Washington's $26 billion biennial budget is likely to produce a $2.2 billion deficit in 2005–07, and Gov. Christine Gregoire can't decide what to do. Should she raise taxes, cut services, or some of both? She hasn't long to decide, because she plans to submit a budget to the Legislature on Monday, March 21.
What that budget will look like is crucial to shaping her image as the new governor, one whose election is being challenged in court by Republicans, who want a new election. Barring some kind of disaster that she can lead us through—as Rudy Giuliani did for New York in the wake of 9/11— budget decisions will be the primary shaper of public opinion about Gregoire. In signaling no clear intent to deal with the problem, she is doing a terrible job of preparing us for what is certain to be bad news for about half the electorate, no matter what the solution. Is she considering cuts, taxes, or both? Gregoire vacillates. When she talks about taxes, she pledges not to hurt the economy but seems to yield to the spending demands of powerful Democratic constituencies like organized labor. If she fails to develop a coherent message on the budget, Gregoire will cement the public image born of her tentative campaign style: a mealymouthed lawyer.
On Tuesday, March 1, Victor Moore, Gregoire's budget director, released some salient details of a no-new-taxes budget. Moore is a veteran numbers guy, having served as former Gov. Booth Gardner's senior budget adviser and more recently working on the House Appropriations staff. Gregoire appointed him director of the Office of Financial Management in January.
Moore explained that Gregoire had asked him to prepare a no-new-taxes budget so she could see if she could live with it. Her message, as reported by The Seattle Times: "At the end of the day, I'm going to have to look at myself in the mirror and ask myself, 'Is this right for the state of Washington?'" That was not a good message.
The cuts in the no-new-taxes budget represent real damage to the education system and the social safety net. Public-school class sizes would remain too high (saving $140 million), thousands of students would be unable to attend college (saving $60 million to $80 million), 17,000 poor people would lose their health insurance ($49 million saved), 16,000 people who are too disabled or sick to work would no longer receive state cash assistance ($114 million), and around 29,000 mentally ill people would not receive state-subsidized care ($82 million). Inadequate funding of education is self-defeating, because if we don't invest in children, we are damaging the state's future. Slashing human services for the mentally ill, the disabled, and the poor will not eliminate those costs, it will just shift them to hospital emergency rooms and county jails and increase the expense of the care for those people along the way.
Moore says Gregoire might accept this no-new-taxes budget as her own, or ask him for another version that finds a different set of $2.2 billion in cuts. Or she might ask him to produce a budget with revenue increases.
On the revenue side, Gregoire has only muddied the water further. She has told Legislative Director Marty Brown that she will not accept any general increase in the sales tax, property tax, or business and occupation tax. Gregoire has also told Moore she will not support a budget that involves issuing bonds that are secured by the billions of dollars in future payments from the settlement of the landmark tobacco litigation she led as attorney general.
While Gregoire has ruled out certain revenue increases, she hasn't been so tough with Democratic constituencies. On Thursday, Feb. 24, she appeared at the Washington State Labor Council's annual legislative conference and pledged that she would honor the contract negotiated for state employees offered by former Gov. Gary Locke's staff—at a cost of $180 million during the biennium, according to Robby Stern, special assistant to the Labor Council's president. She has also said she would give nonunion state workers a raise, anteing up another $120 million. Stern says Gregoire is aware that state workers have not had a raise in four years and have been losing ground because of increased health insurance costs, and she is determined to acknowledge their contribution to government. As reported in the Times, Gregoire's message that day was, "Why should the state, as an employer, be anything other than a model to the rest of the public and private sector about how you treat your employees?"
That's another lost opportunity to communicate a budget vision to the public. Gregoire shouldn't make that kind of pledge without accompanying it with an explanation as to how she will pay for it. Without a revenue plan, it feels like an empty promise.
While Stern liked her message on the workers' contract, he thinks Gregoire is too cautious about new taxes. "We believe there are some things that can be done to raise revenue that would not hurt the economy," Stern says. He hopes she will include them in her budget proposal.
Stern mentions extending the sales tax to certain services as a possibility. If Gregoire extended the sales tax to five state- recognized categories of business and professional services—advertising, legal, engineering/architectural, miscellaneous business services/consulting, and computer/ data processing—it would raise more than $1.4 billion for the biennium, according to the Economic Opportunity Institute, a liberal think tank. There are other revenue options available, too. Before Locke left office, he proposed $500 million worth of "sin" taxes on hard liquor, wine, and soda. Rep. Rodney Tom, R-Medina, wants to increase the tax on cigarettes by $1 a pack, which would raise $300 million over the next two years.
Of course, the business lobby and its "amen" corner on the dailies' editorial pages would go crazy about Democrats raising taxes. Already there is a constant litany of dire warnings from business that new taxes will hurt a fragile economic recovery. Independent economist Dick Conway says the evidence about the effect of taxes on the economy is sketchy, however. "Views on taxes are often a matter of faith," he says. As long as new taxes avoid targeting industries that rely on exports, there should be little negative effect. "I don't think the recovery is fragile and that we couldn't absorb some tax increase," he says.
Last week, the state's unemployment level fell to 5.5 percent, the lowest since January 2001, bolstering the view that a recovery is well under way. Says Conway: "The economy is growing, it's got some momentum." In fact, the economy added 10,000 more jobs in January than the Washington State Employment Security Department expected.
If Gregoire eventually plans to raise taxes or impose new ones—and it would appear that all this hemming and hawing is leading to a declaration of the need for more revenue—the good news on unemployment would have been a great moment to broach the subject. That day, however, there was silence from the governor—not even a press release.
Part of her problem is that she lacks natural communication skills. In addition, Gregoire has not yet hired a communications director or permanent communications staff. Her communications shop is made up of three public information officers borrowed from other executive departments and one holdover from the Locke administration who doesn't know if she will be kept on or not.
Under such circumstances Gregoire is not likely to develop her own message anytime soon, so she should just steal one. Here's one available from her political campaign consultant, Christian Sinderman, who is working with the House Democratic Caucus on the very problem of message development: "We must provide essential services while not putting the economic recovery at risk." If every time Gregoire was asked about the budget she just repeated a little phrase like that, reporters would hate it but the public would get the message.
It is the kind of salesmanship that Dino Rossi, Gregoire's Republican opponent in the gubernatorial election, is so good at. Rossi had a clear tax message during the campaign and the recounts: I won't raise taxes because it will kill the economic recovery.
Depending on the outcome of Rossi's election challenge before a judge in Wenatchee, Gregoire might face another election against the brilliant salesman in November. That makes it all the more urgent that she figure out, before then, how to talk to the public about taxes.