January 23, 2012
With the state still steeped in a budget crisis of immense proportion, the WSDA news reached out to two key players on the senate’s Ways and Means Committee (the primary fiscal committee for the Washington State Senate, with responsibility for developing operating and capital budgets) — Senator Joe Zarelli (Ridgefield, R), ranking republican, and Senator Ed Murray (Seattle, D), Committee Chair, for their take on the budget and what measures need to be taken, including cuts, revenue and taxes. Both were gracious enough to give us time just before the holiday:
WSDA NEWS: Our members are aware of the significant challenges to the state budget — with another $2 billion to cut, this has got to be a near-impossible task. How do you prioritize which programs and expenses to keep and which to eliminate in the current economic climate?
Senator Zarelli: We’ll have to rewrite the budget enough to close that gap, and while the reductions adopted during the recent special legislative session get us about one-quarter of the way there, the heavy lifting is still ahead because we will have to change or eliminate some of the commitments that were made. Which ones? Well, under Washington’s constitution the paramount duty of state government is to make ample provision for basic education. Whether the state is meeting that obligation is being argued in the courts right now – but it’s safe to expect that K-12 education will continue to receive more money than any other area of government. We have public safety obligations, of course, and I also feel strongly about continuing some level of state assistance to our most vulnerable residents. How much assistance is going to be a key question, and that’s where reforms come in.
Senator Murray: Well, not easily, that’s for sure. It’s very hard to prioritize in this situation, and certainly we’re going to look at where we think we can find efficiencies, where we think we can find savings, where we think we can make decisions that won’t have short-term savings and long-term costs elsewhere. But then, given the dire state of this economy around the globe as well as across the state, we’re left with some tough choices. My hope is that we prioritize those things we can cut, those things that we don’t want to cut, and send those to the voters for revenue.
Senator Zarelli: I don’t see the 2012 budget rewrite being “all cuts” either. For example, let’s suppose the Legislature finally takes action to address abusive lawsuits that target the state and its “deep pockets” at a cost of tens of millions of dollars each year in defense bills and payouts. The $150 million appropriated in the current budget for such costs represents about 10 percent of the remaining budget gap. The reform of lawsuit abuse could largely if not completely free up those dollars for use elsewhere – which could enable the Legislature to maintain a higher level of assistance to our most vulnerable residents.
I’m not a dentist, but I provide professional services to clients, so I’ll put the tax-reforms-revenue question in those terms. If I want my business to bring in more revenue for whatever reason, there are three straightforward ways to get there. The first is to raise my rates, which is like government adopting a tax increase. The second is to find ways to reduce the cost of doing business, yet serve just as many clients as effectively as before. That’s “reform” – not as easy as raising my rates, but it produces the same net outcome because it lowers the spending side of my balance sheet. As a bonus, reforms that make my operations more efficient can help me weather any loss of clientele, the same way reforms can help state government get by on less revenue. A third approach is to grow my clientele, without changing my rates or how I do business, so that revenue grows naturally. Government can do the same thing by, for example, streamlining the permitting process for construction projects that create jobs. So if I want my business to bring in more revenue, I’d look at streamlining my costs and growing my clientele before I consider raising my rates – and legislators can also go that route.
WSDA NEWS: What is your reaction to the the temporary half cent sales tax increase going to the voters — is that a proposal you could support and why, or why not?
Senator Murray: The temporary sales tax is something we absolutely need to do. If not a sales tax, then some tax — we need to raise a significant amount of revenue in a fairly short amount of time. While the sales tax is not my first choice, it meets the criteria. I would prefer that we had a progressive income tax. While it wouldn’t solve all of our problems — because even states with progressive income taxes are in fiscal crises — I believe that it would give us an opportunity to have a more rational tax system. We’re going to have to decide what kind of state we we want to be — we have structural problems in how we finance our key government services, particularly education, and if we want to be a state that produces some of the iconic businesses of the world, we’re going to have to educate our population. We can’t do it in the kind of roller-coaster way we do it with the sales tax — a lot of money in good times, no money in bad times.
Senator Zarelli: I wouldn’t support it, because I see a general tax increase like this as a last resort. The Legislature should do all it can to close the budget gap through reforms, before it takes up the question of revenue, and even then, revenue is not limited to tax increases.
Is it good policy to put high-priority services at risk of losing funding due to a no vote, and commit existing revenue to lesser priorities – or things that don’t qualify as priorities at all to most people?
Also, if the supporters of a sales tax increase believe it is sound tax policy, why not make it permanent? If the “temporary” part is for marketing purposes, aren’t those supporters simply (and admittedly) putting politics before policy – which is one of the things that irritates people about government? As we saw earlier this year with the “temporary” Safeco Field taxes from 1995, some people also have trouble keeping promises and letting go of revenue streams. If the voters were to say yes to a three-year tax hike, you can bet that come 2015, someone will be advocating for an extension.
Senator Murray: My constituents are a little different. I represent a liberal district that believes that we should raise taxes. So when I come home and talk to my constituents, they’re mad because I haven’t raised taxes. I think most legislators go home and their constituents are mad because they’re talking about raising taxes.
WSDA News: What do you see for the future of the state in terms of the economy - there’s a rumor that the next revenue forecast is a little better - what do you see going forward, what are the next projections saying, and how long do you think it will take the state to climb out of this?
Senator Zarelli: Our state has now gone four years without a positive revenue forecast. It will be a great day when that unhappy streak ends, but in the meantime the Legislature would be wise to take a pessimistic approach and assume revenue collections will remain flat at best.
The problem isn’t a shortage of revenue, it a shortage of jobs. When people are working, they are more comfortable being consumers. That’s good for Main Street, which in turn becomes more comfortable about hiring.
The Legislature could have done more this year to encourage employers, but we saw how difficult it was just to get common-sense, money-saving changes like workers’ compensation reform through. The more we do to promote job growth and economic activity without increasing the tax burden, the sooner we will see a return to positive revenue forecasts. Beyond that, it’s difficult to predict.
Senator Murray: I don’t know where the rumors of an improved economic forecast are coming from — the monthly collections are down. Obviously there have been some small improvement in the unemployment rate, but we’re a long way off from an economy that’s in recovery. It is very difficult being a legislator these days, with so many untenable decisions to make, but I still believe that government can be a good partner to citizens. And last year we compromised by cutting and preserving programs to keep that partnership — at least in part. My hope is that this year the voters will say yes, that they still want the partnership, and validate some new revenue for some number of years. We keep finding good — not great — solutions. If voters say no,then the things that will happen to our state and services will be rather dramatic and disheartening.
WSDA News: What can dentists do?
Senator Murray: I think the most important thing that WSDA members can do is to understand how their profession benefits from tax revenue. They should not only educate themselves about it, but others they know in the profession. Programs we can no longer fund — like adult dental Medicaid — have a direct impact on dentistry, the mission of the profession, and it puts an undue burden on those dentists who have taken on more charity care. I don’t think we should look at dentists as the way to make up the state’s responsibility, so hopefully the connection is made in people’s minds.