AN ACT Relating to state government; amending RCW 43.88.020 and 43.88.160; adding a new chapter to Title 43 RCW; adding new sections to chapter 43.88 RCW; and repealing RCW 43.88.520, 43.88.525, 43.88.530, 43.88.535, and 43.88.540.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. PREAMBLE. State government shall operate its affairs in a fiscally responsible manner. All budgets adopted by the legislature shall be balanced by available revenues. Budgets shall not be balanced by revenue or expenditure shifts, bookkeeping techniques, or a reduction in an orderly method to fully fund state-supported pension systems.

NEW SECTION. Sec. 2. STATE GOVERNMENT FISCAL RESPONSIBILITY. (1) Appropriations from any fund or account shall not exceed the amount of revenue available to the fund or account as is estimated by the governor and agreed to by the legislature.

(2) The state operating budget shall be balanced from revenues received within the biennium, including beginning cash balances, and shall not be balanced by revenue charge-backs, postponing expenses to future biennia, use of dedicated funds unless the dedicated fund is specified for operating purposes, or use of the fiscal emergency account, except as provided in section 4 of this act.

NEW SECTION. Sec. 3. CASH FLOW. The governor and legislature are prohibited from action that would endanger the state's cash flow position. Effective July 1, 1987, the state is prohibited from borrowing from general fund accounts that are dedicated for capital outlay.

NEW SECTION. Sec. 4. FISCAL EMERGENCY ACCOUNT. There is established an account within the general fund to be known as the fiscal emergency account. The first two percent of all general fund tax receipts and license fees shall be placed in this account beginning with the 1985-87 fiscal biennium. Money remaining in the fiscal emergency account at the end of a biennium shall be earmarked for any of the following purposes:

(1) Funding state-supported pension systems until such time as the state actuary determines that these systems are fully funded;

(2) Capital outlay;

(3) Reduction of state tax rates or elimination of specific taxes; or

(4) The funds may be retained in the fiscal emergency account: PROVIDED, That the fiscal emergency account shall not exceed ten percent of the previous fiscal biennium's general fund--state expenditure level.

NEW SECTION. Sec. 5. EMERGENCY FISCAL ACTION. In the event of a fiscal emergency proclaimed by the governor and three-fifths of the members of each house of the legislature, money in the fiscal emergency account may be appropriated for whatever fiscal emergency related purposes are deemed necessary by the legislature and approved by the governor.

NEW SECTION. Sec. 6. REVENUE SHORTFALL. The governor shall provide an estimate of general fund revenues to the legislature at least once every three months. The governor shall reduce appropriations to all state agencies, including the superintendent of public instruction, all other elected officials, and local governments in a manner prescribed by the legislature immediately upon determination that revenue estimates fall short of appropriations.

NEW SECTION. Sec. 7. EXPENDITURES WHEN LEGISLATURE IS NOT IN SESSION. (1) The legislature may establish by law a joint budget committee composed of members of both houses of legislature, the membership to be fixed by law, which committee may exercise such powers as are granted in this section and such powers as may be conferred upon it by law.

(2) When the legislature is not in session, the committee may:

(a) Allocate to any state agency or program, out of any fund or funds that may be appropriated to the committee, additional moneys beyond the amount appropriated to the agency by the legislature or moneys to carry on an activity required by law for which no appropriation was made;

(b) Authorize any state agency to expend, from moneys available from unanticipated receipts, as defined by the legislature, for the uses and purposes of the agency, sums in excess of the amount of any appropriations to the agency as provided by law;

(c) Revise or amend appropriation items for programs or to state agencies to the extent of authorizing transfers between appropriation items from the same funds for an agency; and

(d) In the case of an activity coming into existence when the legislature is not in session, approve, or revise and approve, a budget for the new activity.

(3) The authority granted members of the legislature by this section shall not be deemed to violate the provisions of Article II, section 13 of the state Constitution or make any member of the legislature ineligible to serve on the committee.

NEW SECTION. Sec. 8. EMERGENCY ACTION BY THE LEGISLATURE. The legislature may temporarily suspend sections 2, 3, and 4 of this act whenever a fiscal emergency exists as proclaimed by the governor and three-fourths of the members of each house of the legislature.

NEW SECTION. Sec. 9. Section captions as used in this chapter do not constitute any part of the law.

