Washington State Office of Finance Management's Budget Issues.

1. The 2009-11 Budget Story
Where we’ve been and
where we are now
Prepared by the Office of Financial Management
Nov. 16, 2009

2. Overview
• Over past 18 months, Washington has seen largest drop in
revenue in recent memory.
• Last session, we closed $9 billion shortfall through:
– cuts to programs and services
– use of Recovery Act funds
– fund transfers, including Rainy Day Fund
• As revenue projections continue to decline, we will need to
cut more to stay in balance.
• Reduction options are limited by constitutional and federal
spending mandates. This will narrow our choices.
11/16/2009 2

3. $9 Billion Problem by March 2009
$0
-$1
Initial $3 billion problem due to increasing costs
-$2
-$3
-$4 Cumulative $6 billion
Billions
-$5 revenue
-$6 lost
-$7
-$8
-$9
-$10
Feb-08 Jun-08 Sep-08 Nov-08 Mar-09
• Before recession, $3 billion problem projected for 2009-11 due to health care
inflation, K-12 growth, prison population growth, pension obligations.
• Problem grew with recession, resulting in $6 billion loss in revenue from
Feb. 2008 - March 2009.
11/16/2009 3

4. Solving $9 Billion Gap:
Actions to balance budget
Early reductions $.3 B
Rainy
Day
Fund
$.4 B
Froze
Cut programs
pay, transferr
$3.3 B
ed funds
$2.1 B
Recovery Act
$3 B
11/16/2009 4

5. $3.3 Billion in Cuts and Efficiencies:
Examples
• $600 million in K-12 through class size increases.
• $557 million in higher education by reducing 1,800 employees and
raising tuition 14% (universities), 7% (community colleges) per year.
• $386 million through administrative or across-the-board cuts.
• $255 million from Basic Health Plan by increasing premiums 70% and
reducing enrollment by 36,000 (36%).
• $127 million in payments to hospitals.
• $130 million from Corrections, including $73 million by reducing beds
and community supervision.
11/16/2009 5

6. All Areas of Budget Cut
Percent Reduction*
Low Income Other Human Higher
Health Care Services All Other** Education K-12 Education
-5%
-7%
-8% -8%
-11%
* Includes adjustments for additional tuition and Recovery Act money that offset reductions. Excludes
compensation and special appropriations.
** Includes general government (including legislative and judicial agencies); natural resources; 6
transportation; other education agencies.

7. Other States in Same Predicament
• 48 states have addressed or still face shortfalls for FY2010.
• 49 states had total tax revenue fall during 2nd quarter; 36 report double-digit declines.
• 25+ states face new shortfalls after balancing budgets just months ago.
11/16/2009 7

8. Sources of $2.0 Billion Shortfall
Revenues dropping
• $686 million June forecast
• $238 million September forecast
• $237 million tax lawsuit
• $32 million October revenue collections
• $65 million November revenue collections
• $1.26 billion Subtotal
Costs rising, issues emerging
• $659 million increased demand for health care, schools, prisons
• $12 million forest fires, landslides, dam failures, other
possible emergencies
• $71 million lawsuits blocking planned cuts
• $742 million Subtotal
11/16/2009 8

9. What Should We Expect?
Revenue uncertainty continues
According to state Economic and Revenue Forecast
Council:
• State revenues will lag economic recovery
• Job growth will lag economic recovery
• Unemployment will remain high
• Less revenue expected in 2009-11 than collected in 2007-09
11/16/2009 9

10. Majority of $31 Billion Budget Is Protected:
Tied to state constitutional or federal requirements
Corrections
General
5% Not protected
Government/Other $9.3 billion
5%
Other Human
Services
Other K-12 2%
17%
Higher Mandatory
Education 1% Medicaid/Foster
Higher Ed: Care 14%
Fed. Require. 8%
Debt Service/
Pensions 7%
K-12 Basic
Education 41% Protected
$21.6 billion
70% of the Budget Is Protected
10

11. Possible Areas for More Cuts:
Non-Protected Budget
• Mental health and developmental disabilities services:
$1.6 billion
• Prisons/community supervision of offenders: $1.6
Subject to billion
reductions • Care for low-income elderly: $1.3 billion
• Economic support for low-income families: $1.1 billion
• K-12 non-basic education funding (class size
reduction, others): $635 million
Protected
• Higher education: $500 million (most is financial aid)
• Juvenile corrections: $198 million
11/16/2009 11

12. Examples Not Enough to Fill Gap:
Non-Protected Budget
• Eliminating all state-funded environmental and natural
resource protection, and all recreation and parks
programs : $364 million.
Subject to • Eliminating all of the legislative and judicial branches of
reductions state government : $335 million.
• Eliminating all state support for cultural and art
organizations, and all early learning programs: $164
million.
Protected • Eliminating 23 of smallest general fund agencies: $52
million
11/16/2009 12

13. How Big is $2.0 Billion?
1
Close all community and technical colleges $1.4 billion
Close Dept. of Commerce $103 million
Close Dept. of Revenue $218 million
TOTAL $1.72 billion
2
Eliminate all state funding for UW, WSU $1 billion
Eliminate all state funding for CWU, EWU, WWU, TESC $337 million
Eliminate all state funding for Dept. of Health $193 million
TOTAL $1.53 billion
3
Close Dept. of Corrections $1.6 billion
11/16/2009 13

14. Budget Timeline
Time Action
Mid December Governor’s Supplemental Budget released
Feb. 18, 2010 Revenue forecast released
March 11, 2010 Session adjourns
11/16/2009 14