2012 Supplemental Operating Budget

The 2012 supplemental operating budget saga began in the fall of 2011 with the possibility of passage of a budget which would have decimated our state’s higher education system and shredded our safety net by eliminating health care for the most vulnerable populations and slashing services that keep individuals alive.  Thankfully, that is not where this saga ends.

 

3ESHB 2127, which passed during the early morning hours of the 2012 2nd special session, actually makes no reductions to K-12 and higher education and keeps our safety net intact.

 

What a difference a few months make.  During this torturous time, our economy has started to improve and our state’s mandatory spending obligations have declined, making the challenge of balancing the state’s operating budget less onerous.

 

 

Budget Chronology:
May 2011:  When the Legislature adopted the original 2011-13 operating budget, $743 million was left in reserves.

 

November 2011:  After the November 2011 revenue forecast, the 2011-13 biennial operating budget was negative by $1.4 billion.  That shortfall number did not include leaving any funds in reserve (ending fund balance).

 

December 2011:  During the special session, the Legislature adopted a number of measures which reduced the shortfall by $480 million.

 

February 2012:  The February revenue forecast actually increased by $86.8 million.  On the expenditure side, the maintenance level (which is the mandatory spending level) decreased by $335 million.

 

April 2012:  Maintenance Level savings are increased to $340.3 million and the final 2012 supplemental operating budget is adopted.

 

 

Budget Shortfall
3ESHB 2127 addressed a $1.2 billion shortfall.  This number assumes leaving an ending fund balance of $318.9 million.  The funding referred to in this budget is “Near General Fund + Opportunity Pathways”.  “Near General Fund” refers to the State General Fund and the Education Legacy Trust Account.   The complete balance sheet is shown on page 7.

The following table shows how this budget problem was solved:

 

 

Additional Revenues
The 2012 supplemental operating budget assumes that $177.3 million in additional revenue is available.  $152.1 million is the net number associated with revenue legislation.  $25.2 million is considered “budget-driven” revenue, where changes are made within the actual budget bill.  The following table shows all of these revenue items:

 

*ESHB 2823 makes a number of changes to how certain existing revenues are used.

• The Solid Waste Collection Tax (SWCT), which brings in about $35 million/year, is deposited into the State General Fund instead of the capital budget in the current (2011-13) and ensuing (2013-15) biennia.  In fiscal years 2016 through 2018, one half of the revenue from the SWCT is used in the operating budget instead of the capital budget.

• The annual $102 million transfer from the State General Fund into the Education Construction Fund (capital budget) is suspended in the 2013-15 biennium.

• In Fiscal Year 2013, all liquor excise taxes that would normally be deposited into the Liquor Excise Tax Fund for distribution to local governments are deposited into the State General Fund – providing the state $28.8 million in additional revenue.  Beginning in Fiscal Year 2014, local governments will receive $10 million/year from the Liquor Excise Tax Fund.

• Distributions (profits) to local governments are suspended for a year, providing the state an additional $44.9 million.

 

**ESB 6635 makes a number of changes that impact state General Fund revenues:

• The first mortgage interest deduction is eliminated for banks/businesses that are located in more than ten states – generates $14.5 million in the current biennium.

• The food processor Business and Occupation (B&O) tax exemption is extended for three years – reducing state revenues by $6.7 million in the current biennium.

• The data server equipment exemption is extended – no impact in the current biennium.

• Craft distilleries are exempt from the license issuance fee in Initiative 1183 – reducing state revenues by $200,000 in the current biennium.

• A new blended rate for internet advertising and print advertising is created for newspapers – no impact in the current biennium.

• An express exemption for preferential use of leased marine port property is created for the Leasehold Excise Tax – reduced state revenues by $5 million in the current biennium.

 

 

Local Sales Tax Working Capital Reserve
HB 2822, a joint request bill from the State Treasurer and the Governor, requires that the Department of Revenue deposit the local share of retail sales and use taxes into the Local Sales and Use Tax Account on a monthly basis on the last business day of the month in which the distributions to local governments are made.  This procedural change results in having $238 million additional resources in the State General Fund.

