They simply must engage the public in a constructive conversation about
this state’s overreliance on property and sales taxes and how the
missing third leg of the stool — an income tax — is necessary to level
out the revenue peaks and valleys that this state constantly
experiences.
Peaks and valleys that are routinely experienced in every state when the economy swirls down the drain. Oh well. There are good arguments for considering an income tax, but immunizing the treasury from the fiscal flu isn't one of them.
Little came easy this legislative session. And that goes for discussions about whether to extend it to handle unfinished business.
You'll remember that shortly after the clock ran out on the session, Gov. Gregoire said she'd call lawmakers back for a one-day session. (The link is to Adam Wilson's story in the Olympian.)
Details, like what were the must-dos and when must they be done, remained to be worked out. As time passed, urgency waned. Wilson reports that Tuesday the governor told Democratic leaders, "time's up." A decision needed to be made this week. The AP's Rachel La Corte summarizes the issues in a story the Everett Herald headlines "Gregoire may cancel special session." (Can you cancel something that's never been scheduled? Can you lose a friend you never had?) Briefly:
The three bills that have been discussed by the governor for a special session are:
A plan to reduce state spending on a program that benefits
"property-poor" schools, saving about $60 million, while allowing
school districts to collect more money from property tax levies. That
bill is seen as the biggest priority.
A measure to clear the way for illegal immigrants in state prisons to be deported, saving the state more than $8 million.
A criminal sentencing bill that expands the low and high end of the
sentencing range, allowing more discretion for judges when sentencing
offenders. This bill could save the state nearly $376,000 through 2011
because it is expected that sentences will be reduced.
But, she notes,
... House leaders have been lukewarm about rushing back to Olympia.
House Majority Leader is quoted as thinking September might be better, when legislators have to return to Olympia anyway.
Republicans, who seem to have little influence on the governor's decision, have been clear from the beginning that there's no hurry. That's particularly true for Sen. Joe Zarelli, who headlines his latest Budget Tid Bit "no special session to pass bad public policy." He's particularly opposed to the levy equalization measure. He desxribes
Engrossed Substitute House Bill 1776 [as]a "reverse Robin Hood bill" that would adversely impact the majority of school districts in the state while benefitting a select minority.
Disagreement on the bill tied up lawmakers in the waning hours of the session.
In addition to the aforementioned issues, swine flu could emerge as a special session topic, at least a reason to bump public health funding.
It's always a bad idea to make predictions just before decisions are likely to be announced. But here goes: I doubt they'll be back soon.
Practically the End of a Tough Legislative Session - Some Good Competitiveness Outcomes
Posted by Richard S. Davis on 4/27/2009 6:56:00 PM
About 11 hours after the 2009 legislative session adjourned, Gov. Gregoire announced her plans to call lawmakers back for a special session to clean up unfinished business. She'd like it to be short, a day or two, and limited to a handful of items necessary to implement the budget. Not everyone's enthusiastic.
It's important to take time to recognize that in a very difficult year, the Legislature accomplished some noteworthy things, foremost among them: balancing a budget without general tax increases. Critics may point at the heavy reliance on one-time money, including the federal stimulus cash, and the likelihood of another shortfall in the next budget. While that argument has validity, it's more important to note that lawmakers bought themselves - and us - another two years to transition to a sustainable spending level, we hope in a stronger economy. Tax hikes would have further hammered struggling families and businesses, delaying the recovery. Commend lawmakers for making the right budget decisions and avoiding new taxes.
Also, at the eleventh hour (literally), lawmakers adopted a clean unemployment insurance reform bill after the House receded from problematic amendments that would have led to a certain tax hike, particularly on mid-size Main Street businesses. Along with a balanced budget that did not rely on new taxes, UI reform has been a top WashACE priority. Thanks to all who contacted their legislators in the last few weeks!
The Employer Gag Rule (aka Worker Privacy Act) disappeared, at least for a while.
We'll have more on what did and didn't happen this session in the coming weeks. Facing considerable challenges, lawmakers were able to take meaningful steps to improve our economic competitiveness. That's no small accomplishment.
House Passed Operating Budget, May be a While Before We Know What's In It
Posted by Richard S. Davis on 4/25/2009 1:34:00 PM
Budget work typically involves lots of behind-the-scenes scrubbing and analysis (along with some dealing and trading), followed by apparently hurried voting on a bill that few lawmakers have read. And even with that scenario in mind, this year's legislative session has ended with unusually little public discussion of the final budget.
The House-Senate compromise budget, developed by the majority party, was released early yesterday and passed by the House last night. Brad Shannon writes in the Olympian that Republicans are crying foul. First, because they weren't involved. And then...
And of course the GOP does not like the content of the budget, once members looked at it.
“I
think it looks exactly as I would have feared: Empty promises,” Rep.
Gary Alexander, R-Thurston County, said tonight. “It sets us up for a
significant deficit when we come back in 2011 of over $10 billion. …
It’s a credit card budget. They just raised their credit card limit and
promised we’ll pay it off sometime in the future. We’re just not sure
when.’’
There's little doubt that this budget fails to solve the ongoing problem of shortfalls, though that $10 billion estimate is higher than anything I've seen. As the last year and a half of quarterly revenue forecasts has shown, economists have a tough time accurately predicting the future. Easily, though, we can see a shortfall of more than $4 billion in the coming biennium.
TNT political reporter Joe Turner also runs with Alexander's quote and adds this.
The budget relies on $3 billion in federal stimulus aid, $4 billion in
cuts and a number of one-time moves to raid a rainy-day savings
account, delay pension payments and shift money from construction
accounts.
Turner has more on the budget here. And he points out the challenges facing the press corps - and through them, the public - in dealing with the mountain of budget detail in a very short time frame.
I generally am forced to rely on news releases and summaries handed
out by the Legislature in writing my very first stories about the
budgets -- and all three come out the same day (operating, capital,
transportation -- and I don't have a chance to read all the detail
until after the Legislature adjourns.
We can expect to learn more over the next few weeks, before the governor signs the budget. Despite earlier promises from lawmakers, this has not been a transparent process. That's perhaps understandable when you consider the difficulty in cutting $4 billion from planned spending, but it does contribute to public skepticism about the process.
Speaking of skepticism, the PI reports estimates from the state budget office of $270 million in new taxes and fees over the next two years.
The proposal will return to the House with the request that representatives drop amendments that would:
Increase the amount of benefits paid to unemployed workers, up to $20 per week.
Solidify
a state Supreme Court decision from last summer that said some
employees who quit voluntarily can receive state benefits.
The Senate bill is a responsible measure that protects the UI trust fund, brings state policy into compliance with federal law, avoids job destroying tax hikes, and restores unambiguous policy regarding employees who voluntarily leave their jobs. It originally passed the Senate in March on a 38-11, with bipartisan support. In the House, the amended bill passed narrowly, 53-45, Representatives should now quickly accept the Senate version.
In the middle of an economic crisis, it makes no sense to make it more expensive to hire a worker.
Just such a measure, Senate Bill 5963, is now in the final steps in the
Legislature. The bill would make unemployment pay more generous for
workers who qualify for less than the $541 maximum weekly benefit — an
increase that is almost certain to trigger an increase in payroll taxes.
The Times editorial board points out that Washington employers already pay among the nation's highest unemployment taxes and unemployed workers here receive among the nation's most generous benefits,
WashACE has written a lot about this in recent weeks, most recently here. The Senate must reject the costly amendments placed on the bill in the House. As amended by the House, SB 5963 will cost the state good jobs.
Income Tax Plan, Not Dead but Sleeping in the Senate
Posted by Richard S. Davis on 4/23/2009 4:42:00 PM
Senate Democrats held a press conference this afternoon to discuss the high earners income tax. Majority Leader Lisa Brown says it won't move this session but may come back soon. Rich Roesler has a good account of the discussion.
This really is becoming more urgent every year,” said Sen. Jeanne
Kohl-Welles, D-Seattle. “Our tax system is really not only unfair, but
it’s also out of kilter. She said she’ll introduce a bill in a day or
two for a sales tax on gum and candy, with the money going to
children’s health care... But she also said that the bill is
unlikely to go anywhere in the legislative session’s final few days.
Not dead, just sleeping.
“The point is: we can’t stop discussing
this,” said Kohl-Welles, who has repeatedly introduced bills to launch
a state income tax.
Not sure that "cant stop talking about taxes" is a theme that sells well with a lot of Washingtonians.
Niki Sullivan at TVW's Capital Record blog has an excellent series of posts on the conference and will soon link to the video.
Brad Shannon's report on the press conference includes some insight into the thinking of House Democrats.
In the House, Majority Leader Lynn Kessler, D-Hoquiam, said a caucus
last night on four different taxes produced lukewarm interest, and she
speculated that the caucus was tired. She said there appeared to be
more enthusiasm for Rep. Hans Dunshee’s jobs proposal, which is a $3
billion bond project to upgrade energy systems and improve safety at
schools, universities and public buildings.
But Brown said she
detects little support for a bond but that the Senate Democrats would
consider a sales-tax proposal if the House can approve it.
Joe Turner writes in the Political Buzz that House leaders don't have the votes to pass the sales tax increase. And he includes a copy of the letter SEIU is distributing to legislators urging them to send the tax hike to the public. It's about what you'd expect: Bad things will happen without new revenues and, once properly educated, the public will support new taxes. Not convincing.
With just a few days left to adjournment, it's clear that Democrats can't find a tax plan that gathers majority support. It's time they quit looking for one.
Posted by Richard S. Davis on 4/23/2009 12:33:00 PM
Democratic House and Senate budget negotiators have reached agreement on a spending plan that they'll unveil to their caucuses today. Here's how Brad Shannon of the Olympian reported it last night.
The House hopes to give it a floor vote as soon as Friday, leaving just a couple days for the Senate to hear it briefly in committee then vote to concur.
House Ways and Means Committee chair Kelli Linville, D-Bellingham, said the agreement was reached this evening on major issues, including agreement on K-12 public schools and higher education. Negotiators in the two chambers are working out provisos and language, a task that likely would go well into the wee hours of Thursday.
The budget does not include a proposed state income tax or three-tenths of a cent sales tax hike. Lawmakers have floated both ideas — which would need voter approval — as a way to offset hundreds of millions of dollars in cuts.
The income tax proposal now seems highly unlikely, and the sales tax plan appears to be faltering.
In Washington, Boeing faces higher unemployment insurance costs,
regulatory costs and labor strife — four strikes in recent years with
202 days of lost work.
