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Friday, January 20, 2006

Citizens Guide To WAshington State Budget

Page 1
Budget
A Citizen’s Guide to the
Washington State
Budget
January 2006
Page 2
i
T
ABLE OF
C
ONTENTS
Subject
Page
Introduction...................................................................................1
How Big Is The State Budget?......................................................2
Where Does This Money Come From?........................................3
How Are These Funds Spent By Function?..................................4
How Are These Funds Spent By Object?.....................................6
How Many State Employees Are There?......................................8
What Is The State General Fund?...............................................10
How Is State General Fund Money Spent?.................................12
Why Does The Budget Go Up Year After Year?.......................14
How Is The Budget Created?......................................................14
How Significant Is Government In The Economy?....................17
Why Does The State Borrow Money To Pay For The
Capital Budget? ..........................................................................20
How Does The 601 Spending Limit Work? ...............................26
Glossary Of Commonly Used Budget Terms.............................27
Page 3
1
I
NTRODUCTION
The 2006 Citizen’s Guide to the Washington State Budget is offered
as a resource for citizens, members of the Senate, their staff, and other
interested persons; to provide a clear and simple overview of the state
budget and state revenues. It describes the three basic state budgets and
their interrelationships, the sources of revenue that support those
budgets, how the money is spent, how many staff the state employs, the
timeline for budget decisions and information about state debt and the
Initiative 601 spending limit.
This guide was developed as a response to requests received by the
Senate Ways and Means Committee for a brief and easy-to-understand
document that would explain the state budget to the general public. The
Legislature produces a number of documents and reports that provide
highly-detailed information regarding budget and revenue actions and the
many programs and tax sources contained therein. This guide provides a
pamphlet-style brief introduction to the state budget and taxes.
The 2006 Citizen’s Guide to the Washington State Budget was
prepared by staff of the Senate Ways and Means Committee (within
Senate Committee Services) and the Legislative Evaluation and
Accountability Program (LEAP) Committee, with invaluable assistance
from staff in several state agencies, notably staff of the Budget and
Accounting divisions of the Office of Financial Management (OFM).
Questions regarding the guide or requests for additional copies should be
addressed to:
Senate Ways and Means Committee
101 Modular Building 2
Olympia, Washington 98504-0482
Telephone: 360-786-7715
Fax: 360-786-7615
http://www.leg.wa.gov/senate/scs/wm/default.htm
Page 4
2 How Big is the State Budget?

As of the 2005 Legislative Session, the State of Washington will
spend a total of $58.6 billion for the 2005-07 biennium. That is an
average of $80 million per day during the two-year spending period. This
$58.6 billion includes amounts from three different budgets, which are
plans of how the state will spend the money. The relative size of each of
the three state budgets is shown in the following chart:
2005-07 State Budgets
(Dollars in Billions)
Operating Budget
$49.4
Transportation Budget
$5.9
Capital Budget*
$3.3
Total 2005-07 State Budgets
$58.6
*Excludes Capital Re-appropriations (approximately $2.0 billion).
Sources: Winsum and Buildsum budget development systems for the 2005 Session.
Operating
Budget
84.3%
Transportation
Budget 10.1%
Capital Budget*
5.6%
• The budget that pays for the day-to-day operations of state
government (including federal funds and dedicated funds) is called
the Operating Budget ($49.4 billion).
• The budget that pays for transportation activities, such as designing
and maintaining roads and public transit, is called the
Transportation Budget ($5.9 billion). This budget includes
amounts for both transportation operating activities ($2.2 billion)
and transportation capital activities ($3.7 billion).
• The budget to acquire and maintain state buildings, public schools,
higher education facilities, public lands, parks, and other assets is
called the Capital Budget ($3.3 billion).
Budget-related materials frequently refer to the “state general fund”
or General Fund-State (“GF-S”), which is the largest state fund; it
represents more than half of the $49.4 billion operating budget. A
discussion of the GF-S budget begins on page 10.
Page 5
3

Where Does the Money Come From?
To pay for its activities in 2005-07, the state will tax citizens and
businesses $30.2 billion; receive federal and other grants of $15.8 billion;
collect fees and assess charges for licenses and permits of $9.2 billion;
and borrow $2.9 billion. Other sources, including transfers, account for
$0.9 billion. The relative size of each of these sources is shown in the
following chart:
2005-07 Sources of Revenue
(Dollars in Billions)
Taxes
$30.2
Federal & Other Grants
15.8
Licenses, Permits, & Charges for Services
9.2
Borrowing
2.9
Other Sources (including Transfers)
0.9
Total 2005-07 Sources of Revenue
$59.0
Source: OFM Revsum database for 2005-07 as of December 2005.
