OLYMPIA — To watch the Legislature’s Republican and Democratic budget writers sit next to each other and explain the state’s financial situation is to watch parallel universes collide.
As Republican Sen. Andy Hill argues that any funding shortfall in the upcoming budget cycle is a myth, Democratic Rep. Ross Hunter’s eyes bulge. His face looks like it might explode.
When Hunter begins talking about where Hill has it wrong, Hill interrupts.
As lawmakers gather for Monday’s opening of the legislative session, they’ll begin wrestling with whether and how to fund a slew of new costs for the 2015-17 budget cycle.
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There’s somewhere more than $750 million — and possibly up to $2 billion — in spending on K-12 education required by the state Supreme Court. Lawmakers may need to find $2 billion more to reduce class sizes under Initiative 1351, approved by voters in November. State workers haven’t had a pay raise in six years; giving one could cost up to $583 million. There are higher costs for fighting wildfires, an expensive new hepatitis C drug and more mental-health funding.
Republicans, who control the Senate, insist that some of the costs are unnecessary and that others can be met by finding savings in existing programs. Democrats, who hold the majority in the House, argue a shortfall could run in the billions and that new tax revenue is needed to plug the hole.
In some cases, the two parties don’t even agree on the numbers.
In other words, the “Ross and Andy” show, as Hunter joked about it last week, is likely to go on for months.
“At the face of it, they are coming at this with a huge gap in their respective positions,” said Justin Marlowe, an associate professor of public affairs at University of Washington’s Evans School of Public Affairs. “It’s hard to know how it gets resolved.”
Costs and differences
In arguing there isn’t really a shortfall, Hill notes the state has about a $550 million surplus from tax revenue collected in the current 2013-15 budget cycle. And he says the nearly $3 billion in projected higher tax collections for the 2015-17 cycle will pay for much of what is needed. That would increase the 2013-15 budget of $33.8 billion to about $37 billion.
The state Office of Financial Management (OFM), however, estimates that the $3 billion in higher revenue is probably not enough to meet rising government expenses, much less court- and voter-mandated education costs.
And in his cost projections, Hill includes only spending that is current law or mandated by the state constitution, like the state Supreme Court’s McCleary decision on K-12 education.
But he ignores one big chunk of spending that is, in fact, current law: I-1351, the K-12 class-size reduction measure. According to its legislative financial analysis, I-1351 will cost $2 billion this budget cycle. And the measure, which voters approved in November, didn’t provide any way to pay for itself.
“If you take the $2 billion away, we’re balanced,” he said in an interview late last month.
Hill’s argument lists $750 million for McCleary spending, which is the amount the Legislature is required to come up with for school materials, supplies and operating costs this budget cycle per a deadline from the state’s high court.
But Hill acknowledged in a legislative preview forum last week that lawmakers will spend more than that to begin phasing in other McCleary requirements, such as smaller class sizes for K-3 and all-day kindergarten. The court’s decision requires those parts to be implemented by 2018.
“What I’m saying is, the baseline of what we have to do is $750 [million],” he said. “When we go above and beyond that, that is something we negotiate.”
Hill also doesn’t include in his outlook the cost of employee pay increases, since they aren’t required by law. The Legislature can deny those contracts, ignore them or ask that they be altered.
When asked at the forum about employee pay raises, Hill said he hasn’t met many voters who considered them a high priority.
But, “I think it’s something we need to look at, we need to have a well-paid, well-compensated workforce.”
Hunter has taken the opposite approach in his accounting. Rather than $583 million, he argues the state needs closer to $700 million to deal with both state employee raises and increased state payments to outside vendors.
For funding McCleary, Hunter proposes spending $1.3 billion, which includes a start toward the K-3 class-size and kindergarten requirements due by 2018.
And he estimates the money needed to pay for recently emerging costs will require more than $300 million over Hill’s estimate.
Those costs include more money to fight wildfires, more for an expensive new hepatitis C drug the state must pay for as part of Medicaid, and more dollars to end the warehousing of psychiatric patients in hospitals and jails and to improve the mental-health system.
Hunter concedes lawmakers may well bargain down his numbers on McCleary spending and pay raises.
