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Guest column: Amendment would require boosting state's 'rainy day' fund
This November, Washingtonians will vote on Senate Joint Resolution 8206, a proposal to enhance the state’s existing constitutionally protected savings account for the state budget. The proposed constitutional amendment would build on a previous constitutional amendment adopted by voters in 2007 that created a constitutionally protected rainy-day savings account for the state budget, replacing the state’s statutory emergency reserve. The 2007 proposal passed with 68 percent of the vote.
To build on the success of the 2007 reform, Washington Policy Center recommended in January that state leaders take additional steps to ensure that once the economy begins to improve, the state secures adequate reserves to help smooth out the ups and downs of revenue collections. The governor’s Budget Transformation Committee (on which WPC served) made a similar recommendation, saying the legislature should “enhance the Rainy Day Fund” and “include a mechanism to ensure extraordinary and unsustainable [revenue] growth is saved, rather than spent.”
To enhance the existing constitutional savings account, this year lawmakers by a vote of 47–0 in the Senate and 76–10 in the House adopted SJR 8206 and sent it for the voters to consider in November.
If coupled with a meaningful spending limit, a constitutional savings account provides stability to the state budget by reducing the likelihood of tax increases or budget cuts during the downside of the business cycle (approximately every ten years). Bond companies, such as Standard and Poor’s, also look positively on states with constitutionally protected savings accounts. In fact, in July Standard and Poor’s managers highlighted that one of Washington’s financial strengths is:
Although the state does not have a minimum reserve policy, the state constitution requires the state to set aside 1% of most unrestricted state revenues in each fiscal year into a budget stabilization fund [savings account], a form of “rainy-day” fund.
The Standard and Poor’s report goes on to note:
A potential constitutional amendment, which if approved by voters in November 2011, would add rigor to the state’s legal requirement to add funding to its budget reserve by placing “extraordinary” revenue growth in the reserve (defined as revenue growth that exceeds by one-third the average rate of growth during the past five biennia).
The added financial stability a constitutional savings account provides explains why State Treasurer Jim McIntire (D) and legislative budget writers Sen. Joe Zarelli (R) and Rep. Ross Hunter (D) support SJR 8206. They believe the measure would help ensure future budgets are not based on unsustainable revenue increases, and instead are based on more prudent revenue expectations.
SJR 8206 has wide bipartisan support, but is opposed by some lawmakers. Lawmakers who voted against the proposed enhanced constitutional savings account say it would restrict the freedom of lawmakers to spend extraordinary revenue growth. They also say the state’s existing constitutional reserve has plenty of money in it, and is adequate to bring stability to state budgeting.
The state’s constitutional savings account is currently projected to have a balance of around $280 million. This equals protected reserves of less than one percent for the $31.7 billion 2011–13 budget. Assuming all of these constitutional savings account funds are spent, the state is currently projected to have a budget deficit exceeding $1 billion in 2011–13.
If adopted by voters, SJR 8206 would strengthen the constitutional savings account that voters enacted in 2007, and would provide additional stability to the state’s budget outlook. This prospect, however, is only as strong as lawmakers’ commitment to spending restraint once the economy recovers. A stronger constitutional savings account, as proposed by SJR 8206, would help stabilize the state’s long-term fiscal position by smoothing out future swings in revenue, but limiting the growth of spending is also required to avoid the need to spend money from the constitutional savings account in the first place.
WPC’s full analysis of SJR 8206 is at: www.washingtonpolicy.org/sites/default/files/Citizens-Guide-SJR-8206-a.pdf
Jason Mercier, Director
Center for Government Reform
Washington Policy Center