Office of Planning and Budgeting

Yesterday, Governor Gregoire’s budget office issued a lackluster four-year revenue and expenditure outlook for the state’s near general fund. The coming 2013-15 biennium (FY14 & FY15), for which the Governor will release a budget in December, comes up short on anticipated revenue and long on expenditures. Before accounting for required increases in K12, across-the-board salary increases, and minor increases to financial aid spending, the anticipated deficit for both years of the coming biennium is $1.7 billion. If the Legislature appropriates funds from the budget stabilization account, the biennial deficit shrinks to $956 million. The deficit was calculated based on the assumption that near general fund revenue will grow 2.2% in FY14 and 4.4% in FY15.

Expenditure assumptions include the backfill of an equivalent 3% salary reduction in each of the prior two fiscal years (FY12 & FY13). In other words, it is presumed that the Legislature will backfill the UW’s budget by approximately $12 million per year to replace the temporary salary-related reductions it imposed on the University during the prior biennium. However, without an infusion of revenue, the Legislature will not be able to fund required K12 policy enhancements, financial aid, or salary increases.

The outlook serves as a reminder that the state’s economy remains tenuous and even a minor replenishment of higher education spending is questionable.

A new study from the State Budget Crisis Task Force concludes that in many states, anticipated revenues will be insufficient to cover mounting Medicaid enrollment caseloads, underfunded pension commitments, and local government budget obligations. The authors focused their investigation on California, Illinois, New Jersey, New York, Texas, and Virginia. They predicted that anticipated revenues (from sales, income, or other taxes) would be both insufficient to cover expenses and fairly instable, as personal income remains volatile and unemployment (and underemployment) high. In other words, we are edging towards the state budget precipice, even as the national economy distances itself from the official end of the Great Recession proclaimed in 2009.

These conclusions are not unfamiliar to readers; we recently blogged about state-level fiscal uncertainty and sluggish revenue growth. However, this study sheds additional light on the subject, being the first to make a comprehensive assessment of the tension between mounting expenses and shaky revenues in highly populated states.

While Washington State continues to experience slow economic growth in some sectors and in its generation of tax revenue, the Economic Revenue and Forecast Council (ERFC), in its July collections report, refrained from making any firm economic revenue projections due to the excessive variability of receipts. The ERFC report also emphasized slowing job growth: while reducing state unemployment by 0.5 percent would require 160,000 new jobs each month, the state only added 80,000 new jobs in June.

While anticipated revenue is increasing slightly, the downside risks of a second recession brought on by the debt crisis in Europe, disappointing job growth, and depressed consumer confidence are significant. Despite these concerns, ERFC predicts slight revenue increases for both the 2011-13 and 2013-15 biennia, due to legislative action from the 2012 supplemental budget.

 

Please review our OPB budget brief and post any questions or comments.

 

In a final effort to pass an omnibus operating budget before the end of the first special session of 2012, the House introduced what the Democratic Caucus deemed a compromise, amended budget Wednesday and passed the budget off the floor yesterday. This second engrossed House budget is nearly identical to the first engrossed House budget in its treatment of higher education institutions.

As a reminder, an engrossed budget must be adopted by the opposite chamber before it is sent to the Governor. If the opposite chamber amends the budget, the budget is returned to the house of origin for concurrence or further amendments.

What remains to be seen is whether the Senate will hear the House budget before Tuesday (which marks the end of the first special session of 2012) and either amend it or pass it. This appears unlikely by most accounts.

For the UW, the second (newly) engrossed House budget and the most recent Senate “philosophical coalition” budget are mostly identical. Both budgets make no NEW service cuts to higher education. The House budget, like the Senate budget, contains a number of central agency service reductions for specific “state” services that would have some impact on the UW, and both budgets redirect existing state appropriations to the UW to fund specific initiatives in the College of Engineering ($3.8 million), WWAMI ($210,000) and RIDE ($190,000).

The primary difference between the two approaches is that the second engrossed House budget does not swap $5 million of state funds for $5 million of State Toxics Control funds in the College of the Environment’s budget.

