Wednesday, February 22, 2012
There is finally a bit of good news from Olympia. The state's Revenue Forecast Council reports that tax revenues for this biennium will be $96 million higher than projected last November, and state tax collections for 2013-15 are projected to grow by 6.6 percent.
But we shouldn't get too excited. Even with this additional revenue and the cuts the legislature made in December's special session, lawmakers still need to make up about a $1 billion deficit to balance the budget.
Even if they manage to close the gap this time, the basic problem remains: the state budget is unsustainable. Without systemic change, we face a future of ever larger deficits.
As Sen. Jim Kastama (D-Puyallup) points out, "Even if we do pass more taxes or make the kind of cuts this year, the long term projection on our state budget basically has to be dealt with or else we'll be in deficits every single year for the next five years."
Kastama explains that Washington takes in $15 billion a year, but the budget spends $16 billion. If we do nothing, annual revenues are expected to grow to almost $19 billion by 2017, but our state's expenses will grow even faster - to $22 billion. Because the state budget is based on a two-year cycle, that means in 2017 our budget deficit will grow to $6.6 billion.
Raising taxes isn't the solution. Even if legislators increase taxes by a billion dollars, the 2017 budget will still have a $4.4 billion deficit.
Unfortunately, elected officials have a history of kicking the can down the road, avoiding the tough choices that Kastama advocates in favor of temporary fixes. That's like putting a Band-aid on a severed artery. When the state budget is hemorrhaging red ink, it can't get better until we fix the underlying problems.
So, what's wrong with limping along with temporary fixes hoping the economy perks up on its own? Look at what's happening in Illinois. With billions of dollars of unpaid bills, Illinois is now known as "The Deadbeat State." Even after passing a $7 billion tax increase last year, including a "temporary" state income tax, the situation remains dire because state lawmakers refuse to make needed pension, regulatory and budget reforms.
The Illinois governor's suggestion? Borrow more money.
When politicians turn a blind eye to systemic problems, they fester and grow. It sends a powerful message to employers: "Stay away."
For example, Caterpillar Inc., headquartered in Illinois, is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. Caterpillar is to Illinois what Boeing is to Washington state.
But in a recent Chicago Tribune editorial, CEO Doug Oberhelman pointed out that, while Caterpillar announced plans for dozens of new factories over the last few years and its U.S. workforce increased by more than 14,500 in the last 10 years, none of that growth occurred in Illinois. In fact, the Caterpillar Illinois workforce is the same as it was 10 years ago. Oberhelman noted that, "...when Caterpillar and most other companies look to locate a new factory in the U.S., Illinois is not in the running."
The reason: Illinois' high cost of doing business and the legislature's failure to pass a sustainable budget - the same problems employers face in Washington.
Our situation isn't that bad yet, but it underscores the need to develop a budget that lives within the revenues the state collects. Instead of passing temporary fixes so they can adjourn and campaign for re-election, state legislators need to overhaul the budget. That's a real solution that will foster economic growth and create jobs.
- Don C. Brunell is president of the Association of Washington Business (www.awb.org).