Well a little more ( well a lot ) on this. I was not aware of the history of this concept and the mess it caused before. Interesting that it was a Gov Evans legacy ( so to speak ) and now the Demo's charge right out there with the same thing.



OLYMPIA, Feb. 23.—A new House spending plan that gobbles up a big chunk of the next budget to balance the current one flabbergasts those who remember the last time the Legislature did it. Among those who lived through that crisis, the very suggestion seems almost to bring on a case of post-traumatic stress disorder.

But memories are short in the state Legislature, and now House Democrats are contemplating doing it again.

The House budget proposal, released Tuesday by Ways and Means chairman Ross Hunter, is built on the idea that the state would snatch more than $400 million from next year’s tax revenues to help plug a billion-dollar hole in the current state budget. That would save some of the Legislature’s highest profile programs, among them the Basic Health Plan and the “Disability Lifeline,” which provides housing vouchers and medical assistance for disabled adults.

Here’s the trouble. It is the same basic idea as a budgeting strategy that got the state in deep trouble 41 years ago. The so-called “25th month” put the state in a cash crunch for the next 16 years, brought the state to the brink of default and forced taxpayers to spend millions. And those were just the most obvious effects.

Former Senate Majority Leader Dan McDonald, the onetime Republican budget-writer who spent years trying to fix the problem the last time, says he is astounded anyone would think it is a good idea to do it again. “Everybody’s got their problems, but you know, Hunter is a bright guy, and I am just surprised that he was willing to do this,” he said.

Yet it has been 25 years since lawmakers declared “never again.” Continents have shifted, empires have risen and fallen, and four entire Star Trek series have run their course. Only two of the Legislature’s 147 members were in office when the fix was made, and none remain from the time when it started. And so it is left to the elders to remind a new generation what a horrible long-term mess was created by a decision that seemed like such a good idea at the time.



New Strategy Backs Into 25th Month



The House Democrats’ budget strategy is a little different than the one implemented by Republican Gov. Dan Evans and the 1971 Legislature. But the effect is the same – it’s still a multi-million dollar payday loan. Then as now, lawmakers were facing a big shortfall – this one brought on by the “Boeing Bust.” To prevent deep cuts to state programs, Evans suggested that the Legislature basically reinvent the calendar. It tacked the revenue from July 1973 onto the 1971-73 budget period, which ended June 30.

With 25 months of tax revenue, the 1971 Legislature did just fine. But that left the 1973 Legislature to cover 24 months with 23 months of revenue. So it did the same thing again with July 1975. And so on, and so on. Took years to clean it up.

The House Democrats’ plan this year presents the same scenario, but it sort of backs into it. Last year lawmakers balanced the 2009-11 budget by delaying $115 million in state payments to school districts by a single day. That kicked the expense into 2011-13.

What it meant was that this year’s Legislature had $115 million less to spend. The problem certainly didn’t go away – money is still short. So under the House plan, the state would take out a new loan to cover the old one and get in deeper.

Already lawmakers have passed a bill that delays a $49 million school-bus depreciation payment to school districts until the next budget. Hunter’s plan expands the borrowing dramatically. He would delay another $405 million in school district payments that are scheduled to be made in May and June 2013.

That’s a total $454 million – one-third of the amount that would be raised by a true 25th-month strategy. In 2013-15, the state expects to take in $1.35 billion a month. So you might say Hunter’s plan represents only 10 days of a full 25th month.

But here’s the thing. Next time around, the state won’t have the money to pay off that loan, either. Another big shortfall is coming, especially if lawmakers don’t make big cuts now. The Office of Financial Management puts next year’s shortfall at $900 million, Senate Ways and Means staff figures it at $2 billion, and the difference is simply that the legislative estimate includes a few things that OFM leaves out. Shortfalls are expected to increase as time goes on, because spending plans remain out of whack with tax revenue.

What it means is that not only would the state have to take out another loan next year to cover this one, odds are the amount would keep getting larger. So this could be the start of something big.

“What the House budget shows is that the momentum right now is to paper over our budget problem and to get us out of Olympia by March 8,” says state Sen. Jim Kastama, D-Puyallup. “However, there still remains the issue in the next session, when we come back with a $2 billion shortfall from day one. Everyone recognizes this. So this is nothing more than a Band-Aid.”

Kastama is pushing a constitutional amendment that would require the Legislature to adopt a balanced budget, without using tricks. It has passed the Senate, but given what the House has proposed, final approval may be in doubt.



