Budget Outlook Methodology & Adoption

April 25, 2018

Washington State

Economic and Revenue Forecast Council

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WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

AGENDA

Budget Outlook Methodology & Adoption

Meeting

April 25, 2018 12:00 p.m.

Call to order

Approval of meeting minutes: February 15, 2018

Presentation on Budget Outlook and methodology

Budget Outlook Adoption

Adjourn

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STATE OF WASHINGTON

ECONOMIC AND REVENUE FORECAST COUNCIL

PO Box 40912 Olympia, Washington 98504-0912 (360) 534-1560

Meeting Minutes

Revenue Review February 15, 2018

John A Cherberg, Senate Hearing Room 3

Economic and Revenue Forecast Council

Members Present

Staff

Christine Rolfes, Senate, ERFC Chair

Timm Ormsby, House of Representatives

Terry Nealey, House of Representatives

Duane Davidson, Treasurer

David Schumacher, Office of Financial Management

Vikki Smith, Department of Revenue

Steve Lerch, Executive Director

Proxy

Sharon Brown, Senate

Call to Order

Senator Rolfes called the meeting to order at 11:00 a.m.

Motion

Representative Ormsby moved, seconded by Director Schumacher, to adopt the January 23, 2018

meeting minutes. Motion passed at 11:00 a.m.

Forecast Presentation

Dr. Lerch presented information on the economic and revenue forecast. Dr. Lerch summarized the

forecast changes. Discussion ensued regarding hourly wages, employment, inflation expectations,

and agricultural exports.

Motion

Representative Ormsby moved, seconded by Treasurer Davidson, to adopt the baseline revenue

forecast. Council approved the motion at 11:29 a.m.

Adjournment

With no further business, the meeting adjourned at 11:29 a.m.

Economic and Revenue Forecast Council 1

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Overview of the Methodology for the State Budget Outlook (April 2018)

 

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IntroductionThepurposeofthisdocumentistoprovideanoverviewofthemethodologyusedtodevelopthefour‐yearbudgetprojectionspursuanttoChapter8,Lawsof2012,1stsp.sess.(SSB6636).Thisdocumentsummarizesthemajorcomponentsoftheprojection,theoverallapproach,aswellastheassumptionsusedintheStateBudgetOutlook(Outlook)document.TheamountsreflectedintheOutlookarethesumofthestateGeneralFund(GF‐S),theEducationLegacyTrustAccount,(ELTA)andtheOpportunityPathwaysAccount.ResourcesTheamountsdepictedincludetheactual/projectedrevenueandotherresources.Someofthelargestcomponentsinclude:BeginningFundBalanceTheOutlookusesthecertifiedfundbalanceinaccordancewithgenerallyacceptedaccountingprinciplesforthemostrecentlyclosedbienniumasthestartingpoint.Thebeginningfundbalanceforsubsequentyearsisequaltotheprojectedendingbalanceforthepreviousyear.Finalaccountingadjustmentsforfiscalyear2017madesubsequenttotheoutlookadoptedinNovember2017changedthebeginningfundbalancefrom$785millionto$1.15billion.RevenueForecastCurrentrevenuesforthe2017‐19andthe2019‐21bienniareflecttheFebruary2018quarterlyrevenueforecastbytheEconomicandRevenueForecastCouncil(ERFC).TheprovisionsofChapter8,lawsof2012,1stsp.sess(SSB6336)callfortheensuingbiennium,inthisinstance,the2019‐21biennium,tobebalancedbasedonthegreaterof:(1)theofficialrevenueforecastfortheensuingbiennium;or(2)anassumedrevenueincreaseof4.5percentperyear.BecausetheFebruary2018forecastprojectsrevenuegrowthoflessthan4.5percentperyearinthe2019‐21biennium,theApril2018Outlookisbasedonthe4.5percentgrowthrate.TransferstoBudgetStabilizationAccountPursuanttoArticleVII,section12(1)oftheConstitution,onepercentofgeneralstaterevenuesforeachfiscalyear(FY)aretransferredtotheBudgetStabilizationAccount(BSA).ThetransferamountsareestimatesbasedonthecalculationofestimatedgeneralstaterevenuesasdefinedinArticleVIII,section1(c)oftheConstitution.ThecalculationofgeneralstaterevenuesisbasedontheFebruary2018revenueforecastadjustedforestimatedrevenueimpactsoflegislationenactedduringthe2018session(seeenactedrevenuelegislation).ExtraordinaryRevenueGrowthPursuanttoArticleVII,section12oftheConstitution,three‐quartersofextraordinaryrevenuegrowth(ERG)istransferredtothebudgetstabilizationaccount.ERGisgrowthingeneralstaterevenuesforthefiscalbienniumthatexceedstheaveragebiennialpercentage

