The 2010 supplemental session is only two months away. Taking into account the upcoming holidays, this really leaves about six working weeks until the Washington Legislature convenes in Olympia.

Recently, the Governor’s Office released a status report on the 2009-11 budget. The Office of Financial Management expects that the Legislature will need to find $1.7 billion to close the most recent gap in state funding.

So how did the state find its way again into another operating budget deficit after filling a $9 billion gap in April 2009. The simple answer is that the Washington and national economies have not bounced back. 

Since the 2009 session adjourned state revenues have dropped by $1.2 billion. The revenue forecast in June showed declines in revenue of $686 million and an additional revenue reduction of $238 millionwas realized in the September forecast. In October, revenue collections fell again by $32 million. In addition, the state had to pay out $237 million on a tax lawsuit.  

At the same time costs have risen (i.e. increased demand for public services) and new issues have emerged (i.e. natural disasters) that have impacted the state budget. These unexpected costs accounted for another $533 million in state dollars that are now unavailable for appropriation. Bringing the total reduction in state revenues to $1.2 billion.

Finally, the November caseload and revene forecast are expected to both impact state revenue in a negative way. 

So while the Legislature and Governor were successful in closing the first state funding gap through cuts, federal stimulus dollars, and one-time transfers, the state and national economy did not replenish the state coffers. As suggested by the Economic and Revenue Forecast Council state revenue and job growth continues to lag economic recovery, unemployment remains high, and revenue collected in 2009-11 is lower than revenue collected in 2007-09. Hence, the $1.7 billion shortfall in the 2010 session.

So how does the state begin to address this issue.  To begin to answer this at this time would be difficult because future events that will shape this discussion have yet to occur, such as the December revenue forecast, the release of the Governor’s supplemental budget, and the court cases that have yet to be decided whether the definition of basic education will be expanded. However, here is what we do know.

Reduction options are limited by constitutional and federal spending mandates limiting the programs and services that can be cut.  The majority of the state’s $31 billion budget is protected. Specifically $21.6 billion for mandatory medicaid/foster care, debt service/pensions, K-12 Basic Education, and Higher Education Federal Requirement.  The Higher Education Federal Requirement refers to the required stipulation associated with the acceptance of federal stimulus dollars. Washington as a recipient of federal stimulus dollars for higher education is required to fulfill a maintenance of effort that does not allow funding for higher education as a sector to go below 2006 funding levels.

This leaves $9.3 billion in programs and services by which to the Legislature has to focus, which includes Corrections, Human Services, General Government, Higher Education (approx. $500 million most of which is financial aid), and Other K-12.