Planning & Budgeting continues to develop drafts of the FY13 UW capital budget, operating budget, and tuition item for Regental consideration on May 3. If we do not have a firm state appropriation figure to include by that time, our ability to accurately project central educational operating resource budgets will compromised.

The first new budget proposal of special session was released today by the same bipartisan Senate coalition that quickly passed an engrossed supplemental budget two weeks ago. Last week, the House further revised the Senate engrossed budget before session ended without agreement on a compromise budget. Although complex and at times confusing, this year’s budget process appears to now be moving forward as today’s Senate budget release moves closer to the House engrossed budget.

The new Senate coalition budget proposal would make the following changes to the UW’s 2011-13 biennial budget:

  • Reduces state general funds for the College of the Environment and replaces these funds with State Toxics Control revenue ($5 million);
  • Requires that the UW devote a portion of its state funding base to convert existing student FTE to College of Engineering FTE ($3.8 million); and,
  • Provides new funds for a Center for Aerospace Technology Innovation ($1.5 million).

All told, the redirect of state funding for engineering enrollment funding  and College of the Environment fund swap would affect our FY13 budget base. Please review our Planning & Budgeting brief for more information about the new Senate proposal and how it compares to the current House engrossed budget.

On Thursday morning (3/8), around 12:30 AM, yet another version of the budget (making changes to the Senate engrossed budget) was proposed by Representative Hunter (Chair, Ways & Means) on the last scheduled day of legislative session. This proposal was intended as a compromise between the Senate engrossed budget, written by Senate Republicans, and the budgets proposed by Senate and by House Democrats.

This new House budget amends the Senate engrossed budget, and does not contain new state funding cuts for the UW or the other higher education institutions. However, the budget does contain small central agency service reductions and two unfunded provisos that the UW would fund through its current appropriation. Similarly to previous iterations of the budget, these provisos specify that $3.8 million must be redirected to support engineering enrollments in FY13, and that $790,000 be directed to WWAMI/RIDE in FY12. While the Senate engrossed budget provided new funds for these provisos, the House budget does not; thus, it would require a shift of existing UW state funds and constitute a cut that University units would have to accommodate.

This budget was heard, amended, and passed off of the House floor last night but was not heard in the Senate afterward. A special session to continue the process was announced shortly after midnight, and Governor Gregoire called the Legislature back to session next Monday. We anticipate that negotiating a compromise budget between the multiple versions that have been introduced will be the Legislature’s primary focus next week.

At this stage, changes to the UW’s state funding for FY13 remain uncertain. The two current proposed approaches include a House “budget” that would require the UW to shift $5 million of its appropriation to fund the two provisos noted above, but contains no new overall funding cuts. Meanwhile, the Senate engrossed budget bill does include new funding for the engineering proviso ($3.8m), but makes other changes that result in a loss of $12 million in state funding.  When special session starts next week, entirely new versions of the budget may emerge. Stay tuned.

In a rare, surprise move (which has not occurred in the state capitol since 1987), Senate Republicans introduced a striking amendment to the Senate Ways & Means budget on the Senate floor yesterday afternoon and eight hours later, passed their version of the supplemental operating budget with only one amendment adopted. Many amendments were introduced to make changes to the Republican striker, and restore funding to specific areas of state spending, but in the end, only one amendment was carried.

Derek Kilmer (D-Gig Harbor) offered an amendment  last night to restore most of the cuts that the Senate Republicans would apply to higher education institutions, passionately declaring, “You don’t have to do this,” after asking where Senate Republicans were doing student testimony on the original Senate budget, which spared higher education institutions from additional cuts.

Despite passionate testimony and procedural action to delay a vote, the new engrossed Senate budget passed 25-24 just after midnight.

This budget is described in greater detail in an OPB brief, which compares the new Senate engrossed budget to the House engrossed budget. All told, the Senate budget would require the UW to take a $12 million cut next fiscal year.

Legislative session is scheduled to end this Thursday, March 8, but this recent shake up will no doubt complicate the last few days of scheduled action.

Debate on the Senate floor yesterday evening was highly emotional and it could take several days before legislators are ready to negotiate differences between the two now very different budget spending plans.