Lesson From History



McDonald can’t help but groan when he hears what the Legislature is contemplating. He’s been out of the picture since he stepped down in 2002, but during a 24-year career, much of it spent as a lead budget-writer for House and Senate Republicans, ending the 25th month was one of his biggest crusades.

After lawmakers took out that loan in 1971, subsequent legislatures kept finding new things that required spending, and they couldn’t muster the discipline to pay it off. “Nobody ever thinks they have enough money,” McDonald said. “So they kept kicking the can down the road.”

Because of it, the next time the economy tanked, in 1981, the state found itself in a terrible cash-flow crunch. It didn’t have enough money to pay its bills. At the brink of default, the governor’s office and lawmakers rushed to Wall Street to ask for a loan. “I remember going back as part of a bipartisan group to New York City and Wall Street and say a mea culpa, and ask them to be kind to us,” McDonald said. “It wasn’t a fun experience.”

The state got its $300 million loan, all right. But bond houses, which had been chiding the state for its budgeting practices for years, decided it was all just too much, and slashed the state’s bond rating. Taxpayers paid millions in higher interest rates as a result.

The state had to do the same thing again in 1983.



Frustrated a Governor’s Plans



Those were the obvious results. But there was another worth noting. By the mid-eighties, lawmakers had a bellyful, and they started taking steps to pay the darn thing off, making partial payments in each budget. In 1987, they bought off the final 10 days.

It might be argued that the final payment came at a cost to a Democratic governor. In 1987, Gov. Booth Gardner was proposing a half-billion-dollar expansion of the sales tax to professional services, to pay for social-service programs and a teacher pay raise – the so-called “Children’s Initiative.” It finally got shot down, just barely, when three Senate Democrats bolted and voted with minority Republicans. That allowed McDonald to write the budget.

The tax was the problem. But if the goal really was to provide money for children, and not just to expand the tax base, the millions of dollars that were spent that year to pay off the loan could have paid for at least some of those programs. Instead, it went to plug a hole that was then 16 years old.

“1981-82 was really a tough period of time,” McDonald says. “Maybe the toughest, maybe even tougher than it is now, and it was exacerbated by the fact that you had this 25th month hanging around your neck, and that’s why it was so important to us to eliminate it when we could. It’s an interesting sidelight, we weren’t in the majority in 1987 – we wrote the budget with a coalition of people, [current Lt. Gov.] Brad Owen being one of them, all 24 Republicans and three Democrats, and we still made that a priority, and we got it passed.”



Would Violate Standard



McDonald isn’t the only one who remembers the mess the last time. State Rep. Gary Alexander, R-Olympia, now the lead House Republican budget-writer, was first elected in 1996, long after the problem was solved. But he has spent his career in state-government budgeting, starting at the Office of Financial Management in 1973. “Dan Evans was a great governor, but I can tell you that a part of his legacy was the 25th month,” he says. “The media got more and more onto it every year, that we had failed to solve the problem. It got more and more attention – and I think the same issue will happen here.”

Alexander notes that the national Government Finance Officers’ Association is considering a new standard to measure the financial health of state and local governments. Among the criteria that would be used to measure the sustainability of a budget would be whether obligations are being pushed out to the future. Hunter’s plan would flunk, he says.

“We were told the 25th month would never happen again. We were told [last year’s delayed payment] was just a one-time deal, it would never happen again. So I guess the question now is what’s never?”



Now Up to Senate



Now it’s all up to the majority Senate Democrats, who will release a budget proposal of their own next week. Until then it is unclear whether Hunter’s idea will prevail. There’s a bit of wiggle room in his plan – he leaves $504 million in projected revenue unspent, in case of emergency.

If you leave a reserve that’s bigger than the loan, that might be good enough, says Senate Majority Leader Lisa Brown, D-Spokane. Another idea under consideration would be to permanently shift the dates of those school-district payments from June to July. “If you leave enough in the ending fund balance to make the payment, or if you make it a permanent shift of when you make the payment, it’s really just a one-time cash infusion,” she says.

There’s a problem with that, of course. Those ending fund balances have proven important over the last three years – the sluggish economy and lagging tax revenue have wiped out every dollar the Legislature has set aside, and then some. So it’s a gamble. And if the Legislature permanently changes the dates when payments are made, it might not technically be a “gimmick” anymore, but the effect will still be the same – the Legislature will be kicking big current expenses to the next budget, in perpetuity.

McDonald says it’s really a choice between reforms and cuts now and a budget trick that became one of the biggest nightmares the state has faced.
“They are going to have to make their decisions,” he says. “I am not there anymore, and I don’t envy their position. But it took us a very long time, 16 years, to undo it, and it was an albatross around our neck the entire time. Be careful.”