"I hate my budget. I hate it because in some places I don't even think it's moral. Who would have thought that I would be doing this? It's just beyond me that I would be the one to do this. That we would find ourselves in this situation. As we've gone through weeks and months of sitting in this room, of cutting, we've had to take a recess because people broke down in tears and had to get away. Bluntly, I was among them. I hate what we've had to do."
------Governor Christine Gregoire
On November 2nd, the people of Washington were presented with several ballot measures addressing issues of taxes and spending. Amid the worst economic downturn in decades and facing a projected multi-billion dollar budget shortfall, voters decisively rejected all proposals to raise revenue. Now the legislature is tasked with finding $4.6 billion to balance its books for the 2011-2013 biennium, made even more difficult with the passage of Initiative 1053, requiring two-thirds supermajorities in both houses of the legislature to increase taxes. The deck is stacked in favor of massive budget cuts, the passage of which only require a simple majority.
Governor Gregoire, claiming the voters “sent a message of an all cuts budget,” has proposed just that. Tens of thousands of low-income people, including 27,000 children, will be stripped of health insurance while state funding for education and parks will be slashed as well. Twenty-one state properties are to be sold off, ferry service will be cut, and fares will be raised by ten percent. Public employees are to receive lower compensation or simply laid off altogether. The Governor’s plan will also reduce their pension benefits by $425 million over the next two years alone.
Yet Washington is hardly unique in facing serious budget problems. The Evergreen State can certainly boast the most antiquated and regressive tax system in the country (the poorest 20% of the population pay an average of 17.3% of their income in taxes, compared to 2.9% for the top 1%), but other states are contending with even bigger quandaries. Nevada leads the nation in unemployment while Illinois has a projected deficit approximately half the size of its general operating budget. The roots of economic dysfunction often vary by region, from deindustrialization in the Midwest to excessive real estate speculation in the Sunbelt. Despite the diversity of cause, politicians across the country are peddling the destruction of social services as a common remedy.
Public employees’ unions are being targeted with particular zeal. New York Governor Andrew Cuomo is planning to “mount a presidential-style permanent political campaign” against labor unions in 2011, while California’s Jerry Brown is pushing for a 10% pay cut for over 50,000 state workers. Scott Walker of Wisconsin has gone so far as to openly consider decertifying state employees’ unions while John Kasich of Ohio is proposing eliminating thousands of state child care workers’ ability to unionize in the first place. Breaking the American Federation of State, County, and Municipal Employees, one of the largest unions in the country, would necessarily result in a serious erosion of the American middle class.
Federal politicians, not to be outdone, are working in sync with their state-level counterparts to diminish the power of organized labor. With December's expiration of President Obama’s Build America Bonds program in December, which helped lower the cost of borrowing for state and local governments, the stage is set for even deeper budget problems. Former Speaker of the House Newt Gingrich is attempting to exploit this by advising his colleagues in Congress to pass a bill allowing states to declare bankruptcy, which would allow for court-empowered renegotiation of union contracts and pension plans.
The assertion that public employees are overcompensated is not substantiated by facts. According to a 2010 study by Jeffrey Keefe of Rutgers University, state government workers are on average compensated 7.6% less than their private sector counterparts, while local government workers are compensated 1.8% less. These numbers include both pay and benefits such as health insurance and retirement plans. College-educated workers, in particular, receive 25% less than they do working for private firms.
It is also frequently claimed that eliminating waste in state government would be sufficient to rein in costs. This is likewise not supported by available evidence. According to Washington’s Office of Financial Management, the administrative overhead for the Department of Employment Security, for example, is less than 6%. The Department of Health’s proposed budget for the next fiscal year includes about 5% set aside for administration.
Compared to private firms that utilize public money, state government is a model of efficiency. Boeing won a $3.2 billion set of tax privileges in 2003 to assemble the 787 Dreamliner aircraft in Washington, and after repeated delays a single order has yet to be completed. The subsidy is so lavish that divided between the 800-1,200 workers the project is roughly expected to employ, it amounts to about $150,000 per worker per year, despite their projected average annual pay of $65,000.
For a further example of private sector waste and abuse of taxpayer money, one need look no further than the proposal to replace the Alaska Way Viaduct in Seattle with a deep bore tunnel costing over $1 billion. The consortium selected to undertake the project, Seattle Tunnel Partners, includes the Tutor Perini Corporation. Tutor Perini has spent almost $20 million since the 1990s settling fraud claims and has a history of cost overruns on projects ranging from bridges in New York to subway tunnels in Los Angeles. Now they’re being awarded state money to help dig the widest deep bore tunnel in history through extraordinarily varied soil along a waterfront in an earthquake-prone city, replacing a free structure that serves over 110,000 cars per day with a tolled project that only accommodates 41,000.
What can be done to spare Washington from the wave of brutal budget cuts sweeping the country? While it would be politically difficult to close the deficit with an increase in overall tax rates following the passage of I-1053, other methods are available. According to the non-profit Budget and Policy Center, every year the state loses $6.5 billion from tax preferences it allots to the politically well-connected. About $10 million is lost in sales tax exemptions for cosmetic surgery. Banks, mostly based out-of-state, avoid paying tens of millions of dollars in Business and Occupation taxes on the interest extracted from Washington homeowners. Retailers of fuel cut with ethanol, an environmentally destructive and corrosive additive, receive B&O tax deductions as well. The production of inorganic food is subsidized through sales tax exemptions for chemical fertilizers and pesticides.
Closing any of these allowances will still require a two-thirds majority in both houses of the legislature. While Democrats have suggested eliminating some of these loopholes, Republicans are less likely to offend the business community. To meet the two-thirds threshold, three Republicans in the Senate and four in the House will need to be persuaded to vote with the Democrats, a difficult but not insurmountable task. According to a recent poll by Elway Research, only 31% of Washington voters support cutting “state spending as much as it takes” without raising taxes or closing tax loopholes to help balance the budget, suggesting popular opinion is opposed to the “all-cuts budget” proposed by the Democratic Governor and legislative Republican minority.
With this in mind, Republican defectors will probably have to be recruited from legislative districts that lean Democratic, consisting of voters less ideologically committed to cuts in social spending. There are four Republican State Representatives whose 2010 election victories were won with less than 52% of the vote (Vincent Buys 50.13%, Katrina Asay 50.4%, Hans Zeiger 50.5%, John E. Ahern 51.78%), and three Senators who won with less than 54% (Steve Litzow 50.16%, Andy Hill 50.97%, Michael Baumgartner 53.71%). All of their districts voted for Barack Obama in 2008.
To elicit the cooperation of the more implacable of this group, promises of reciprocity may have to be made, perhaps in the form of modest tax cuts benefiting their constituents. At the very least, a compromise could be offered whereby some reduction in public spending is combined with the elimination of some tax loopholes to spare the population from deeper cuts than necessary.
The only thing missing from this feasible strategy is leadership. While Governor Gregoire publicly mourns her powerlessness in the face of a perceived right-wing tilt, a more proactive approach is needed. Public office can and should be used to promote innovative solutions to serious challenges, and there is no better time than the present to demonstrate to the people of Washington State that a budget embodying fairness for all and a commitment to irreplaceable public institutions is still possible. For some, it is a matter of political calculation. For the sick and vulnerable, it is a matter of life and death.