Taxes
51.2%
Licenses, Permits, &
Charges for Services
15.6%
Borrowing 4.8%
Federal & Other
Grants 26.8%
Other Sources 1.6%
Most of the money the state uses to pay for services comes from state
taxes. Washington’s major tax sources include the sales tax, the property
tax, and a rather unique tax called the Business and Occupation (B&O)
tax, which is a tax on gross receipts rather than on profit or income.
Washington is one of seven states that do not levy a personal income tax.
When the state projects that expenditures will exceed revenues, it
must take action to address the imbalance. The actions it may take
include: spending reserves; reducing expenditures; increasing revenues;
borrowing money; or some combination of these four actions.
Page 6
4
How are these Funds Spent?
?
The following chart shows how the $58.6 billion 2005-07 total funds
budget is allocated:
2005-07 All Budgeted Expenditures*
(Dollars in Billions)
Human Services
$21.7
Public Schools
$13.8
Higher Education
$9.0
Transportation
$5.6
Governmental Operations
$4.2
Natural Resources
$2.1
Debt Service/Other
$2.3
Total 2005-07 All Budgeted Expenditures*
$58.6
*Excludes Capital Re-appropriations (approximately $2.0 billion).
Sources: Winsum and Buildsum budget development systems for the 2005 Session.
Human Services
37.0%
Public Schools
23.5%
Higher Education 15.4%
Transportation 9.5%
Gov't Operations 7.1%
Natural Resources 3.5%
Debt Service/Other 3.9%
Human Services, such as medical and public assistance, long-term
care, other health care, and prisons, represents 37% of total budgeted
expenditures. Most human services programs are partnerships between
the state and the federal government, with the federal government
providing about half of the money and the state providing the rest. The
state provides human services to one out of every five citizens, including
services to over half a million children residing in Washington.
Public Schools--state funding of kindergarten through twelfth grade
(K-12) school districts--comprises the next largest category of total
budgeted expenditures at 23.5%, although it represents the majority of
the state general fund budget (see page 12).
Higher Education continues at 15.4% of total budgeted spending.
Higher education includes support for state four-year schools and
community and technical colleges.
Page 7
5
Almost $5.6 billion was planned to be spent for Transportation
services and construction in the 2005-07 biennium. These services and
construction include highways, state ferries, and other transportation
programs in the Washington State Department of Transportation (DOT);
the Washington State Patrol (WSP); and the Department of Licensing
(DOL), to name the three largest. Of that $5.6 billion, transportation
operating activities account for more than $2.2 billion (3.8% of statewide
spending), and transportation capital activities account for $3.7 billion
(nearly 6.3% of total spending).
Other major spending categories include Natural Resources
(agencies for environmental protection, management, and recreation);
Governmental Operations (administrative, judicial, and legislative
agencies); and other expenditures, such as the payment of Debt Service
(the interest and principle costs of facilities and services funded through
general obligation bonds).
Page 8
6

How are the funds spent by type of sp-ending
Another way to look at state spending is to identify what the state
purchases. For example, payments to contractors and vendors for
services rendered, and to school districts for K-12 education; salaries and
benefits for state employees; and payments for buildings and lands,
among others. These classifications are called “objects” of expenditure.
The following chart shows large objects of expenditure for fiscal
year 2005, the latest period for which complete object data are available:
Fiscal Year 2005 Expenditures by Object*
(Dollars in Billions)
Grants, Benefits & Client Services
$15.3
Salaries and Benefits
$6.4
Goods and Services
$2.9
Capital Outlays
$1.8
All Other
$1.1
Fiscal Year 2005 Expenditures by Object*
$27.5
*Includes Operating and Capital Budgeted Expenditures.
Source: Monitor database from statewide accounting system.
Percentages do not add due to rounding.
Grants,
Benefits &
Client
Services
55.5%
Salaries & Benefits 23.1%
Goods & Services
10.6%
Capital Outlays 6.7%
All Other 4.0%
As the chart shows, more than half of state spending--nearly 56%--is
for Grants, Benefits and Client Services. Spending on this object
occurs mainly in two agencies: $6.7 billion in the Department of Social
and Health Services (DSHS), as payments to hospitals, nursing homes,
other service providers, and as welfare and child care payments; and $6
billion in the Office of the Superintendent of Public Instruction, as
apportionment and grants to K-12 school districts. Many other federal
and state grant programs have expenditures in grants, benefits and client
services.
Page 9
7
The $6.4 billion Salaries and Benefits expenditure in FY 2005
provided compensation to the nearly 107,000 full-time equivalent (FTE)
staff that the state directly employs. In addition to salaries and wages,
this amount includes health, life, and disability insurance; Old Age and
Survivors Insurance (OASI is sometimes referred to as “Social
Security”); retirement and pensions; and other employee benefits.
