Revenues Fall; Special Session Under Consideration

Posted on September 15, 2011 by garverj

This morning the September state economic and revenue forecast was released. The forecast shows the state faces a projected shortfall of $1.4 billion for the 2011-13 biennium. With approximately $163 million in reserves, this creates a $1.2 billion hole in the state budget.

Washington’s Chief Economist, Dr. Arun Raha set the context for the latest reduction in state revenues. According to Raha, consumer and business confidence continues to be low, uncertainty in the European economy remains high, and job growth continues to be weak with a steady unemployment rate of 9.3%.

Forecast estimates show a decline in revenue of $500 million in FY12 with the remaining $900 million in FY13. In addition to the $1.4 billion, legislators are focused on rebuilding state reserves, which could make the reductions to the state budget closer to $2 billion.

So what is next. It appears that the Governor and budget writers in both chambers are coalescing around the idea that early action is needed and to accomplish this the best vehicle would be a special session prior to the 2012 supplemental session in January. If a special session is called there appears to be agreement that it should be short and concise, with most of the decisions being made prior to convening the Legislature.

Timing for a special session appears to be ranging from the end of October to after the November forecast.

State Revenue Forecast This Week; Next Steps

Posted on September 12, 2011 by garverj

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…

Obama’s Plan Would Provide $30 billion for Education

Posted on September 12, 2011 by garverj

Today President Obama sent the American Jobs Act to Congress.

The Act, unveiled last week, is focused on stimulating job growth and the economy. The $450 billion plan- to be paid for through spending cuts identified by the bipartisan deficit-reduction committee which met for the first time last week – includes a variety of efforts ranging from an extension and expansion of the cut in payroll taxes; an overhaul of unemployment insurance, and aid to states to prevent the layoffs of 280,000 teachers while supporting the hiring of tens of thousands more.

Among the areas for investment, the President proposes $30 billion to repair and modernize buildings at elementary and secondary schools and also community college campuses.

Of the $30 billion, $5 billion is earmarked to build and renovate facilities and other infrastructure at community and tribal colleges. According to the White House the funds would bolster college “infrastructure in this time of need while ensuring their ability to serve future generations of students and communities”.

Governor Gregoire Asks Agencies to Prepare for Additional Cutbacks

Posted on August 8, 2011 by garverj

If state revenues continue to decline, as witnessed in June and July and expected in September, Governor Gregoire will ask agencies to trim their budgets further.

This afternoon Marty Brown, Director of the Office of Financial Management, sent a memo to all state agencies asking each agency to prepare for possible cutbacks by submitting 5% first-priority reductions and a second 5% for a total of 10% in state funding reduction options as part of the agency’s 2012 supplemental budget request. The request does make exceptions for basic education, pensions, and debt service.

The impact to Evergreen of a 5% reduction of state funds would be a reduction of $1.545 million (a 1.5% reduction to total funds) and a 10% reduction of state funds would be a reduction of $3.89 million (a 3% reduction to total funds).

Recognizing the difficulty of this task given the limited amount of time that has passed since the passage of the 2011-13 budget, the memo encouraged agencies to revisit essential service assessments compiled last year and budget reductions included in the Governor’s 2011-13 biennial budget but were not enacted by the Legislature. In addition, the memo suggests additional consideration be given to new or additional policy choices and structural or business process changes that allow improved efficiencies and reduce state funding expenditures. Finally capital-budget proposals should be limited to technical corrections, emergency issues, or return of project savings.

Debt Ceiling Plans Would Impact Higher Education

Posted on July 27, 2011 by garverj

Over the last few days the U.S. House and Senate have each released separate proposals to raise the national debt ceiling. Both proposals include impacts to higher education.

Financial Aid

An analysis by the National Association of Student Financial Aid Administrators shows many similarities between the House and Senate proposals as they relate to student financial aid.

Both plans provide additional mandatory funding for the Pell Grant program for FY12 and FY13. Senator Reid’s plan proposes $10.5 billion in FY12 and $7.5 billion in FY13 and Representative Boehner’s plan identifies $9 billion in FY12 and $8 billion in FY13.

In addition both plans eliminate the graduate student Stafford Loan interest subsidy. The savings from this are applied to the Pell Grant. The impact of this falls on graduate and professional students in programs beginning on or after July 1, 2012 who will not be able to receive a subsidized Federal Direct Stafford Loan. A subsidized stafford loan does not accrue interest as long as a student is in school at least half time, or during any future deferment periods.

The one major difference between the two proposals is the inclusion of language in the House proposal to eliminate the Direct Loan Repayment Incentives, including the Interest Rate Reduction for Electronic Debit Account Repayment and Up-Front Interest Rebate.

Federal Appropriations

Both the House and Senate proposals would establish caps on annual appropriations for the next 10 years. In addition both proposals would include enforcement rules with regard to these caps. Identified as “sequestration” the caps would be enforced by across-the-board spending cuts. In other words if the caps are exceeded then Congress would imlement across-the-board spending cuts in the area in which the cap was exceeded. The caps are divided between defense and non-defense spending.

The proposed caps in each proposal are similar.

Debt Ceiling Proposal Caps, Discretionary Spending
($ in billions)
	2012	2013	2014	2015	2016
Sen. Reid	1.045	1.047	1.068	1.089	1.111
Rep. Boehner	1.043	1.047	1.066	1.086	1.107

Both of these elements would squeeze education funding over the next decade as nearly all federal education programs are funded through the annual appropriation process. Though, as noted above, both proposals take steps to fund the Pell Grant program and mitigate the squeeze that appropriation caps would have on the program these efforts are only for a two-year period.

