Anatomy of a budget gimmick

January 8, 2014

When the Governor announced his first full budget proposal (his 2013-15 proposal was an outline) on December 17 releasing his recommended 2014 supplemental budget, I was very curious to see how it would comply with the state's spending limit. After careful review, it looks like it doesn't.

According to the state Expenditure Limit Committee state spending is projected to be only $75 million below the spending limit for FY 2014 but $15 million in excess of the limit for FY 2015. Breaking the spending limit would subject the State Treasurer to civil penalties as noted by RCW 43.135.025.

So with the state's 2013-15 budget already projected to be in excess of the spending limit how does the Governor propose an increase in state spending?

Some creative accounting that appears to serve no purpose but to try to circumvent the state spending limit. Follow the bouncing ball to better understand the anatomy of the Governor's spending limit budget gimmick:

  1. Transfer $41,833,000 from the State Toxics Control Account to the Education Legacy Trust Account (Section 805).

  2. Transfer $67,364,000 from the Local Toxics Control Account to the Education Legacy Trust Account (Section 805).

  3. "Appropriate," not transfer (a transfer would result in a decrease of the spending limit) $23,500,000 from the General Fund to Education Legacy Trust Account (Section 708).

  4. Use the $132,697,000 of "new" funds in the Education Legacy Trust Account to replace General Fund spending with spending from the Education Legacy Trust Account by:

    1. Reduce General Fund spending for OSPI general apportionment by $70,800,000 while increasing spending from Education Legacy Trust Account by $96,809,000 (Section 502).

    2. Reduce General Fund spending for OSPI per pupil transportation by $51,398,000 while increasing spending from Education Legacy Trust Account by $52,672,000 (Section 503).

    3. Reduce General Fund spending for OSPI special education by $14,654,000 while increasing spending from Education Legacy Trust Account by $11,333,000 (Section 505).

In summary, the Governor raids dedicated accounts to build the capacity for the Education Legacy Trust Account to supplant spending already occurring in the General Fund. Despite these gimmicks, the moves still should have triggered the 2 way street provision of the spending limit (RCW 43.135.034(4)), resulting in a corresponding drop of the limit putting the proposed supplemental over the limit.

The state spending limit was originally adopted by voters in 1993 with the passage of I-601. It has been amended numerous times by lawmakers with the most dramatic change (besides suspending the 2/3 vote requirement for tax increases multiple times) being in 2005 when the fiscal growth factor was changed from a three year rolling average of population growth plus inflation to a ten year average of state personal income growth.

This change allowed state spending to grow faster than was originally permitted and facilitated the large spending increase that occurred during the 2005-07 biennium.

With the Senate's top budget writer Sen. Andy Hill questioning if a 2014 supplemental is even necessary, it is unlikely the budget moves proposed by the Governor will gain much traction. Still, the proposed spending limit gimmicks indicates the broader need for policymakers to focus on ways to comply with the spirit of the law instead of cooking up ways to circumvent it.

Update 1/16

OFM was asked about these budget moves at the Senate Ways and Means hearing on January 15.

In response to OFM's comments at the hearing I requested additional details.

OFM replied that they agree the budget moves used were to try to work around the spending limit but don’t believe that their actions triggered the requirement for the spending limit to be reduced since they feel the spending changes were for “new programs” in a future fiscal year. They did say they don’t recall this move being used in a prior budget. We’ll have to disagree on whether the spending limit would be breached under this proposal but at least we agree these maneuvers served no other policy purpose.


Education Legacy Trust account spending record

Is there a record somewhere of what the Education Legacy Trust account is actually used for, as opposed to what it's supposed to be used for? The 2015 Senate budget proposal includes I-502 funds, originally earmarked in the law itself for public health spending, being rerouted into the education account, in direct violation of I-502. How much creative accounting is really going on here?