Brunell notes that this year's Legislature has not only failed to improve our competitive position, but in several cases threatens to take us backward.
Take unemployment insurance:
... the Deloitte study recommends reducing employers' unemployment
insurance costs to be more in line with competing states. State
lawmakers reformed unemployment insurance costs in 2003 to convince
Boeing to assemble the 787 in Washington, but later reneged on many of
those key reforms. Currently, Washington's unemployment insurance costs
are among the highest in the nation. But instead of lowering them, some
key lawmakers in Olympia are pushing bills backed by union leaders to
increase unemployment benefits and allow workers who voluntarily quit
their jobs to receive full benefits.
And workers' compensation:
For the past 100 years, workers' compensation claims have been handled
in an informal administrative process that doesn't involve trial
lawyers. The employer works with an employee's doctors to manage the
injured worker's treatment and eventual return to work. But the new law
bans employers from speaking to injured workers' doctors once an appeal
is filed. As a result, employers — and often workers — will be forced
to hire attorneys for the more formal and time-consuming process of
taking depositions, and as the delays drag on, legal costs pile up ...
Read the whole column.
Jerry Cornfield in the Herald of Everett reports that the House voted last night to approve an aerospace training institute but balked at endorsing the governor's proposed aerospace training council. If we get UI, workers' compensation, and labor relations wrong, last night's legislation won't make much difference in a cost-sensitive global competition to land good aerospace jobs.
... we’re dismayed that lawmakers
seem bent on giving state workers their automatic “step” increases and
keeping their share of health insurance premiums well below what
private-sector workers pay. Meanwhile, they’re talking about kicking
thousands of low-income Washingtonians off the Basic Health Plan.
How about putting the sacred cows on the ballot, and protecting the poor in the actual budget?
If
the Legislature decides to punt and tell voters that vital social
services are theirs to save, it will be a dereliction of duty. And,
yes, people might die. But the fault won’t be lawmakers’ for not
sending a tax measure to the ballot. It will be theirs for neglecting
their job.
In my column today, I compare the final days of the session to a game show. We've just entered Double Jeopardy, where anything can happen. Let lawmakers know how you feel about new taxes.
There Will be A Tax Package on the Ballot ... Or Maybe Not
Posted by Richard S. Davis on 4/20/2009 3:58:00 PM
Lots of stories over the weekend on the prospects of lawmakers sending a tax package to the voters. This close to the scheduled April 26 adjournment, tax and spending issues dominate. And there's a great deal of uncertainty.
I'm told the reason the tax referendum was revived from near-certain death over the weekend was that House Speaker Frank Chopp
has some members of his Democratic caucus who absolutely refuse to vote
for a budget with $4 billion in spending cuts -- unless there is a tax
proposition on the ballot, too.
We'll find out more tomorrow. That when the tax vote coalition
members say whether they are in or out. The campaign really needs two
components: It's gotta have the Service Employees International Union,
which represents homecare workers and nurses, to provide the foot
soldiers for doorbelling. And it needs the hospitals and nursing homes
to pony up the money.
The Everett Herald takes an unusually sharp tone in its Sunday editorial warning lawmakers: "Don't blackmail the voters." They take Rep. Eric Pettigrew to task for saying "people will die" if voters don't approve new taxes.
Yes, the recession has hit the state budget
hard. But before asking taxpayers for more, lawmakers need to do a
better job prioritizing existing dollars. Why not, for example, ask
state employees to share a greater portion of their health-benefit
costs? They're getting a significantly better deal than most
private-sector workers -- the very people who would be asked to pay
more in sales taxes.
Posted by Richard S. Davis on 4/20/2009 12:49:00 PM
We hear that the state Senate may take up SB 5963 today. We've written a lot on the issue, urging the Senate to strip the House amendments and insist on their version of this vital legislation.
Most of the proposals come from majority Democrats, who are grappling
with a $9 billion budget shortfall over the next two years. Republicans
have argued for more cost-cutting, but Democrats say that some
increases are crucial to easing devastating cuts.
It's the same debate we've heard all session, with increasing intensity as the legislature heads into the final ten days. Read Roesler's story and weigh in with your lawmakers. The layering on of new taxes, particularly without a public vote, simply adds new costs on families and employers struggling to make ends meet. It's a bad idea.
Business Urges Senate to Insist on Good Unemployment Insurance Reform
Posted by Richard S. Davis on 4/16/2009 12:19:00 PM
I can't do better than link to this Olympia Business Watch post by Jocelyn McCabe. WashACE worked closely with AWB, the Seattle Chamber, the Washington Roundtable and Enterprise Washington to write the state Senate urging them to insist on the Senate-passed version of SB 5963 and to reject the lousy House amendments.
Jocelyn also provides a link to this great editorial in the Yakima Herald-Republic.
Posted by Richard S. Davis on 4/16/2009 10:55:00 AM
Yesterday, the folks who wanted a vehicle for tax hikes finally got their shot. Rep. Eric Pettigrew introduced HB 2377, a 0.3 percentage point increase in the state sales tax rate, bringing it to 6.8 percent. The tax hike requires voter approval and would be in effect from January 1, 2010 through December 31, 2012. Interestingly, one-fifth of the new revenue would be used to fund the so-called "working families' tax exemption," with the balance going to a newly-created health care trust account.
Members of the coalition are planning to review the final round of
public polling this weekend to see whether the public has sufficient
appetite to raise taxes to restore health program cuts, she said.
Language in the bill by change by Tuesday, she said.
"Each (member of the coalition) will have to decide by Tuesday
whether they are in or out," Sauer said. That's Day 100 of the current
legislative session. Lawmakers are scheduled to adjourn five days
later, on April 26.
Turner also has some background on the working family tax credit, an idea promoted by the Budget and Policy Center and insisted upon by Sen. Majority Leader Lisa Brown.
(I should note that Rep. Maralyn Chase introduced HB 2354, a sweeping 1 percent tax on intangible property like stocks and bonds. No analysis has been done on the bill, which looks like the biggest tax hike in state history. We can only hope it's an empty gesture, but ... watch it nonetheless.)
As lawmakers pondered tax hikes, a surprisingly large crowd of protesters rallied against "out of control spending," the growing national debt, and the prospect of increasing tax burdens. Here's Brad Shannon's account in the Olympian.
The rally, which was one of many similar events throughout the state
and nation Wednesday, drew an estimated 4,000 to 5,000 people who
chanted “stop spending my money!”
Coincidentally (??) the Washington Post reported that "Americans' Tax Burden Near HIstoric Low ... for all but the wealthiest Americans." I'm not sure that will placate the folks who see rising debt, unsustainable spending, and economic insecurity threatening their standard of living and the prospects for their children's futures.
Besides, as the Department of Revenue writes, in an unusual attempted refutation of the recent Forbes finding that Washington imposes one of the nation's top tax burdens, "tax rankings can be misleading."
The only accurate way to compare tax burdens is by comparing both state and
local taxes among states. By that measure, Washington ranks
19th-highest per capita and 35th-highest in taxes as a percentage of
personal income, http://www.taxfoundation.org/files/sr163.pdf.
Economists generally prefer measuring as a percentage of personal
income because it takes into account economic activity and demand for
services. Rankings have become a popular staple among certain national
publications, but they can be misleading.
Well, yes, they can be. So can business climate rankings, alhtough I don't recall such zealous attention to detail when Forbes reported favorably on Washington's business climate or when the Tax Foundation and Small Business Survival Committee provided equally flawed analyis of the business tax climate in the state. The Department's right: Forbes missed the mark. I'd quibble that it makes sense to look at tax burden from both perspectives - per capita and as a share in personal income - and not pick one over the other. But interstate comparisons should always combine state and local taxes.
Ultimately, I think voters will base their decision on new taxes - should they have a decision to make - on their perceptions of their personal tax situation, their assessment of the quality of government spending, and their confidence in the legislature's fiscal management. How do you think that will come out?
Raha has increased the value of the monthly revenue collection reports, now billed as "economic and revenue updates," and justifies his cautious optimism with charts, data and analysis. No one expects an immediate or robust bounce. As he writes of the US recession,
The free-fall phase appears to be over, but the trough of the recession is still several months away.
But for Washington,
The state economy is likely to recover at the same time as the national economy. But, the early signs of recovery seen in the national data are not yet obvious in state data - mostly due to reporting lags, but also due to the type of data reported.
We expect the state economy to continue to lose jobs through the end of 2009, but at a diminishing rate.
It's difficult to preduct a turnaround, one of those things best identified in the rear-view mirror, after the fact. Given the uncertainty and fragility of the economy, legislators should resist calls for tax hikes. There's no excuse for adding to the burdens of struggling families and employers.
Posted by Richard S. Davis on 4/14/2009 1:54:00 PM
That's the question answered in this WashACE analysis of the economic impact of The Boeing Company and the aerospace cluster it anchors. Despite the state's economic diversification, aerospace continues to exert a powerful positive economic effect. To get an idea of how much the sector contributes, in this report we take a look at what the economy would look like without aerospace. It's a bleak picture. For example,
Since each Boeing job supports nearly three additional jobs in the state, the company’s departure would mean a permanent reduction of 285,000 jobs.
Without the draw of aerospace employment, housing priceswould fall by as much as 6.5 percent by 2030.
Statewide personal income would decline by nearly 9 percent.
The analysis, conducted independently for us by the Washington Research Council, complements last week's release of Deloitte Consulting's assessment of Washington's aerospace competitiveness.
Read them both. And remind lawmakers that enhancing and maintaining Washington's economic competitiveness is the key to recovery.
Sen. Joe Zarelli looks at the final weeks of legislative activy and reviews 10 recommendations for structural reform (Budget Brief #4). The Columbian has more on four of his ideas.
Posted by Richard S. Davis on 4/11/2009 4:42:00 PM
April 9, somewhat ahead of schedule as Jerry Cornfield reports, Gov. Gregoire released the results of a study of Washington aerospace competitiveness conducted for the administration by Deloitte Consulting. Rich Roesler of the Spokesman-Review had an earlier link to the leak.
It's a good report, echoing earlier work by Deloitte Consulting. After establishing the importance of aerospace to the state economy, the analysts examine Washington's strengths and weaknesses compared to competitor states, including the Carolinas, Kansas, and Texas. Here's a key finding:
While Washington offers many advantages to aerospace companies, its disadvantages outweigh the advantages in attracting and retaining aerospace companies relative to other states."
