Recent critics have made jabs at the Washington state budgets adopted after the bursting of the dot-com bubble in 2000 and before the onset of the Great Recession of 2008. The editors at the Seattle Times, who are strongly critical of the legislature for recent reductions in higher education funding, are among these naysayers.
A recent Times editorial read, “Blame is accurately placed at the feet of Gov. Chris Gregoire, House Speaker Frank Chopp, and Senate Majority leader Lisa Brown. They have not been effective champions of higher education. Before the 2008 recession, they prioritized everything else in boom years that saw a stunning expansion of state government.”
This is not the case.
It is easy to see how the mistake could be made: A false reading of budget growth fosters the belief that the legislature gives away the store in good economic times; that state budgets balloon as legislators cave to the demands of favored special interests. And that this makes it difficult to budget sustainably; to align future budgets with revenues in periods of shortfall, like the one in which we now find ourselves.
But this indictment doesn’t hold up to close scrutiny. In fact, it ignores the impacts of two of the state's biggest budget drivers — inflation and population. Washington's discretionary budget is directly influenced by increases in state population: when it goes up, so too does state spending.
This is because much of the state’s spending is for entitlements — services and grants that, under state or federal law, must be provided to all eligible applicants.
According to the Caseload Forecast Council, these entitlement areas include K-12 enrollment, public higher education enrollment, income assistance caseload, state-supported child care, state-supported nursing home caseload, medical assistance caseload, adult prison population, and juvenile institutional population. These payments always go out to those who apply, no matter
The Times claim of partisanship is also a false one: Washington's budget is shaped by both Democrats and Republicans. The first of these (FY 2003-2005) was a bi-partisan budget — which has been the case numerous times over the years.
When the budget was written in 2003, the state was just pulling itself out of the dot-com recession. The House, which previously had equal numbers of Democrats and Republicans, shifted to a Democratic majority. Representative Chopp (D-Seattle) was elected speaker. However, Republicans held a narrow one vote advantage in the Senate. It wasn't until 2004 that Democrats gained control of the Senate and, in 2005, chose Senator Brown (D-Spokane) as their majority leader.
So how much did the state budget really grow between the end of Washington's dot-com boom in 2004 and the beginning of the 2008 recession?
Here are a few key numbers to illustrate budget growth between FY 2004-2008 from the Office of Financial Management’s (OFM) budget calculator:
- Beginning operating expenditures: $23.53 billion
- Ending operating expenditures: $31.18 billion
- Expenditure growth: $7.66 billion
- Apparent expenditure growth in percent: 32.5 percent
To the untrained eye it would appear that government spending grew by 32.5 percent. But keep in mind that these numbers are in current dollars, and are not adjusted for inflation. Nor do they reflect the state's population growth which, as we mentioned above, is a basic driver of demand for state services.
So let's factor those in: Between 2004 and 2009 state population increased by 7.5 percent. Consumer costs, or inflation, as measured by the Seattle Consumer Price Index (CPI), increased 16.1 percent. Together they effectively reduced state expenditures by 29 percent.
So the real increase in state operating expenditures per capita during the period referenced by the Times was just 3.5 percent.
This is hardly a “stunning expansion of government.”
But there is more. Demographics changes within Washington's population, specific costs that increase faster or slower than the CPI, caseload changes, and policy modifications, can also affect spending. These additional drivers can work to both increase and decrease budgets. The state carefully tracks these budget drivers.
The Office of Financial Management (OFM) provides considerable background and trend analysis for these drivers plus their impact on state employee numbers (more state employees are needed to distribute more services). It also projects medical costs, which are another key budget driver.
Many demographic drivers did not strongly affect state spending during the 2004-2009 period. The number of school-age children has remained relatively stable since 1999. Other drivers though, like the medical assistance caseload, were heavily felt. The number of people receiving medical assistance has grown faster than population since the early 1980s.
In addition, the number of full-time state employees, including higher education employees and private contractors paid by the state, grew by 7.1 percent over the six-year period — slightly less than the growth of population. They peaked at 112,545 in 2009 before starting a decline that has continued into the current budgeting period.
And the costs of health care grew much faster than general inflation until the recession in 2008 began. Health care, including state employee health insurance and medical assistance, comprises over 20 percent of the general fund budget. The size of the health care budget, combined with rapid growth in per capita health care costs, makes this a prime source of pressure on spending.
All of these factors must be included when considering why Washington's budget grew as much (or little) as it did.
A more detailed analysis would be required to isolate the contribution of each. The budget growth might have been higher had there not been some smart policy changes. For example, in 2007 the Offender Reentry Initiative was implemented to reduce future inmate caseloads through education, work force skills, and treatment programs.
Looking ahead, past the current revenue shortfall, of high concern to budget writers is the projected increase in the elderly population — those ages 65 and over. By 2040, the elderly population is forecast to reach 1,855,500, representing 21 percent of the state’s total population. That's in comparison to 13 percent in 2011.
The most elderly population, those age 85 and over, numbering about 120,600 in 2011, is expected to increase to 338,100 by 2040. Most of this growth will occur after 2020 as the baby boom cohorts begin to enter this age group. They will require assisted living, skilled care, and increasing medical services.
The “dependency ratio” concept is used by demographers as a metric to indicate the proportion of a population dependent on the rest of the population for support.
Two groups are defined as dependent populations: children (ages 0 to 17) and the aged. The dependency ratio for children will increase only slightly over the forecast period, but for the aged will increase from about 20 percent to 37 percent. Thus the total dependency ratio will increase from 56 percent to 76 percent, suggesting that, by 2040, 24 percent of the population will be supporting the other 76 percent.
Once upon a time the state budget was small and relatively uncomplicated. The state auditor’s report of October 1890 indicated that appropriations for operating and capital expenses in the first year of statehood totaled almost $1 million, about $25 million in today’s dollars. Last year's (FY2011) expenditures totaled $34 billion.
Because of their size and complexity, budget bills are usually controversial and legislators tend to vote along partisan lines. And for folks not directly involved in the budget process, including some editorial commentators, they can be easily misunderstood if not carefully analyzed.