NEW SECTION. Sec. 10. Sections 1 through 9 of this act shall constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 11. A new section is added to chapter 43.88 RCW to read as follows:

(1) The governor's budget document and appropriation bill under RCW 43.88.030 and 43.88.060 shall include the amounts necessary to amortize the pension liabilities as projected by the state actuary for the ensuing biennium of the law enforcement officers' and firefighters' retirement system under RCW 41.26.080(3), the teachers' retirement system under RCW 41.32.401, and the public employees' retirement system under RCW 41.40.361(4). The amounts shall be reported to the governor by the state actuary no later than September 1 of each even-numbered year. If the amounts recommended by the budget document and included in the appropriation bill are not sufficient to amortize the pension liabilities under RCW 41.26.080(3), 41.32.401, and 41.40.361(4), the budget document and appropriation bill shall include a declaration of fiscal emergency and state the nature of the emergency.

(2) The omnibus biennial operating appropriations act, as enacted by the legislature, shall either: (a) Appropriate sufficient moneys to meet the pension liabilities identified in subsection (1) of this section; or (b) include a declaration of fiscal emergency and state the nature of the emergency.

NEW SECTION. Sec. 12. A new section is added to chapter 43.88 RCW to read as follows:

(1) In order to ensure that funds dedicated for capital purposes are not diverted for operating expenditures, the governor's budget document and appropriation bill under RCW 43.88.030 and 43.88.060 shall not propose the use of dedicated capital funds for operating purposes.

(2) The legislature shall not appropriate dedicated capital funds for operating purposes.

Sec. 13. Section 1, chapter 36, Laws of 1982 1st ex. sess. as amended by section 6, chapter 138, Laws of 1984 and RCW 43.88.020 are each amended to read as follows:

(1) "Budget" shall mean a proposed plan of expenditures for a given period or purpose and the proposed means for financing these expenditures.

(2) "Budget document" shall mean a formal, written statement offered by the governor to the legislature, as provided in RCW 43.88.030.

(3) "Director of financial management" shall mean the official appointed by the governor to serve at the governor's pleasure and to whom the governor may delegate necessary authority to carry out the governor's duties as provided in this chapter. The director of financial management shall be head of the office of financial management which shall be in the office of the governor.

(4) "Agency" shall mean and include every state office, officer, each institution, whether educational, correctional or other, and every department, division, board and commission, except as otherwise provided in this chapter.

(5) "Public funds", for purposes of this chapter, shall mean all moneys, including cash, checks, bills, notes, drafts, stocks and bonds, whether held in trust, for operating purposes, or for capital purposes, and collected or disbursed under law, whether or not such funds are otherwise subject to legislative appropriation, including funds maintained outside the state treasury.

(6) "Regulations" shall mean the policies, standards and requirements, stated in writing, designed to carry out the purposes of this chapter, as issued by the governor or his designated agent, and which shall have the force and effect of law.

(7) "Ensuing biennium" shall mean the fiscal biennium beginning on July 1st of the same year in which a regular session of the legislature is held during an odd-numbered year pursuant to Article II, section 12 of the Constitution and which biennium next succeeds the current biennium.

(8) "Dedicated fund" means a fund in the state treasury, or a separate account or fund in the general fund in the state treasury, that by law is dedicated, appropriated or set aside for a limited object or purpose; but "dedicated fund" shall not include a revolving fund or a trust fund.

(9) "Revolving fund" means a fund in the state treasury, established by law, from which is paid the cost of goods or services furnished to or by a state agency, and which is replenished through charges made for such goods or services or through transfers from other accounts or funds.

(10) "Trust fund" means a fund in the state treasury in which designated persons or classes of persons have a vested beneficial interest or equitable ownership, or which was created or established by a gift, grant, contribution, devise, or bequest that limits the use of the fund to designated objects or purposes.

(11) "Administrative expenses" means expenditures for: (a) Salaries, wages, and related costs of personnel and (b) operations and maintenance including but not limited to costs of supplies, materials, services, and equipment.

(12) "Fiscal year" means the year beginning July 1st and ending the following June 30th.

(13) "Lapse" means the termination of authority to expend an appropriation.

(14) "Legislative fiscal committees" means the legislative budget committee, the legislative evaluation and accountability program committee, the ways and means committees of the senate and house of representatives, and, where appropriate, the legislative transportation committee.

(15) "Fiscal period" means the period for which an appropriation is made as specified within the act making the appropriation.

(16) "Primary budget driver" means the primary determinant of a budget level, other than a price variable, which causes or is associated with the major expenditure of an agency or budget unit within an agency, such as a caseload, enrollment, workload, or population statistic.