Recommendations were clustered into five groups and scored in terms of "ease of implementation" and "importance to aerospace." At the risk of oversimplifying (download the report and make your own judgment), I think our problem is that the stuff that's easy to do (training/education, research and development, create an "office of aerospace and defense) tends to be of relatively lower importance to aerospace. The important stuff (reducing high UI taxes and workers' compensation, improving labor management) is more difficult to implement.
The larger problem, as evidenced by yesterday's House vote increasing UI costs, is that too many Washington legislators are unwilling to take even modest steps to improve our cost competitiveness. And the state labor council openly mocks the Deloitte report, which is, I suppose, easier than refuting it.
We'll look at the report in more detail and offer additional thoughts in the coming weeks. Right now, though, we encourage legislators to take seriously recommendations to bring the cost of doing business here more in line with those of competiting states.
Posted by Richard S. Davis on 4/11/2009 12:47:00 PM
Yesterday, the House passed an unacceptable version of unemployment insurance reform. Business groups, including members of WashACE, had urged lawmakers to pass Senate Bill 5963 as it came from the Senate. The House Commerce and Labor Committee had taken that good legislation and tacked on amendments that increased UI benefits, assuring future tax increases for employers, and weakened language clarifying when workers who voluntarily quite their jobs could qualify for UI benefits. The legislation passed yesterday, after a flurry of amendments and heated floor speeches, reflects the committee's work.
"The irony is that the day after the governor rolls out
her plan to make Washington more competitive and improve the state's
business climate, her allies in the House decide to raise business taxes
and she's nowhere to be found," said Condotta.
The bill now goes back to the Senate, where Senators should insist on their original bill.
The mass ascension is the highlight of hot air balloon festivals. Lots of balloons. Lots of color. Lots of, well, hot air on sunny, calm days. A lot of fun.
The tax balloons being floated in Olympia lack color, calm and fun. Totally taxing.
If they're looking to voters to identify the consensus pick, they should be picking up a clear signal: Don't raise taxes. A new Moore Information survey shows voters overwhelmingly rejecting a two-year increase in the state sales tax (from 6.5 percent to 7.5 percent) for education and other important state programs. Down it goes: 56 -39.
OK. Now they're talking about a smaller increase: 0.3 percent. Don't count on it doing much better. Roesler has more on the poll and on a national survey showing some support for taxing the rich. Even if you buy the national data, remember that most states already have an income tax, so support for skewing it to take more from the rich will be an easier sell. Income taxers here have a higher threshold to cross.
Although the economy remains the top issue for voters, a Rasmussen Reports survey finds taxes moving up the list. Nationally,
... 64% of voters see taxation as very important; it’s highest level in nearly two years.
They have a lot of company in Olympia, where at least 64 percent of the legislature also see taxation as very important. In the final three weeks of the session, taxes and talk of taxes dominate the agenda.
The income tax continues to get talked about. Sen. Jeanne Kohl-Welles, who has sponsored a 1 percent income tax for the wealthy, thinks her plan is constitutional, according to an email she sent the Seattle PI.
I believe that the court would apply modern concepts of income tax, and
conclude that this legislation is constitutional, especially with the
support of the voters.
I think "the support of the voters" is supposed to be irrelevant when it comes to determining the constitutionality of a measure. Remember I-695?
One idea is to raise the sales tax by a third of a penny to fund
long-term care, adult family care, mental health and basic health care
services, and mitigate the effects of the cuts to public health care in
the House and Senate budgets. This would include a rebate for working
families, in order to offset the disproportionate burden that low and
middle income families pay under our current tax structure.
The new fashion is to take advantage of hard times to target a class of
people that few politicians are willing to defend -- and then expand
that class.
Our state makes a cameo appearance.
In the state of Washington, which has no income tax, Democratic state
Sen. Lisa Brown raised the idea in her blog. "The New York Legislature
is considering what I think is a fair and stable way of addressing
their revenue challenges. Should we do something similar in
Washington?" she asked. Not long after, one of her Democratic
colleagues introduced a bill proposing a millionaires' tax that would
kick in at $500,000.
Rep. Hans Dunshee announced plans for a $3 billion bond issue to public building construction and renovation projects. State Treasurer Jim McIntire, a former House colleague of Dunshee, offered compelling early skepticism. Here's Rich Roesler's story from yesterday's Spokesman-Review, with a quote from the treasurer's press release.
“The $3 billion of added debt called for in HB 2334 is too
much,” McIntire said in a press release a few minutes ago. “It would
threaten our credit rating and would affect the rest of our investments
in transportation and public infrastructure.”
House Majority Leader Lynn Kessler, D-Hoquiam, said she had concerns
about the legislation and noted that it got mixed reviews in the House
Democratic caucus last week.
State Sen. Ed Murray, chairman of the Senate Democratic Caucus, said
he had not seen the proposal and that the caucus has not discussed the
issue. However, he said, "the challenge for us is why are you building
schools when you're firing teachers?"
The big problem seems to be that Dunshee is more clear on what he wants to do than he is on how he wants to pay for it.
"I'm proposing this package of $3 billion to fix schools and other
public facilities and create energy savings and put people to work.
Possibly 90,000 people," Dunshee said earlier today.
Garber links to a one-page outline of the Washington Works Act that shows where some of the money goes but provides no info on the revenues backing the bonds.
Dunshee said the bond package would cost about $210 million annually to
finance, but he expects to recoup some of that through increased energy
efficiencies at public buildings. He said no decision has been made
whether to propose paying for the debt with existing state revenue or
through a tax increase.
There's not much time left in the legislative session. In the final three weeks, legislators remain divided on the shape of the tax package, if any, they'll send to voters. Although Senate Majority Leader Lisa Brown and House Speaker Frank Chopp are weighing an income tax, there's no way that a state income tax will be of much help in solving this year's budget crunch.
Brad Shannon says the clock is ticking on tax proposals. He reports that the brief time left in the session has some members worried.
"I'm concerned when you've been asleep for 78 days, it's hard to wake
up in the last 27," Democratic Rep. Brendan Williams of Olympia said
Friday, referring to fellow Democrats' need to scramble into action
after finally releasing budget plans this week.
The AP's Curt Woodward also notes that time is running out. Read his story for a rundown on the, as yet, not-very-specific ideas.
Majority Democrats, finally in the last phases of plugging a $9 billion
budget shortfall, are suddenly flush with ideas for raising taxes,
selling IOUs, and soaking the rich to raise money.
Here's the problem.
Whether recession-hammered voters will agree to bail out the budget by
raising their own taxes has been the nervous question running beneath
the entire 2009 session.
Sin taxes don't get you there. And every other option poses a problem. Going to be a busy three weeks.
Today the Washington Policy Center released a letter from 31 economists warning that tax increases would damage the state economy.
Increasing taxes at this time will shift necessary capital from the
private sector to the public sector, thereby depriving private
enterprise of the source of true economic growth and making Washington
state even less competitive for new businesses and jobs.
In February, remember, the Washington Budget and Policy Center put out a letter from a group of economists and others that argued for "keeping all options" open, by which they meant a tax increase might make sense.
Reject $100 MM in New Costs on Restaurant Industry
Posted by Richard S. Davis on 4/3/2009 2:16:00 PM
The Senate's proposed budget includes nearly $100 million in higher costs for the state's struggling restaurant industry. Here's how Bruce Beckett, the Washington Restaurant Association's government affairs director, describes the measures in a letter to state senators:
1. Tax on Spirit Sales to Liquor Licensees (SB 6119)
The proposed Senate budget includes revenue resulting from the elimination of the 15 percent discount on liquor purchases by liquor licensees. This effectively imposes a $72 million tax ($36 million state general fund revenue and $36 million revenue to cities and counties) on the restaurant industry. This liquor tax increase will undoubtedly lead to additional job losses in our industry, and for those restaurants on the brink of closing, may very likely push them over the edge to closure .
This discount has been in effect since 1949. It recognizes the efficiency in providing quantity discounts to volume purchasing
customers like restaurants. It also recognizes the lower costs to the state in serving wholesale restaurant customers, as opposed to the higher cost associated with retail sales to the general public.
2. Transfer of $25 million from the Liquor Revolving Account to the General Fund.
The proposed budget transfers $25 million to the general fund and states that this amount could be made up from a "liquor price increase or implementing efficiency measures."
Restaurants have been particularly hard hit during this recession, as consumers clamp down on discretionary spending. The repeal of the longstanding discount should be viewed as the repeal of a tax exemption, requiring a two-thirds legislative vote to pass. Even better, it should quickly fall off the table as the House and Senate reconcile budgets in the coming weeks. It's just a bad idea. For more information on this, check out the restaurant association web site.
A couple of national studies of state business climates came out recently.
Chief Executive magazine's 2009 "Best and Worst States" for job growth and business survey that Texas, North Carolina and Florida are the top places. Bringing up the rear are California, New York and Michigan.
"Our survey, year-over-year proves
that those states with the worst records continue to practice the same
policies that alienate businesses," said JP Donlon, Editor-in-Chief of Chief Executive
magazine. "As the nation’s economic problems continue to snowball and
an increasing number of states experience budgetary problems, state
governments ought to take a hard look at their taxation and
unionization policies if they want to turn the page and attract new
businesses and capital to their provinces."
Washington ranked 40th; North Carolina was No. 1. The state ranking table is here.
The other study comes out of Ball State University and focuses on manufacturing and logistics. It grades the states on 7 factors: It does not calculate a GPA for the states and neighter did I. (If you choose to, let me know.)
Senate Majority Leader Lisa Brown gets candor points for talking about a state income tax. I wrote about this Monday at The News Tribune's editorial page blog. Both Brown and Sen. Adam Kline, D-Seattle, have suggested that this might be a good time to push the issue.
Last week, Kline brought up the notion of a "high incomes" tax on his Senate blog.
Some recent polls show that a slim majority of folks would support an
income tax for folks who earn over $250,000 per year. My preference
would be institute an income tax for individuals who make over $100,000
per year or for couples (either married or in a domestic partnership
arrangement) whose combined income is over $200,000 per year.
He noted that voters passed an income tax in 1932, during the Great Depression (what exactly was so great about it?), only to have the Supreme Court toss it out as unconstitutional in 1933.
Brown similarly assesses the situation, noting that some legal experts believe that today's Court might decide the matter differently.
In spite over overwhelming public support, a Supreme Court ruling kept that income tax from being implemented.
...Would an income tax be found unconstitutional today?
Prominent constitutional attorney and law professor Hugh Spitzer has an interesting analysis that suggests today might see a different outcome.
In her post yesterday, Brown extends her argument for a state income tax.
