Gregoire,
Dear Governor Gregoire,
We fully agree with statements in your November 23 letter to legislative leaders that "we need to make sustainable policy and budget decisions that are reflective of current revenue. We need decisions that meet our immediate need and those that will provide direction for the 2011-13 biennium. There are only seven months left in the biennium, and delay will result in deeper cuts and additional harm."
In the wake of your statements, it is clear that legislative leaders are dragging their feet. The first step to compel action is to disclose the actual fiscal state of the state in a transparent manner that lawmakers and citizens can understand. If legislators do not understand the full extent of the state’s financial problems, they will not respond properly or in a timely manner. The state’s Comprehensive Annual Financial Report is a classic case of being unable to see the forest for the trees. State spending and indebtedness levels, unfunded liabilities and financial trends are extremely difficult to locate. Critical information is buried in footnotes amidst hundreds of pages and less important details.
Therefore, we recommend that your office release a report similar to the one we created that clearly outlines and discloses the financial state of the state. Such a report would include an accurate accounting of total state spending, including the unsustainable tactics used to balance the General Fund—transfers from dedicated accounts, use of one-time federal funds, delaying pension obligations and other tactics resulting in short-term gain and long-term pain for the state budget. The report should also assess and compare state employee salary and benefit increases over time, and outline the long-term pension and retiree health care unfunded liabilities. It would clearly state the solvency problems that exist within certain state funds, such as workers’ compensation, as well as examining the growth rate of state debt.
Financial transparency is a necessary—but not sufficient—step on the road toward budget recovery. As the state’s chief executive, you must also accurately assess the state’s revenues and expenditures. The current budget problem is worse than what you and legislative leaders are describing. In the current biennium, the state will spend $2.34 billion more than the revenue forecast. You are cutting the real deficit in half by using one-time funds from dedicated accounts and the budget stabilization account to pay for ongoing expenses.
The budget fixes outlined in your draft supplemental budget do not address the real shortfall between revenue and spending in the current budget. The accounting gimmicks and funding delays you proposed only push the problem forward to the next budget. These gimmicks include: delaying college need grants until 2012 to save $76 million; using $208 million in federal “edujobs” money to balance the budget, which is a violation of the intended use of these funds; sweeping $51 million from other dedicated funds; and delaying the June K-12 apportionment payment until July to save $240 million.
The 2011-13 budget problem is big enough without these additional pressures. OFM has announced an expected $5.7 billion shortfall for the 2011-13 budget. Though we agree the incoming budget problem is substantial, is the state really planning on increasing spending by 26 percent? The current revenue forecast for 2011-13 is $32.6 billion. A $5.7 billion shortfall would mean the state needs $38.3 billion to keep up with planned spending levels. The current budget is $30.5 billion (before any supplemental cuts). Does the state plan on increasing spending by $7.8 billion in the next biennium? We believe the problem is not so large if you and legislators look at outcomes to determine spending priorities, rather than considering everything in the budget mandatory.
There are some things you can do to change the state’s trajectory and truly transform the budget:
1) Thoroughly examine all state spending, which increased $4.2 billion during the current biennium, despite the 2010 supplemental budget’s dramatic “cuts.” You and legislators tend to focus only on one account—the state’s General Fund—while ignoring total spending and opportunities for reform elsewhere.
2) Call a special session on December 6 and ask legislators to reduce the budget by $2.34 billion to bring state spending in line with actual revenue. This will end the state’s dependence on one-time funds and the savings achieved will carry forward to help with the 2011-13 deficit. Issue an executive order implementing across-the-board cuts to close the deficit effective December 13 if the legislature does not enact similar savings by December 12.
3) Call on agencies to update their Priorities of Government assessments to include prioritization of agency projects: one-third high priority, one-third medium priority and one-third low priority. Then prioritize spending as Governor Locke did within existing revenue.
You requested ideas for transforming the state budget. “Transform” by definition is a revolutionary concept. Along those lines, here are some ideas:
1) Reinstate Initiative 601. Return to the original fiscal growth factor of population + inflation growth. Using personal income as the fiscal growth factor has allowed the legislature to ratchet up spending to unsustainable levels. Restoring the original voter-approved spending limit will restrain lawmakers in the good times, so that the bad times aren’t as painful.
2) Analyze programs on an outcome basis.
a. Change higher education funding from institutionally-based to student-based using a per-credit basis. Pay for degree completion rather than student enrollment.
b. Eliminate Educational Service Districts.
c. Eliminate perverse incentives for learning assistance program and bilingual education by funding success based on outcomes from the program, not on how many students enter the program.
d. For K-12 students, fund the student rather than the institution and allow the dollars to follow them to the public school of their choice. In addition to budget savings, this will dramatically improve educational outcomes.
3) Require teachers and state employees to contribute at least 28 percent of the cost of their health care benefits. Freeze (or cancel) all STEP increases. Repeal the initiatives mandating teacher COLAs and class size reduction funds. The state can no longer afford these benefits and programs, especially when the outcomes are unproven or dubious at best.
4) Eliminate all agencies, boards and commissions that are not core functions of government (i.e. may be handled by the private sector) including ethnic commissions, the state printer, Puget Sound Partnership, the Lottery Commission, etc.
5) Replace the defined-benefit pension system for all new employees with a defined-contribution model. Modify pension benefits for existing employees that are not contractual—for example, annual cost of living raises, retirement ages, etc. Eliminate or reduce retiree health care benefits, which are not a vested right.
6) Determine the actual penalty for failure to maintain federal “maintenance of effort” requirements. Seek a waiver if necessary in order to stop funding these requirements.
7) Put more existing in-house activities up for competitive bid. This would require a change in the so-called civil service reform law passed in 2002. The law bogs down an agency’s ability to contract out with time-consuming requirements. Some examples of activities that could be contracted out include:
a. College dormitories—allow the private sector to build and maintain by charging students rent.
b. State ferries—Privatize them. Or in the meantime, consolidate the ferry unions to reduce costs and collective bargaining hassles.
8) Give some agencies the chance to become charter agencies. As you know because of your sponsorship of a presentation on the idea in 2007, charter agencies are freed from many bureaucratic regulations in order to achieve better outcomes for citizens, such as streamlining the permit process. They agree to be accountable for measurable results on a reduced budget. For example, Iowa’s charter agency program has saved tens of millions of dollars. Why not here? Why not now? Why not under your leadership?
9) Sell surplus state property and apply the proceeds toward the unfunded pension liability.
We have many more budget transforming ideas. Should you need more, don’t hesitate to contact us.
One courageous governor can change a state’s course. Washington needs you to be that governor.
Bob Williams, Founder and Senior Fellow
Amber Gunn, Economic Policy Director