Desperate times too often result in bad choices. Translated, that means when taxes don’t match state spending, governors and lawmakers rob dedicated accounts.
Dedicated accounts were established to tax people or employers for a specific purpose and only use that money to fund that program. In essence, they promise not to siphon it off to balance the general fund budget. However, robbing Peter to pay Paul has become common practice in Olympia.
For example, in 2009, Washington state faced a $9 billion budget deficit. To help close that gap, state lawmakers made deep cuts to health care, including $311 million in direct cuts to hospitals.
Leaders from the Washington State Hospital Association approached the Legislature with an innovative idea to provide money for the state’s general fund, preserve hospital services for low-income Medicaid patients and serve children enrolled in the Apple Health program.
The hospitals volunteered to tax themselves, and the state could use those tax collections to qualify for matching federal funds. After keeping a small portion for the general fund, the state would then return the tax assessment and federal funds to the hospitals in the form of higher Medicaid payments.
State lawmakers agreed and the governor signed the Hospital Safety Net Assessment into law in 2010. Roughly $50 million went to the state general fund last year, but the bulk of the revenue in a special Hospital Safety Net Account was to provide more than $100 million to hospitals to partially restore the 2009 budget cuts.
But on June 15, Gov. Gregoire signed a new law that raids the Hospital Safety Net Account and diverts $110 million to the general fund to balance next biennium’s budget. In the process, Washington lost an additional $110 million in matching federal funds.
WSHA says the net effect of the new law is to reduce state and federal funding for hospitals by $260 million.
The association has filed suit, arguing that Gov. Gregoire and the Legislature violated the state constitution when they diverted money from a dedicated account set aside specifically for hospital Medicaid payments. WSHA lawyers also say the raid violates requirements of the original 2010 law.
On a more basic level, Gov. Gregoire and state legislators have simply broken their promise. They gave their word. Now, just a year later, they have reneged. That action has consequences — we’ve seen it before.
Following the Boeing Bust in 1972, state lawmakers approved the Economic Assistance Authority to encourage manufacturers to locate or expand in Washington. EEA provided a sales tax deferral on new facilities that created or saved manufacturing jobs. It also allowed a B&O tax credit and exempted pollution control equipment from sales tax.
In 1979, based on the EAA, Crown Zellerbach, once one of the world’s largest paper producers, started a $400 million modernization of its old Camas pulp and papermaking facility. The goal was to save the mill from closure and preserve 3,000 jobs.
But in 1981, newly elected Gov. John Spellman and Republicans in control of the Legislature found themselves facing big deficits much like those facing Gregoire and the Democrats.
To help balance the budget, state lawmakers wiped out the EAA and left Crown Zellerbach high and dry. At the time, Crown was halfway through the construction, facing double-digit inflation and borrowing money at 15 percent interest.
Ultimately, the Camas project was grandfathered in but not before the project’s costs increased by $25 million, which was a lot of money in those days.
Now, it’s happened again.
A bruising court battle lies ahead, one that will cost the hospitals money that would otherwise be going to patient care. But there are important principles at stake here—namely, that elected officials should follow the law and keep their promises.
More importantly, who will be willing to volunteer solutions in the future if they can’t trust state officials to keep their word?
About the Author: Don Brunell is the president of the Association of Washington Business. Formed in 1904, the Association of Washington Business is Washington’s oldest and largest statewide business association, and includes more than 7,500 members representing 650,000 employees. AWB serves as both the state’s chamber of commerce and the manufacturing and technology association. While its membership includes major employers like Boeing, Microsoft and Weyerhaeuser, 90 percent of AWB members employ fewer than 100 people. More than half of AWB’s members employ fewer than 10. For more about AWB, visit www.awb.org.