There’s been a lot of talk in Olympia recently about a sales tax
increase, but we need a revenue proposal that makes things better and
fairer for regular families in our state -- not worse.
Brown links to a New York Times story describing a push in New York for a tax increase on high earners, calling it a "fair and stable way" of tackling the problem. Here's how the NYT describes that plan:
The new plan, which would expire after three years, would represent
the largest state income tax increase in recent history, significantly
larger than the surcharges imposed from 2003 to 2005, when the state
last faced a major recession.
The plan would raise $4 billion a
year by creating two new tax brackets, the highest one affecting those
who earn $500,000 or more. If approved by rank-and-file lawmakers in
the Assembly and State Senate, the tax increases would be a major
victory for unions and liberal advocacy groups and a signal of the new
balance of power in Albany, where Democrats won control of both houses
of the Legislature and the governor’s office in last year’s election.
Yesterday's Release of the House Democrats' Budget
Posted by Richard S. Davis on 4/1/2009 10:35:00 AM
It's going to take some time to unravel the House and Senate budgets, particularly to determine how they backfill state budget cuts with federal dollars. Right now, appropriately, there's a lot of focus on the cuts in state funding.
What's less clear is how much those cuts may be offset by federal stimulus money, either money flowing through the state or directly to, for example, school districts. An unusually sharp - and apt - editorial from the Yakima Herald-Republic gets to the critical issue.
What the two proposed budgets for 2009-11 don't accomplish is a
structured spending plan that will return this state to fiscal
responsibility. The proposed cuts of nearly $4 billion fail to produce
a significant and lasting reduction in labor costs. Instead, they rely
too heavily on $3 billion in one-time federal stimulus funds and on
questionable revenue raised through closing several tax loopholes.
Missing in this process is a profound change in the way the state
operates. Without that, we could find ourselves in 2011 in the same
spot we are today -- staring at a budget that's upside down.
Unsustainable spending contributed to our current problem. Even absent the recession, this year's budget writers faced a multi-billion dollar shortfall. Using $4-5 billion in one-time money to fund ongoing programs sets us up for another "upside down" budget in two years.
... these budgets are balanced only with the stimulus money and massive
raids on construction funds and other separate accounts. The
one-time-only fixes exceed $4 billion. That’s a huge bet – necessary in
this crisis – that the economy will be recovering by the next biennium.
The chief hedge against further calamity is a relatively healthy $850
million reserve fund. Wisely, lawmakers made no assumptions that
Washingtonians would approve new taxes in November.
As Joe Turner reported yesterday, budget writers considered the federal stimulus money a "godsend." Even so, House budget chair Kellii Linville says it's "very likely" that they'll put up a tax package for voter approval.
Watch for more analysis in the next few days. For now, it's hard to see how these budgets accomplish the essential goal of resetting spending to a sustainable. level. A tax package would be another step backward.
This Saturday editorial from the Daily World still seems timely. Editor Chris Rush offers this:
I’m no prophet, but I don’t believe
voters here on the Twin Harbors are in any sort of mood to throw more
of their hard-earned wages back into the black hole of state
government, especially as they witness many programs and services being
eliminated.
After having failed to plan for this particular
rainy day at the state level, it would be unwise for elected leaders to
dig deeper into our pockets and ask us to throw more good money after
bad.
Bet that's true for folks outside the Twin Harbors, too.
Posted by Richard S. Davis on 3/30/2009 2:18:00 PM
At 10:30 this morning, Senate Democrats released their proposed 2009-2011 budget proposal. I watched the press conference on TVW as did, I imagine, thousands of others. While not exactly 24, it had an immediacy that the budget debate has lacked through much of this legislative session. That's because we were finally seeing the numbers. (Go to the Senate Ways and Means Committee web site to download documents.)
Senate Majority Leader Lisa Brown said they were presenting an "honest and responsible budget that does balance our revenues and expenditures." It "does not eliminate the social safety net," she said, but does trim many social service programs. Higher education absorbs a more than $500 million hit. As well, K-12 programs that fall outside the definition of "basic education" were also cut. Initiative 728 and Initiative 732, class size reduction and cost-of-living raises for teachers, respectively, were suspended. Federal stimulus dollars were targeted to backfill much of the 728 cut. The budget summary says that "the net reduction in school district funding will average 3.5 percent."
As expected, there's no cost-of-living increase for any employees, and the annual "step increases" for management employees are suspended.
In addition to the federal stimulus money, the budget uses nearly $750 million in funds that usually go to the capital budget, $242 million in fund transfers, and $450 million in rainy day money. One analyst pegs the use of one-time money at $5 billion in total. I suspect that's about right. If so, under the slow-recovery scenario most envision, this budget still fails to come to grips with the state's need to reset spending to a sustainable level.
Although the Senate leaders said they had not yet decided on a tax package, most of us figure there's another shoe left to drop. Just a few minutes ago, Sen. Brown put up a post suggesting it's time to talk about an income tax.
We hope to have a WashACE analysis of the budget available later this week.
Posted by Richard S. Davis on 3/29/2009 1:49:00 PM
The Senate budget comes out Monday, with the House version scheduled for a Tuesday release. The initial releases, with no revenue package attached, suggest dire consequences, inviting interest group support for higher taxes.
Budget writers in both chambers have talked about a $9 billion
budget shortfall for 2009-11. But that’s a misleading term, referring
to the shortfall between the hopes of continuing spending levels from
2008 and the reality of state revenues available in 2009-11.
[Sen. Rodney] Tom said earlier this week that cuts to real programs amount to about $3.7 billion to close the $9 billion gap.
Joe Turner writes that Speaker Frank Chopp says decisions about a tax package - if any - will be made over the next two weeks.
We continue to believe that, difficult as the resetting will be this session, spending must be reset to a sustainable level - a level not requiring increasing the tax burden on families and employers.
Worker Privacy Act: A Wedge Between Labor and Democratic Leaders?
Posted by Richard S. Davis on 3/29/2009 1:15:00 PM
Last week in an apparently tense session labor leaders met with Gov. Chris Gregoire, Senate Majority Leader Lisa Brown and House Slpeaker Frank Chopp - the leaders who tabled the Worker Privacy Act after learning of an email that tied campaign contributions to legislative action. Most of the press coverage following the meeting focused on union concerns.
"This entire incident has severely strained labor’s relationship with Democratic leaders," said WSLC President Rick Bender . "We still consider their actions to have been a dramatic over-reaction especially after the Washington State Patrol and the Public Disclosure Commission quickly determined no legal or ethical wrongdoing. Democratic leaders offered no explanation at Wednesday’s meeting to counter assertions that their actions were anything but a pretext for blocking the Worker Privacy Act at the insistence of The Boeing Company.
Union considerations also factor heavily in what's being reported as an emerging split within the House Democratic Caucus.
Some members say the Democratic caucus is splitting into pro-labor and
pro-business camps. Those who consider themselves more pro-labor
complain that lawmakers aren't doing enough to address such issues as
climate change or worker rights.
But, Kris Tefft notes at Olympia Business Watch, labor scored two big - but we hope inconclusive - wins in the House Commerce and Labor Committee late last week.
The committee moved ESSB 6035,
the bill that would impose new restrictions and regulations on trade
associations that operate voluntary retrospective ratings programs in
workers' comp. It then amended and moved SSB 5963,
a delicate and heavily brokered effort to bring the state's
Unemployment Insurance tax system back into conformity with federal
law.
Sen. Rodney Tom, vice chairman of the Senate Ways and Means
Committee, told me a few minutes ago that he was pretty certain the
budgets would not come out this week.
However, House Majority Leader Lynn Kessler said she felt both sides
were very close to an agreement and it's still possible for the budgets
to be released this week.
The two chambers have been working together this year, with the House budget expected to come out a day after the Senate release. As Garber writes, by agreeing on the major cuts Democratic leaders hoped to reduce divide-and-conquer strategies from affected interest groups.
David Ammons, spokesman for Secretary of State Sam Reed,
just told me the Legislature would have to decide by "early to
mid-April" if it wants to put something on the June 30 ballot. (That's
a Tuesday, by the way.) And they'd have to act quicker if they want a
vote earlier in June.
I called Ammons because I got word that county auditors -- the local
elections folks -- were being alerted to a possible special election in
June.
A June vote is important if the new taxes are tied to education. The public schools put together their budgets early. August is tough. November is too late.
They should just shelve the tax hike question altogether. Don Brunell points out the budget can be balanced without new revenues.
Now is not the time to burden taxpayers with another layer of costly
government programs. And this is not a problem outside our reach. We
should be prioritizing within the state budget based on the income
available, just as Main Street does with its books every day.
PDC Clears Union Email; Governor Says She'd Have Vetoed Gag Rule Anyway
Posted by Richard S. Davis on 3/24/2009 12:31:00 PM
In this morning's Everett Herald, Jerry Cornfield reports that the Public Disclosure Commission will not pursue action against the union lobbyist who sent a controversial email that got the Worker Privacy Act legislation tabled for the session. You'll remember, that's the "not another dime" email, saying no more union contributions unless lawmakers pass labor's top priority, a gag rule on employers. After learning of the email, Gov. Gregoire, Senate Majority Leader Lisa Brown, and House Speaker Frank Chopp referred the email to the Washington State Patrol and killed the bill.
The patrol determined that the email did not break the law. Now, with the PDC saying, "no foul, play on," it's back to the legislature.
KIRO radio's Tim Haeck reports that, while legislators haven't shared their tax plans with her, Gov. Gregoire thinks new taxes are required. That's a shift in her oft-stated opposition to raising taxes during a recession, though she's generally said that if the Legislature wanted to submit a package to ther voters, they were free to do so. Here's the problem, in her view:
...Gregoire says it's a horrible time to hike property taxes or business
taxes, "That leaves you with a sales tax. One of our major problems
right now is a lack of consumer confidence. So people aren't buying
anything so I don't know how much that really gets us?"
The tax coalition may be unraveling, as members grow frustrated with the options, according to Austin Jenkins report on Crosscut. He notes that three labor groups have left the coalition, citing opposition to tax proposals that fall most heavily on "working families."
The UFCW's frustration with the "coalition" seems to support what
many in the legislature are hinting - that the leading contender for a
tax hike package is a temporary increase in the state sales tax.
The Washington State Labor Council, an umbrella organization, says
it left the coalition because its affiliates began bowing out and it
wanted to show support for them. In an email, the Labor Council’s Kathy
Cummings adds her group isn’t confident the tax effort will succeed.
