Take a lesson from the past – Sock away surplus revenue for future hard times
“Those who cannot remember the past are condemned to repeat it,” said the late philosopher George Santayana.
I'm reminded of these words as the Legislature is debating whether to spend a new $1.3 billion revenue surplus before it adjourns March 8 — even though Washington could face a recession by 2023. The additional projected income was recently announced by the state's chief economist and revenue forecaster, Steve Lerch.
The Legislature made this mistake, starting with the 2005-07 operating budget. Back then, the state had a sizable budget surplus. Rather than putting money away for an economic downturn, the Legislature went on a spending spree, even though many Republicans warned against it.
Rep. Barbara Bailey, R-Oak Harbor, (now a senator) was on the House Appropriations Committee. She voted against a $1.3 billion boost in the supplemental operating budget that, at the time, was the largest spending increase in state history. In a 2006 news release, Bailey wrote, “There goes nearly all the $1.6 billion budget surplus. This budget sets up the state for future tax increases and/or deep cuts.”
The spending spree continued into a 2007-09 budget that contained a staggering $2.1 billion in net policy-level additions. Former Rep. Gary Alexander, then-Republican leader on the House Appropriations Committee wrote, “When the House adopted the 2005-07 operating budget, I predicted it would lead to a deficit based on the economic forecasts of the time. The 2007-09 operating budget spends too much, saves too little and heads the state toward a big budget problem.”
Bailey and Alexander's words were prophetic. As the Great Recession took hold, incoming state revenues declined significantly. By September 2010, the state had a $1.45 billion budget deficit that later deepened by as much as $5 billion.
I ran for this House seat in 2009, because I wanted to make sure our state would be more fiscally responsible — and that we wouldn't repeat this mistake. We clawed our way out, just as Bailey predicted, through painful, deep cuts and tax/fee increases — and a slowly recovering economy.
Well, as Yogi Berra said, “It's déjà vu all over again.”
After the state's Revenue Forecast Council announced the $1.3 billion windfall on Feb. 15, lawmakers immediately made plans to spend it. They want to take $1 billion from the state's Budget Stabilization Account (known as the “Rainy Day Fund') to pay for additional K-12 education funding, which would satisfy the state Supreme Court, and provide relief from increased property taxes passed last year as a part of the McCleary education funding plan.
This would only leave $700 million in the Rainy Day Fund — or less than 1 percent of our $44 billion operating budget!
The revenue announcement gained much attention. Unfortunately, Steve Lerch's most important words went unnoticed.
“I do want to raise the potential for a recession,” said Lerch. “We asked the Governor's Council of Economic Advisors about a recession between now and 2023, and the average probability was 88 percent.”
An 88 percent chance of a recession within five years! Let that sink in for a moment. And yet, the Legislature wants to drain the Rainy Day Fund now?
I support some property tax relief. However, let's take a lesson from the past and sock away this surplus so that we don't make the same mistakes.
As Gary Alexander said in 2007, “I would rather call for restraint again, and have the economy perform much better than anyone expected, than to roll the dice with the taxpayers' money and be wrong.”
EDITOR'S NOTE: Rep. Terry Nealey, R-Dayton, is ranking Republican on the House Finance Committee and serves on the Washington State Economic and Revenue Forecast Council.