The $2.9 billion Goods and Services expenditure in FY 2005 paid
for things like supplies, medications at state-operated hospitals, food at
colleges and universities, and small equipment (valued at under $5,000
per item), as well as services such as data processing, security, rentals
and leases, communications, utilities, printing, insurance, training, and
vehicle maintenance.
The $1.8 billion Capital Outlays expenditure in FY 2005 paid for
highway construction ($561 million), buildings ($424 million), and
furnishings, equipment, and software ($358 million), among others. The
Washington State Department of Transportation (DOT) accounted for
not quite half (47%) of these expenditures, while higher education--the
four-year institutions and the community and technical colleges--
accounted for more than one quarter (28%).
The All Other category of objects includes debt service, personal
service contracts, travel, and transfers for approximately $1 billion.
Page 10
8

How Many State Employees are There?
For budget purposes, the state counts its employees in terms of full-
time equivalent (FTE) staff. One FTE equals 2,088 paid hours per fiscal
year. Generally, one FTE is thought of as one full-time position, although
an FTE may be composed of multiple part-time positions. As the
following chart shows, for the 2005-07 biennium, the state’s budgets
anticipate approximately 106,000 annual FTEs.
Average Annual FTE Staff for 2005-07*
Higher Education
46,231
Human Services
33,404
Transportation
11,052
Governmental Operations
9,419
Natural Resources
5,905
Other
627
Total*
106,639
*Includes FTEs from Omnibus Operating, Transportaion, and Capital Budgets.
Sources: Winsum and Buildsum budget development systems for the 2005 Session.
Higher
Education
43.4%
Human Services
31.3%
Gov't Operations 8.8%
Transportation 10.4%
Natural Resources 5.5%
Other 0.6%
Higher Education represents the largest category of state
employees. The budget for the University of Washington includes nearly
20,000 FTEs and there are over 15,000 FTEs in the budget for the
community and technical colleges. The next largest area is Human
Services. More than 17,900 FTEs work for the Department of Social
and Health Services and almost 8,100 FTEs work for the Department of
Corrections.
Three agencies in Transportation employ 99% of the staff in this
area of state government: Washington State Department of
Transportation (7,344 budgeted FTEs), Washington State Patrol (2,385),
and the Department of Licensing (1,256).
Similarly, in Natural Resources, the largest employers are the
Departments of Fish and Wildlife (1,514 budgeted FTEs), Natural
Resources (1,442 FTEs), and Ecology (1,485).
Page 11
9
In this display, Other includes the Office of the Superintendent of
Public Instruction (OSPI); at 291 budgeted FTEs, it is the only agency in
this category with a budget that exceeds 125 FTEs .
Of the approximately 106,000 budgeted FTEs, the state general fund
will pay for 39%, Higher Education non-appropriated funds will pay for
approximately 26%, federal funds will pay for 13%, and numerous
dedicated funds will pay the remaining 22%.
The nearly 100,000 FTEs of K-12 local school districts are not
included in the FTEs that the state directly employs. However, the state
pays for approximately 70% of the maintenance and operations budgets
of the 296 school districts throughout the state via funds disbursed
through the Office of the Superintendent of Public Instruction.
Page 12
10

What is the state General Fund?
The state general fund is the largest single fund within the state
budget. It is the principal state fund supporting the operation of state
government. All major state tax revenues are deposited into this fund.
The sources of tax revenue for the state general fund are shown in the
following chart:
2005-07 Sources of
State General Fund Revenue
(Dollars in Billions)
Retail Sales
$13.6
Business & Occupations (B & O)
4.8
Property*
2.8
Real Estate
1.6
Public Utility
0.7
All Other
2.9
Total
$26.3
*Excludes transfers to the Student Achievement Account required by Initiative 728.
Source: Economic and Revenue Forecast, November 2004 (Cash Basis).
Numbers do not add due to rounding.
Retail Sales
51.5%
B & O 18.3%
Property 10.6%
Real Estate 6.1%
Public Utility 2.5%
All Other 11.0%
For the 2005-07 budget period, the state general fund will receive
$26.3 billion in revenues. More than half of that amount is from the state
retail sales tax. The second largest tax is the Business and Occupation
(B&O) tax, which accounts for approximately 18%. The third largest tax
is the state property tax, which accounts for nearly 11% of the total.
The state sales tax, the B&O tax, and the state property tax account
for more than 80% of all state general fund revenues. In addition, the
general fund relies on real estate excise taxes, use taxes, a public utility
tax, insurance premium taxes, and a number of other smaller taxes. (For
a description of these and other state taxes, refer to the Washington State
Department of Revenue web site at http://dor.wa.gov.)