Read Jenkins' report: It's a good summary of the challenges tax-boosters face this year.
The governor also allowed as to how there might be two tax-hike
measures on the ballot this fall: one for the operating budget; a
second one that would take the form of a bond measure that would pay
for school construction and create jobs.
That timetable would not be much help to folks wanting a tax hike for the public schools. They'd need a June election to give them timely budget certainty, something House majority leader Lynne Kessler told a business group tleadership is considering.
The Senate budget should be out later this week. Sen. Rodnety Tom already warns of thousands of job cuts. Sen. Jean Kohl-Welles calls the shortfall "among the nation's most severe." She cites a recent Elway poll:
Sixty-four percent of those polled would approve a temporary 1-cent
increase in the state sales tax. This could generate more than $1
billion over a two-year period.
New WashACE brief Pegs Shortfall at from $4 Billion to $6 Billion
Posted by Richard S. Davis on 3/20/2009 6:11:00 PM
The WashACE budget brief mentioned here is now available for downloading here (if the download doesn't work, please go here). The brief, prepared for us by the Washington Research Council, breaks down the components of the budget shortfall and assesses the deterioration of state revenues.
Read the whole thing. It provides valuable perspective on the state budget shortfall.
Revenue Growth Nearly Flat with Yesterday's Forecast
Posted by Richard S. Davis on 3/20/2009 12:58:00 PM
Yesterday the Economic and Revenue Forecast Council met to approve the official March forecast. This is a big deal because it sets the frame for state budget writers, telling them how much they'll have to spend in this budget cycle and the next. As expected, state forecaster Arun Raha had little good news to report.
Since our last official revenue forecast in November, the state economy has weakened considerably. The weakness in housing activity and auto sales has spread to other sectors of the state economy – non-residential construction, manufacturing, aerospace, software publishing and retail sales. Our new baseline forecast assumes that the U.S. and Washington economies will be in recession for most of this year, flattening out sometime late in the third quarter. Growth will remain flat in the first half of 2010, and improve only in the second half of the year. Job losses will continue even after the economy is in recovery.
Here are the numbers for the "near general fund state," which includes the general fund plus related accounts. For all practical purposes, this is what people mean when they say "the budget." In 2007-2009, the state will take in about $30.4 billion. For the next budget cycle, the state will take in about $30.6 billion. That's pretty flat, but negligible growth is not "no growth" and it's certainly not a $9 billion drop in revenues. Remember, the "nearly $9 billion" shortfall that some are reporting today represents the gap between available revenues and estimated expenditures, which includes the cost of operating current programs plus a number of "policy adds" like compensation increases and desired program expansions. As well, the $9 billion shortfall does not account for some $3.1 billion in federal stimulus money or any tapping of the rainy day fund.
Taking away the policy items and adding the stimulus money, the shortfall approaches $4.5 billion. (A new WashACE Competitiveness Brief to be released later today goes into this in some detail.)
If you take emergency state reserves, the federal stimulus money
recently approved by Congress and some other recent belt-tightening
moves into account, the real problem the Legislature has to solve is
around $4 billion. That figure includes leaving several hundred million
dollars in reserve.
That's still an enormous, and unprecedented, shortfall.
Agreed. But still much more manageable than the touted $9 billion.
The News Tribune reports on budget deliberations, with Joe Turner writing that the Senate may run out its budget by the end of next week. He also notes the current year deficit.
Victor Moore, budget director for Gov. Chris Gregoire,
said the revenue forecast puts the state back in the red and that state
will have to dip into its $430 million Rainy Day savings account and
use more federal stimulus money to balance the current budget, which
comes to a close on June 30.
Rich Roesler writes on his Spokesman-Review blog of some of the anticipated cuts.
Brad Shannon provides useful links for folks wanting more detail.
Adam Wilson reports on the growth/decline numbers: general fund is down some, near general fund up 0.2 percent as we noted above.
And plenty of speculation about taxes, but no one is saying much definitively. Austin Jenkins finally gets his public records request answered and tells us what some legislators are considering. It doesn't add up to a lot and may not make it past the "what if" stage.
For the record, no one has specified a tax package for a public vote. Some Tacoma-area legislators are telling constituents to brace for cuts.
What we've heard is that there may be a single package, several designer packages earmarking tax hikes to specific programs, and no package. That latter option is generally seen as a bridge to tax hikes next year, when they can be passed by a simple majority vote. The thinking is that after the public experiences the so-called "all cuts" budget, they'll be more in the mood to support tax hikes. First the pain of the cuts, then the, well, pain of the tax hikes. If, as expected, education programs are among the options for a voter-approved tax package, the election would have to be held in June. You can't begin a school year without having the revenue side nailed down - a November tax increase is too late.
If voters reject a tax package, that makes it more difficult for legislators to raise taxes in the 2010 session, which might be one reason to forego the vote now and adopt a no-tax-hike budget.
Boosting the Business Climate by Delaying Cap-and-Trade
Posted by Richard S. Davis on 3/16/2009 2:58:00 PM
At this time, the governor's ambitious cap-and-trade legislation is headed nowhere, which counts as a victory for the business climate, whatever you might think of its dubious merits as a climate change vehicle. Warren Cornwall has a good story on the politics in the Seattle Times.
House Speaker Frank Chopp, D-Seattle, said many fellow Democrats
voiced concern about the economic toll new regulations could take on
businesses already shaken by the recession. He also has heard doubts
about a market for pollution permits.
"With what's happened in the last year, one would wonder about the
wisdom of the markets," Chopp said. "Remember energy deregulation?
Well, that didn't turn out so well."
A February WashACE report challenged the economic modeling relied on by cap-and-trade promoters and estimated the proposed system would have imposed nearly $3 billion in new costs on Washington businesses by 2020.
Cornwall quotes AWB's Grant Nelson:
"Especially given the economic crisis that is facing Washington, the
Legislature has shown leadership and understanding in moving forward
this session on climate-change legislation in a more responsible
manner," said Grant Nelson of the Association of Washington Business,
which opposed Gregoire's legislation.
Right. Seattle's two major dailies both argue that the state should have jumped the queue and passed legislation ahead of the national consensus.
If Washington's economy is perceived to be too vulnerable to move
ahead, the governor and legislative leaders need to say so. Is more
time needed to perfect a workable plan, or is this a big step backward?
Yes, the economy is too vulnerable. And yes, more time is needed to perfect a workable plan. Nope, not a step backward, just a responsible recognition of economic reality.
Posted by Richard S. Davis on 3/16/2009 1:30:00 PM
John Stanton, chair of the Washington Roundtable, and Snohomish County Executive Aaron Reardon ask and answer the question in a must-read op-ed in yesterday's Everett Herald. Read the whole thing, but here's a sample:
If lawmakers act promptly on a couple essential,
commonsense issues, they can improve the business climate for Boeing
and for thousands of other small and large businesses.
Here's what they need to do:
* Budget responsibly and hold the line on tax increases. Faced with a
multi-billion deficit, state lawmakers must make a series of difficult
budget decisions in the coming weeks -- the same kinds of decisions
city and county governments and nearly every business and family across
this state are making. Some lawmakers are calling for tax increases,
saying the budget cannot be balanced without them. Forget about it.
Employers and families are struggling. The vast majority of voters
oppose tax increases, and rightly so. Higher taxes will hurt working
families, exacerbate the state's economic problems and stall recovery.
* Reduce business costs. In a global economy where companies can operate
anywhere, location decisions often come down to cost. And Washington is
more expensive than its competitors. Washington businesses shoulder 51
percent of the state and local tax burden. Unemployment insurance taxes
for employers here are the second highest in the nation. Worker's
compensation benefits are the third highest. And, Washington is one of
very few states with a gross receipts tax. To keep Boeing, or any other
manufacturer or large employer, our state must reduce employer costs as
compared to other states. It's too easy to move jobs elsewhere if we
don't.
Posted by Richard S. Davis on 3/16/2009 12:19:00 PM
The most recent economic forecast from the Economic & Revenue Forecast appears to confirm predictions that Thursday's official revenue forecast will further reduce estimates of state tax receipts for thirty odd months. Here's how state economist Arun Raha describes it.
Compared to the preliminary forecast, our updated Washington economic forecast is generally weaker, as a result of the weaker national economic forecast.
Following three months in which actual collections lagged the already-reduced November forecast by about 5 percent, this is clearly anticlimactic, but it ought to spur action on the major task before the Legislature in its final fifty days (we hope final fifty). Several good accounts in the weekend papers describe the situation and reveal what went on at a few town halls hosted by Democratic lawmakers.
Washington did get a lot of money from the federal stimulus package
– almost $5 billion. But about $2 billion is going to highway, water,
sewer, school and other construction projects or must be spent on other
things that make it of little direct help to the state operating
budget. For instance, some of the money is passing through the state
treasury but is headed straight to cities, counties, transit districts
and others to help with their budget problems.
Moreover, the $3
billion that is helpful to the state is limited to a three-year period,
and the Legislature already has spent $340 million of it.
It's a lot of money. But, as Turner writes, there's still a hole to fill.
If all of the governor’s spending cuts were adopted, the Legislature
would have to deal with about a $1.5 billion to $2 billion gap between
spending and tax revenues. That assumes Thursday’s forecast lowers
revenue collections by another $200 million.
He notes that the $1.5 billion to $2 billion have health and social service advocates working hard to gain legislative support for tax hikes, including polling to find the right package. He quotes Sen. Joe Zarelli pushing his plan to solve the problem without raising taxes.
Zarelli said the state should freeze spending at today’s levels. Not
all spending can be frozen – utility bills will be higher, landlords
will charge higher rent to state tenants – but state agencies should be
given the same amount of money they got for the past two years and be
told to live with it, he said.
“If business can do it and homeowners can do it, government can do it,” he said.
The Kitsap Sun reports that Sen. Derek Kilmer, D-Gig Harbor, believes lawmakers will pass what he and others call an "all cuts" budget. (In fact, the next budget will be made up of cuts and increases; what they call "all cuts" will be a budget without tax increases.)
Proposals to generate revenue will, in all likelihood, not be part of
the Legislature's strategy to address an $8.5 billion state budget
deficit — at least, not in this session, Kilmer said.
But he thinks tax hikes are coming.
He predicted that a tax measure of some sort is likely in the next biennium.
The Associate Press reports on the Bellevue Town Hall. After running down the options, the report describes the Democrats' endgame.
Balance the budget with spending cuts that are deep and broad, combined with one-time fixes like the federal stimulus bailout.
