BY DON C. BRUNELL
If legislators leaving Olympia had looked in their rearview mirrors, they would have seen a dark, looming thundercloud. That storm is building and they will likely return to a flood of red ink because their spending splurge cannot be sustained.
Legislators increased state spending 12 percent, three times the rate of inflation. Some describe the spending increase as meeting "pent up demand," but in the end the 2005-07 state operating budget is held together with chewing gum and baling wire. Even if our state's fragile economy catches fire, the 2005 spending program will more than likely trigger another round of tax hikes two years from now. If it falters, really hold on to your pocketbook.
Some lawmakers and the governor are telling the voters back home that they only raised taxes on sinners and the wealthy. They increased taxes on cigarettes by 60 cents a pack and hard liquor by $1.33 a liter. Despite past history, they're hoping that the higher prices won't drive people to do their "sinning" across state lines, over the internet or in a tribal smoke shop. They also re-imposed the estate (death) tax which the state's Supreme Court tossed out in January and labeled it a millionaire's tax. However, they disregarded the fact that many small family businesses meet the estate tax's $1.5 million threshold. Those family businesses often have most of their money tied up in property, machinery, equipment, and inventory, and many are mortgaged or operate on letters of credit from the bank. Upon death, that tax forces many to liquidate their assets, putting another nail in the coffin of family businesses.
Gov. Gregoire and lawmakers faced a budget problem in that the underlying costs of state programs continue to grow faster than tax revenues. In 2003, former Gov. Locke and a divided Legislature faced a $2.7 billion revenue shortfall.
Instead of imposing billions of dollars in new taxes, Locke introduced the "Priorities of Government" (POG) and then Senate Ways and Means Chairman Dino Rossi (R-Issaquah) and his Republicans colleagues quickly embraced it. Recognizing that there just wasn't enough tax revenue to satisfy everyone's wish list, they carefully prioritized available tax dollars, averted a major tax hike, and set the state on a solid road to recovery.
In the end, they closed a $2.7 billion shortfall, and the POG helped spur the state's long-awaited economic recovery that is just beginning to take hold this year. That fragile recovery produced a 7 percent increase in state tax collections which was beefed up by another $740 million in March. So curbing spending and living basically within existing state revenues worked in 2003.
In fact, the POG was selected as a finalist in Harvard University's "Innovations in Government Award" - one of only 18 government initiatives to emerge as finalists out of more than 1,000 applicants.
This year lawmakers did not have to raise taxes to balance the budget. Sen. Joe Zarelli (R-Ridgefield), ranking minority member of the Senate Ways and Means Committee, developed a no-new taxes budget which enhanced education funding and put the state's current tax dollars where they were needed the most. His plan more closely followed the POG principles adopted in 2003 but it was quickly tossed aside.
Peter Hutchinson, the Minneapolis consultant hired by Locke to guide the POG process said, POG I in 2003 was not easy, but it was less difficult than implementing the second and third phases which had to happen in 2005 and 2007. The POG is the strong medicine our state needs to make our state healthy in the future.
To make that happen this year, lawmakers either had to say "No" to their constituents or make the case for tax increases from sustainable sources. But that didn't happen. Instead, they "kicked the problem down the road" for another two years while our state's fiscal crisis worsens.
Our economy is not out of the woods. High energy prices and inflation continue to dampen our recovery. Elected officials must realize it is frail and that, more than ever, costs of doing business matter. If our job providers - who pay 54 percent of the taxes - are going to remain competitive and create jobs, then our elected officials must control spending, forego big tax hikes, and develop sustainable budgets that prioritize services.
Don C. Brunell is President of the Association of Washington Business.