Page 13
11
Contrary to popular belief, the state lottery does not pay for a large
share of K-12 education. Currently, the lottery brings in about $200
million per biennium. Initiative 728 (enacted by the voters in November
2000) requires the transfer of these funds to the Student Achievement
Account and the Education Construction Account. Since fiscal year
2005, all lottery revenues have been deposited into the Education
Construction Account. The total state budget for public schools is about
$13.8 billion for 2005-07. This means the state lottery, even if entirely
dedicated to K-12 public schools, would represent only about 2% of the
state budget for K-12 education.
The major difference between the state general fund revenues ($26.3
billion) and the total of all budgeted funds revenues ($59 billion) is the
dedication of revenue sources to specific uses. Most of the difference can
be attributed to four types of funds:
• Federal funds for specific federal programs ($13.2 billion);
• Higher Education-specific funds such as the Grants and Contracts
Account, Higher Education Dedicated Local Accounts, the Tuition
and Fees Account, and the University of Washington Hospital
Account ($5.7 billion);
• Bonds for capital purposes ($2.9 billion); and
• Gas taxes for transportation purposes ($2.1 billion).
These four sources account for 73% of the difference between
revenues available for all state government budgets and the state general
fund budget.
Page 14
12
How is State Money Spent?
Because of the nature of its tax sources, the state general fund
receives the most attention during the budget-building process. During
the 2005-07 biennium, the state will spend about $25.7 billion (or about
$35 million per day on average) from the state general fund. The
following chart shows how the state general fund budget is allocated:
2005-07 General Fund-State Expenditures
(Dollars in Billions)
Public Schools
$10.9
Human Services
9.5
Higher Education
2.9
Governmental Operations
0.7
Natural Resources
0.4
Debt Service/Other
1.6
Total
$26.0
Source: Winsum budget development system for the 2005 Session.
Human Services
36.4%
Public Schools
42.1%
Higher Education 11.2%
Gov't Operations 2.7%
Natural Resources 1.4%
Debt Service/Other 6.2%
The largest single state general fund program is Public Schools,
which includes state support for K-12 education. Public schools account
for 23.5% of total budgeted expenditures, but that share increases to
42.1% when examining only the state general fund. By the end of the
2005-07 biennium, the state will provide public education funding for
more than 1,000,000 children.
Human Services state general fund spending consists primarily of
the operating budget for the Department of Social and Health Services,
the State’s umbrella organization that provides medical, social, and
income assistance to citizens in need. It also includes spending for the
Department of Corrections and the Department of Health.
Higher Education spending includes funding for six public
universities, and thirty-four community colleges and technical schools
serving almost 217,000 FTE students. It also includes financial aid to
Page 15
13
nearly 146,000 students attending both state supported and private
colleges. Expenditures for higher education represent 15.4% of all
budgeted funds and 11.2% of the state general fund. In addition to money
from the state general fund, higher education receives $5.5 billion of
dedicated revenues, principally grants and contracts, and tuition and fees.
Other general fund spending categories include Natural Resources,
Governmental Operations, and other expenditures such as the payment
of Debt Service.
Page 16
1
W

Why does the budget increase annually?
The budget increases each year primarily because there are either
more citizens to serve, those services cost more, and/or because citizens
may request new or different services. Public education may be the
easiest example of these trends.
• Article IX, Section 1 of the Washington State Constitution declares
“It is the paramount duty of the state to make ample provision for the
education of all children residing within its borders ...” The cost of
meeting this constitutional requirement takes nearly half of the state
general fund budget. In 1990, there were about 800,000 children in
Washington state K-12 public schools. By the end of 2003-05, the K-
12 system will educate more than 1,000,000 children. The education
of these additional 200,000 children will cost hundreds of millions of
dollars. Over the same period, the population of the state as a whole
is expected to increase nearly 1.4 million people, so there will be
more taxpayers to shoulder these costs.
• Teaching supplies, materials, equipment and energy all will cost
more in 2006 than they did in 1990, so the overall cost of educating
each student will increase.
• Finally, in 1993, the legislature passed new requirements for public
education. Referred to as “education reform,” these requirements
continue to change the cost of education for each child. This too will
cause the budget to increase.
HOW IS THE
BUDGET
CREATED
?
Through the budget process, the Legislature and the Governor decide
how much money to raise and spend. State agencies, the Governor, the
Legislature, citizens, and interest groups are all involved in this process.
Washington State operates on a two-year (biennial) basis, beginning on
July 1st of each odd-numbered year. For example, the current budget is
for the period July 1, 2005 through June 30, 2007.