After
that budget becomes law and the cuts become reality, voters will have
to consider a tax increase that would pay for specific programs not
bankrolled in the bare-bones budget.
Lawmakers know that could
be a tough sell in this economy. In the Senate, which takes the first
crack at balancing the budget this year, "We're not betting that the
public is going to say yes," [Sen. Rodney] Tom said.
Better not to waste everyone's time. Set priorities, identify efficiencies, and pass the budget within available revenues.
Senate Passes Revenue Smoothing Amendment: To the House, Then the Voters
Posted by Richard S. Davis on 3/13/2009 4:58:00 PM
Yesterday the state Senate passed SJR 8209, a proposed constitutional amendment that would divert "extraordinary revenue" to the rainy day fund. It's a sensible plan for moderating the ups and downs of state revenues, reducing the opportunity for overspending in the good times and building the reserve for the bad times. Here's the Columbian story on the bill.
[Sen. Joe] Zarelli's proposed constitutional amendment would define revenue
collected in excess of 133 percent of the state's 10-year revenue
growth average as "exceptional" and automatically deposit it in the
state's rainy day fund.
Zarelli, a Ridgefield Republican,
worked with Senate Democratic Leader Lisa Brown of Spokane to win
passage of Senate Joint Resolution 8209 by a majority well in excess of
the required two-thirds vote. All the senators who voted against it
were Democrats.
On one level, at least, it is an example of closing the barn door after the cows have already fled.
More important, he writes:
It’s a good idea now, but would have been a great idea five years ago.
Had it been in place, the Legislature and governor wouldn’t have spent
the money that flooded the state treasury in the midst of the housing
boom.
Read Callaghan's column. It's a good read and clearly lays out the politics.
Posted by Richard S. Davis on 3/12/2009 3:19:00 PM
With the pivotal March revenue forecast coming out next Thursday, we're beginning to see what the budget might look like. It's going to be rough.
Brad Shannon and Adam Wilson at the Olympian offer a preview.
Budget cuts under consideration by a state House subcommittee include
more than $2 billion in reductions in health care and human services,
potentially twice as many cuts in health care as what Gov. Chris
Gregoire proposed.
• Elimination of the Basic Health Plan's subsidized insurance for about 100,000 of the working poor. Gregoire proposed cutting its funds by 42 percent.
• Elimination of a so-called "GAU" cash grants and health program for 22,000 unemployable, needy people. Gregoire called to dismantle it.
• Elimination of an adult day health
program that gives respite care to low-income and disabled people who
are cared for at home by family members. Gregoire also sought cuts.
• Cuts 10 percent deeper for nursing homes than what Gregoire proposed.
• Elimination of "backfill" money given to county public health programs after passage of Initiative 695 in 1999.
The story confirms much of what's been suggested previously. The Olympian also reports that interest groups continue to poll in search of a tax package voters might buy. Curt Woodward with the Associated Press has additional detail on the polling.
In an interview with The Associated Press, Washington State Hospital
Association spokeswoman Cassie Sauer says the coalition is planning
another round of polling, to narrow down options for a possible tax
vote.
Labor unions and environmentalists are also part of the coalition working with lawmakers on a possible tax vote.
The group's first round of polling showed voters might be open to
"sin" taxes and even some broader sales tax increases, depending on
what type of state programs could be saved.
Sin taxes don't cut it. And anything puts more jobs at risk. Joni Balter at the Seattle Times has it right.
A tax increase is the worst possible solution to what ails the state. Which tax would you raise, she asks, and by how much?
An increase in the business tax is not smart in a great
recession-depression. Property tax should be an absolute no in a
foreclosure-crazed climate. A sales-tax boost? Though that is the most
likely scenario, somebody please explain how it helps struggling
middle- and lower-income families.
Spending cuts, even hacking into generally untouchable benefits for state employees, offer the better course.
Revenue Collections Down Again, But Trend is No Worse Than Expected
Posted by Richard S. Davis on 3/11/2009 1:01:00 PM
Yesterday's The News Tribune and The Olympian, The official March revenue forecast comes out March 19. Based on the actual collection reports, it will again be down about 4-5 percent. But we'll know soon enough.
As we read these things, some wonder about an apparent lack of legislative urgency. When are they going to get serious about the budget? Of course lawmakers have known that they'll have less to spend now than the governor thought she add in November. So, presumably, they're quietly working hard to come up with a realistic budget, one that doesn't rely on unlikely voter approval of new taxes and one that sets the state on a "reset" sustainable spending pattern. In addition to declining revenues, they face some unavoidable increased spending for school enrollments and social service caseloads.
The governor has acknowledged sin taxes, the first recourse of the desperate, won't provide much new money.
According to a fly on the wall of the caucus room, during her
briefing Brown told her fellow Democrats that polling showed "90
percent of the public knows we have a serious financial problem..."
And Sen. Craig Pridemore, D-Vancouver, immediately quipped, "..and the other 10 percent are in the Legislature."
That's my latest nominee for Quote of the Session.
Posted by Richard S. Davis on 3/11/2009 12:22:00 PM
The good news is that, according to multipleandmysterious reports this morning, the Employer Gag Rule is dead.
The bad news is that it was pulled from consideration, not defeated on its lack of merit.
Adam Wilson's blog more than implies that there may be more to this than unusually inept lobbying by, presumably, union backers of the bill.
My reporter senses are tingling here, because it's awfully convenient.
This was a major contention point between two powerful interests,
unions and business, and now it goes away through no fault of the
decision makers.
I'm not sure exactly how that works. Someone does something stupid and leadership magnifies to to avoid a tough vote? Maybe. But it seems like a stretch. Rather than speculate, I guess we'll have to wait and see.
Jerry Cornfield, who had a good account of the "contention point" in this morning's Herald, provides the saga's timeline, suggesting that while the investigation continues, hard facts may be in short supply.
UPDATE Jennifer Sullivan has a more complete account at the Seattle Times blog, including statements from the governor and legislative leaders, as well as the state patrol, which isn't saying much. She also reports that the state labor council scheduled and canceled a press conference, declining comment for now.
Posted by Richard S. Davis on 3/9/2009 11:26:00 AM
This morning we unveil the new look for the WashACE site. I hope you like it.
The new design makes clear our competitiveness priorities, the four rotating items at the top of our page, and highlights our growing number of supporters. We think it's an easy site to navigate and provides us a good platform for adding new features over time.
We've imported all of the content of the previous site: WashACE research reports, candidate questionnaires and voting records, and blog posts.
Look around. And let me know what you think.
Allowing businesses the discretion to choose whether employees stamp out widgets or spend an hour attending a meeting on company time is not coercive and does not erode any workerƒ?s right to make up his or her own mind about the issue at stake.
However, removing that discretion would invite costly and probably futile legal challenges. Worse, it would give businesses that are either in Washington or thinking about it a reason to consider one of the other 49 states.
We're working on moving WashACE to a new website over the weekend. A cool new look, more features, and a different blogging platform. So, this will be the last post here for a few days while we get things stabilized. We'll be at the same address, www.washace.com. Keep your fingers crossed for us (or whatever it is you do for good luck). Talk to you soon.
This morning, the Seattle PI editorial board called on the Legislature to "make bold changes" in its way of thinking and tackle the budget challenge directly and swiftly.
So far, the Legislature and the governor still haven't fully faced the horrendous losses in health, education and social services that can occur in what is called, with only some exaggeration, an $8 billion budget gap. We do see bright spot that could point the way toward transcending politics as usual. Gregoire stood up to public employee unions by proposing wage freezes. In the Legislature, Senate Majority Leader Lisa Brown signed on as a co-sponsor to Republican Sen. Joseph Zarelli's measure to guarantee that, in the future, any exceptional jumps in revenues go into the state's rainy-day savings fund, not regular spending.
They also include a nice mention of the Washington Alliance for a Competitive Economy.
The latest email confirmed what I suspected. The email reads in part: ƒ?ƒ?more time will be needed to finish our response to your public records request. The remaining records consist of communications between the Department of Revenue and the State Legislature. The Department and the Legislature are currently evaluating whether any exemptions or privileges apply to the documents that are responsive to your request.ƒ
Translation: The Legislature maintains it can invoke ƒ?legislative privilegeƒ when it doesnƒ?t want to make public certain documents. This includes emails. It also apparently includes when lawmakers ask a taxpayer funded state agency to analyze a potential piece of legislation.
As Jenkins notes, the delay serves lawmakers much more than it serves the public. He'll keep at it. More discussion at Sound Politics.
Obfuscation and delay also characterize a peculiar bit of silliness that took place in the House yesterday. As Joe Turner reports in his TNT blog, Republicans tried to get a ruling on whether repealing a tax exemption is the same thing as a tax increase. It matters because tax hike require a two-thirds vote, hard to get in the best of times. Turner includes the GOP press release. It's worth reading. Bottom line: the acting speaker said because the requested ruling addressed hypothetical, he would not respond.
Let's be clear. If legislative action causes someone's taxes to go up, it's a tax increase. Although, as Turner notes in an earlier post,
House Bill 2212...appears to be an attempt to "clarify" that repealing a tax break isn't really raising taxes for anyone.
Reminds me of the Lincoln riddle: How many legs does a dog have if you call its tail a leg? Still four, calling a tail a leg doesn't make it one. "Clarifying" the definition of a tax hike doesn't alter the facts, either.
Yesterday, SJR 8209 passed the Senate Ways and Means Committee. The proposed constitutional amendment, sponsored by Sen. Joe Zarelli and cosponsored by Senate Majority Leader Lisa Brown, would take a share of "extraordinary revenue" and put it in the state's Budget Stabilization Account, aka the "rainy day fund." The legislation does two important things: It reduces the money available for overspending in the good times and it builds the reserve for the bad times.
It's the latest in what's been long struggle to end the binge-and-purge budgeting that accompanies the revenue roller coaster: overspending during the periodic revenue surges (tech bubble, housing bubble) and blood-letting sessions when the revenues plunge (2001, now).
In 1993, the voters handed lawmakers a solution when they passed Initiative 601, a tax and spending limit that tied spending growth to population and inflation. Further, it required supermajority legislative approval or voter approval to raise taxes, depending on the circumstances. It worked for a while, but amendments and legislative gaming weakened it considerably over the years.
In 2007, voters tried again with Initiative 960, which reinstated much of I-601 and added disclosure requirements. The supermajority requirements are now being challenged in Court.
Also that year, legislators adopted a constitutional rainy day fund. The proposal was another Zarelli idea backed by Gov. Gregoire and Sen. Brown.
