Good news from today’s revenue forecast

Jason Mercier, budget analyst for Washington Policy Center, just wrote an informative analysis of the good news from today’s revenue forecast. 

As you know, Democrats and Republicans came together last session to implement the McCleary decision by adding an extra $1.56 billion to the $13.6 billion the people of Washington are providing K-12 education. We now spend about $11,300 per student, the highest amount in history of Washington state. The new budget numbers show that the hard-working people of Washington are providing ample revenues to meet our state's public needs. Hopefully, lawmakers are grateful for the increased money they are receiving. 

Here is Jason’s analysis in full:

While those following the state's monthly revenue receipts expected state revenue collections to continue to grow, the amount of yesterday's increase was a bit of a surprise.

According to the state's economist, Dr. Steve Lerch, revenues are now projected to grow by another $345 million for the current budget and $342 million for the 2015-17 budget:

• Revenues grew 8.7% between the 2009-11 and 2011-13 biennium and are expected to grow 7.6% between the 2011-13 and 2013-15 biennium
• We continue to forecast slow economic and job growth for both the national and state economies
• The level of uncertainty in the baseline remains extremely high, and downside risks outweigh upside risks

Perhaps the best news about this continued revenue growth, besides the fact the economy is showing signs of life, is the fact this $345 million increase has provided more of a cushion for the new 2013-15 budget.

One of the concerns we expressed in our recent analysis of the state's budget was the small amount of money originally left in the unrestricted ending fund balance.

With yesterday's revenue forecast that level has grown to $284 million in the unrestricted ending fund balance and $863 million in total reserves including the state's constitutionally protected emergency reserve.

Though still a small level of reserves compared to the overall level of spending, this should help provide lawmakers the cushion needed to focus next session on continuing to explore additional reforms instead of getting bogged down into a fight over a supplemental budget.

As noted by budget writers Rep. Hunter and Sen. Hill, this increase in revenue should not be seen as a green light to increase spending next session:

'My take is it’s a relatively small move, and it helps us have an ending fund balance that’s larger than 47 cents,' said House Appropriations chairman Ross Hunter, D-Medina. 'I don’t think this creates a big opportunity to spend, or changes anything we were doing.'

Said Senate Ways and Means chairman Andy Hill, R-Redmond: 'I think you just bank that money.'

Despite this prudent focus on spending discipline from the legislative budget writers, some have already called for all of that increase in revenue to be earmarked for new spending.

State Superintendent Randy Dorn said today:

“When the Legislature adjourned in June, members added some funding into the education budget. But they didn’t go far enough. In August, I called their efforts 'incomplete.'"

Now they have the opportunity to try again to get a passing grade. They must add that $345 million into education at all levels – early learning, K-12 and higher education. This will help ensure student success. It is the best investment for our state.”

It is interesting to see Dorn refer to the additional $1 billion on top of the maintenance level spending that lawmakers contributed to education as "some funding."

I'm sure most taxpayers would consider that a decent down payment on the state's efforts to comply with the State Supreme Court's McCleary decision. We'll soon hear from the Court on its thoughts.

In the meantime lawmakers would be wise to resist calls for increased spending and instead keep that money in savings especially with word that a potential $600 million pension hit ($1.3 billion for state and local) could be on the horizon depending on the outcome of an October 24 State Supreme Court hearing. As reported by The Olympian:

Smith’s biennial report on pension health also cautions that state and local governments face a potential $1.3 billion financial hit in 2015-17 if two legal challenges to legislative reforms are overturned by the state Supreme Court.

The court is hearing arguments in the pension cases Oct. 24. At issue are two of the Legislature’s decisions in recent years: to repeal automatic cost-of-living increases for participants in several first-generation pension plans, and to repeal a law that once let employees share in stock gains when investment returns on pensions were red-hot over several consecutive years.

Now is the time to save and build back up the state's reserves. Also, any discussion of a tax increase for the general fund with state revenues already continuing to grow is premature at best. This is especially true with bipartisan efforts already under way for a potential tax package focused on transportation infrastructure improvements.

Speaking of the current transportation debate, here are our thoughts on what a compromise package should include.