In FY09, the UW’s state funding appropriation was $401.7 million and while the upcoming fiscal year’s (FY13) state funding level could be $214.4 million, the Senate budget released this morning would not cut current levels further. For the first time in several years, the UW may experience a flat budget, without new reductions. While funding levels are dramatically lower than they were before the Great Recession, they may not be reduced further.

Like the House budget, finalized by House Ways & Means Saturday, February 25, the Senate budget reduces state expenditures, authorizes fund transfers, and captures fund savings to deal with the current 2011-13 biennium shortfall of $1.05 billion. Reductions are made to important state services, including mental health, foster care support and community supervision of convicted criminals. However, these cuts, in part, allow the Senate to avoid cutting higher education and K12 further in the remainder of the current biennium (FY12 and FY13).

The Senate budget, as introduced, requires that the UW devote $3.8 million of its current appropriation level to converting 425 existing FTEs to student FTEs studying engineering and appropriates new money for the Center for Aerospace Innovation and Technology.

The Senate capital budget was also released today. Under the Senate proposal, the entire construction phase ($62.6 million) of Bothell Phase 3 would be funded, but from a variety of fund sources, with almost $20 million of the total cost supported through state construction bonds. This compares favorably to the House budget, which authorized the UW to bond the entire construction cost through its own building account resources.

While the Legislature is scheduled to adjourn sine die next Thursday, March 8, each chamber has a lot of work ahead before a compromise budget can be reached.

A full briefing on the Senate budget, comparing it to the House budget, is available here. Please let us know if you have questions.

House Ways & Means Chair Ross Hunter released the House supplemental budget proposal today, reducing state expenditures, making fund transfers, delaying payments, and capturing fund savings to deal with the current 2011-13 biennium shortfall of $1.05 billion. The Governor released her budget November 21, 2011, before the February 2012 caseload and revenue forecast improved the outlook for tax collections and caseload requirements.

If this budget ultimately passes, each of the state’s six baccalaureate institutions would reconcile a 2 to 3.5 percent state funding cut over two fiscal years, which compares favorably to the Governor’s budget, which would have cut each of the public baccalaureate universities by 16 to 17 percent. Note that theUW reduction number listed below does not include an offsetting proviso for enrollment support in the College of Engineering ($3.8 million). Please review our budget brief for more information.

 

Senate Ways & Means Chair Ed Murray will release his budget next and each chamber will work toward a conference (compromise) budget. Please check back regularly for budget updates and to review capital budget proposals as they are released.

While we anticipate operating budget proposals from House and Senate Ways & Means Chairs next week, the House Republican caucus released its version of an operating budget today. Note that this proposal is not binding; it is a list of House Republican funding priorities. These priorities focus on funding K12 education, including funding for all-day kindergarten, 180-day school year, levy equalization, and reform measures. Additionally, the House Republican proposal includes increases to public safety funding and does not include a proposed early release program for Washington prisoners.

House Republicans would make a number of changes to higher education institutions that were not included in the Governor’s budget, released in November. The proposal would reduce funding for “administrative costs” by .5 percent at public baccalaureates and remedial education at the community and technical colleges. While no definition of “administrative costs” is provided, budget notes declare that “administrative activities are reduced. Reductions shall be implemented in a manner that minimizes impact on student services.” The UW would need to cut $6.6 million of administrative activities in FY13 if this policy is included in the final budget. Additionally, this proposal temporarily lays off all state employees, including employees at the state’s higher education institutions, for 24 days in FY13. Temporary layoffs would not extend to some critical personnel.

This proposal makes changes to the State Need Grant (SNG) program as well. Students at public baccalaureate institutions would be limited to 12 quarters (or 6 quarters for students at community and technical colleges) of grant funding. Interestingly, this proposal would eliminate SNG funding for students attending private, for profit institutions.

Like the Governor’s budget, the House Republican proposal would fund a $3.8 million Engineering enrollment support initiative at the University of Washington.  All told, the House Republican proposal would reduce administrative expenditures at the UW by $6.6 million and increase funding for the College of Engineering by $3.8 million (for a net reduction of $2.8 million).

Again, initial budgets out of both Senate and House Ways & Means committees will be released next week and we will provide full coverage (including budget briefings) of those proposals at that time.

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