Just when I thought it was safe to go back in the water I saw the balance sheet for the compromise budget:

  • $319 million total reserves for $31.121 billion of spending or 1% of spending (includes $265 million of restricted constitutional reserve)
  • Unrestricted ending fund balance of $54 million (0.2% of spending)
  • Unrestricted ending fund balance minus new accounting change is negative $184 million

While the February revenue forecast didn’t capture the potential revenue from the federal unemployment insurance and payroll tax cut extensions, gas prices have continued to increase and Spain is doing its best Greece impersonation. This is why the February forecast had a 40% probability of the pessimistic outlook. Based on these economic realities, it is surprising to see such a low ending fund balance be agreed to for the budget.

Looks like the budget provides some options however:

  • Section 912: “For purposes of RCW 43.88.110(7), any cash deficit in existence at the close of fiscal year 2012 shall be liquidated over the remainder of the 2011-2013 fiscal biennium.”
  • Section 919 also provides the governor some increased flexibility on any required across-the-board cuts.

Raise of hands of those that think the new budget will survive the June Revenue Forecast?

Here is what the Governor said last November about the need for a healthy budget reserve:

(click here for video)

Gregoire’s original budget proposal had reserves of $602 million or 2% of the $29.989 billion in spending. Had the Legislature used the same 2% of savings as the Governor’s proposal, total budget reserves would have been more than $600 million versus the actual $319 million. For sustainability, reserves of at least 5% of spending are recommended.

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[Reprinted from the Washington Policy Center blog; feature photo credit: itotamayo]