Session Ends - AIA|WA Budget Efforts are Successful

On May 25, the Washington State Legislature adjourned its 2011 Legislative Session; one month overdue. An imperative of the AIA|WA this session was to protect the capital construction budget.

Leading up to the Session
Recently, the Washington legislature has shifted more than one billion dollars away from the construction budget. It also steeply cut design funding under the guise of promoting “shovel ready” projects. Shovel ready is burying architects.

Consequently, the AIA|WA funded groundbreaking study of the public design and construction budget. The study, conducted by Hebert Research, found that every billion dollars spent on construction creates 1,000 more jobs and $55 million more in wages than the same amount in the general government budget. View the study at www.aiawa.org.

Armed with new information, AIA|WA set out to demonstrate the importance of design and construction spending. AIA|WA shared the study results with lawmakers and the press. Using guest editorials and letters to the editor, the results were broadcast statewide.
AIA|WA members helped spread the message. During the AIA|WA annual lobby day, architects from across Washington delivered giant pencils to every lawmaker. The pencils were inscribed with a message: Pencil Ready Creates Shovel Ready Jobs.

Capital Construction Budget
Entering the session, the poor economy almost eliminated Washington’s ability to sell bonds. State revenue had plummeted. The Washington Constitution limits bond sales and interest payments to 9% of the averaged state revenue. When the state revenue dropped, the allocated 9% maximum fell too; suddenly the state was close to its bond sales limit.

“The state budget deficit was the backdrop for the 2011 legislative session. This made all other issues very difficult to address.”- Peter Rasmussen, FAIA, AIA|WA President

Nearly half of the state’s capital budget comes from bond sales; funding for building design and construction comes mainly from that half. If the state was not able to sell more bonds, architects were in trouble. However, the legislature decided to adjust what was considered “income” in the revenue calculation. By shifting funds, more bond capacity was created; momentarily design funding levels were stable.

Midway through the session another threat arose in the form of a constitutional amendment, Senate Joint Resolution 8215 (SJR 8215). The amendment would freeze the state’s bond sales at recessionary levels. SJR 8215 would have cut design/construction funding by nearly $7 billion dollars over ten years.

Stan Bowman, Hon. AIA|WA, the AIA|WA Executive Director worked with key lawmakers, such as Capital Budget Committee Chair Rep. Hans Dunshee, Hon. AIA|WA, and stopped SJR 8215. But politics kept the bond argument going. In the end, budget negotiators compromised with Substitute Senate Bill 5181 (SSB 5181).

“We dodged a bullet by avoiding a constitutional reduction in the capital budget thanks to Stan’s skillful lobbying. We are indeed being served well by Stan and our staff in Olympia. However, I suspect this issue will come back.”- Peter Rasmussen, FAIA, AIA|WA President

SSB 5181 will gradually lower the state’s working debt limit to 7.75% by 2021. SSB 5181 also creates a Blue Ribbon Commission to examine state debt practices and make recommendations. The AIA|WA is very concerned about shackling the state to a lower bond sales limit. But, initial reductions don’t start until 2015; so, the legislature has four years to find a better approach.

Once agreement was reached with SSB 5181 budgets were completed quickly. The resulting capital budget is roughly $2.8 billion, including $1.1 billion in bond sales. Unfortunately, the final operating budget still takes over $450 million from the capital budget in the next two years. This is better than the billion dollars taken out previously, but it’s still problematic.

“I understand that the legislature’s budget actions turned out much better than could have been expected on the eve of what looked like near destruction for the capital budget. We all owe the AIA|WA a big thank you for its continued tenacity in representing the interests of the profession and the larger impact on the state economy. Thank you! - George Shaw, AIA, AIA Seattle President

Next Steps
The AIA|WA is talking with other stakeholders to prepare for the commission. The AIA|WA will ensure that all commission participants are educated on the importance of the state’s use of bonds for design and construction projects. The AIA|WA will also spend the interim between sessions talking to lawmakers; there is concern that some legislators have already made up their minds. However, the AIA|WA was successful in educating lawmakers this session and continue that effort in the forthcoming year.

“It is rewarding to see the positive influence that architect’s have on State policy. During the past legislative session, AIA Washington Council was effective in making the voice of the profession heard on important issues. Architects lobbied for the long term sustainability of our State’s public institutions and economic health. Our ability to engage in the political process gives us a sense of purpose in the role that architects can play in the community and the energy to continue to participate.” – Walter Schacht, AIA

House Committee Passes Debt Reduction Bill

Yesterday, the House Capital Budget Committee passed a revised version of SSJR 8215 to lower the state’s bonding limits. The state sells bonds to finance the design and construction of buildings and infrastructure.

