Last week Governor Gregoire reiterated that if Congress doesn’t provide the state with additional Medicaid funds (FMAP) by its August 9 recess she would be forced to call a special session or issue across-the-board cuts. This is because Washington assumed an additional $480 million in FMAP funds to help balance the budget this year. This is more than the $253 million ending fund balance meaning if the funds aren’t approved the state’s ending fund balance would be negative by more than $200 million.

Gregoire hasn’t decided which option to use yet. She said to replace the entire $480 million in assumed FMAP funds would require across-the-board cuts of approximately 7.5%; to bring the state’s balance sheet to zero would be cuts of around 4% but this would leave no reserves. It turns out the Governor doesn’t have the authority to use the 7.5% cut option. State law only allows her to eliminate the projected deficit, not make additional cuts to provide a budget reserve.

I confirmed this fact with the Office of Financial Management last Friday. This means that unless we want to roll the dice that the state won’t

experience any more reductions in its September and November revenue forecasts, a special session is required to make spending reductions to a level necessary to leave even a minimal ending fund balance.

Based on last month’s poor job numbers and the $203 million drop in the June revenue forecast, not calling a special session to secure a budget reserve will more than likely result in the Governor having to make additional across-the-board cuts after the state’s September or November revenue forecasts. Rather than wait until her August 9 deadline for Congress to act, the Governor should work closely with legislative leaders now to reach agreement on a budget reduction plan so that a short special session (but long enough to hold public hearings) can be called next month.

One potential silver lining of this situation is the prospect for legislative support to enhance the Governor’s budget deficit tools. To provide more flexibility, the Governor could be authorized to make discretionary cuts (instead of across-the-board) to eliminate a projected deficit and leave up to a one percent reserve. Especially with a part-time Legislature, it would be prudent to provide the Governor these tools so that a special session isn’t needed to deal with future deficits.

According to the National Conference of State Legislatures, Governors in at least 10 states have more flexibility to respond to a budget deficit than Gregoire. For lawmakers concerned that enhanced budget deficit authority would give the Governor too much power, the solution is simple: Adopt a budget that leaves an adequate reserve that can weather all but extraordinary drops in revenue and don’t bet on Congress in the future for funding yet to be approved. 

Jason Mercier is the director of the Center for Government Reform at the Washington Policy Center. He serves on the Executive Committee of the American Legislative Exchange Council’s Tax and Fiscal Policy Task Force and is a contributing editor of the Heartland Institute’s Budget & Tax News. Mercier also serves on the board of the Washington Coalition for Open Government and was an adviser to the 2002 Washington State Tax Structure Committee.