eye on business
Deja Vu All Over Again?
Don C. Brunell, AWB President
Today’s budget woes in Olympia are oddly reminiscent of the 1980s.
Being in political control in Olympia during the early 1980s
was like trying to stop a runaway stagecoach. Tax collections
plummeted and unemployment costs skyrocketed. It was a
bumpy ride full of potholes.
Former Gov. John Spellman and his Republican colleagues
raised taxes, closed loopholes and cut spending to balance the
budget. In the end, it was Ronald Reagan’s election as president, coupled with his optimism and tax cuts, that spurred the
economy and put Washington in the black.
in reserve. Then-Gov. Dixy Lee Ray and her Democrat colleagues decided to phase-in the state’s full-funding of basic
education in hopes of averting bitter local teacher strikes that
permeated the 1970s.
But when Spellman took office, the economy was in a nose
dive and the bank account was empty. So he called special
legislative session after special legislative session to raise taxes
and cut spending.
So holding some money in reserve like Gov. Gregoire
proposes is a wise idea.
Lawmakers also wisely established the Revenue Forecast Council and fortunately hired experts like Dr. Chang
Mook Sohn and Dr. Arun Raha to run it. You need good
projections to make good decisions.
sustainable budget
The governor and lawmakers need to develop a sustainable
budget. There just isn’t enough money to pay for all of the
state’s commitments. That means legislators may have to ask
voters if they want to increase taxes to fund the initiatives
they have passed. Do they want to pony up for K-12 class size
reductions, automatic cost of living adjustments for teachers, paid family leave, the earned family income tax credit and
training for home health care workers?
Voters approved those initiatives, but didn’t address how to
pay for them. It is time to either fish or cut bait.
It was not without political consequences. Spellman and
GOP leaders hiked the state portion of the sales tax from
5.5 to 6.5 percent, extending it to groceries for 14 months.
They increased B&O taxes, extended the excise tax to timber
harvesting on state and federal lands, repealed the sales tax
exemption for installation of pollution control equipment, and
severed the sales tax deferral on new plant construction.
During those bleak years, interest rates, inflation and
unemployment were in double digits. Even though there was
money to borrow, it was too expensive and inflation kept
increasing the costs of new home construction and plant
expansion, so most remained on the drawing table.
lessons from the 1980s
There are some appropriate parallels to 2012.
First, it’s wise to keep some money in reserve. In 1979,
our state’s treasury was flush and there was a half-billion
10 association of washington business
political fallout
In 2012, the lead shoes are on the Democrats’ feet. Gregoire
is the outgoing governor and has proposed raising the state
portion of the sales tax to seven percent. Lawmakers punted
major budget decisions from the special session in 2011 into
the 2012 regular session.
Unlike Spellman, Gregoire and Democrats will have to
convince voters to approve whatever tax increase they
propose, so they need to be especially careful of what they
send to the ballot next spring.
Because Spellman took one for the state, Booth Gardner benefitted from an improving economy most of his eight-year term.
In the end it was the stronger economy that bounced the state
back to prosperity. Hopefully, that will happen this year as well.
As they say, a rising tide lifts all boats. Let’s make sure we have
enough boats in the water when the recession finally ends.