It's good to see sensible, bipartisan agreement on a measure that can bring some stability to the state's budget cycles. To get an idea how this might work, check out this Senate Ways and Means graph.
Seattle Times Explains What's Wrong with the Employer Gag Rule
Posted by Richard Davis on 3/2/2009 4:23:00 PM
Well, everything is wrong with the so-called Worker Privacy Act. But the Seattle Times offers a concise argument against it. After they review the bill's legal flaws, the editorial touches on the negative message the bill sends.
A company should be able to tell its employees what it thinks about a contract offer or what union representation entails. The employees don't need to be shielded against what the boss thinks other than the shield they already have against his threats and promises. They can think the way they want and vote the way they want.
This bill is entirely one-sided: It restricts employers but not unions. It tilts the balance in a way that has not been done in any other state. And already Washington is one of the most union-friendly states.
The Legislature should scrap this bill and focus on balancing the budget.
See other comments at Olympia Business Watch.And then call your legislators and urge them to oppose this job killing legislation.
Adam Wilson reports in the Olympian that House Speaker Frank Chopp is backing a constitutional amendment making health care for children a constitutional right.
Speaker of the House Frank Chopp said Friday that he wants coverage for children to become part of the state's fundamental obligation to children, like basic education.
"Sometimes it will look like we're pitting education for our kids versus health care for our kids. We have a historic opportunity to mingle those together, to move both groups forward," Chopp told a crowd of 150 during a children's services rally Friday at the Capitol.
It's true, health care and education are the two largest shares of state spending. In recent years, as this WashACE brief points out,
Health-related expenditures accounted for more than one-third of state general spending in the 2005ƒ?07 biennium, an increase of nearly 8 percentage points from their share of spending in 1997ƒ?99. Over the period, the growth in healthcare costs squeezed other spending priorities. Looking to the future, as health-related expenditures represent an ever-increasing share of overall spending, the squeeze their growth places on other priorities will become more severe
Universal access to quality care cannot happen if costs arenƒ?t controlled. Cost and access are the same problem. And costs are least likely to be controlled when a generous Congress pretends to offer patients something for nothing.
On Day 50, it's still hard to tell. Friday I posted a short item indicating that legislative leaders think they're doing pretty well. But, as we knew on Day 1, the budget is the $1.5 billion (or $8 billion) gorilla this session. It's the beast that must be tamed before lawmakers go home.
Among the sadly dwindling team of reporters covering the Legislature, some are showing impatience with the pace and transparency of budget deliberations. This late in the game, it's fair to assume that one of two things is true: Either there's a plan for resolving the shortfall and no one's willing to talk about it, or there's no plan and no one's willing to admit it. Neither option is particularly appealing.
Joe Turner, whose earlier TNT blog post brought the tension into the open, published some additional comments from anonymous insiders yesterday. First, let's look at what Turner wrote in the original post.
I'd love to be able to tell you that Democratic leaders are showing all kinds of leadership, but we'll have to take their word for it. Because if they are, it's all behind the scenes. And they won't give us a glimpse.
Moreover, he suggested that the media factored into legislative strategy to set us up for a tax hike.
We in the Press Corps are supposed to soften you up. You voters. We're supposed to write stories about how bad things are going to get if you, the voters, don't agree to approve whatever tax package they put before you.
We are facing either deep cuts or tax increases. Let's get the facts out on the table as soon as possible, and have a real debate that engages the whole citizenry, and then decide what kind of state we want to be. I trust the people to make fair decisions, but only if they have the facts in sufficient time to really digest the information and weigh their options.
The Olympian's Brad Shannon offers another perspective, suggesting why things may be happening beneath a dome of silence.
The simplest answer is the Democrats are at a complete loss over what to do. They waited for the stimulus package to help, but the preliminary revenue forecast of Feb. 19 showed new revenue losses that pretty well wiped out the gains from the stimulus. The Democrats don't appear to have any answers yet.
But if lawmakers donƒ?t have a public willing to pay for tax increases, and they donƒ?t think they have time to build a case before the end of session on April 26, maybe it makes sense to hide the cuts until after the March 19 revenue update.
Then they would have five weeks to pass an ugly budget and run home.
Shannon cites this Survey USA poll showing that 70 percent of Washington voters think raising taxes is a bad idea.
What does appear likely is some sort of tax measure ending up in the laps of voters. A growing contingent of Democrats believes the state really has no other choice and that voters will pass a tax increase because the alternative -- severe cutbacks -- would be too painful to endure.
Not so fast.
We don't believe the state has reached this point of no return.
It hasn't. And it's time for lawmakers to lay out their budget balancing strategies, the ones that don't rely on new taxes. There will not be a taxpayer bailout.
More media comments from Sam Taylor at the Bellingham Herald and Rich Roesler at the Spokesman-Review.
I wonder how this will affect the budget. After the governor scrapped the collective bargaining agreement, wisely, because it cost too much in these straitened times, the unions sued. The governor won. And now labor is back at the table.
[Senate Majority Leader Lisa] Brown told the Labor Council, Washington's largest union advocacy group, that its members will have to help lawmakers sell a tax package to the public ƒ? a game plan that has become widely accepted in Olympia.
"We're going to need your help to put this thing forward in a productive and fair way," she said.
And in the PI story, Brown sets her sights on the state's Unemployment Insurance Trust Fund.
"Washington state has a healthy unemployment trust fund. We can utilize these funds to expand benefits and training," she said.
Nationally, the unemployment benefit provisions of the federal stimulus plan have been controversial. For a good overview of who's taking what, read this Stateline.org piece.
Time was when Ed Koch, as mayor of New York City, famously and frequently asked folks, "How am I doing?" Keeping it simpler, perhaps, legislative leaders recently let reporters know that they think they're doing just fine.
"I am feeling very good about the progress made this session," said House Speaker Frank Chopp, D-Seattle.
And Senate Majority Leader Lisa Brown, D-Spokane, shrugged off Republican criticisms that the Legislature is moving too slowly in writing a supplemental budget for the remainder of 2009.
"I feel good about the speed we've moved already with respect to the unemployment benefits and early reductions bills, and we will soon have a federal transportation stimulus bill on the governor's desk," Brown said. "We need to do more reductions. We will make those decisions after the caseload forecasts in March. ... We always wait until after the March forecast to do a supplemental budget."
The News Tribune's Joe Turner offered an unusually sharp counter. I won't summarize it here. But you should read it.
Sen. Joe Zarelli offers another way of looking at the problem. Earlier we wrote about the "yes we can" campaign. Yesterday Zarelli issued another of his useful "budget tidbits," laying out his alternative take on the problem. Download the file and read it.
Here's Zarelli's explanation of the $8 billion hole.
The deficit has been characterized as $8.3 billion. This is composed of:
A $1.3 billion deficit in the current biennium, which ends June 30th;
A $6.5 billion shortfall next biennium if we do not address the current biennium deficit, continue doing everything government currently is doing, plus do new policy enhancements;
An assumption of the need for a $500 million ending fund balance.
But keep in mind about this figure:
$1.4 billion represents proposed policy enhancements and compensation increases, including maintaining employees' health care benefits at 12% and providing COLAs and step-salary increases.
It assumes the current-biennium budget deficit remains unaddressed. Some savings have already in fact been achieved with passage of a mini-supplemental budget (ESHB 1694) last week.
It assumes no federal money is available to reduce the deficit. Likely, there will be around $3.1 billion available to the operating budget.
It assumes the constitutional rainy day fund, which will contain $700 million, is not utilized to address the problem.
The first step in solving the budget problem is a correct diagnosis. The second step is believing that the problem can be solved. Zarelli's views are helpful on both counts.
Good advice for state legislators from the Columbian this morning: Read her lips. Referring to the governor's stated opposition to raising taxes to balance the budget, the paper notes
If the governor can keep that pledge and write a budget during horrific economic times ƒ? which she did two months ago ƒ? then so can the Legislature.
And forget about sending a tax proposal to the voters.
Legislators should stop wasting time wondering if voters ƒ? many of whom are joining the growing ranks of the unemployed ƒ? would approve tax increases. Instead, budget writers, just keep cutting.
Don Brunell's column this week offers up another of what used to be called inconvenient truths, until Al Gore made it such a tired cliche we don't say it anymore. Brunell points out that coal will long be an essential element in our nation's energy supply.
..coal provides more than half of our nationƒ?s electricity and will for at least the next 20 years. There wonƒ?t be enough alternative energy for decades ƒ? if ever ƒ? to replace it.
But I reckon they all would like to see "all options on the table," which has come to mean "raise taxes" in much the same way "tax reform" means "pass an income tax."
Senate Republicans Plan to Balance Budget without Tax Hikes
Posted by Richard Davis on 2/24/2009 3:52:00 PM
Although heavily outnumbered, Senate Republicans expect to be heard on the budget. And, as Brad Shannon reports in the Olympian, they're saying "yes we can."
They just had large campaign-style buttons made up with an Obama-esque color scheme ƒ? mainly blue with white letters and a swash of red. "Yes we can!" the buttons say, with an asterisk followed by the words, "balance the budget without raising taxes."
Senate GOP caucus spokeswoman Rebecca Japhet was handing out the buttons early this afternoon, and members should start popping up with them on lapels. Click here to see the button and a 17-page explanation from Republican Sen. Joe Zarelli of Ridgefield and his colleagues about how the budget-balancing feat can be accomplished.
... is more easily found on the business pages than in Olympia. Dan Voelpel's column in The News Tribune is a must-read. He looks at the state's highest-in-the-nation-and-ever-escalating minimum wage, brought about by a labor-backed, voter-approved initiative in 1998 and concludes:
Somehow we have bought into the misconception that the minimum wage should equal a family wage.
It isnƒ?t. The minimum wage is a work force entry wage, a wage paid for a supplemental income, a wage for someone in the job temporarily rather than a career.
It has consequences, as a restaurateur tells Voelpel.
Duke Moscrip, the owner of Dukeƒ?s Chowder House restaurants, says the latest 48-cent bump will cost his company $50,000 more a year in wages, not counting the additional taxes and benefits he must pay on the higher wage rate.
Moscrip also gets the last, painfully accurate, word in the column. I'll give it to him here, as well.
ƒ?People down in Olympia donƒ?t seem to have any understanding of the business world. They think this money grows on trees and the employees should be getting everything. What they donƒ?t realize is if they break the back of businesses, and especially restaurants, there wonƒ?t be any jobs.ƒ
With the state budget gap now beyond $8 billion and widening, the buzz in Olympia is all about an inevitable public vote on tax increases to help close it.