The AIA|WA is still evaluating the impacts of the bill. The Washington Construction Industry Council released a press statement expressing significant concerns about the new version. They state that it is an improvement over the Senate version, but still cuts deeply into overall bonding capacity.

Details of the Bill

The state constitution limits the total amount of outstanding debt (including interest) to 9% of the average of the last 3 years general state revenues. The state has working debt limit of 8.75% in the last 2 years, but used 8.5% prior to that.

The House committee proposed to drop that to 8.5% in 2017. In 2015 the limit would be based on the average of the last 10 years of general state revenues and include the property tax in the calculation.

The House version also includes an “advisory debt limit” that is one-half percentage point lower than the constitutional limit. Thus, it creates a working limit of 8%. But, it allows that “the advisory limit may be adjusted to reflect changes in economic trends and conditions.” In other words, the legislature can increase the working debt limit when a boost to the economy is needed from additional construction spending.

So the House is meeting the Senate halfway to its proposal. The senate eventually lowers to 7%   (in 2022) while the House gets to a working limit of 8%. Both the House and Senate move to 10 year averaging starting in 2015.

Impacts

Over the next 10 years, the House proposal would reduce total bond sales by only about a million dollars. This is because the 10 year averaging would kick in right before the next projected recession and would bridge the steep drop in projected revenue associated with a recession. It would lower bond sales in 2013-2019, but it would create increased capacity during a projected recession of 2019-2023. However, over the next 10 years (years 11-20) it would cut bond sales by about $4 billion.

The Senate version cuts $2.774 Billion over the next 10 years and $7.389 Billion over 20 years. So, the House proposal preserves a net $2.773 Billion in bonding capacity over 10 years and $3.918 Billion over 20 years, as compared to the Senate version.

Of course the real impacts that SSJR 8215 backers are looking for are the savings in debt service on the operating budget. In the first decade, the House version cuts debt service by $1.042 billion, but preserves the spending capacity. This is only $761 million more in debt service than the Senate version.

Policy Questions

The big question is whether this new version is acceptable or whether more modifications are needed. Left unsaid by lawmakers is that simply moving to the 10 year averaging and including the property tax results in savings, too. The cuts are not as deep or the savings as big. But, this move without cutting the bond limits would provide stability and predictability to the state’ debt capacity.

The House version provides for more flexibility than the Senate version, but still results in deep cuts to bonding capacity. In the first three biennia it cuts bonding by $760 Million, $821 Million and $887 Million. Of course, in the next two recessionary biennia, it increases debt capacity. So, in the first 10 years it’s about even with current law, but does lower debt service payments.

The bigger concerns come in years 11 and later. As state revenue grows the gap between current law and the House proposal continues to grow. By about the year 2033, the gap is about $1 Billion a biennium. This is lower than the Senate gap of about $2 billion a biennium, but still a big hit to future construction capacity.

The flaw in all of this is the inability to accurately predict the depth or length of future recessions. The deeper the recession, the less the overall impacts (because of 10 year averaging). But, shorter, shallower recessions will exacerbate the differences and make the cuts even deeper.

Committee Debate

The vote was 6-5 with a Republicans and Democrats on both sides. Voting “yes” were: Dunshee (D), Warnick (R), Moeller (D), Asay (R), Pearson (R), and Ormsby (D). Voting “no” were: Zeiger (R), Lytton (D), Smith (R), Jenkins (D) and Tharinger (D).

The Democrats who voted yes generally stated they did not like the idea of cutting capital construction spending nor tying the hands of future legislatures. But, they voted for it because the Senate is holding the current $3.1 Billion capital budget hostage and they cannot abide the thought of that necessary spending being blocked by recalcitrant Senators.

The Republicans who voted yes generally stated that this is a work in progress and hope for deeper cuts, but want to keep the discussion alive.

The Democrats who voted against the measure were against the whole concept of cutting the debt limit. They stated that the debt service is very low compared to household or business debt payments. They cited the need for funding critical building and infrastructure improvements.

The Republicans who voted against it generally stated that they support much deeper cuts to the debt limit and this bill does not go far enough.

Next Steps

The committee debate could be precursor to the final floor debate in the House. Senators Kilmer (D) and Parlette (R) reject the current House proposal as not going far enough. A recent press report indicates they may be willing to move to 7.25% with a longer, more gradual decline to get there. They said the House version is a small step in the right direction.

AIA|WA, contractors, unions and other allies will evaluate the bill and determine our next steps for lobbying strategy. The general consensus is that we want to keep everyone talking in the hopes that a deal can be reach that preserves the current capital budget, but doesn’t sell future budgets short.