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growthofthepriorfivefiscalbienniabyone‐third.Thetransferonlyoccurstotheextentthatitexceedsthenormalonepercenttransfermentionedabove.Atransferof$924millionin2017‐19isreflectedfromtheGF‐SintotheBSA.ThecalculationoftheFY2017‐19ERGtransferisbasedontheFebruary2018revenueforecastadjustedforestimatedrevenueimpactsoflegislationenactedduringthe2018session(seeenactedrevenuelegislation).Chapter43.79.496RCWdirectstheStateTreasurertotransferamountsattributabletoextraordinaryrevenuegrowththatweredepositedintotheBSAtotheGF‐Sduringthe2017‐19bienniumnottoexceed$1.078billion.Pursuanttothisrequirement,theOutlookassumesa$924milliontransferfromtheBSAtotheGeneralFund‐Stateaccount,whichrepresentsthefullamountoftheestimatedtransfertotheBSAattributabletoERG.EnactedRevenueLegislationTheOutlookassumesNGF‐Prevenuechangesfromthefollowingbillsthatwereenactedinthe2018legislativesession:

EnactedRevenueLegislationfromthe2018LegislativeSession

RevenueLegislation($inmillions) 2017‐19 2019‐21PropertyTaxReduction(ESSB6614) ‐206.205 ‐184.040AccountableCommunitiesofHealth(SHB2998) ‐9.931 ‐9.840Low‐IncomeHousing/REET(EHB2444) ‐1.047 ‐2.260ElectrolyticProcessingTax(SB6007) ‐0.276 ‐1.362AdaptiveAutomotiveEquipment(2SHB2269) ‐0.115 ‐0.248RenewableNaturalGas(ESHB2580) ‐0.101 ‐0.243AssociationofWashingtonGenerals(SSB5746) ‐0.026 ‐0.098LegalFinancialObligations(E2SHB1783) ‐0.024 ‐0.267Non‐ProfitHomeownershipDev.(ESSB5143) ‐0.005 ‐0.020Write‐InVoting(SB6058) 0.003 0.003CannaboidAdditives(E2SHB2334) 0.238 0.476

Total ‐217.489 ‐197.899

ThelargestimpactofrevenuelegislationisrelatedtoenactmentofChapter295,Lawsof2018(ESSB6614)whichreducesthestatepropertytaxfrom$2.70to$2.40per$1,000assessedvalueforcalendaryear2019.Thiscorrespondstoapropertytaxreductionofapproximately$390millionincalendaryear2019.Inadditiontothepropertytaxreductiondescribedabove,theactdirects$935millionoftheadditionalstatepropertytaxesimposedbyChapter13,Lawsof2017(EHB2242)andcollectedinfiscalyear2019tobedepositedintotheELTAforthesupportofcommonschools.BecauseELTAisoneofthethreestateaccountscoveredbytheOutlook,thereisnodirectnetincreaseordecreasetotheendingfundbalanceresultingfromthisre‐

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direction.Howeverthere‐directiondoesimpactthecalculationofgeneralstaterevenuesusedtodeterminerequiredtransferstotheBSAthataredescribedabove.EnactedFundTransfersThiscategoryreflectstheenactedfundtransfersinthe2018SupplementalOperatingBudget(ESSB6032).Transfersenactedinpriorsessionsareaccountedforintheforecast.TransfersfortheFY2019‐21bienniaareincludedtotheextenttheyareeitherstatutorilyrequiredorthereisenactedlanguageadopteddirectingthatthelegislatureintentstomaintainthetransferintheFY2019‐21biennium.TransfersarenotreflectediniftheGovernorvetoedatransferortheintentlanguagetocontinuethetransfer.PreviouslyEnactedFundTransfersThiscategoryreflectsthefundtransfersdirectedinthe2017sessionenactedoperatingbudget:Chapter1,Lawsof2017,partialveto,3rdsp.sess.(SSB5883).Formoreinformation,seethe2017enactedOutlookmethodologydocument:https://erfc.wa.gov/sites/default/files/public/documents/budget/20170728_Methodology_Final.pdf NewTransfersThiscategoryreflectsnewfundtransfersthatweredirectedinthe2018supplementaloperatingbudget:Chapter299,Lawsof2018,partialveto,(ESSB6032).NewtransfersareonlyassumedtocarryforwardintotheFY2019‐21bienniatotheextenttheyareeitherstatutorilyrequiredorthereisenactedlanguageintheactdirectingthatthelegislatureintendstomaintainthetransferintheFY2019‐21biennium.TransfersarenotreflectediftheGovernorvetoedatransferortheintentlanguagetocontinuethetransfer.Thenewtransfersassumedarelistedbelow:

