On Thursday the September Economic and Revenue Forecast for Washington will be released. No one is expecting good news, in fact the talk on The Hill is how bad is the bad news going to be.

The Context

Word on the street predicts the shortfall could be as deep as $2 billion, with a likely drop in revenue to fall somewhere between $1-$2 billion. The state currently only has $163 million in reserves to last through June 2013 with the rainy day fund taken into account.

In August declining revenues led Governor Gregoire to ask state agencies – including higher education – to identify how to cut up to 10% of their budgets. A 10% reduction of all state agency budgets is estimated to yield $1.7 billion.

Revenue

The potential negative impact of a large decline in state revenues has led some Democrats to again raise the need to raise taxes and other new revenues in addition to cuts. Among the topics up for discussion includes a spring ballot measure to raise taxes.

Those historically opposed to increasing revenue have not ruled tax options out. However consideration of additional revenue for many cautious of increasing taxes must come after exhausting other options such as elimination of state programs and reform of agency operations to maximize efficiencies.  

It is unlikely the Legislature would be able to pass the threshold to raise revenues which requires a supermajority in both the House and Senate. So any increase in revenue will likely have to go to voters.

Going Forward

So what happens after Thursday. Over the last month talk of a special session in late October or early November has dominated discussions. Last week Gregoire stated that she would be unable to make the necessary reductions to balance the budget.

In order for the Governor to make the cuts on her own (i.e. without the Legislature) she would have to make across-the-board cuts. In comments last week Gregoire indicated that across-the-board cuts are no longer a viable option, information she has shared with legislative leaders. This is in part because certain state agencies cannot take further reductions, such as the Department of Corrections, without immediate and dire impacts to the citizens of Washington.

Though an across-the-board approach seems to be off the table, the Governor did not go as far as to say for certain that she would call a special session prior to the 2012 supplemental session in January. This is in part because she and others are waiting to find out if the drop in revenue is primarily in this fiscal year or next. If it is in the 2012-13 year lawmakers may be able to wait until the scheduled legislative session to solve the budget shortfall.

The idea of a special session has been met with mixed reaction. Budget writers in Olympia have shared the idea that if a special session is called they would prefer a one-day special session that would require a plan be developed and have the votes to pass prior to the special session. 

Last week Senator Zarelli, the Ranking Minority Leader on the Senate Ways & Means Committee, outlined an entirely different approach to that of a special session. He proposed the creation of a bipartisan panel to find solutions to the state’s ongoing budget problems.

In a blueprint calling for early action to balancing the state budget, Zarelli proposes the Legislature convene a bipartisan group to undertake a close examination of the workings of state government and make comprehensive detailed recommendations to the Legislature by January 1. 

The group would be charged with looking at both short- and long-term solutions to help solve the immediate budget crisis and to propose forward-thinking recommendations to bring long-term budget solutions.

The group would consist of two legislators appointed by each caucus member. One legislator would be from the caucus member’s own caucus and one from the other caucus within that particular chamber.  In addition the group would include a ninth member to serve as a non-voting chair.

Stay tuned…