(17) ((~~"Stabilization account" means the budget stabilization account created under RCW 43.88.525 as an account in the general fund of the state treasury.~~

~~(18) "State tax revenue limit" means the limitation created by chapter 43.135 RCW.~~

~~(19) "General state revenues" means the revenues defined by Article VIII, section 1(c) of the state Constitution.~~

(20) "Annual growth rate in real personal income" means the estimated percentage growth in personal income for the state during the current fiscal year, expressed in constant value dollars, as published by the office of financial management or its successor agency.

~~(21)~~)) "Estimated revenues" means estimates of revenue in the most recent official economic and revenue forecast prepared under RCW 82.01.120.

Sec. 14. Section 11, chapter 10, Laws of 1982 and RCW 43.88.160 are each amended to read as follows:

This section sets forth the major fiscal duties and responsibilities of officers and agencies of the executive branch. The regulations issued by the governor pursuant to this chapter shall provide for a comprehensive, orderly basis for fiscal management and control, including efficient accounting and reporting therefor, for the executive branch of the state government and may include, in addition, such requirements as will generally promote more efficient public management in the state.

(1) Governor; director of financial management. The governor, through the director of financial management, shall devise and supervise a modern and complete accounting system for each agency to the end that all revenues, expenditures, receipts, disbursements, resources and obligations of the state shall be properly and systematically accounted for. The accounting system shall include the development of accurate, timely records and reports of all financial affairs of the state. The system shall also provide for comprehensive central accounts in the office of financial management. The director of financial management shall adopt and periodically update an accounting procedures manual. Any agency maintaining its own accounting and reporting system shall comply with the updated accounting procedures manual and the rules of the director adopted under this chapter. An agency may receive a waiver from complying with this requirement if the waiver is approved by the director. Waivers expire at the end of the fiscal biennium for which they are granted. The director shall forward notice of waivers granted to the legislative fiscal committees. The director of financial management may require such financial, statistical, and other reports as the director deems necessary from all agencies covering any period. This shall include the timely reporting of primary budget drivers such as actual workloads, caseloads, and unit cost data for applicable areas. The director of financial management shall review the data for accuracy and consistency. The director shall submit the data to the legislative evaluation and accountability program committee. The legislative evaluation and accountability program committee shall provide reports on the data at least quarterly to the legislative fiscal committees and the office of financial management.

The director of financial management is responsible for quarterly reporting of primary budget drivers such as applicable workloads, caseload estimates, and appropriate unit cost data. These reports shall be updated concurrently with the quarterly revenue and economic forecast and transmitted to the legislative fiscal committees. Quarterly reports shall include actual monthly data and the variance between actual and estimated data to date. The reports shall also include estimates of these items for the remainder of the budget period.

In addition, the director of financial management, as agent of the governor, shall:

(a) Make surveys and analyses of agencies with the object of determining better methods and increased effectiveness in the use of manpower and materials; and the director shall authorize expenditures for employee training to the end that the state may benefit from training facilities made available to state employees;

(b) Report to the governor with regard to duplication of effort or lack of coordination among agencies;

(c) Review any pay and classification plans, and changes thereunder, developed by any agency for their fiscal impact: PROVIDED, That none of the provisions of this subsection shall affect merit systems of personnel management now existing or hereafter established by statute relating to the fixing of qualifications requirements for recruitment, appointment, or promotion of employees of any agency. The director shall advise and confer with agencies including appropriate standing committees of the legislature as may be designated by the speaker of the house and the president of the senate regarding the fiscal impact of such plans and may amend or alter said plans, except that for the following agencies no amendment or alteration of said plans may be made without the approval of the agency concerned: Agencies headed by elective officials;

(d) Fix the number and classes of positions or authorized man years of employment for each agency and during the fiscal period amend the determinations previously fixed by the director except that the director shall not be empowered to fix said number or said classes for the following: Agencies headed by elective officials;

(e) ((~~Provide for transfers and repayments between the budget stabilization account and the general fund as directed by appropriation and RCW 43.88.525 through 43.88.540;~~

~~(f)~~)) Promulgate regulations to effectuate provisions contained in subsections (a) through ((~~(e)~~)) (d) hereof.

(2) The treasurer shall:

(a) Receive, keep and disburse all public funds of the state not expressly required by law to be received, kept and disbursed by some other persons: PROVIDED, That this subsection shall not apply to those public funds of the institutions of higher learning which are not subject to appropriation;

(b) Disburse public funds under the treasurer's supervision or custody by warrant or check;

(c) Keep a correct and current account of all moneys received and disbursed by the treasurer, classified by fund or account;

(d) Perform such other duties as may be required by law or by regulations issued pursuant to this law.