FundTransfersTo/FromGFS($inmillions) 2017‐19 2019‐21DeathInvestigationsAccount $(1.186) $‐DedicatedMcClearyPenaltyAccount $(105.200) $‐DisasterResponseAccount $(58.535) $29.326PublicWorksAdministrationAccount $1.500 $‐SchoolEmployees'InsuranceAdministrationAccount $‐ $28.730StatewideTourismMarketing $(1.500) $(3.000)WashingtonInternetCrimesAgainstChildrenAccount $(1.500) $‐

Total $(166.421) $55.056

Followingissomeadditionalinformationrelatedtotwoofthetransfers: DisasterResponseAccount:Theamountsreflectedforeachbienniumrepresent

estimatesoftemporarystatefundsrequiredtomaintainapositivebalanceintheaccountbecauseoftiminginthereceiptoffederalfunds.

SchoolEmployees'InsuranceAdministrationAccount:TheFY2019‐21transfertoGeneralFund‐StaterepresentsthepaybackofGF‐SfundsappropriatedintheFY2017‐

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19bienniumforstart‐upcostsinaccordancewithintentlanguageincludedinChapter299,Lawsof2018,partialveto,(ESSB6032).

EnactedBudgetDrivenRevenueTheenactedbudgetincreasedthedistributionoffundsrelatedtomarijuanarevenuesthatareprovidedtolocalgovernments.Inaddition,modificationsofappropriationsofmarijuana,liquorandlotteryrevenueshaveanimpactontheamountoffundsfromthesesourcestransferredtoanaccountincludedintheoutlook.ThefollowingtableprovidestheimpactofthesechangesassumedintheOutlookascomparedtowhatwasassumedintheFebruary2018revenueforecast.

BudgetDrivenRevenue($inmillions) 2017‐19 2019‐21LiquorControlBoard(Liquor) $(0.289) $2.499LiquorControlBoard(Marijuana) $(2.670) $4.542Lottery $(0.004) $(0.317)MarijuanaDistributiontoLocals $(18.000) $10.000Total (20.963)$      16.724$       

ExpendituresAsthestartingpointfortheexpenditureprojection,thisOutlookisbasedonthe2017‐19enactedoperatingbudget(ESSB5883),andthenadjustedformaintenancelevelandpolicylevelappropriationsinthe2018enactedsupplementaloperatingbudget(ESSB6032).ReversionsReversionsaretheestimatedappropriationsthatwillbeunspentandreverttothestateforre‐appropriation.Theestimatedreversionsforthe2017enactedbudgetwereassumedatapproximately0.5%ofgeneralfund‐stateappropriationsandtotaled$465millionoverthefour‐yearperiod.Theoutlookforthe2018supplementalbudgetstartsfromthislevelandincreasesanadditional$38millionbasedonanassumptionthatnotallschooldistrictswillbeabletostaffK‐3classroomsataratioof17:1inthe2019‐21biennium.Fundingwasoriginallyprovidedinthe2017‐19operatingbudgettoimprovethestaffingratioingradesK‐3andrepresentedthemaximumamountsthatdistrictscouldaccess.ArequirementthatschooldistrictsmeetcertaincriteriatofullyaccessK‐3enhancementfunds,slatedtobegininthe2018‐19schoolyear,wasinsteaddelayeduntilthe2019‐20schoolyear.ThereversionamountsareadjustedtoreflectthedegreetowhichdistrictsarenotexpectedtofullyaccesstheK‐3enhancementsinthe2019‐20andthe2020‐21schoolyears.Therevisedreversionassumptionforthe2018enactedOutlooktotals$503millioninestimatedreversionsoverthefour‐yearperiod.

