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Times' series on spending
(June 2002)
· Part 1
· Part 2
· Part 3
· Part 4

Sunday, June 16, 2002 - 12:00 a.m. Pacific

State budget jam at boiling point

By David Postman
Seattle Times chief political reporter

By the numbers
Ramp up services but not taxes, poll says
What people think of state government
If there was any question that taxes and government spending would dominate this campaign year, it was answered late last month when a city initiative was filed to create a 10-cent-a-cup espresso tax.

Never mind that the tax — to fund Seattle child-care programs — would amount to tip-jar money compared to the $1 billion questions facing voters this year.

The espresso tax adds local flavor that will help focus voters' attention in a year when they may have their say on a tax cut, new restrictions on legislative spending, and tax increases that could determine fiscal policy for the next decade.

The issues are as important and far-reaching as they appear to be contradictory. Here is how they stack up:

• Voters statewide will be asked to approve nearly $8 billion in gasoline taxes and other fees to pay for transportation projects.

• Voters in King, Snohomish and Pierce counties may be asked to approve an additional $12 billion regional transportation plan.

• King County voters may be asked to approve a new property tax to pay for parks, largely because earlier ballot measures cut state funding for local government.

• In Seattle, voters will be asked to approve an $86 million housing levy, and may be asked to approve a $1.2 billion monorail system and, perhaps, the espresso tax.

• At the same time, voters may also have a chance to roll back vehicle-license tabs to no more than $30, a move that would derail Sound Transit and other projects.

• And there's a chance state voters will be asked to approve new limits on the growth of state spending and to restore a provision the Legislature threw out earlier this year that required a two-thirds vote to approve new taxes.

Looming over all is the fact that all 98 seats in the state House, and 24 of 49 in the Senate, are on the ballot. With Democrats holding a two-seat majority in the House and one-seat control in the Senate, the fight over who will write — and somehow balance — the next state budget will hinge on whether the desired solution is to raise taxes or cut spending.

A legislative commission headed by William H. Gates Sr. is looking for ways to change the state's tax system in the future so it won't be left to the vagaries of paralyzed lawmakers and frustrated voters. The group's report is due Nov. 30, a date chosen to keep the recommendations from becoming campaign fodder.

All this adds up to a contest to see who will set the course as the state struggles through the latest economic downturn.

Will citizen initiatives continue to be the dominant force in state finances? Can a Legislature — stalled for four years — accomplish the major tax changes or deep spending cuts many say are crucial for financial stability?

"There is heightened interest, and that almost inevitably leads to a better understanding," Gates said recently.

We are not alone

The economic downturn following Sept. 11 heaped budget problems on states already struggling with a slowing economy. Lawmakers across the country cobbled together spending plans earlier this year to deal with revenue shortfalls from the deepening recession, rising unemployment and slacking consumer confidence.

The effects were particularly pronounced in Washington state, especially after Boeing announced it would lay off up to 30,000 workers because of a slowdown in airliner purchases.

When lawmakers convened in January, state officials said the two-year budget approved in June 2001 was $1 billion out of balance, with the state's chief economist saying most of that was due to economic fallout from Sept. 11. By the time lawmakers voted on a package of temporary fixes in March, the estimated shortfall was $1.6 billion.

To fill the budget hole, lawmakers approved $30 million in tax increases by closing what they described as loopholes in business taxes; borrowed money from the state's share of a nationwide settlement with the tobacco industry; and cut about $600 million from approved spending.

The money squeeze wasn't all due to the recession, though. In recent years, voters have approved initiatives that cut taxes and others that increased spending.

The steady stream of voter-approved initiatives has created an electorate better educated in the ways of taxes and spending but also voters who are starting to see the negative effects of the popular ballot measures.

In King County, for example, there's talk of widespread park closures because the county doesn't have money to maintain its facilities.

Still, any large-scale reaction to the initiatives has been delayed because legislators have been sending additional money to local governments to make up what has been lost. Some lawmakers now say that was a mistake because it hid the true effects of the initiatives and bolstered arguments that the state had enough money to cut taxes and increase spending without ill effects.

At a training session for members of community groups' boards of directors in University Place, Pierce County, last month, about 80 people were asked to identify the young city's biggest challenges.

"What they all described in one form or another was the declining revenues or increasing demands," said University Place City Manager Bob Jean.

University Place was incorporated in 1995 and faces serious budget cuts in large part because of money lost through the recent tax-cutting initiatives.

Jean said he figures about 60 percent of the people at City Hall for training that day voted for the very initiatives they agree created the city's biggest problem.

He points out that people are willing to raise taxes to pay for specific programs. But voters want a more direct connection between the taxes they pay and the services they buy — such as the tobacco-tax increase voters approved last year to pay for low-income health care.

"What they're saying is, 'The system isn't working for me, and if you don't fix it, I'll keep busting it until you do,' " Jean said. "It is not a particularly rational approach. The Gates commission is a much more rational approach."

Jean said his job has been complicated by the fact that lawmakers have not given local governments authority they need to raise taxes.

Politics has paralyzed the Legislature: With the Democrats' two-vote margin in the House and one-vote margin in the Senate, tax-related votes fail because "both parties were scared to death they would lose a vote," he said.

This year's issue

Taxes and spending are certain to be a major campaign issue in state races this year, something that has not happened since 1994.

"In all of our polling, the out-of-balance budget is the thing people respond to most," said Stan Shore, the Senate Republicans' campaign consultant. "We are going to bring it up."

A recent fund-raising letter from Senate Republicans is topped with a big, bold-faced quote from Sen. Erik Poulsen, D-Seattle. When asked by a reporter if a general tax increase could be avoided next year, Poulsen said: "From what I am seeing, it will almost be impossible."

A key part of the Democrats' budget plan this year was to borrow money against the state's share of the nationwide settlement with the tobacco industry. It's a complicated issue that brought a sense of relief from Democrats and frustration from Republicans because it won't easily translate to a sound bite to be lobbed in the campaign.

But Shore isn't worried about boiling it down.

"Let's see: Democrats took money from tobacco money that was supposed to go for children's health care and used it to balance the budget, to try to balance the budget, or to rig the budget so it looks balanced.

"I don't know, that doesn't look very complicated to me."

Democrats will not shy away from the budget issue, said George Scarola, the consultant for House Democrats.

Though there was $30 million or so in tax increases, Scarola said, Democrats managed — "against all odds" — to avoid a general-tax increase and didn't raise either broad business taxes or the sales tax.

"I think voters are smart enough to look at the whole picture and get beyond the rhetoric," Scarola said. "I think voters realize that times feel a little tough."

Restructure taxes

One of the first matters that will face the 2003 Legislature, whoever is in control, is a report from the Gates commission.

The commission is supposed to review the current tax system and come up with alternatives to make it more equal to those of border states so businesses don't move to Oregon or Idaho, and to encourage business creation and home ownership.

Complicating the job is the effect of past voter initiatives, some of which demanded more spending while others cut taxes.

Already, Gates doesn't sound like a fan of the initiatives when he says that 2000's I-728 "absconded with the state surplus" and "deprived the Legislature" of its traditional role as appropriator. That measure set aside property-tax and lottery revenue to help reduce school-class sizes.

But even as the commission conducts its study, Gates knows this: By the time his report is published, the political landscape may have changed once again.

"They're not consistent efforts," he says of his work and this year's crop of ballot measures.

The measures may cut some taxes. They may raise others. They may strengthen the state's total spending limit.

Or they may do all of the above.

David Postman can be reached at 360-943-9882 or

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