Agency Requests - In late summer and early fall of each even-
numbered year, state agencies submit budget requests to the Office of
Financial Management (OFM). The Governor reviews the requests and
makes the final decisions for his or her budget proposal.
Page 17
15
The Governor’s Budget - By law, as the chief executive officer of
the state, the Governor must propose a biennial budget in December of
even-numbered years, the month before the Legislature convenes in
regular session. The Governor’s budget is his or her proposed spending
and taxation plan for the biennium.
The Legislative Budget Process - After receiving the Governor’s
budget proposal, the Legislature reviews it and formulates its own budget
during the legislative session which begins in January. The chairs of the
Senate Ways and Means Committee and House Appropriations
Committee work with their respective members and staffs to analyze the
Governor’s budget and develop recommendations and alternative
proposals. The transportation portions of the budget are developed by
separate committees in the House and Senate. By tradition, the initiation
of the budget alternates between chambers each biennium.
After each chamber has passed its version of the budget, the
differences between the two must be reconciled in the budget conference
process. Generally, six fiscal leaders representing both chambers and
both political parties meet as a conference committee to prepare one
legislative budget that is submitted to the full legislature for final passage
and then ultimately delivered to the Governor for his or her signature.
The Governor may veto all or part of the budget, thereby eliminating
funding for certain activities; however, the Governor cannot add money
for an activity for which the Legislature provided no funding. Only after
the Legislature passes a budget and the Governor signs it has the state
created a real budget.
Supplemental Budgets - Each year, the Legislature considers
changes to the biennial budget in what is called a Supplemental Budget.
Generally, such changes represent mid-course corrections to the two-year
spending plans to account for changes in school enrollments, prison
populations, public assistance caseloads, or significant changes in the
economy of the state.
Page 18
16
Timeline of Budget Decisions
(2005-07 Biennium)
State agencies prepare budget
requests and submit them to
the Office of Financial
Management
The Governor reviews the
requests and makes decisions
about what goes in the
Governor's proposed budget.
The Legislature reviews the
Governor's proposed budget,
develops its own budgets, and
approves revenue bills. The
budget is signed or vetoed by
the Governor.
July 2005
Agencies execute the enacted budget.
January 2006 -
March 2006
January 2007 -
April 2007
The Biennium Begins
July 1, 2005 -
June 30, 2007
Supplemental
Budgets
The 2005-07 biennial budget
may be adjusted in the 2006
and 2007 legislative sessions.
Formulation of
the Governor's
Budget
July 2004 -
December 2004
Legislative
Action on the
Budget
January 2005 -
April 2005
Page 19
17
How significant is state government to the economy

State governments, the federal government, and local governments
represent about 28% of all the economic activity in the country, with the
federal government financing more than two thirds of the public amount.
Government Spending as a share of U.S. gross domestic product (GDP), 2000.
Source: A Citizen's Guide to the Federal Budget, Fiscal Year 2002,
http://www.whitehouse.gov/omb/budget/fy2002/guide.pdf
Private Sector
72%
State & Local
Governments 9%
Federal
Government
19%
nalysis of state and local taxes per capita provides one comparison
of tax burdens among the states. As the following chart shows, for FY
2002 (the most recent year for which all data are available), the amount
FY 2002 Per Capita State and Local Taxes
$954
$971
$740
$598
$1,522
$776
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Washington
U.S. Average
Property Taxes
Other Taxes
Sales Taxes
Income Taxes
$3,216
$3,149
$804
Page 20
18
for state and local taxes per capita for Washington State is $3,216,
which is 2.1% higher than the national average of $3,149.
The chart on page 17 shows that the components of the tax structure
of Washington State differ noticeably from national averages.
Washington is one of only seven states that does not impose a personal
or corporate income tax; at the same time, Washington has relatively
high sales taxes and other taxes. According to the Washington State
Department of Revenue, in FY 2002 Washington ranked 20th in the
nation with property taxes per capita of $954 (the national average was
$971).
The chart on page 19 shows the total state and local taxes per capita
for Washington compared to the other 49 states and to the U.S. average.
This chart shows that Washington ranks 16th in state and local taxes per
capita and that 32 states rank below the U.S. average of $3,149.
By comparing taxes to personal income, it should be possible to take
into account differences in wealth among states when comparing tax
burdens. However in recent years, the incredible increase in Washington
State personal income, due in large part to the explosion of stock options
during the late 1990s and 2000, distorted this measure and made it less
useful as a yardstick of the overall tax burden.