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EstimatingCostsforthe2019‐21FiscalBienniumEstimatedexpendituresforthe2019‐21bienniumintheOutlookreflectthecosttocontinuecurrentprograms,entitlementprogramgrowth,andactionsrequiredbylawinthesubsequentfiscalbiennium.Thegeneralapproachtoestimatingthecosttocontinuecurrentprogramsandgrowthinentitlementprogramsisbyapplyingahistoricalgrowthfactortothefiscalyearcostorsavingsassociatedwithabudgetitem.InformationonthegrowthfactorsusedforthisOutlookcanbefoundontheERFCwebsiteunderBudgetOutlookArchives,September2016.Therearesomecasesinwhichsimplyapplyingthegrowthfactortothecostorsavingsofabudgetitemisnotusedtoestimatecosts.Theseincludethefollowingsituations. K‐12Education.K‐12OutlookcalculationsarederivedfromtheK‐12model,whichis

updatedquarterlybasedonthecaseloadforecastforgrowthandinflationaryfactors.TheK‐12modeliscontinuallyupdatedforotherfactorssuchaslevyequalization,studenttransportation,andstaffmix.

Customadjustments.Customadjustmentsareusedwhentheestimatedannualcostsareexpectedtobesignificantlydifferentfromthe2ndfiscalyearofthecurrentbiennium.Thisoccursprimarilywhenapolicyisbeingphasedinduringthesecondyearofabienniumormaybedelayeduntilthesubsequentfiscalbiennium.Inmostcases,thegrowthfactorisappliedafteracustomadjustmentismadetoreflectthephaseinforthepolicyitem.Inasmallnumberofcases,thecustomadjustmentalreadyaccountsforthetypesofgrowthcapturedbythegrowthfactorandsothegrowthfactorisnotapplied.

One‐Timecosts.Certainitemsinthebudgetareone‐timeforthecurrentbienniumandthereforetherelatedcostsorsavingsarenotcarriedforward.

Compensationitems.TheOutlookstatutespecificallyexcludesadditionalfuturecostsrelatedtocollectivebargainingagreementsnotapprovedbytheLegislature,orsalariesandbenefits.

MaintenanceLevelRevisionsInthissection,additionaladjustmentsaremadetoreflectthecostsofcontinuingtocomplywithcurrentlawprovisions.ThisisoftenreferredtoasMaintenanceLevel(ML).PursuanttotheprovisionsofChapter8,Lawsof2012,1stsp.s.(SSB6636),thisexcludesthecostsofpolicyenhancements,includingnewcollectivebargainingagreementsnotapprovedbytheLegislature,otherproposedcompensationincreases,andcostsofanyadversecourtrulingswithin90daysofeachrespectivelegislativesession.Theenacted2018supplementalbudgetMLadjustmentstotalareductionof$146millionin2017‐19and$47millionin2019‐21.Kindergarten–Grade12(K‐12)SchoolsTheupdatesarebasedonthemostrecentenrollmentforecastandbudgetdriverinformationforrequiredK‐12entitlementchanges.TheK‐12fundingisadjustedeachyearoftheensuingbienniumusingtheK‐12modelwhichupdatesthegrowthandinflationary

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factorswitheachforecast.TheK‐12modelisalsocontinuallyupdatedforotherfactorssuchaslevyequalization,studenttransportation,andstaffmix.MLadjustmentstotalcostsof$28millionin2017‐19andsavingsof$47millionin2019‐21.Thelargeradjustmentsarerelatedprimarilytocostoflivingadjustmentsforschoolemployees,enrollmentandworkloadchanges,localassistance,staffmix,andpriorschoolyearadjustments.Low‐IncomeHealthCareTheamountsdepictedreflectthemostrecentcaseloadandpercapitacostinformationpreparedaspartoftheagenciesbudgetsubmittal,aswellasothermandatoryMLchanges.Someofthemajorcostcomponentsincludeutilization,caseload,andmedicalinflation.Thegrowthfactorfor2019‐21isestimatedat3.04percentperyearfromFY2019levels.MLadjustmentstotalsavingsof$48millionin2017‐19and$29millionin2019‐21.SavingsaredrivenprimarilybycaseloadreductionsandlowercostsrelatedtomedicationsusedtotreatHepatitisC.OtherlargeadjustmentsincludeapremiumtaxestablishedundertheAffordableCareActthatmustbepaidbymostofthemanagedcareplansservingMedicaidclients,utilizationincreases,increasedmanagedcarerates,anincreaseinthestate'sresponsibilityfortheitsshareofcostsforduallyeligibleclients,andtheadjustmentofstateandfederalfundsresultingfromchangesinfederalmatchrates.MentalHealthServicesTheamountsdepictedreflectthemostrecentcaseloadandpercapitacostinformationpreparedaspartoftheagenciesbudgetsubmittal,aswellasothermandatoryMLchanges.Someofthemajorcostcomponentsincludeutilizationandseverityofclientneeds.Assumedfuturegrowthisestimatedat4.12percentperyearfromFY2019.MLadjustmentstotalasavingsof$47millionin2017‐19andcostsof$14millionin2019‐21.Thesavingsinthe2017‐19bienniumaredrivenbymandatorycaseloadandhospitalrevenueadjustments.Otheradjustmentsthatincreasecostsin2019‐21includeincreasedmanagedcareratesforbehavioralhealthorganizationsandchangestograntsforDisproportionateShareHospitals.LongTermCare/DevelopmentalDisabilityServicesTheamountsdepictedreflectthemostrecentcaseloadandpercapitacostinformationpreparedaspartoftheagenciesbudgetsubmittal,aswellasothermandatoryMLchanges.Someofthemajorcostcomponentsincludeutilizationandseverityofclientneeds.Assumedfuturegrowthisestimatedat4.12percentperyearfromFY2019.MLadjustmentstotal$6millionsavingsin2017‐19andcostsof$34millionin2019‐21.Thelargeradjustmentsarerelatedtocaseloadandworkloadchanges,utilizationchanges,

