Think long term, like two years

There is no meaningful surplus in the state's budget. The Governor's supplemental budget document confirms what we have been saying here. Those people who want to spend the $1.4 billion identified by the Forecast Council or dispense it in the form of tax cuts should set their pumps up somewhere else. This pond is a mirage.

Fully $900 million is set aside in reserve accounts and pension hedges, and rightly so. Much of the rest ($281 million) goes to cover caseload and classroom increases (in DSHS, Corrections, K-12 enrollment, teacher's salaries) that are required, mostly, to serve populations drawn to the state by its "strong economy."

Washington does have strength in its economy with Microsoft and Boeing, high-tech, agriculture and trade, but these sources are not what is floating job growth nor the up-tick in Olympia's revenue. The source of those has been the housing boom, or bubble. I can't put my finger on it right now, but I read somewhere that half of new jobs in the state since 2000 have come in residential construction and services from mortgage lending to landscaping. State revenues benefit from the boom by way of retail sales, home sales, construction labor (which is subject to sales tax), and the added property value represented by new homes.

Once the boom is over, the hangover begins. The equity people have routinely taken out of their homes to pay their credit cards off disappears, along with its attendant spending, because house values will no longer be appreciating. Residential construction dries up, and with them the special sources of revenue strength to the state. And we are stuck economically.

Today's revenue architecture is archaic and inadequate in Washington, a rattletrap of pre-war vintage. It is looking at handling $2.9 billion in new costs over the next biennium, according to preliminary estimates cited in the supplemental. These costs will suck up the Guv's $900 million in reserves and come looking for more. There won't be more. There will be less.

Not only can we not cut taxes, we are going to have to add capacity. Because of the scale of new revenue needed and the fact that current sources are maxed out, this means we are going to have to remodel the system. It is no longer a question mainly of regressivity and fairness, it is now also a question of basic adequacy. Both can be addressed in the same reform.

The 2007-09 legislature may be the place. Democrats may expand their majority, and it would be a good use of political capital to get Washington's fiscal ship seaworthy for what may be some difficult economic times ahead.

Nationally, the Bush economic blunder machine is cutting the roots of economic stability and spending the retirement and college funds on new toys for the rich and war games in Iraq. ("Games" is not to denigrate the immense cost in human lives and the devastation to America's standing in the world. It is to characterize the attitude of the Administration.)

My reading of the Gregoire budget indicates an appropriately conservative approach. The few new proposals are not inordinately expensive, being limited to: $38 million to help high schoolers pass the WASL, $42 million to begin Puget Sound clean-up, a $17.7 million biodeisel development project, $46 million to maintain WorkFirst against federal cuts, and $23.6 million to help schools, state agencies and low-income families with expected spikes in energy bills. Publicized initiatives like the tsunami warning system improvements, medical and crop research, construction at the Veteran's Home and perks to the aircraft industry are either very modest financially or off budget.

If Chris Greqoire and others can defend their fiscal caution in colorful terms that highlight both the economic uncertainties and the need for a workable tax system, then it may set up the inevitable debate and decisions ahead.