Page 21
19
Alabama
Tennessee
Mississippi
Montana
South Carolina
Arkansas
South Dakota
Idaho
Oklahoma
Oregon
West Virginia
Utah
New Mexico
Kentucky
Arizona
Missouri
Florida
Texas
North Carolina
Louisiana
North Dakota
Indiana
Georgia
New Hampshire
Iowa
Kansas
Nevada
Virginia
Michigan
Pennsylvania
Nebraska
Colorado
Ohio
Vermont
Alaska
Illinois
Delaware
Rhode Island
Hawaii
Wisconsin
California
Maine
Wyoming
Maryland
Minnesota
Massachusetts
New Jersey
Connecticut
New York
WASHINGTON
$3,216
U.S. Average
$3,149
0
Why does the sTate borrow money to pay for captial budget
?
The capital budget uses borrowed money to fund projects that benefit
future tax payers. For example, the benefits of a new higher education
facility will last for 30 years or more. Financing that facility with bonds
paid off over thirty years spreads the cost over the life of the building and
on future tax payers who benefit from it.
How Is The Capital Budget Money Spent?
The following chart shows how the 2005-07 total funds capital
budget is allocated:
2005-07 Capital Budget, Total Funds
(Dollars in Millions)
Higher Education
$910
Natural Resources
782
Public Schools
620
Corrections
243
Other*
715
Total
$3,269
Sources: Winsum and Buildsum budget development systems for the 2005 Session.
*Includes agencies in Government Operations, Human Services (excluding Corrections),
Other Education, and some transportation capital projects.
Higher Education 27.8%
Other* 21.9%
Natural Resources
23.9%
Corrections 7.4%
Public Schools 19.0%
The capital budget funds construction and maintenance of state
buildings such as higher education facilities and prisons, provides grants
to local school districts to help build new schools, and pays for
acquisition and maintenance of public lands, parks and other assets. The
capital budget also provides grants and loans to local governments and
community groups for public works projects such as water and sewer
Page 23
21
systems, environmental projects such as toxic waste clean-up and salmon
habitat restoration, and for cultural and recreational projects such as
youth athletic fields and community service projects.
Where Does Capital Budget Money Come From?
The following chart shows the history of size of the capital budget
for bonds and the total appropriation:
Biennium
Bonds
Total
1985-87
518
695
1987-89
604
988
1989-91
923
1,858
1991-93
1,260
1,885
1993-95
1,011
1,712
1995-97
809
1,627
1997-99
961
1,974
1999-01
1,209
2,508
2001-03
1,142
2,641
2003-05
1,499
2,985
2005-07
1,561
3,269
Source: Buildsum budget development system for the 2005 session.
Capital Budget & Bonds
(Dollars in Millions)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1
9
8
5
-
8
7
1
9
8
7
-
8
9
1
9
8
9
-
9
1
1
9
9
1
-
9
3
1
9
9
3
-
9
5
1
9
9
5
-
9
7
1
9
9
7
-
9
9
1
9
9
9
-
0
1
2
0
0
1
-
0
3
2
0
0
3
-
0
5
2
0
0
5
-
0
7
$ Millions
Other Funds
State Bonds
About half of the money appropriated in the capital budget comes
from the sale of bonds. The State Treasurer is responsible for selling and
Page 24
22
refinancing bonds. The money to pay the debt is appropriated in the
operating budget. These debt service payments, funded with general
taxes, pay for schools, prisons and college facilities authorized and
constructed through capital budgets adopted in previous legislative
sessions. Bond-funded capital projects authorized in a particular
legislative session will be paid for with taxes appropriated in future
operating budgets. Other funds in the capital budget include federal
grants; loan revolving funds, such as the public works assistance account
and the water pollution control revolving account; and trust land
revenues for common schools and higher education facilities.
Different parts of the capital budget are more or less dependent on
borrowed money. Eighty percent of capital projects for higher education
and nearly all projects for corrections are funded with bonds. Only about
a third of the rest of the capital budget is paid for with bonds. The
following chart shows the major parts of the state bond portion of the
2005-07 capital budget:
2005-07 Capital Budget, State Bonds
(Dollars in Millions)
Higher Education
$678
Natural Resources
255
Corrections
241
Public Schools
139
Other*
249
Total
$1,561
Source: Buildsum budget development system for the 2005 Session.
* Includes agencies in Government Operations, Human Services (excluding Corrections),
Other Education, and some transportation capital projects.
Higher
Education
43.4%
Other* 16%
Natural Resources
16.4%
Corrections 15.4%
Public Schools 8.9%
Page 25
23
What is the Debt Limit and How Does it Control the Capital
Budget?
The Washington State Constitution indirectly limits the amount of
debt the state can incur. Annual debt service payments cannot exceed
nine percent of the average general state revenues in the preceding three
years. Taxes and fees for specific purposes, such as the gas tax and
property tax, are excluded from the definition of general state revenues.
