State budget – More uncertainty

On June 17, the state’s Economic and Revenue Forecast Council released the June 2010 forecast. The council now projects that state revenue will be down $203 million between now and June 30, 2011, meaning that the "ending fund balance" legislators left in their 2009-11 biennial budget for emergencies is now down to $253 million. More on the forecast can be found in the Municipal Finance section of this Bulletin.

Complicating the state’s current budget situation is the fact that the $480 million of Federal Medicare Assistance Funding (FMAP) that was booked as part of approving the 2010 Supplemental Operating Budget may not materialize. FMAP is a percent of a state’s Medicaid spending that the federal government has in the past reimbursed and was again expected to be provided. In a test vote earlier this week, the U.S. Senate failed to pass an amendment that would have extended FMAP funding to the states by six months. Senators will likely try another vote later this month.

If the federal money doesn't come through, state agencies face about $200 million in cuts in this current biennium. If that occurs, the Governor has two choices. She can call a special session of the Legislature (to add revenue or make budget cuts) or make across-the-board cuts in state services.

Looking ahead to the 2011-13 biennium, legislators on both sides of the aisle have stated they will need to look at more cuts and potentially end some state programs. According to Marty Brown, the Director of the Office of Financial Management, the 2011-13 Operating and Capital Budgets will "represent a competition for limited resources." As the Governor prepares her budget, Brown says she will be asking more questions about existing services as well as alternative forms of service delivery. Governor Gregoire is expected to outline her thoughts about all of this early next week, after which we’ll provide more information in an edition of AWC’s City Voice and on our website.

As if this news isn’t daunting enough, several initiatives poised to qualify for the November ballot would intensify the state’s budgets woes and have direct or indirect impacts on local governments. These initiatives include:

• I-1053: This measure would restate existing statutory requirements that legislative actions raising taxes must be approved by two-thirds legislative majorities or receive voter approval, and that new or increased fees require majority legislative approval.
• I-1100: This measure would direct the Liquor Control Board to close all state liquor stores; terminate contracts with private stores selling liquor; and authorize the state to issue licenses that allow spirits (hard liquor) to be sold, distributed, and imported by private parties. It would repeal uniform pricing and certain other requirements governing business operations for distributors and producers of beer and wine. Stores that held contracts to sell spirits could convert to liquor retailer licenses.
• I-1105: This measure would direct the Liquor Control Board to close all state liquor stores; terminate contracts with private stores selling liquor; and authorize the state to issue licenses that allow spirits (hard liquor) to be sold, distributed, and imported by private parties. It would repeal uniform pricing and certain other requirements governing business operations for distributors and producers of beer and wine. Stores that held contracts to sell spirits could convert to liquor retailer licenses.
• I-1107: This measure would reverse certain 2010 amendments to state tax laws, thereby: ending the sales tax on candy and the temporary sales tax on some bottled water; and ending temporary excise taxes on the activity of selling certain carbonated beverages, not including alcoholic beverages or carbonated bottled water, and the manufacturing and selling of beer and strong beer. It would also reinstate a reduced business and occupation tax rate for processors of certain foods.

In the weeks ahead, we will provide more information on these or other initiatives that qualify for the ballot. The deadline for submittal of valid signatures to the Secretary of State’s office is July 2.

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