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Children’s/EconomicServicesTheamountsdepictedreflectthemostrecentcaseloadandpercapitacostinformationpreparedaspartoftheagenciesbudgetsubmittal,aswellasothermandatoryMLchanges.Someofthemajorcostcomponentsincludecaseloadandpercapitacostincreasesandrevisedgrowthtrends.Assumedfuturegrowthisestimatedat1.20percentperyearfromFY2019.MLadjustmentstotal$44millioninsavingsin2017‐19and$61millionin2019‐21.Thelargeradjustmentsarerelatedtocaseloadchangesinvariousprograms.DepartmentofCorrections/SpecialCommitment/JuvenileRehabilitationTheamountsdepictedreflectthemostrecentcaseloadandpercapitacostinformationpreparedaspartoftheagenciesbudgetsubmittal,aswellasothermandatoryMLchanges.Amajorcostcomponentistheproportionofcommunityandinstitutionpopulation.Assumedfuturegrowthisestimatedat1.58percentperyearfromFY2019.MLadjustmentstotal$33millionin2017‐19and$34millionin2019‐21.Thelargeradjustmentsarerelatedtocaseloadchanges,medicalinflation,andforsalaryincreasesformultiplejobclassesthatelectedtobecomemembersoftheTeamstersUnion117afterthepassingofcollectivebargainingagreementsandapprovalofthePublicEmploymentRelationsCommission(PERC).Inaddition,fundingisreducedfortwobillsassumedinthe2017operatingbudgetthatwerenotenacted.EarlyLearningEarlyLearningadjustmentsaregenerallyrelatedtotheprogramandtomaintenanceandoperationsandleaseadjustments.EarlyLearningitemsareadjustedby0.12percentperyearfromFY2019.MLadjustmentstotal$5millioninsavingsin2017‐19and$9millionincostsin2019‐21.Thelargestadjustmentisfortheongoingimplementationoftieredreimbursementsforchildcareproviders.DebtServiceTheoperatingbudgetenactedin2017includedfundingforincreaseddebtservicerelatedtoassumedpassageofacapitalbudgetwhichhadnotbeenenactedatthetimetheproposalwassubmitted.Theamountsdepictedreflecttheremovalofthesefundsandadjustmentsforrefundingofbondsalesinfiscalyear2017.MLadjustmentstotal$65millioninsavingsin2017‐19and$100millioninsavingsin2019‐21.HigherEducationHigherEducationadjustmentsaregenerallyrelatedtotheCollegeBoundScholarshipprogramandtomaintenanceandoperationsandleaseadjustments.HigherEducationitemsareadjustedby0.07percentperyearfromFY2019.