The following chart show the constitutional and statutory debt limits
and the actual debt service payments applicable to each limit.
Debt Limit vs Actual Debt Service Payments
(Dollars in Millions)
Fiscal
Year
Limit
Actual
Limit
Actual
1992
489
275
380
271
1993
532
309
414
302
1994
558
371
434
330
1995
583
415
454
360
1996
612
458
476
390
1997
635
477
494
410
1998
656
510
511
444
1999
680
551
529
471
2000
713
588
554
511
2001
748
630
581
548
2002
779
648
606
575
2003
794
650
622
575
2004
799
643
639
568
2005*
807
695
695
614
2006*
840
723
774
643
2007*
918
768
863
684
*2005, 2006, & 2007 are estimates based on current appropriations.
Sources: Debt models from State Treasurer's Office (11/22/2005)
Constitutional
Statutory
0
100
200
300
400
500
600
700
800
900
1000
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
*
2
0
0
6
*
2
0
0
7
*
Fiscal Years
$ Million
s
Actual Debt Service Subject
to Constitutional Limit
9% Constitutional Debt Limit
Page 26
24
State law also limits debt. The statutory debt limit is seven percent,
but is based on revenues that include the lottery, real estate excise tax,
and property tax. These additional revenues were added by legislation in
2002 and 2003. The debt service payments limited by state law are also
somewhat different from the payments limited by the constitution. The
statutory limit excludes debt on general obligation bonds reimbursable
from money other than general revenue and several specific projects, but
includes voter-approved debt. The effect of these revenue and payment
differences results in a statutory debt limit that now allows about the
same amount of borrowing as the constitutional debt limit.
How Does the Capital Budget Fund Community Projects?
The capital budget funds a variety of community projects. Some of
these projects are first reviewed and prioritized by a state agency. The
following are some of the larger categories of community projects
funded in the capital budget.
Washington Wildlife and Recreation Program
2005-07 Funding – $50 million
Application/Funding Process - Applications are prioritized within
the following types of projects: local parks, state parks, trails, water
access, critical habitat, natural areas, and urban wildlife. The
legislature then specifies how far down the priority list projects will
be funded.
Administrative Agency & Contact – Interagency Committee for
Outdoor Recreation (http://www.iac.wa.gov/iac/grants.asp)
Community Service Facilities
2005-07 Funding – $5.3 million
Application/Funding Process – Applications are prioritized by a
citizens’ advisory committee based on the level of improved
efficiency and service quality the project would provide to the
community. The grant can’t exceed 25 percent of the total project
cost. The legislature then determines which projects will be funded.
Administrative Agency & Contact – Department of Community,
Trade & Economic Development
(http://cted.wa.gov/DesktopDefault.aspx?tabid=475&tabindex=61)
Page 27
25
Building for the Arts
2005-07 Funding – $5.4 million
Application/Funding Process – Applications are prioritized by a
citizens’ advisory committee. The grant can’t exceed 20 percent of
the total project cost. The legislature then determines which projects
will be funded.
Administrative Agency & Contact – Department of Community,
Trade & Economic Development
(http://cted.wa.gov/DesktopDefault.aspx?tabid=475&tabindex=61)
Heritage Capital Projects
2005-07 Funding – $4.6 million
Application/Funding Process – Applications are prioritized by the
Washington State Historical Society in consultation with others. The
grant can’t exceed 33 percent of the total project cost. The
legislature then determines which projects will be funded.
Administrative Agency & Contact – Washington State Historical
Society (http://www.washingtonhistory.org/wshs/contact.htm)
Other Categories of Community Projects
2005-07 Funding – Varies
Application/Funding Process – In addition to the programs above,
the legislature may fund community projects directly, without an
administrative agency reviewing and prioritizing applications.
Contact – Your legislators
Page 28
26
HOW
DOES
THE
601 SPENDING
LIMIT
WORK
?
In November 1993, the citizens of Washington State passed an
initiative to limit the growth in state government spending and taxation.
Initiative 601 (I-601) put a “cap” on state spending for activities funded
by the state General Fund. The expenditure cap was based on the
amount of state spending in 1990, with annual adjustments for
subsequent population growth and inflation. When General Fund
revenues grew faster than the I-601 spending limit, the extra revenue
could be used to reduce taxes or be put into the “emergency reserve
fund,” which could only be used if two-thirds of the legislature agreed to
use it. When revenues grew more slowly during economic recessions,
the emergency reserve fund could be used to allow spending up to the
state spending limit.
Initiative 601 also requires a two-thirds vote of the Legislature to
approve any legislation that increases state revenue, such as a tax
increase. (However, the 2005 Legislature suspended this requirement
until June 30, 2007.) A vote of the people is required if the tax increase
will result in spending in excess of the state expenditure limit.