What’s Next

As August 2 looms both the U.S. House and Senate are moving forward with their proposals, though it is expected that no real movement will occur until a compromise is agreed upon. If Congress is unable to reach an agreement by August 2 there is speculation that a short-term debt ceiling increase will be passed.

Governor Signs Biennial Budget

Posted on June 17, 2011 by garverj

Earlier this week Governor Gregoire signed into law the 2011-13 biennial operating and capital budgets.

Gregoire vetoed several sections of the operating budget passed by the Legislature at the end of May because of concerns with policy or technical issues. In addition she vetoed a handful of items in the capital budget, none of which impact Evergreen.

Included among the vetoes to the operating budget were:

A feasibility study on the implications of mandating direct payroll deposit for state employees based on prior research by the Office of Financial Management that raised concerns among stakeholders and limited cost savings given that the majority of state employees voluntarily use direct deposit.
The requirement that all state agencies, including institutions of higher education, complete a Washington State Quality Award or Baldridge full assessment with a schedule for completion of this assessment every three years and incorporation of this assessment into agency’s strategic plans. A veto was issued based on the unprecedented level of 2011-13 budget reductions and the existence of the the Government Management and Accountability Performance (GMAP) program which is more-cost effective.
The creation of the Agency Reallocation and Realignment Commission (ARROW) with responsibilities for examining current state operations and organization and making proposals to reduce expenditures and eliminate duplication and overlapping services. A veto was issued based on the existence of current mechanisms to perform many of the same responsibilities without the additional cost.
A proviso that directs Evergreen’s Washington State Institute for Public Policy to study the costs and benefits to state and local governments and the citizens of Washington from implementation of the state’s policies on “controlled substances”. A veto was issued based on the policy that controlled substances are under federal law and it would not be in the best interest of the state to spend funds on a study that cannot address the fundamental issues in this policy area.

The Governor also signed into law legislation requiring reductions in compensation related expenditures (SB 5860) and legislation that makes several changes to higher education retirement plans (HB 1981).

June Forecast Down

Posted on June 16, 2011 by garverj

Yesterday the Governor signed the 2011-13 biennial budget which left $730 million in total reserves for the upcoming biennium. As a result of today’s revenue forecast, the total reserves have been reduced to $163.3 million for the next two years.

The June economic and revenue forecast shows a decline of approximately $570 million in revenue for the 2011-13 biennium. In addition the forecast showed a drop of $84 million in revenue for the current biennium.

State Economist, Dr. Arun Raha, echoed the comments he made earlier this month when the economic review was released, suggesting that while the economy is improving it is doing so at a slower pace.

Raha cited sustained high gas prices and disruptions to the manufacturing supply chain due to power shortages in Japan as the culprits. Despite these hiccups the recovery is continuing and may even pick up momentum in the second half of the year as oil prices stabilize and Japan starts to rebuild.

Governor to Sign Budget Bills into Law Next Week

Posted on June 9, 2011 by garverj

A bill signing ceremony has been scheduled – Wednesday, June 15- to act on the operating and capital budget bills and all remaining policy bills that have not been signed to date.

Among the bills to be signed by the Governor is the 2011-13 operating budget (HB 1087), and the two bills that comprised the capital budget (HB 1497- capital budget and HB 2020 – bond authorization bill). In addition the Governor will consider action on the compensation reduction bill (SB 5860), legislation to create the Department of Enterprise Services (SB 5931), and a bill that makes several changes to Higher Education Retirement Plans and retire-rehire practices at higher education institutions (HB 1981).

Senate Passes Operating and Capital Budgets; Budgets Now Head to Governor

Posted on May 25, 2011 by garverj

This evening the Washington Senate passed the conference operating and capital budgets for the 2011-13 biennium.

2011-2103 Operating Budget
The Senate passed the operating buget with a vote of 34-13. The conference biennial budget addresses a $4.9 billion shortfall, making approximately $4.5 billion in policy level reductions. The budget reduces funding for higher education institutions by $535 million. The Evergreen State College is reduced by $12.152 million and authorized to increase tuition by 14% per year for the biennium.

In addition the budget maintains the state need grant to offset budgeted tuition increases to students and reduces, but does not eliminate , state work study.

Bond Bill

With a vote of 46-1, the Senate passed legislation (HB 2020) to provide $1.4 billion in new state general obligation bonds to support the 2011 Supplemental and 2011-13 Capital Budget. In addition the bill reduces 2011 Supplemental bond appropriations by $32 million.

Capital Budget

With a vote of 47-0, the Senate passed the 2011-13 capital budget (HB 1497). The 2011-13 Capital Budget authorizes $3.1 billion in new capital projects, of which $1.4 billion are financed with new state general obligation bonds.

It is the combination of HB 1497 and HB 2020 that will provide the funds to support Evergreen’s capital projects

Conference Operating Budget Announced and Moved

Posted on May 24, 2011 by garverj

This morning the Washington House and Senate announced a conference operating budget for the 2011-13 biennium. By this afternoon the House had voted 54-42 to move the budget to the Senate. The Senate is expected to take up the budget tomorrow.

2011-2103 Operating Budget
The conference biennial budget addresses a $4.9 billion shortfall, making approximately $4.5 billion in policy level reductions. The budget reduces funding for higher education institutions by $535 million. The Evergreen State College is reduced by $12.152 million and authorized to increase tuition by 14% per year for the biennium.