WASHINGTON

Brent S. Steel

Washington State University,Vancouver

On April 3, 1997, Governor Gary Locke signed a $19.1 billion General Fund expenditure level for the 1997-99 budget period. Despite a Republican controlled Legislature and a Democratic Governor, the budget agreement received support from both parties. However, Republican leaders have called the session a "taxpayer’s session of fiscal restraint" while Democrats have characterized it as "unwilling to invest in the future" (Oregonian, 1998: D8).

Republicans sent Governor Gary Locke a new state spending plan crafted primarily by fiscal conservatives with some input by minority Democrats. More than $100 million in new appropriations are provided for reading improvement, salmon restoration, transportation, and crime control. The spending plan (an adjustment of the $19 billion biennial budget adopted last spring) includes money to bail out the Fish and Wildlife Department from a deficit. However, the bottom line does not change from last year. Savings from lower school enrollments (e.g., at Washington State University and Eastern Washington University) and social and health services caseloads were utilized. The compromise budget is $68 million less than the spending limits of the voter approved Initiative 601 passed in 1993.

Lawmakers pushed through a mix of relatively small tax cuts totaling about $26 million (including tax breaks for fast food restaurants, hospices, soft drink syrup, and theater snack counters–popcorn). The main new tax cut still requires voter approval for a $30 decrease in the vehicle excise tax paid on license tabs each year.

Washington's unemployment rate rose seven-tenths of a percentage point in January to 5.3 percent, but was the lowest January rate in nearly a half century. The rate in the first month of the year hasn't tallied below 5.5 percent since 1951, according to Employment Security Department (ESD) records. Commissioner Carver Gayton (ESD) said that January is a time when area joblessness across the state is traditionally the highest. Weather related cutbacks in agriculture, food processing, forest products, and construction are compounded by large post-Christmas layoffs in retail trade. "However, this year the basic strength of the economy held firm," he said. "Seasonally adjusted unemployment inched up only a tenth of a percentage point to 4.5 percent, 0.2 percentage points below the national average of 4.7 percent (ESD press release, January 1998).

Total nonfarm employment dropped 58,500 over the month compared to 62,300 in the same month last year. Manufacturing payrolls dropped 4,100, due mostly to seasonal retrenchment in food processing (-2,000) and forest products (-700). Additional hiring in aircraft and parts continued in the 400-worker range for the second consecutive month after averaging 1,300 a month from January 1996 through November 1997. Industrial machinery and electronics (+100) was flat with typical losses for the time of year in stone, clay, and glass (-300), and printing and publishing (-400).

Construction employment fell by 7,800. Wholesale and retail trade dropped by 23,700, led by post-Christmas layoffs in general merchandising (-5,200), apparel and accessories (-3,200), coupled with seasonal pullbacks at eating and drinking places (-5,000), and area food stores(-1,100). Services lost 13,400 over the month with reductions in business services (-5,100), hotels and lodging facilities (-1,100), private education (-1,900), and health care (-1,300). Computer data processing and software added 600. "Over the year, manufacturing payrolls in the state were up 16,700 workers," said Dennis Fusco, the department's chief economist. "Some 13,400 of those jobs centered in aircraft and parts."

Other notable gains came in machinery and electronics (+3,200), but both forest products (-600) and food processing (-2,400) were down. Construction added 2,800 workers, and wholesale and retail trade advanced by 18,800. Services employment jumped by 31,400 led by strong expansion in business services (+16,300), engineering and management services (+3,400), and health care (+4,500). Total nonfarm employment adjusted in collaboration with the Office of the Forecast Council was up 74,100, or 3.0 percent in January.

Washington's economy has steadily diversified over the past two decades resulting in a healthy climate for business investment, as well as creating markets for a wide array of services and products. Washington's gross business income was $294.5 billion in 1994, up 6.1 percent from the previous year.

The state’s economy has experienced major structural changes during the past fifteen years. Employment has declined in traditional industries like agriculture, lumber and wood products, and mining. Conversely, sharp increases have occurred in instruments, electrical and nonelectrical machinery, wholesale and retail trade, and many service sector businesses. In recent years, Washington's economy has significantly expanded its manufacturing base and service sector, which have greatly reduced the state’s sensitivity to cyclic changes in manufacturing demand.

As the data in Table 2 indicate, Washington’s population continues to grow over 1.5 percent annually. Using current growth projections, the population should top 6.5 million by the year 2010. The data presented in Table 2 show that the largest cohort is children under the age of 15 years (22.7 percent). The retirement cohort (65 years and older) accounts for 11.6 percent of the population.

Median Age: 33.2

Over 83 percent of State Residents, 25 years and older, have graduated from high school or attended at least one year of college. More than 28 percent have had a minimum two years of college and 20.7 percent have either a bachelor or graduate/professional degree. The average Washington State Scholastic Aptitude Test (SAT) scores are 434 for verbal and 488 for math, versus national scores of 423 and 479 respectively. This bodes well for Washington’s need for a educated workforce for the growing high-tech economy (e.g., Microsoft, etc.).

