Writings and observations

The tougher budgets

The old adage has it that the toughest budgets – in public organizations, if not private – are those where expected revenues exceed expected expenses. That extra money is just so tempting.

The northwest states are facing some of this. Oregon has no legislative session next year, so the pressure is less immediate in the Beaver State. But already the talk has arisen about eliminating the corporate kicker. What’s notable about this talk, as showed up in the Oregonian today, is that even the corporate lobby isn’t trying to defend it. The fact that two-thirds of the rebate would head directly out of state provides a real shift to the argument.

Washington appears headed, this next session, for a $1.4 billion surplus, which takes any discussion of tax increases off the table. Democrats in the legislature (or some of them) will see this as an invitation to spend a little extra, and Republicans (some of them) will similarly agitate for a tax cut.

Governor Christine Gregoire shows indications of trumping both views by emphasizing the temporary nature of the surplus. Talking with a Seattle Post-Intelligencer reporter, she said that by the time the 2007 budget cycle rolls around, there will be no surplus – in fact, she said, “There’s no scenario after we fund the mandates that doesn’t result in us having a deficit going into the next [2007] biennial budget.” Sounds like a line in the sand for a rainy-day fund, which could be the logical centrist approach. Her challenge will be holding the center together.

Idaho is looking at a similarly substantial surplus, and its Republican legislators will be tempted to go the same route they did when a big surplus appeared in 2001, and they sliced state income tax rates. That earlier cut came back to bite them, hard, in 2003 when the state’s economy took a dip, and a – horrors – tax increase was required (by Governor Dirk Kempthorne) in response. Will that lesson have been learned? There will be pressure too for doing something about increasing property taxes. Will the state surplus provide a handy, albeit tricky, solution for some of them?

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