The document discusses Washington state's $9 billion budget shortfall from 2008-2009 due to declining revenues during the recession, how the shortfall was addressed through cuts to programs, use of federal stimulus funds, and fund transfers. It notes the state now faces a further $2 billion shortfall and that options to close it are limited due to constitutional and federal spending requirements, requiring narrow choices like further cuts to higher education, health care, and social services. Revenue is expected to continue lagging the economic recovery.

1. The 2009-11 Budget Story
Where we’ve been and
where we are now
Prepared by the Office of Financial Management
Nov. 16, 2009

2. Overview
• Over past 18 months, Washington has seen largest drop in
revenue in recent memory.
• Last session, we closed $9 billion shortfall through:
– cuts to programs and services
– use of Recovery Act funds
– fund transfers, including Rainy Day Fund
• As revenue projections continue to decline, we will need to
cut more to stay in balance.
• Reduction options are limited by constitutional and federal
spending mandates. This will narrow our choices.
11/16/2009 2

3. $9 Billion Problem by March 2009
$0
-$1
Initial $3 billion problem due to increasing costs
-$2
-$3
-$4 Cumulative $6 billion
Billions
-$5 revenue
-$6 lost
-$7
-$8
-$9
-$10
Feb-08 Jun-08 Sep-08 Nov-08 Mar-09
• Before recession, $3 billion problem projected for 2009-11 due to health care
inflation, K-12 growth, prison population growth, pension obligations.
• Problem grew with recession, resulting in $6 billion loss in revenue from
Feb. 2008 - March 2009.
11/16/2009 3

4. Solving $9 Billion Gap:
Actions to balance budget
Early reductions $.3 B
Rainy
Day
Fund
$.4 B
Froze
Cut programs
pay, transferr
$3.3 B
ed funds
$2.1 B
Recovery Act
$3 B
11/16/2009 4

5. $3.3 Billion in Cuts and Efficiencies:
Examples
• $600 million in K-12 through class size increases.
• $557 million in higher education by reducing 1,800 employees and
raising tuition 14% (universities), 7% (community colleges) per year.
• $386 million through administrative or across-the-board cuts.
• $255 million from Basic Health Plan by increasing premiums 70% and
reducing enrollment by 36,000 (36%).
• $127 million in payments to hospitals.
• $130 million from Corrections, including $73 million by reducing beds
and community supervision.
11/16/2009 5

6. All Areas of Budget Cut
Percent Reduction*
Low Income Other Human Higher
Health Care Services All Other** Education K-12 Education
-5%
-7%
-8% -8%
-11%
* Includes adjustments for additional tuition and Recovery Act money that offset reductions. Excludes
compensation and special appropriations.
** Includes general government (including legislative and judicial agencies); natural resources; 6
transportation; other education agencies.

7. Other States in Same Predicament
• 48 states have addressed or still face shortfalls for FY2010.
• 49 states had total tax revenue fall during 2nd quarter; 36 report double-digit declines.
• 25+ states face new shortfalls after balancing budgets just months ago.
11/16/2009 7

8. Sources of $2.0 Billion Shortfall
Revenues dropping
• $686 million June forecast
• $238 million September forecast
• $237 million tax lawsuit
• $32 million October revenue collections
• $65 million November revenue collections
• $1.26 billion Subtotal
Costs rising, issues emerging
• $659 million increased demand for health care, schools, prisons
• $12 million forest fires, landslides, dam failures, other
possible emergencies
• $71 million lawsuits blocking planned cuts
• $742 million Subtotal
11/16/2009 8

9. What Should We Expect?
Revenue uncertainty continues
According to state Economic and Revenue Forecast
Council:
• State revenues will lag economic recovery
• Job growth will lag economic recovery
• Unemployment will remain high
• Less revenue expected in 2009-11 than collected in 2007-09
11/16/2009 9

10. Majority of $31 Billion Budget Is Protected:
Tied to state constitutional or federal requirements
Corrections
General
5% Not protected
Government/Other $9.3 billion
5%
Other Human
Services
Other K-12 2%
17%
Higher Mandatory
Education 1% Medicaid/Foster
Higher Ed: Care 14%
Fed. Require. 8%
Debt Service/
Pensions 7%
K-12 Basic
Education 41% Protected
$21.6 billion
70% of the Budget Is Protected
10

11. Possible Areas for More Cuts:
Non-Protected Budget
• Mental health and developmental disabilities services:
$1.6 billion
• Prisons/community supervision of offenders: $1.6
Subject to billion
reductions • Care for low-income elderly: $1.3 billion
• Economic support for low-income families: $1.1 billion
• K-12 non-basic education funding (class size
reduction, others): $635 million
Protected
• Higher education: $500 million (most is financial aid)
• Juvenile corrections: $198 million
11/16/2009 11

12. Examples Not Enough to Fill Gap:
Non-Protected Budget
• Eliminating all state-funded environmental and natural
resource protection, and all recreation and parks
programs : $364 million.
Subject to • Eliminating all of the legislative and judicial branches of
reductions state government : $335 million.
• Eliminating all state support for cultural and art
organizations, and all early learning programs: $164
million.
Protected • Eliminating 23 of smallest general fund agencies: $52
million
11/16/2009 12

13. How Big is $2.0 Billion?
1
Close all community and technical colleges $1.4 billion
Close Dept. of Commerce $103 million
Close Dept. of Revenue $218 million
TOTAL $1.72 billion
2
Eliminate all state funding for UW, WSU $1 billion
Eliminate all state funding for CWU, EWU, WWU, TESC $337 million
Eliminate all state funding for Dept. of Health $193 million
TOTAL $1.53 billion
3
Close Dept. of Corrections $1.6 billion
11/16/2009 13

14. Budget Timeline
Time Action
Mid December Governor’s Supplemental Budget released
Feb. 18, 2010 Revenue forecast released
March 11, 2010 Session adjourns
11/16/2009 14