Washington state government is composed of two legislative houses (Senate and House) and an executive (Governor). There are 49 districts with 2 representatives and 1 senator from each district. Currently, the Senate is composed of 25 Republicans and 24 Democrats, and the House is composed of 57 Republicans and 41 Democrats. Gary Locke, the newly elected Governor, is from the Seattle metropolitan area, and is considered a liberal Democrat. The Republican controlled Legislature has been prone to cut taxes and keep spending from increasing, while Governor Locke has favored funding some new programs with increasing receipts from the robust economy.

Like 19 other states, Washington enacts budgets for a two-year cycle, beginning on July 1 of each odd-numbered year. The budget approved for the 1997-99 Biennium remains in effect from July 1, 1997, through June 30, 1999. By law, the Governor must propose a biennial budget in December, the month before the Legislature convenes in regular session. The biennial budget enacted by the Legislature can be modified in any legislative session through changes to the original appropriations. Since the inception of annual legislative sessions in 1979, it has become common for the Legislature to enact annual revisions to the state's biennial budget. These revisions are referred to as supplemental budgets.

State agencies are responsible for developing budget estimates and submitting budget proposals to the governor. Once the budget is passed by the legislature, agencies implement approved policies and programs within the budgetary limits imposed by legislation. Under Washington's budget and accounting statutes, individual agency directors are accountable for carrying out the legal intent of appropriations.

The governor recommends a budget to the legislature consistent with executive policy priorities. Appropriation bills, like other legislation, are subject to gubernatorial veto authority, and may be rejected in part or in their entirety within a defined number of days after passage. After a budget is enacted, the governor's administrative duties include monitoring agency expenditures and helping to achieve legislative policy directives.

The Office of Financial Management (OFM) coordinates the submittal of agency budget requests and prepares the governor's budget recommendation to the legislature. Professional budget staff from OFM work closely with state agencies to explain and justify planned expenditures. Analysts evaluate all budget requests for consistency with executive policy priorities and to ensure that proposed expenditures match fiscal constraints. OFM also has responsibility for maintaining the state's central accounting system and certain population and enrollment forecasts.

Through appropriations bills, the Washington legislature determines the amount of money each state agency can spend and, in varying degrees of detail, directs agencies where and how to spend it. Specific fiscal committees have primary responsibility for preparation of the legislative budget. These include the House Appropriations, Capital Budget, Finance, and Transportation Policy and Budget committees; the Senate Ways and Means, and Transportation committees; and the Joint Legislative Transportation Committee.

The House and Senate employ staff analysts to help review and evaluate the state budget, and to prepare appropriation bills. As with other legislation, if the two houses cannot agree on a budget or revenue proposal to implement the budget, a conference committee of legislative representatives is convened to reconcile the differences.

The Economic and Revenue Forecasting Council is composed of representatives from both the legislative and executive branches. Each fiscal quarter, the Council adopts an official forecast of General Fund-State (GF-S) revenues for the current and (at some point) the ensuing biennium. These forecasts, together with any reserves left over from previous biennia, determine the financial resources available to support estimated expenditures.

The Caseload Forecast Council was created by the 1997 Legislature and will begin operations in the 1997-99 Biennium. The Council consists of two members appointed by the governor and four appointed by the legislative political caucuses. Its responsibility is to prepare official caseload forecasts for state entitlement programs, including public schools, long-term care, medical assistance, foster care, adoption support, adult and juvenile offender institutions, and others. OFM and legislative fiscal committee staff will form a workgroup to participate in the development of the forecasts.

Washington's budget process cannot be characterized by any single budget decision model. Elements of program, target, and performance budgeting—along with the traditional line item budgeting associated with objects of expenditure (e.g. salaries, equipment)—are all used in budget decisionmaking. In general, Washington emphasizes expected changes in services that can be achieved through revisions to the current expenditure base.

State government is organized into approximately 120 agencies, boards, and commissions representing a wide range of services. While many state agencies report directly to the governor, others are headed by statewide elected officials or independent boards appointed by the governor. Most agencies receive their expenditure authority from legislative appropriations that impose a legal limit on operating and capital expenditures. Appropriations are granted for a single fund, although individual agencies frequently receive appropriations from more than one fund. A few agencies are "nonappropriated," meaning that they operate from a fund that is legally exempt from appropriation. Expenditures by these agencies are usually monitored according to a biennial allotment plan, but there is no dollar limit as long as expenditures remain within available revenues and are consistent with the legal purpose of the agency.

The state's budget and accounting system includes more than 400 discrete funds, which operate much like individual bank accounts with individual sources of revenue. The largest single account is the state General Fund. State collections of retail sales, business, property, and other taxes are placed in this account for expenditure on any authorized state activity.

Other funds are less flexible. Some specific revenue sources (for example, the motor vehicle fuel tax or hunting license fees) go into accounts that can only be spent for the purpose established in state law. In budget terms, these are referred to as "dedicated accounts."

Washington receives most of its revenue from taxes, licenses, permits and fees, and federal grants. Each individual revenue source is designated by law for deposit in specific funds used to support state operating or capital expenditures. The table below displays the major revenue sources for General Fund-State expenditures in the current biennium. Most of these revenues are collected by the Department of Revenue.