But Hill labels as false Hunter’s overall depiction of a budget shortfall in need of new tax revenue.
Hill says Hunter would like you to think it’s either raise taxes or make cuts. But, Hill says, “Remember, we’ve got $3 billion of new money.
“And Ross will say it’s all spent, but it’s all spent on optional things, like collective-bargaining agreements,” Hill added.
He also argues that lawmakers can save more money by streamlining government and finding federal dollars that could be available to the state for some programs.
Both Republicans and Democrats say they will support more money for mental-health programs. Inslee’s budget proposes to raise such spending by roughly $67 million.
Senate Majority Leader Mark Schoesler, R-Ritzville, described better mental-health services as something the two parties share “a lot of common ground on.”
House Minority Leader Dan Kristiansen, R-Snohomish, said fixing the state’s mental-health system doesn’t rank as high as it should in lawmakers’ priorities.
“This is real,” he said. “We can’t keep putting it off.”
Gov. Jay Inslee proposed a $39 billion budget for 2015-17, a 15 percent increase from 2013-15. His proposal includes $1.4 billion in new revenue from, among other things, new capital-gains and carbon-polluter taxes.
But the budget is out of the governor’s hands now. The state House and Senate each begin writing their own proposals, to be released in March.
Still, speaking at the forum last week after Hunter, Hill and other lawmakers, Inslee sounded upbeat.
“What I’m hearing today is that some of the Republicans have sort of recognized that we are going to have to make some of these hard decisions,” he said.
In their McCleary decision, justices also declared that school districts are paying too much of basic education costs through local tax levies. The state needed to pay for that instead, the court concluded.
Inslee’s budget doesn’t address levy reform; neither does Hunter’s budget outlook.
“I took that off-budget, because it was making people’s eyes roll back in their head,” said Hunter.
Hunter and Hill both say levy reform might not be costly for the state. But finding a solution will be difficult, since it touches sensitive subjects like regional teacher pay funded through local levies, and thus collective bargaining.
“It’s easier to build a nuclear bomb, I think, than figuring out how all those work,” said Sen. Jim Hargrove, D-Hoquiam, ranking member on the Ways and Means Committee.
Other than Inslee and a handful of Democratic lawmakers, politicians have been largely quiet about where any new revenue would come from.
Hargrove says levy reform could bring in extra revenue. Hunter says he’s open to a capital-gains tax, though one with a lower rate and applied to a broader base of people affected than in the governor’s proposal. Inslee would impose a 7 percent tax on capital gains above $25,000 for individuals and $50,000 for couples.
Hill says Inslee’s proposed capital-gains tax would be too unreliable from year to year to provide consistent revenue.
Inslee says he doesn’t want to see a hike in the state sales tax, calling it unfair for Washington residents, whose poor and middle class pay taxes, in general, at a higher rate than the wealthy.
And while there hasn’t been much discussion of it lately, Republicans have roundly condemned the notion of a state income tax.
Likewise, Republicans aren’t talking much about which government programs they’d cut before considering new revenue.
Lawmakers in both parties agree I-1351 would be difficult to fund, and Inslee only funded part of the class-size measure in his budget proposal.
“Everyone has come to the point of view that you can’t raise taxes fast enough under any environment or under any condition to actually pay for it,” said Sen. Steve Litzow, R-Mercer Island. Sen. Bruce Dammeier, R-Puyallup, has said Republicans will seek to suspend I-1351.
But in the House, Hunter says he doesn’t have the two-thirds majority to do that. When asked at the forum what would happen, considering there are not the votes to fund or suspend I-1351, Hunter paused a minute.
“I think when you look at things that can’t get funded,” he said, “they won’t be.”
Another complication to reaching consensus — or holding off tax increases, as some see it — may come Monday, when Republican senators will offer a new rule requiring a two-thirds majority for any tax increase to advance in the Senate, rather than a simple majority.
Schoesler, the Republican Senate majority leader, says he generally supports such an idea but that he’d wait for the debate before deciding. Such a discussion, he added, might include what specifically counts as a tax and what does not.
“I want to hear what our members have to say about it,” said Schoesler.