LEGISLATURE: Next session may be even more painful
Sun | Local
OLYMPIA (AP) - The Legislature balanced its budget with spending cuts, tobacco smoke and financial mirrors this year, mostly dodging the political land-mine of raising taxes in an election year.
But don't take your eyes off your wallet for too long. Many of the budget problems that plague Washington will still be around next year, and lawmakers have laid the foundation for balancing the books by eliminating tax exemptions or imposing new taxes.
Raising taxes is always a touchy subject, and when push came to shove as lawmakers adjourned early Friday, the Democratic majority simply didn't have the votes for even a carefully targeted increase - a boost in the retail sales tax on hard alcohol.
That left a $31 million hole in the budget, which has Gov. Gary Locke reaching for his veto pen to make a spending bill already loaded with cuts balance again.
The biggest chunk of money used to fill Washington's $1.6 billion budget hole came from a borrowing scheme that grabs about a fifth of the state's annual check from the national tobacco settlement to back bonds. But that's likely just a one-time fix and both Locke and majority Democrats concede longer-term changes may be in store.
"Our budget woes will be three times as bad when we return next year unless the economy performs a miracle," said Sen. Erik Poulsen, D-Seattle, who spent much of the Legislature's session scouring the state's tax laws for extra money. "The issue of revenue increases and eliminating more tax breaks will be in the spotlight again."
But this year's legislative session was an object lesson in just how hard raising taxes or eliminating tax breaks can be.
Not only did the liquor tax die, but the handful of loopholes that were closed mostly affected out-of-state businesses and only yielded about $30 million, a number so small in the context of the $22.5 billion budget that Capitol insiders refer to it as "budget dust."
It won't help much next year, when the budget gap could be as big or bigger than this year's model.
"We know that these problems are going to come up next year and we have to be prepared for them," Locke said.
Big tax exemptions, such as sales tax breaks on food and manufacturing equipment, enjoy broad support in the Legislature, Poulsen said.
Not taxing food eases the burden of the sales tax on the poor, while the break on equipment encourages business growth, supporters argue.
Meanwhile, general increases in the state's two biggest revenue sources, the sales tax and the business and occupation tax, are fraught with political problems.
The sales tax is regressive - meaning it falls more heavily on the poor than the rich - and Democrats shy away from raising it. Raising the B&O tax, meanwhile, would draw screams of outrage from the business community and its allies in both parties.
Washington has no state income tax, and imposing one would require a constitutional amendment approved by two-thirds of the House and Senate and a statewide vote - a political hurdle so high that most lawmakers don't even bother to talk about it.
For most of the last decade, the question of raising taxes simply didn't arise. A booming economy kept both sales and B&O taxes flooding in, and 1993's Initiative 601 demanded a two-thirds majority for any increase.
But what lawmakers didn't spend, voters grabbed with initiatives that either cut taxes or increased spending. Now lawmakers from both parties agree that the budget is out of whack in the long run.
"The public can't continue to expect more government services for less money," Poulsen said.
With an eye toward raising more money rather than cutting services, Democrats pushed through a historic change this year. A bill passed by the Legislature and signed by the governor suspends parts of I-601 until June 30. Until then, a simple majority of lawmakers can vote to raise taxes.
Democrats called it a temporary response to disastrous financial times, but any tax increases adopted during the window would outlive the exemption, and Republicans are bracing for impact.
"They'll come along in a few months and say: 'Now, we're going to raise taxes," predicted House Minority Leader Clyde Ballard, R-East Wenatchee.
But before anybody gets to write the 2003-2005 budget or raise taxes, the voters will have their say in November. Democrats hold the Senate by just one vote and the House by only two, so a small shift could tilt control to the GOP.
"The campaign season has begun," sighed Poulsen.
Washington Republican Party Chairman Chris Vance is already honing his campaign message, slamming Democrats for passing an unsustainable budget, closing tax loopholes for business, raising university tuition and suspending I-601.
"To me, those are tax increases. If they were trying to take this issue off the table politically, they failed," Vance said. "If the people of the state of Washington return a Democratic majority to the House and Senate next year, that's when they're going to pay the bill, with giant tax increases."
But a Republican takeover of the Legislature could fall under the category of "be careful what you wish for." For example, it would likely leave Republican Sen. Dino Rossi, a relentless critic of Democratic budget-writers, in the hot seat as chairman of the Ways and Means Committee, trying to muster support for big budget cuts.
"They're going to leave a time bomb for us if we get the majority," said Rossi, R-Sammamish. "If they get the majority they're not averse to raising taxes."
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