FOR THE TINY NUMBER of people who have any inkling as to how the recently passed Referendum 49 works, one startling bit of information it has made clear is how much money has been sitting around in state coffers unavailable for public spending. During a period of fiscal restraint that squeezed everything under the state's aegis, from higher education to support for the poor, the state has accumulated $900 million in reserve accounts. The previously passed Initiative 601 mandated the savings—meant to be a rainy-day fund in case of an economic downturn—by limiting state spending according to a formula based on inflation and population growth.
But suddenly last year, many of the Republicans who supported 601 decided to open the door on the rainy-day fund by crafting Referendum 49, authorizing $2.4 billion in spending on roads. Though the referendum doesn't specifically call for tapping into the reserves, proponents pushed it forward under the assumption that the savings could be used to make up for any budget hole it created. Now it's unlikely that the savings will be used for anything else, unless a recession occurs, necessitating a dip farther into the fund for basic services.
So in essence, the door on the rainy-day fund was "opened and shut by Referendum 49" in one fell swoop, as Parent Teacher Association lobbyist Barbara Casey puts it. Consequently, other interests who would like a crack at the money, including education groups like Casey's, are out of luck.
Strangely, such a momentous decision occurred with almost no public debate.
That's certainly because the referendum mapped out a convoluted financing stream that few understood. Essentially, 49 diverts auto-excise-tax revenue from the state's general fund to a separate, dedicated transportation fund. Only the general fund—supporting education, human services, and environmental projects, among other things—is subject to the 601 lid. The 49-driven windfall to the transportation fund will go to pay off bonds that the state will sell to fund road improvements. The state Office of Financial Management estimates that the referendum will cost the general fund $505 million over the next three years in lost auto excise taxes.
With a simple majority vote, the Legislature could use the rainy-day fund to replace as much of the lost money as it needs to get its spending up to the 601-mandated limit. (To take any more than that would require a two-thirds majority.) In the next biennium, the replacement money will likely total $309 million—according to the latest state projections released last week—leaving a little less than $600 million in reserve.
In the long term, however, the impact on reserves will probably be far greater, since the state will be paying for the transportation bonds over 25 years. State figures show the reserves dwindling to $145 million by 2005 if the economy slows as expected and getting completely wiped out if a full-blown recession hits.
While legislators caution that use of the reserves as replacement money is no sure thing, both Republicans and Democrats concede that if revenues fall below the 601 lid, the reserves will probably go to make up the difference. Gov. Gary Locke, who in arguing against Referendum 49 before the elections insisted that he would oppose using the reserves this way, is now planning on proposing just that use in the budget he will be presenting next month. "We're going to have to use some of the reserves," Locke spokesperson Keith Love said on the day the latest forecast was released.
Love even indicated that the governor was open to using reserve money to put the general budget above the lid, despite the political challenge of mustering a supermajority vote in the Legislature. But a determinedly moderate Locke has hewed to a line of fiscal prudence in budget-preparation meetings held over the past few weeks with parties who would like to see some of that money come their way. "Basically, he said it's not going to happen," recounts one social service provider.
VARIOUS INTERESTS CONTINUE to point out that the reserves could be used to meet their needs. "We have indicated that we have a serious salary problem," says Bob Edie, the University of Washington's vice president for university relations. A declining share of the general budget has put UW 14 percent to 15 percent behind other research institutions in what it offers professors, leaving the university vulnerable to staff raids and, eventually, slipping national rankings for its departments. Though Edie says the university isn't presuming to tell the Legislature where to come up with the needed money, he adds that "everyone involved in this debate is aware that we have a portion of the reserve available without a supermajority."
Yet there's a faint-hearted quality to the appeals of Edie and others for a share of the rainy-day fund. "If transportation can get some, why can't we?" they imply. But they also acknowledge that the state's revenue picture may not allow for any broader distribution. "Nobody wants to relive the situation in the early '80s," Edie says, recalling the time when the state found itself without adequate reserves to counter a deep, Boeing-bust-driven recession.
One solution gaining momentum among education and environmental groups is to float new initiatives creating, for their causes, separate funds that would (like the transportation fund) be exempt from the 601 lid. Chuck Collins, chair of the Commission on Student Learning—the state body charged with the massive overhaul of public schools known as education reform—is part of a small group of business and political leaders testing the waters for an initiative that would create one such fund for both K-12 and higher education.
As he acknowledges, the fine print of 601 prepares for that possibility by ordering the spending lid on the general fund to be lowered by any amount taken out for special interests. So any additional spending on education would eat into the amount left for, say, salmon recovery—unless the Legislature voted to replace that money with the reserves. Collins explains, however, that the idea is to withdraw the same proportion from the general budget as currently goes to education, but to ask voters to pass a new education tax that would go into a fund that 601 could not touch.
Would voters cooperate? (For that matter, would they even understand?) Last February, pollster Stuart Elway asked them if they would favor amending the 601 lid to allow more funding for various concerns. A surprisingly high 68 percent said they would favor doing so for public education, and 57 percent said they would for social and health services. Just 56 percent endorsed fiddling with the lid for the sake of transportation—yet that's the cause that now gets first crack at finessing 601 money. It's another sign that voters didn't realize they were voting not just on road improvements, but on how best to spend the state's savings. As Elway says, "Well, we didn't get to vote on the other ones, did we?"