House Education Appropriations Chair Kathy Haigh, D-Shelton, confirmed this week that there's been some talk in the House Democratic caucus of securitizing revenue. This is the highly controversial idea of borrowing (with interest) against anticipated future revenues in order to free up some cash today. Critics call it "credit-card spending."
Haigh made her comments off mic during a news conference with Governor Chris Gregoire on education reform. Gregoire immediately lambasted the idea:
We can't look at Band-Aid approaches to what we're going to have to do.We're going to have to come up with a budget that is sustainable not just for the next biennium but the one after that and the one after that. I worry about the securitization of a stream of income that is either short-term or dedicated to something else as a Band-Aid approach to solving the problems of our shortfall right now because it is not going to end in the next biennium ... Remember securitizing tobacco didn't work. Remember that? I very much remember that. It did not work. It did not work.
Gregoire was referring to what happened in the 2002 legislative session when she was still Attorney General. That's the year Democrats securitized anticipated tobacco settlement dollars to help balance the budget. House Speaker Frank Chopp, D-Seattle, thought it was a clever way to avoid raising taxes.
Here's how then-Seattle Times reporter David Postman explained securitization and the political upside of it from Chopp's perspective:
To see how electoral politics influenced this year's budget process, consider the reaction to the cornerstone of the Democrats' budget plan. It was the staff of the Senate Ways and Means Committee that proposed using a piece of the state's future tobacco-settlement money. It's called "tobacco securitization." What it means is that the state will forgo about $1 billion in future payments in exchange for $450 million in immediate cash to balance this year's budget — without major tax increases. Other states have made similar deals. But here, the action drew quick and sharp criticism. The attack was led by Democratic Attorney General Christine Gregoire, who helped negotiate the settlement with the tobacco firms. And no one, not even Senate Ways and Means Chairwoman Lisa Brown, D-Spokane, liked the idea. It was a necessary evil, or at least a necessary unpleasantness. But the maneuver has an upside not shown on the balance sheet. The complexity of the deal, which makes it hard to explain to voters, could also make it harder for Republicans to use it against Democrats in November. "Think of it if you're doorbelling for a candidate," House Speaker Frank Chopp, D-Seattle, said in an interview Friday. "If you're at the door and you ask somebody, 'What about tobacco securitization?' they'll say, 'Huh?' As opposed to saying, 'They raised the sales tax or (they're) raising the gas tax without a vote of the people.' "It's a big difference."
Flash forward nearly a decade, and it appears the idea of securitization is back on the table. Majority Democrats face a multi-billion dollar budget shortfall and a voter-approved 2/3rds requirement to enact tax hikes. If they want to avoid an all-cuts budget their options are limited.
So what stream of revenue might they securitize? That's the big question. Lottery proceeds are one possibility. It's an idea then-California Governor Arnold Schwarzenegger proposed in 2008.
As for how much money securitizing could free up to help with the budget? It seems hard to imagine Democrats would go for a full $1 billion. Remember, it's expensive to do. Here again is the math from David Postman's 2002 story: "What it means is that the state will forgo about $1 billion in future (tobacco) payments in exchange for $450 million in immediate cash to balance this year's budget ...."
Officially, at least as this point in the session, key legislative Democrats are against securitization. "A bad idea," was the response I got from House Budget Chair Ross Hunter, D-Medina, last month. Hunter describes securitization as "taking out a mortgage to pay your grocery bill."
But Hunter would not absolutely rule out the idea. "My job is to build a consensus ... I can sit here and yell at you until I'm blue in the face about these things and say 'I'm not doing that, I'm not doing that.' The reality is I have to get 50 votes (for the budget) and if you wait forever, you actually waste more money than you do sometimes by making some decisions in small parts of the budget that you don't like."
This item originally appeared on the author's blog, The Washington Ledge.
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