Legislation enacted in 2005 made several significant changes to
Initiative 601, to take effect in 2007. Beginning in 2007, the state
General Fund expenditure limit will be expanded to include expenditures
from five additional state funds: the Health Services Account; the
Violence Reduction & Drug Enforcement Account; the Public Safety &
Education Account; the Water Quality Account; and the Student
Achievement Fund. In addition, the annual adjustment to the state
spending limit based on population growth and inflation will be replaced
by a formula reflecting the ten-year average growth in state personal
income.
Page 29
27
G
LOSSARY
O
F
C
OMMONLY
U
SED
B
UDGET
T
ERMS
Appropriation - A legislative authorization for an agency or other
governmental unit to make expenditures and incur obligations: (1) for specific
purposes, (2) from designated funding sources, and (3) during a specified time
period.
Biennium - The 24-month period from July 1st of odd-numbered years to
June 30th of odd-numbered years, such as the 2005-07 biennium, which runs
from July 1, 2005 to June 30, 2007.
Capital Budget - The budget that pays for the construction and renovation
of state facilities, including public schools, prisons, state hospitals, higher
education institutions, parks, etc. Revenues to support capital spending come
primarily from bonds and dedicated cash accounts.
Debt Service - The interest and principle costs of facilities and services
funded through general obligation bonds.
Dedicated Funds - The product of reserving certain tax revenues for a
specific purpose or purposes. Generally, any fund other than the general fund or
a federal fund is referred to as a dedicated fund. There are literally hundreds of
dedicated funds in the state treasury. Two of the largest are the Motor Vehicle
Account, which receives gas tax revenues and is restricted to roads and
highways, and the State Lottery Account, which accounts for revenues from
ticket sales and is reserved for the cost of lottery operations and prizes.
Federal Funds – Monies provided by the federal government to support
state programs. Major operating budget federal programs include Medicaid and
the Social Services Block Grant.
Fiscal Year (FY) - The 12-month period from July 1st to June 30th,
expressed in terms of the first six months of the next calendar year. For example,
the FY 2006 fiscal year runs from July 1, 2005 until June 30, 2006.
FTE Staff - Full time equivalent (FTE) staff is a way to measure the size of
the state’s workforce. One FTE is equivalent to 2,088 hours worked per year,
which represents one full-time employee. Total FTE staff does not necessarily
represent the total number of state employees because some staff work part-time
and are thus classified as a percentage of one FTE.
Governmental Operations - A functional area of state spending which
comprises a large number of central service agencies, such as the departments of
General Administration, Personnel, Financial Management, Revenue, etc., as
well as the legislative and judicial branches of government.
Higher Education - A functional area of state spending that includes the
cost of secondary education and workforce training provided through the state’s
34 community and technical colleges, four regional universities, and two
research universities.
Human Services - A functional area of state spending which comprises
human services agencies such as the Department of Social and Health Services,
the Department of Corrections, and the Department of Health.
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28
Natural Resources - A functional area of state spending that includes the
state’s natural resource agencies such as the departments of Ecology, Fish and
Wildlife, Natural Resources, and the State Parks and Recreation Commission.
Object - A state accounting classification used to categorize expenditures.
Objects of expenditure in the state operating and capital budgets include:
Salaries and Wages; Employ Benefits; Personal Service Contracts; Goods and
Services; Travel; Capital Outlays; Grants, Benefits, and Client Services; Debt
Service; and various transfer objects.
Operating Budget - The budget which pays for most of the day-to-day
operations of state government and constitutes the majority of all state spending
is referred to as the operating budget. Revenue to support this budget comes
from a variety of taxes and fees that are deposited into more than 200 separate
funds and accounts, the largest of which is the state general fund.
Other Education - A functional area of state spending that includes the
cost of providing specialized education services at the Schools for the Deaf and
the Blind, arts and cultural services provided through the Arts Commission and
the two state Historical Societies, and cost of the state Work Force Training, and
Education Coordinating Board.
Public Schools - A functional area of state spending that includes the cost
of educating the state’s children from grades kindergarten through high school.
It also includes the funding for other activities of the public school system. The
Superintendent of Public Instruction allocates these funds to 296 school districts,
nine educational service districts and other contractors who provide education
services.
State General Fund - Often referred to as General Fund-State (GF-S), this
fund serves as the principal state fund supporting the operation of state
government. All major state tax revenues (sales, business and occupation,
property tax, and others) are deposited into this fund.
Transportation Budget - The budget which pays for both the day-to-day
operation of state transportation agencies and the construction and preservation
of state highways and roads, is called the transportation budget. Most of the
revenue that supports the transportation budget comes from the state gas tax.

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