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MLadjustmentstotal$7millionsavingsin2017‐19and$13savingsmillionin2019‐21.Thelargeradjustmentsarerelatedtoacorrectionintheamountofcoststhatareallocatedtofederalfundsaswellasincreasedoperationsandmaintenancecosts.PensionsMLadjustmentsarerelatedtoadjustmentsinprojectedcurrentlawemployerpensionfundingrates.MLadjustmentstotal$93millionin2017‐19and2019‐21.OtherThisareaincludesallotheragenciesnotreflectedintheproceedingOutlookgroups.Manyaregeneralgovernmentagencies,smallerhumanserviceagencies,naturalresourceagencies,legislativeagenciesandjudicialagencies.MLadjustmentsare$14millionin2017‐19and$19millionin2019‐21.ThelargeradjustmentsarerelatedtocaseloadandmandatorycapitationrateadjustmentsforSubstanceUseDisorderprograms,technicaladjustmentsintheDepartmentofRevenue,anincreaseintheestimatedcostsforoperatingveteran’sinstitutions.

PolicyLevelRevisionsInthissection,adjustmentsaremadetoreflectthepolicylevelexpendituresincludedintheenactedsupplementalbudget.ThisisreferredtoasPolicyLevel(PL).PLadjustmentstotal$1.087billionin2017‐19and$642millionin2019‐21.K‐12CompensationThelargestadjustmentinK‐12compensationsisrelatedtocomplyingwiththeNovember2017McClearycourtdecision,whichprovidesatotalof$702millionin2017‐19and$194millionin2019‐21.GrowthandinflationaryimpactsofPLitemsinFY2019‐21arecalculatedthroughtheK12model.K‐12EducationOutsideofcompensation,theotherchangesinK‐12educationnettedtoa$3millionreductioninthe2017‐19biennium,anda$26millionreductioninthe2019‐21biennium.ThelargestreductionwasdelayingtheimplementationofprofessionallearningdaysforcertifiedinstructionstaffthatwereestablishedunderChapter13,Lawsof2017,3rdSpecialSessionPV(EHB2242)byoneyear.Thisdelaywasassumedtosave$27millioninthe2017‐19bienniumand$76millioninthe2019‐21biennium.HowevertheGovernorvetoedthesectionofE2SSB6362thatwouldhaveauthorizedthedelay.Thevetodoesnotrestorethesavingsassumedinthe2018enactedbudgetsothisOutlookincludesthesesavings.Howeverthevetomakesitunlikelythatthesavingsassumedwillbeachieved.ThecostofrestoringfundingfortheassumedsavingswillbereflectedintheOutlookpreparedinNovember,alongwithchangesrelatedtocaseloadandotherstandardadjustments,whichwillreflectthepreliminarymaintenancelevelbudget.BecauseoftheinteractionwithotherpolicychangesmadeinChapter266,Lawsof2018(E2SSB6362),thecurrentprojectedestimateofrestoringthesesavingsis$106millionduringtheperiodcoveredbythisOutlook.

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Thelargestadjustmentsincludetheexperiencefactor,thespecialeducationmultiplier,andtheSEBBrateadjustment.GrowthandinflationaryimpactsofPLitemsinFY2019‐21arecalculatedthroughtheK12model.Low‐IncomeHealthCare/UtilizationofI‐502RevenueThePLbudgetadjustmentforLowIncomeHealthCareis$55millioninFY2017‐19and$26millioninFY2019‐21.ThelargeradjustmentsincludeadditionalfundingforprimarypediatriccarerateincreasesandbackfillingunrealizedsavingsfromthedelayedimplementationoftheHealthierWashingtonprogramandthesingleMedicaidpreferreddruglistonaone‐timebasis.ThegrowthfactorforFY2019‐21is3.04percent.Additionally,adjustmentsareshownseparatelyforthesavingsassociatedwithutilizationofincreasedmarijuanarevenuesforprovisionoflow‐incomehealthcareservices.Theuseofincreasedmarijuanarevenuestopayforcorelowincomehealthservicesresultsinasavingsof$73millioninFY2017‐19and$34millioninFY2019‐21.

DevelopmentalDisabilitiesandLongTermCareServicesThePLbudgetadjustmentforDevelopmentalDisabilities(DD)andLongTermCare(LTC)Servicesis$15millioninFY2017‐19and$26millioninFY2019‐21.Thelargeradjustmentsincludecompliancecostsforresidentialhabilitationcenters,andadministrativesupporttomoveindividualprovidersfromtheDepartmentofSocialandHealthServicestoaprivatevendor.ThegrowthfactorforFY2019‐21is4.12percent.

MentalHealthThePLbudgetadjustmentforMentalHealthservicesis$143millioninFY2017‐19and$121millioninFY2019‐21.LargeexpenditureitemsincludethecostofcomplyingwithandpayingpenaltiesfortheTruebloodetalv.WashingtonStateDSHSlawsuit,increasesforstatehospitalcomplianceandoverspend,andbehavioralhealthorganizationsenhancements.Inaddition,savingsarealsoassumedfromreducingthenumberofcontractedcompetencybedsinYakimaafteropeningnewbedsatWesternStateHospital.ThegrowthfactorforFY2019‐21is4.12percent.

