This is an archived article.

January 5, 2001

Tax cuts, shrinking reserves put state at risk of budget crisis, report shows

The Washington State Legislature that convenes Monday could face the state’s worst budget crisis in nearly two decades if the economy falters, according to a new fiscal analysis from the University of Washington.

Gov. Gary Locke’s proposed use of more than half the state’s reserves to meet expenses over the next two years will leave the government ill-prepared to weather a recession, said Christopher Haugen, policy analyst for the Fiscal Policy Center, part of the UW’s Daniel J. Evans School of Public Affairs.

Setting the stage for the crunch are tax cuts spurred by voter-approved Initiative 601 that carved $2.4 billion out of state coffers for the 2001-03 biennium.

“The cost of these tax cuts — and of maintaining current programs — has put the state on a collision course for years,” Haugen said.

A similar crisis was averted two years ago only through a $1 billion windfall from dropping welfare caseloads, the national tobacco settlement and a surge in pension-fund stock values. This biennium, Haugen said, offers little hope of new revenue.

A 1981-83 state budget crisis brought teacher layoffs, cuts in social programs and an unpopular sales tax on groceries. It also downgraded the state’s bond rating, making borrowing more costly.

The Fiscal Policy Center, funded by the Ford Foundation and other sources, conducts research on state tax and spending policies as they affect low-income and vulnerable populations, and provides technical assistance to community groups and municipal governments.
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For more information, contact Haugen, (206) 616-8793, http://depts.washington.edu/fpc/notes/2001/01.pdf>