 

 

Fund Transfers
The following table shows which funds from other accounts were transferred to the State General Fund:

 

 

 

Maintenance Level Changes
3ESHB 2127 assumes savings of $340.3 million from the maintenance level.  These changes are generally from reduced caseloads and enrollments and other mandatory changes.  These other mandatory changes include workers’ compensation rates, central service rates, and personnel services rates.

The following table shows the maintenance level changes by subject area:

 

 

 

Policy Changes
3ESHB 2127 makes $295.4 million in reductions in all budget areas.  This net number includes additions, fund shifts and reductions.  The following table shows how those reductions are distributed:

 

 

Legislative:  The legislative agencies take efficiency reductions.  Additional savings are generated by creating a new Office of Legislative Support Services.

 

Judicial:  Savings are generated by increased use of the Judicial Stabilization Trust Account and efficiency measures.  Other reductions include savings from SSB 6494 which changed truancy procedures (Becca bill).  There are increased expenditures in the Office of Public Defense (OPD), because defense costs associated with the Special Commitment Center within DSHS are transferred to OPD.

 

Government Operations:  Administrative savings are achieved in most agencies. Reductions include:  $5 million in under spending in the Housing and Essential Needs program and a fund shift of $4 million in Heritage Center funding for the State Library.  Additional funding is provided for a Shelter to Housing pilot program, $250,000 for the basic education task force and $250,000 for a base realignment and closure task force.

 

Department of Social and Health Services:  The largest savings item is $126.6 million from under expenditures in the Temporary Aid for Needy Families (TANF) and Working Connections Child Care (WCCC) programs.  $13.6 million in additional funding is provided to implement Initiative 1163 (home care worker) training.

 

Other Human Services:  Savings were assumed for the following:  the Indigent Assistance program ($13.1 million), E2SSB 6204, a new community supervision violator policy ($15 million), HB 2803, a new policy for payment to hospitals for offenders ($3.4 million), and ESSB 5978, implementing the new Medicaid fraud policy ($4.3 million).  Additional funding is provided for a new Emergency Room services policy (+$3.7 million) and implementing Provider One (+$2.6 million).

 

Natural Resources:  Most of the savings were achieved through the use of other dedicated funds, including the State Toxics Control, Recreational Resources, Aquatics Land Enhancement, Fish and Wildlife Enforcement, Forest and Fish Support, and Forest Development.

 

Transportation:  Reductions were made to staffing in the Washington State Patrol, saving $1.9 million.

 

K-12/Public Schools:  Additional funding is provided to implement new legislation or other new initiatives, including:  Urban School Turnaround (+$2 million), WaKids (+$1 million), Collaborative Schools (+$1.5 million), Open K-12 Education Resources (+$250,000), and Teacher Principal Evaluation Systems (+$5.8 million).

 

Higher Education:  The table above shows that there were funding reductions.  However, those savings are associated with reduced rates for health benefits.  This change does not impact any programming nor does it reduce any benefits to employees.  Additional funding is provided for:  creation of the new Student Achievement Council (+$1 million) and Leadership 1000 scholarships (+$1 million).

 

Other Education:  Savings were primarily for administrative reductions.

 

Special Appropriations: Savings are achieved by reductions to the Self Insurance Premiums paid by state agencies ($7.5 million) and additional savings from efficiencies in the information technology area ($5 million).  $4 million in additional funding is provided to the Life Sciences Discovery Fund to correct an erroneous assumption in the original operating budget.

 

Compensation:  In all state agencies and higher education institution budgets are reductions in the monthly rate paid for employee health care benefits.  That rate is reduced from $850 to $800 per eligible employee in Fiscal Year 2013.  This is projected the leave the Public Employees Benefits Board reserves fully funded at the end of this biennium.  This change saves $33.1 million in state funding.

 

 

Estimated Reversions
State agencies generally do not spend their entire appropriation in any budget period.  The underspent funding is referred to as “reversions”.  Historically, this level of under spending is about $80 million each year.  This funding is supposed to be transferred to the Savings Incentive or Education Savings Accounts.

 

The 2012 supplemental operating budget assumes that $120 million will be transferred to the State General Fund.

 

 

Balance Sheet
The balance sheet for the 2012 supplemental operating budget is below.