Children’s/EconomicServicesThePLbudgetadjustmentforChildren'sandEconomicServicesis$15millioninFY2017‐19and$37millioninFY2019‐21.ThelargeradjustmentsincludeincreasedfundingforTemporaryAssistancetoNeedyFamilies,StateFamilyAssistance(SFA),andRefugeeCashAssistancegrants,BehavioralRehabilitativeServicerates,andchangestotheresourcelimitsusedindeterminingeligibilityforpublicassistanceprograms.Inaddition,asavingsisachievedbyreducingfundingforWorkfirstcontractstoreflectunder‐spendingandreallocatingdollarsforotherservices.ThegrowthfactorforFY2019‐21is1.20percent.

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EarlyLearningThePLbudgetadjustmentforEarlyLearningServicesis$6millioninFY2017‐19and$4millioninFY2019‐21.Thelargeradjustmentsincludeexpansionofhomevisitingservicesandone‐timefundingtobackfilldiscontinuedfederalfundingfortheECLIPSEprogram.ThegrowthfactorforFY2019‐21is0.12percent.DepartmentofCorrections/SpecialCommitment/JuvenileRehabilitationThePLbudgetadjustmentforCorrections,JuvenileRehabilitation,andtheSpecialCommitmentcenteris$5millioninFY2017‐19and$6millioninFY2019‐21.Thelargeradjustmentsincludeincreasedratesforchemicaldependencyinpatienttreatmentservicesandadditionalbedsatcurrentworkreleasefacilities.Inaddition,thereweresavingsduetoreducedcostsfortreatingHepatitisC.ThegrowthfactorforFY2019‐21is1.58percent.DebtServiceThePLbudgetadjustmentforDebtServiceis$22millioninFY2017‐19and$107millioninFY2019‐21,basedontheenactmentofabondbillforthecapitalbudgetinJanuary2018.Inthepast,thedebtservicefortheensuingbienniumwascalculatedusingagrowthrate,whichprovidesauniformincreaseovertime.Thedelayinpassageofthebiennialcapitalbudgetdisruptedthetypicaltimingandsizeofthebondsales.Becausetherewasnocapitalbudgetandbondbillenactedin2017,utilizingthegrowthfactorof4.35percentwouldhavesignificantlyunderstatedtheestimatedcostofdebtserviceinFY2020andFY2021.Inordertoaddressthis,acustomadjustmentwasmadeutilizingthedebtservicemodeltocapturegrowthintheensuingbienniumratherthanapplyingthestandardgrowthrate.HigherEducationThePLbudgetadjustmentforHigherEducationis$49millioninFY2017‐19and$122millioninFY2019‐21.Thelargeradjustmentsincludeincreasingthenumberofeligiblestudentsservedbythestateneedgrant,thestatematchfortheOpportunityScholarshipprogram,andadditionalcompensationsupportattheUniversityofWashington.ThegrowthfactorforFY2019‐21is0.07percent.EmployeeCompensationThePLbudgetadjustmentforemployeecompensationis$5millioninFY2017‐19and$10millioninFY2019‐21.ThelargestadjustmentwasrelatedtoincreasedpensioncontributionratesfromchangestomembershipinthePublicSafetyEmployeesRetirementSystem.OtheradjustmentsweretoprovideabenefitincreaseforPERSPlan1beneficiariesandtheemployerpremiumforpaidfamilyleave.Thereisnogrowthfactorappliedtotheseitemsalthoughcustomadjustmentsareappliedtoitemsthatarenotfullyimplementedinthesecondyearofthebienniumtocapturethefullcostinthesubsequentfiscalbiennium.

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EmployeeHealth&BenefitsThePLbudgetadjustmentforemployeehealthandbenefitsis‐$22millioninFY2017‐19and‐$45millioninFY2019‐21.ThisadjustmentistoreducethePEBBratefrom$957to$916toreflectupdatedactuarialprojections.Thereisnogrowthfactorappliedtotheseitemsalthoughcustomadjustmentsareappliedtoitemsthatarenotfullyimplementedinthesecondyearofthebienniumtocapturethefullcostinthesubsequentfiscalbiennium.FireSuppressionThePLbudgetadjustmentisaone‐timeadjustmentinFY2017‐19of$28million.Thisadjustmentisforfundingthatexceededtheamountsthatwereprovidedinthe2017‐19enactedbudgetforwildfiresuppression.Thereisnogrowthfactorappliedtothisadjustment.

