Opinion - Top opinion

POSTED: Tuesday, Nov. 25, 2008

State's financial trouble mimics family budgets

Sometime soon, perhaps before the 2009 session of the Legislature but definitely once it convenes, some lawmaker will say something like this:

"The State of Washington needs to manage its budget just like our families manage their budgets."

When they do, I hope everyone else shouts: "Oh my God, I hope not." Because mimicking the money management skills of the average American family is exactly what got the state into this budget mess.

In just two years, the state has gone from a $1.9 billion budget surplus to a $5.1 billion budget shortfall. When applied to a two-year state budget of about $30 billion, this shortfall is a record 16 percent of the budget.

In fact, the way residents managed their money is directly related to how the state does so. And it isn't a positive relationship. During the boom times of the last several years, Washington was flush with cash because its residents were spending more than they could afford to spend.

Both the real estate excise tax and the sales tax were producing gobs of money as more people bought houses and more people spent money based on the rapidly increasing value of those houses. At the height of the boom, Americans had a negative savings rate - spending more than we earned and depleting savings - for the first time since the Great Depression.

At the same time, property tax collections increased, partly due to those increased values and partly due to all of the new construction that was going on, both residential and commercial.

Lawmakers knew such spending wasn't sustainable. They knew it would end at some point. But no one wanted to stop spending. Gov. Chris Gregoire even suggested in 2006 that it was somehow immoral to save when there were so many needs to be met.

"These are good times, these are exciting times," she said when rolling out her 2007-2009 budget. "Now is the time to make the investment for the future. If we fail to make the investment for the future ... we can say 'Shame on us; we had the opportunity and we passed it by.'"

That budget is now out of whack because - as always happens - good times are followed by bad times.

So the unrestrained spending of residents fueled the unrestrained spending of government. Just as many families suffer under piles of debt as their jobs are threatened and their homes have lost value, Washington government is in debt as tax revenues fall and demands for services rise.

Just as families are cutting expenses and paying down debt, government is doing the same.

See, state government has already been budgeting like the average family and look where that got us.

I'm not suggesting that the politicians are blameless, that they're victims. They could have spent less, they could have saved more, but instead took politically expedient paths. Spending is popular, saving is less so.

And the few times when the state accumulated sizable surpluses and the Legislature didn't spend them, voters did it themselves via initiatives that cut taxes and increased spending.

Everyone assumed there wouldn't be a downturn. Either that, or they assumed the state could deal with it as it always has, with cuts or taxes or both. Legislators even passed and voters endorsed a constitutional rainy day fund to ease the process.

But the fund was set up too late in the last boom cycle to accumulate much money. And this economic trough is making all the others seem like divots. The state's economist, Arun Raha, has called it "the worst financial crisis in our lifetimes."

So the governor and the Legislature will muddle through. The cuts will be difficult, and regular people will notice them. Some will be hurt by them.

But the last thing we should do to fix the problem and put government on a more-solid foundation is follow the lead of the average - and mythical - American family.

Peter Callaghan writes for The News Tribune in Tacoma.