It shall be unlawful for the treasurer to issue any warrant or check for public funds in the treasury except upon forms duly prescribed by the director of financial management. Said forms shall provide for authentication and certification by the agency head or his designee that the services have been rendered or the materials have been furnished; or, in the case of payments for periodic maintenance services to be performed on state owned equipment, that a written contract for such periodic maintenance services is currently in effect and copies thereof are on file with the office of financial management; and the treasurer shall not be liable under the treasurer's surety bond for erroneous or improper payments so made: PROVIDED, That when services are lawfully paid for in advance of full performance by any private individual or business entity other than as provided for by RCW 42.24.035, such individual or entity other than central stores rendering such services shall make a cash deposit or furnish surety bond coverage to the state as shall be fixed in an amount by law, or if not fixed by law, then in such amounts as shall be fixed by the director of the department of general administration but in no case shall such required cash deposit or surety bond be less than an amount which will fully indemnify the state against any and all losses on account of breach of promise to fully perform such services: AND PROVIDED FURTHER, That no payments shall be made in advance for any equipment maintenance services to be performed more than three months after such payment. Any such bond so furnished shall be conditioned that the person, firm or corporation receiving the advance payment will apply it toward performance of the contract. The responsibility for recovery of erroneous or improper payments made under this section shall lie with the agency head or the agency head's designee in accordance with regulations issued pursuant to this chapter.

(3) The state auditor shall:

(a) Report to the legislature the results of current post audits that have been made of the financial transactions of each agency; to this end he may, in the auditor's discretion, examine the books and accounts of any agency, official or employee charged with the receipt, custody or safekeeping of public funds. The current post audit of each agency may include a section on recommendations to the legislature as provided in subsection (3)(c) of this section.

(b) Give information to the legislature, whenever required, upon any subject relating to the financial affairs of the state.

(c) Make the auditor's official report on or before the thirty-first of December which precedes the meeting of the legislature. The report shall be for the last complete fiscal period and shall include at least the following:

Determinations as to whether agencies, in making expenditures, complied with the laws of this state: PROVIDED, That nothing in this act shall be construed to grant the state auditor the right to perform performance audits. A performance audit for the purpose of this act shall be the examination of the effectiveness of the administration, its efficiency and its adequacy in terms of the programs of departments or agencies as previously approved by the legislature. The authority and responsibility to conduct such an examination shall be vested in the legislative budget committee as prescribed in RCW 44.28.085 as now or hereafter amended.

(d) Be empowered to take exception to specific expenditures that have been incurred by any agency or to take exception to other practices related in any way to the agency's financial transactions and to cause such exceptions to be made a matter of public record, including disclosure to the agency concerned and to the director of financial management. It shall be the duty of the director of financial management to cause corrective action to be taken promptly, such action to include, as appropriate, the withholding of funds as provided in RCW 43.88.110.

(e) Promptly report any irregularities to the attorney general.

(4) The legislative budget committee may:

(a) Make post audits of the financial transactions of any agency and management surveys and program reviews as provided for in RCW 44.28.085 as now or hereafter amended. To this end the committee may in its discretion examine the books, accounts, and other records of any agency, official, or employee.

(b) Give information to the legislature or any legislative committee whenever required upon any subject relating to the performance and management of state agencies.

(i) Determinations as to the extent to which agencies in making expenditures have complied with the will of the legislature and in this connection, may take exception to specific expenditures or financial practices of any agencies; and

(ii) Such plans as it deems expedient for the support of the state's credit, for lessening expenditures, for promoting frugality and economy in agency affairs and generally for an improved level of fiscal management.

NEW SECTION. Sec. 15. The following acts or parts of acts are each repealed:

(1) Section 1, chapter 280, Laws of 1981 and RCW 43.88.520;

(2) Section 2, chapter 280, Laws of 1981 and RCW 43.88.525;

(3) Section 3, chapter 280, Laws of 1981, section 2, chapter 36, Laws of 1982 1st ex. sess. and RCW 43.88.530;

(4) Section 4, chapter 280, Laws of 1981, section 3, chapter 36, Laws of 1982 1st ex. sess. and RCW 43.88.535; and

(5) Section 5, chapter 280, Laws of 1981, section 11, chapter 138, Laws of 1984 and RCW 43.88.540.

NEW SECTION. Sec. 16. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.