November's revenue forecast put an additional $304.9 million in the state's bank account, and the op-ed page is abuzz with talk of profligate legislators who are certain to spend the bonanza like drunken sailors.
No. They won't.
Reason One: There is no bonanza. As the chief forecaster correctly points out, the economy's strength is in the housing market. With mortgage rates beginning to rise, homebuyers have accelerated their purchases. When – not if – the housing market cools, it will hit state revenue immediately. (Note: This is not from any effect on property taxes, but from effects on sales and B&O of reduced construction activity.)
Reason Two: They need to cover the accounting gimmicks they've used to balance the budgets over the past four years. Pension accounts need filling, in particular.
Reason Three: The state is in a long-term hole. Every legislator has seen the OFM chart showing tax revenues rising at 90% of personal income. The revenue base has been corroded by anti-tax initiatives at the same time that budget drivers, particularly health care costs, mean demands will grow faster than personal income. The gap is there. It's growing. The state needs every penny.
Reason Four: These are Democrats. The evisceration of the motor vehicle excise tax was facilitated by Democrat Gary Locke after I-695 had been thrown out by the courts. That was a big mistake, but a rare one. And this is a different governor. Chris Gregoire may not have the financial expertise of her predecessor, but she has the guts to do the right thing. And that right thing is much more obvious now than it was in the fat days of the late 1990s.
Gregoire's response to the revenue projection shows she is aware. Here, in particular, from the official release:
The Governor said she wants to save a substantial portion of the new revenue to help state government cover an expected shortfall in the next, two-year budget beginning in July 2007. She also is concerned that the national economy may weaken due to continuing high fuel prices and possible cooling of an overheated housing market, among other forces.
"I'll make budget decisions that set aside the dollars we will need tomorrow, while still taking care of real needs we have today," she said.
Victor Moore, Governor Christine Gregoire's budget director, said he was pleased that Washington's economy continues to improve. But he also noted that rising health care costs and pension obligations for the coming biennium mean that money must be set aside to avoid future tax increases.
Lastly, everyone congratulates Washington's economy on its strength. Let us note, please, that Republican predictions notwithstanding, the tax increases of the last session did not lead to economic weakness. Quite the opposite.
Thursday, December 08, 2005