Gregoire, Rossi and the deficit

Is Washington State running a surplus or a deficit?

Is Washington State running a surplus or a deficit?

In last Saturday’s debate, Governor Gregoire stated that Washington was running an $800 million dollar surplus, while other states were entangled in deficits.

Her opponent, Dino Rossi, claimed that Governor Gregoire had raised spending so much in four years that we are now facing a $3.2 billion dollar deficit.

Technically both answers are correct, but one matters more than the other.

The current state budget contains a reserve fund of about 2.5%, or $800 million, some of which is in a mandatory rainy day fund that voters made a constitutional requirement last year. That’s not the problem.

The problem is what’s in front of us. In 2007, the Governor’s budget office forecast a $1 billion shortfall between how much the government expects to receive in the next budget cycle and the amount it expects to spend if it simply “carries forward” the current budget.

Early this year, that shortfall soared to $2.4 billion. The Governor pointed out that an earlier predicted shortfall didn’t happen. But by late Spring the shortfall rose again, this time to $2.7 billion. The trend was clear.

Last week, the Governor’s budget office predicted a new deficit: $3.2 billion. This is serious.

The Governor says that the people responsible for this mess are President Bush and Dino Rossi.

She blames President Bush for the condition of the economy. It’s slowing down on his watch, and he’s unpopular anyway, so why not blame him? But when our state’s economy was producing more money than expected a few years ago, the Governor avoided giving Bush any credit, even in passing.

Rossi gets blamed by the Governor because five years ago as a state senator he put together a bipartisan, no-new-taxes budget that was signed into law by Governor Locke. It was the first biennial budget after 9/11, and Both Rossi and Locke agreed that taxes should not be raised. Governor Gregoire claims that it left her facing a $2.3 billion shortfall upon taking office.

Here, the Governor exaggerates.

The actual size of the shortfall from the Rossi-Locke budget was closer to half that, about $1.2 billion, which shrunk to about $600 million two months into her tenure. A pair of decisions from the State Supreme Court added another $500 million in expenses for the government, but they were handed down when Gregoire was already in office, and had nothing to do with the Rossi-Locke budget.

But let’s assume the Governor is correct. If she inherited a big deficit, then why on earth did she raise state spending 33% in just four years? She knew perfectly well that her budgets were growing faster than the economy’s ability to pay for them. Why didn’t she show more caution?

It’s a question a lot of people are asking about bankers, mortgage lenders and unemployed hedge fund managers.

Like them, the Governor bet that the value of housing and the pace of economic growth would keep rising, so she went on a spending binge unseen in this state in nearly 20 years. She ignored the first lesson of government finance: Don’t spend money you don’t expect to receive. She could have filled the small budget hole she inherited. Instead, she dug a deeper one. Much deeper. And for that, she can blame no one but herself.

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