Washington legislators will have to study every plausible solution as they tackle a $2.6 billion mid-biennium hole in the state’s general fund, especially considering they likely will face an even larger shortfall when they convene a year from now to craft the next biennial budget.
Before reaching for the tax-increase lever to solve the problem, however, we think it would be instructive for them to recall two of the key causes of this budget mess: unsustainable spending and a recession punctuated by joblessness.
Let’s address jobs first.
Last week, the Employment Security Department reported that the state had lost about 106,000 jobs last year, and that the unemployment rate in December stood at a distressing 9.5 percent. Businesses, struggling to meet their own budget crises, continue to cut jobs. Some are simply closing their doors.
Adding to their nightmare, the same state agency hiked the average unemployment insurance tax rate for 2010 by 54 percent, or 0.83 of a percentage point. What does that mean in real terms? For a business that employs 120 workers who are paid $36,000 a year each, that average hike is equivalent to one worker’s annual pay. That’s a job.
Meanwhile, the state Department of Labor and Industries has announced an average 7.6 percent jump in workers’ comp premiums, a hike the Washington Policy Center estimates will cost employers about $117 million this year. How many jobs might that amount to?
Whether those tax hikes are justified is a topic for another editorial. What’s important to understand now is that they’ll place a burden on employers at a time when they can least afford it, making any proposal now to raise business taxes even further a poorly reasoned budget fix. Even the most liberal of legislators must understand that the state’s dwindling revenues can’t rebound without private-sector job growth, and that hiking business taxes further will serve only to worsen the state’s budget problem in the long run.
An analysis by the Washington Research Council concluded that raising an extra $1 billion by hiking the state sales tax would result in a net loss of 3,100 jobs next year and far more later, even after counting whatever job creation occurs from spending the additional revenue. Getting an extra $1 billion out of the business-and-occupation tax, the think tank says, would cost the state a net 9,300 jobs.
No one knows how long it will take for the economy to improve, but we do know that it will require confidence on the part of businesses to begin hiring again. Now is not the time to dampen that confidence.
Overspending, of course, is the other way a budget can get out of whack, as the state’s general fund has.
While the recession had a huge impact on the current budget shortfall, so did legislative decisions that boosted state spending by more than 30 percent in four years. We’ve warned many times before in this space that a future “bow wave” of growing expenses eventually would leave the state in trouble, but surging revenues during a boom enabled legislators to ignore that risk. Now that the economy has dispelled the illusion that revenues will always grow to meet desired spending, it’s time for the Legislature to adjust spending to the new reality.
It’s also time to return to priority-based budgeting, eliminating or scaling back programs outside of the core responsibilities of a state. And it’s time to be realistic about what taxpayers can afford to pay state employees.
We understand that it will be difficult to solve a $2.6 billion shortfall with spending cuts alone, and that carefully crafted revenue enhancements might be necessary. But unless our legislators want to stock up on Maalox again for the next budget crisis, they’d better start now to cut spending to a sustainable level and to avoid tax hikes that will restrain the revenue they sorely need.
Special Publications 