OtherThePLbudgetadjustmentforallotherareasis$141millioninFY2017‐19and$44millioninFY2019‐21.ThelargerincreasesinthisareaincludethestartupcoststocreatetheSchoolEmployeesBenefitBoard,businesslicensingbackfill,supportwateravailability,andtheinstitutionsofmentaldiseaseswaiver.ThegrowthfactorforFY2019‐21is0.12percent.

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FY 2018 FY 2019 2017-19 FY 2020 FY 2021 2019-21

1,149 1,831 1,149 1,240 673 1,240

21,869 23,122 44,990 24,162 25,249 49,411February 2018 Revenue Forecast 21,869 23,122 44,990 24,024 25,053 49,076Addtl Revenue Based on 4.5% Growth Rate Assumption

0 0 0 138 196 335

-255 -211 -466 -295 -71 -366GF-S Transfer to BSA (1%) -214 -215 -430 -234 -246 -481GF-S Extraordinary Revenue to BSA 0 -924 -924 0 0 0Extraordinary Revenue from BSA to GF-S 0 924 924 0 0 0Enacted Fund Transfers 119 210 328 104 96 200Other Legislation -6 -6 -11 -7 -7 -14Budget Driven Revenue -9 -12 -21 7 9 17New Fund Transfers -60 -2 -61 -2 57 55Prior Period Adjustments 20 20 41 20 20 41Property Tax Reduction 0 -206 -206 -184 0 -184McCleary Penalty Account -105 0 -105 0 0 0

22,762 24,741 45,673 25,107 25,852 50,286

20,914 22,795 43,708 24,273 25,617 49,890

-8 -138 -146 -101 54 -47

130 957 1,087 405 237 642K-12 Compensation 0 702 702 194 0 194K-12 Education* -2 -1 -3 -10 -16 -26Low Income Health Care 43 12 55 12 13 26Utilize I-502 Revenue for Low Income Health Care -58 -15 -73 -17 -17 -34Dev. Disabilities/Long Term Care 2 13 15 8 18 26Mental Health 72 71 143 57 64 121Children's/Economic Svcs 1 14 15 17 20 37Early Learning 0 6 6 2 2 4Corrections/JRA/SCC -1 6 5 3 3 6Debt Service -4 25 22 53 53 107Higher Education 5 44 49 50 71 122All Other 41 100 141 3 41 44Employee Health & Benefits 0 -22 -22 -22 -22 -45Employee Compensation 0 5 5 5 5 10Fire Suppression 28 0 28 0 0 0Veto- K-12 Education 0 -1 -1 -1 -1 -1Veto- All Other 2 -1 1 50 0 50

-104 -112 -216 -143 -144 -287

20,932 23,501 44,433 24,434 25,764 50,198

1,831 1,240 1,240 673 88 88

Beginning Balance 1,638 1,364 1,638 1,139 1,404 1,139GF-S Transfer to BSA (1%) 214 215 430 234 246 481GF-S Extraordinary Revenue to BSA 0 924 924 0 0 0Extraordinary Revenue from BSA to GF-S 0 -924 -924 0 0 0BSA Transfer to Pension Stabilization Acct -463 -463 -925 0 0 0Appropriations from BSA -41 0 -41 0 0 0Interest Earnings 15 23 38 31 41 72

1,364 1,139 1,139 1,404 1,692 1,692

3,194 2,379 2,379 2,078 1,779 1,779Total Reserves

DRAFT Outlook for Enacted 2018 Supplemental BudgetNear General Fund-State & Opportunity Pathways Account

(Dollars in Millions)

*The Outlook is not adjusted to restore savings assumed in the enacted budget for professional learning days. A veto of proviso language in the operating budget makes it unlikely that these savings will be achieved. This is expected to result in future maintenance level costs of approximately $106 million through FY 2021.

Reversions

Revised Appropriations

Projected Ending Balance

Budget Stabilization Account

Budget Stabilization Account Ending Balance

Other Resource Changes

Total Revenues and Resources

Enacted Appropriations

Maintenance Level Total

Policy Level Total

2017-19 2019-21

Beginning Balance

Current Revenues

Economic and Revenue Forecast Council 15