OLYMPIA — A dozen years later, the Great Recession still haunts Washington state lawmakers.
Democrats for years have pointed back to the budget cuts made after the 2008 economic downturn as the source of long-term damage to the state’s social-safety net, especially the mental health system.
Republicans have pointed to those same cuts as a cautionary tale about drastically increasing state spending too quickly, and then being forced to come back and make cuts later.
The coronavirus pandemic — which has battered economies across America and the world — has given new life and real meaning to those debates.
Washington state now faces a projected $8.8 billion state budget shortfall through 2023. About half of that shortfall hits the state’s current, 2019-21 $53.3 billion operating budget.
A spending document that reaches all facets and regions of Washington, it funds schools, state parks, public-health programs, prisons and social services, like foster care and mental health.
In the coming months, lawmakers are expected to make adjustments to the budget in a special legislative session.
As lawmakers and Gov. Jay Inslee confront the bleak numbers, they wrestle with hard choices. The state’s emergency reserves won’t cover even the current budget’s shortfall.
Democrats are talking up new taxes as a way to avoid deep cuts while rebalancing Washington’s regressive tax system, which depends heavily on the sales tax. Some have urged new taxes on capital gains or on large employers, or the elimination of some business tax breaks.
Republicans fear new taxes, which they argue will burden businesses at the very time employers need relief. And, they say that by making more cuts now, early on, they can reduce damage to programs that help Washington’s most vulnerable in the coming months and years.
The debate is playing out while the pandemic surges through America, with cases rising again in Washington and around the nation, with no certain end date to its disruptions.
“We’re in a virus recession, and so it’s an unprecedented situation, nobody really knows how the economy will bounce back,” said Sen. Christine Rolfes, D-Bainbridge Island and chief Senate Democratic budget writer.
“And then the situation is compounded by the power, the absolute power that the virus has on how the economy is going to respond, and how people are going to respond,” she added.
Already, Inslee has vetoed hundreds of millions of dollars in spending approved by lawmakers in March as the pandemic took hold. The governor also froze most state hiring and canceled some public-employee pay raises.
Inslee also reached a deal with a large public labor union to save money through furloughs of state workers — but those state workers keep their raises.
The governor hasn’t ruled out raising taxes to avoid cuts, but hasn’t said what type of revenue he would prefer if it were needed.
Republicans have called for more drastic cuts, faster. Specifically, GOP lawmakers have called for a special legislative session this month, in part to slash brand-new spending before it begins on July 1, the start of the new fiscal year.
“Sooner is better, the easiest decisions we have are in front of us right now,” said Sen. John Braun, R-Centralia and lead GOP budget writer in the Senate. “We don’t need any more information.”
While the pandemic hit hard and suddenly, lawmakers aren’t likely to take as drastic a response.
Their immediate concern is to plug the $4.5 billion hole in the current two-year budget. The state’s roughly $3 billion in reserves will get them a good distance toward that goal.
The harder decisions will likely come in January, when lawmakers return for their scheduled session to write a new two-year budget. They face a projected $4.3 billion shortfall for that spending blueprint.
Rolfes, Inslee and Democratic legislative leaders say they are waiting to see whether U.S. Congress provides assistance for state and local governments in coronavirus relief legislative currently being crafted.
“We are reasonably hopeful that there could be another package that could help us dramatically,” Inslee said last week during a news conference.
In a call Monday with Inslee and other governors on the federal government’s pandemic response, U.S. Treasury Secretary Steven Mnuchin said the U.S. Congress could pass that legislation in July, according to notes on the call provided by the Governor’s Office.
Democrats say they worry that budget cuts could hit programs serving Washington’s most vulnerable populations, some of which have already suffered disproportionately during the virus. Lower-wage service jobs took a hard hit in the economic collapse, and people of color have been hit harder by the virus itself.
For lawmakers like Sen. Manka Dhingra, a Redmond Democrat who has supported a tax on capital gains, that makes a compelling argument for new revenue.
“We cannot have the middle class and the poor taking the biggest brunt of these [budget] cuts, and this is where progressive revenue comes in,” said Dhingra.
Rep. Frank Chopp, D-Seattle, recently put forth a plan to raise $2 billion. It includes a tax on capital gains and another tax on large corporations, assessing them for every employee earning than $500,000 per year.
Chopp’s proposal would also create a payroll-style tax like the state’s family-and-medical-leave law to pay for child-care and early-learning services.
Meanwhile, in April, Republicans put forth a 16-point plan to reopen the state’s economy. It included ideas to reduce Business & Occupation (B&O) taxes and give a sales-tax holiday for retail stores.
Because the state budget must be balanced across four years, earlier cuts could help not just through the immediate reduction, but also by reducing the amount of projected spending in later years.
Braun estimated the state could save $1 billion over four years just by stopping brand-new spending — including the scheduled 3% raise for union state workers — set to take effect July 1.
That would be a better option than waiting and later making cuts to social-services programs for the state’s most vulnerable citizens, he said.
“I’m not interested in deep cuts to mental health or other services,” said Braun. “This is why it’s important to act now.”
Contain the virus
In order to fully resuscitate the economy, legislators must also grapple with how to contain the virus, according to Austan Goolsbee, a professor of economics at the University of Chicago Booth School of Business.
To revive commerce and other daily activities, lawmakers must provide a strong enough public health response where residents feel safe to go out, Goolsbee told lawmakers on a special Senate committee tasked with working on recovery efforts.
“I always say that the number one rule of virus economics is that the best thing you can do for economics is to contain the spread of the virus,” he said.
Goolsbee researched metro areas that span the borders of two states, he said, in order to observe the economic differences in states with stay-at-home orders compared to those that didn’t have such restrictions.
He cited the communities known as the Quad Cities, found along the border of Iowa and Illinois. Iowa didn’t have a stay-at-home order, while Illinois put one in place.
“But you see economic activity collapse by almost identical amounts on both sides of that border,” Goolsbee said. “It’s not really about the policy, it’s about people being afraid.”
Rolfes, the Democratic budget writer, and Sen. Randi Becker, R-Eatonville — both of whom are on the special committee — said the Legislature must find ways to aid the recovery so that people feel safe.
“We have some things that we really have to address,” said Becker. “And number one is the fear factor.”