Such talk, which the Legislature's Democratic leadership is doing nothing to quell, is premature and probably unrealistic. And, we'd argue, unwise...
Besides, voter approval of tax increases in this economic environment may be a longer shot than the Huskies winning the Rose Bowl next year. People and businesses are hurting, and while many are still doing what they can to help those in worse straits, good luck convincing voters to include state government on their list of favorite charities.
There is the problem for Democrats who would send a tax package to voters. If their tax does the job, it will be an economy-killer. If it is a bearable tax, it won't do the job.
The remaining option is cuts. They are painful, but they will have to fill most of that $5 billion gap.
The state must cut, cut, cut.
Right. And sooner rather than later.
UPDATE Missed a good Union-Bulletin editorial (h/t Jason Mercier). Read the whole thing. Here's a taste.
As the revenue forecast for Washington state's government grows grimmer -- from a shortfall of $6 billion in November to $8 billion this month -- talk of raising taxes is swirling in the Capitol.
It's crazy talk.
A deep economic recession is not the time to raise taxes. Washingtonians are not in the mood to approve or accept a tax increase of any size.
Raha places the state's recesion in a national context that includes "one of the worst 'bear markets' sinc WW II," the rapid decline of household net worth (down 19 percent from its peak in 2007), tight credit markets, lousy car sales, record-low consumer confidence, sluggish housing activity, and "plummeting" exports from our state (affected heavily by the Boeing strike).
He describes the problems in housing, banking, and jobs as a "three-legged stool of misery" and says that restoring the financial markets will be critical to any recovery. There's nothing in the data that suggests a quick turnaround.
Still, as this exchange from Curt Woodward's AP story reveals, rather than cutting now, legislative leaders want to wait.
Democratic leaders said they still must wait until March, for a more firm projection of revenue and state spending growth, before writing their budgets in earnest. The governor's budget director, Victor Moore, agreed.
Minority Republicans, however, reiterated their call for even more immediate spending cuts, saying the Democratic majority isn't moving fast enough in the face of a massive budget hole.
"I think still that there's an opportunity to do some things here and save some pain by moving earlier," said Sen. Joe Zarelli, R-Ridgefield.
And, while Democrats on the forecast council yesterday called talk of a tax package "premature," Andrew Garberreports,
Democratic leaders in the state House said earlier this week they'll likely propose sending a tax package to the ballot this year to help deal with the budget shortfall. And Senate Majority Leader Lisa Brown, D-Spokane, said she expects to bring ballot proposals to her caucus to consider.
Meanwhile, the shadow legislature of unions and other stakeholders is out their holding "focus groups" in communities. They're trying to figure out how much a tax increase (just a temporary one, I'm sure) the public can stomach, which taxes they would vote to increase or which tax exemptions they would vote to remove, which wholesome programs the money should be spent on to make the taxes more palatable (pay raises for state workers probably won't cut it, but warm, fuzzy stuff for school kids and colleges might) and, of course, how much money the tax increases should raise. $1 billion? $1.5 billion? $2 billion?
It's a tough job, but somebody's gotta do it. I'd tell you more, but most of the people involved are still either hiding in the shadows, refuse to talk to me or mumble a lot of indecipherable stuff when they answer me.
Unofficially, the Budget Defict Just Got Deeper: Maybe $8 Billion Shortfall
Posted by Richard Davis on 2/19/2009 8:00:00 PM
The unofficial "early revenue guidance" meeting of the Economic and Revenue Forecast Council provided the expected bad news. Emphasizing that official March 19 forecast "may differ significantly" from today's report, Arun Raha took the forecast council and the standing room only audience through the economic changes the state/nation/globe have seen since his November forecast.
Quick bottom lines:
He expects revenues to be down $721 million in the current biennium, which ends June 30, 2009.
And he anticipates $1,587 million less for the 2009-2011.
Noting that he sliced $1.9 billion from the forecast in November, Raha said, "We were not pessimistic enough." And he acknowledged that the volatility of the economy makes forecasting unusually imprecise. "My magic crystal ball," he said, "is still cloudy."
Good handouts from the meeting haven't been posted to the website yet. I'll check tomorrow. If they're not up, I'll scan what I have and upload it.
Andrew Garber has a brief account here and TVW posts running commentary on the Capitol Record (you may need to scroll down).
A tough editorial yesterday in the Olympian newspaper. Oh, I'll say it, tough but fair. They note the different responses between the union representing the ferry workers and the state's largest public employee unions. The ferry workers volunteered to forego any salary increase. As the Olympian says, it's the right thing to do. Yet,
Rather than follow the lead of ferry workers, union leaders for the largest state employee bargaining units have taken the governor to court in hopes of forcing her to send the negotiated wage contracts to the Legislature for consideration.
By suing the governor in a time when thousands are losing their jobs, the unions look greedy and oblivious to the current economic climate in this state.
Lately, interest groups arguing for tax increases have taken to deriding Gov. Gregoire's budget as an "all cuts budget." Some of the rhetoric gets a little hot.
Gregoire kept her campaign pledge and produced a budget that did not require new taxes. Admittedly austere, her spending plan does require a number of program reductions. She said she hated it.
Even after they take those cuts, however, this will not be an "all cuts budget." Spending on many education and health care programs will likely be up from the previous biennium. Many employees will receive pay hikes, because so-called "step increases," regular pay hikes for seniority, will continue to take effect. Some jobs will be reclassified so allow promotions.
To pay for necessary increases, lower priority programs will get cut. It's a recession. That's to be expected. But there's little rhetorical flair in decrying the "some cuts budget."
The governor made the right decision, the only responsible decision under these conditions. Let the legislature debate the priorities, not the outcome: a budget that lives within our means.
Yesterday, Gov. Gregoire signed the legislation increasing unemployment insurance benefits, part of a package she introduced last month. We have objected, saying that UI trust fund may be needed in a lengthy recession.
AG Opinion on Employer Gag Rule: Preempted by Federal Law
Posted by Richard Davis on 2/17/2009 3:44:00 PM
The Attorney General's Office has just responded to Sen. Mike Hewitt's request for an opinion on the legality of S.B. 5446. the so-called Worker Privacy Ace (we call it the Employer Gag Rule). As we've said all along, it's preempted by federal law. Or, as Deputy Solicitor Jeffrey T. Even writes in the "Brief Answer" section of the response:
I conclude that the National Labor Relations Act preempts the provision of SB 5446 you ask about.
That provision is the crux of the union-backed initiative. Hewitt asked,
"Are provisions of SB 5446 propsing to prohibit an employer from communicating with employees regarding "labor and other mutual aid organizations" preempted by the Federal Labor Relations Act?
Here's the opinion. And here's Kris Tefft's post at Olympia Business Watch.
This should be the end of it. May not be. But it should be.
According to this article in Business Week, European renewables mandates have successfully launched a green economy. But, they've not been much less successful at cinbatung climate change.
...wind turbines and solar energy plants are revolutionizing Germany's mix of power sources, creating jobs and making the country more independent from imports. But they aren't helping in the fight against climate change.
In the worst case scenario, sustainable energy plants might even have a detrimental effect on the climate. As more wind turbines go online, coal plants will be able to reduce their output. This in itself is desirable ƒ? but the problem is that the total number of available CO2 emission certificates remains the same. In other words, there will suddenly be more certificates per kilowatt of coal energy. That means the price per ton of CO2 emitted will fall.
So, if Washington, which is one of 11 participants in the Western Climate Initiative (WCI), joins California in passing a "cap and trade" bill along the lines suggested in the WCI accords and neighboring Idaho, only an observer of WCI, takes a pass, will the same thing happen here?
Friday the governor added Bill McSherry to her team as a temporary (6 month) adviser on aerospace. Here's the PI Insider's brief story:
McSherry will be looking for "innovative and practical ways to address concerns and possible hurdles that Boeing and the Washington aerospace industry now face."
McSherry is on loan for six months from the Puget Sound Regional Council, where he is director of economic development -- a subject into which Boeing's status figures prominently.
I've known Bill for a number of years, beginning back when he was with the Seattle Chamber of Commerce. He's a good selection, knows the issues well, and understands the politics and the policy.
I can't resist adding that Boeing has been clear about several issues this year, including the deceptively-labeled Worker Privacy Act (HB 1528/SB 5446). A vote is scheduled in the House Commerce and Labor Committee Wednesday. Stopping this unconstitutional and unnecessary legislation early would be a win for the aerospace industry and every other business in the state.
Meanwhile, we wish Bill good fortune. Washington cannot afford to take aerospace for granted (see here and here).
Friday, the Seattle PI carried yet another editorial urging lawmakers to pass the governor's climate change cap-and-trade legislation. There are, of course, plenty of good reasons to delay. Yet, the PI says:
Smart policymakers will choose to confront what science is telling us about how global change will hurt the state.
The absolute certainty in science expressed there made this George Will column timely. He riffs on the "global ice age" predicted thirty years ago, citing a number of examples where environmental doomsayers have been, well, off the mark. Read the whole thing.
He also cites a rule with which I was unfamiliar.
...Gregg Easterbrook's "Law of Doomsaying": Predict catastrophe no sooner than five years hence but no later than 10 years away, soon enough to terrify but distant enough that people will forget if you are wrong.
Of course, if we pass economy-killing regulations based on flawed science, people are unlikely to forget in five, ten, or twenty years. However you feel about it, there's no reason for Washington to rush ahead of national policy.
As the recession intensifies, so does the competition to win jobs and investment from less business-friendly competitors. That's one of the reasons it's vital that lawmakers get things right in the 2009 session.
In the Wall Street journal, Stephanie Simon reports that several Western states have stepped up efforts to lure business from a vulnerable competitor. In this case, it's California.
Several Western states are launching aggressive efforts to poach jobs, talent and industry from California, sensing an opportunity to capitalize on the Golden State's current political and financial woes.
She focuses on some clever marketing ploys by Colorado. But Colorado isn't alone.
Right behind Colorado are Arizona, Nevada, Oregon and Utah -- all planning to make similar runs at luring corporate executives, venture capitalists and manufacturers who might be fed up with California's political gridlock or anxious about potential tax hikes and deep cuts to schools, parks and other services.
No mention of Washington. You're either the hunter or the prey in this game. And right now, Washington looks a little too vulnerable.
Host Austin Jenkins explores business and labor issues with Sen. Jeanne Kohl-Welles, D-Seattle, and Sen. Jan??a Holmquist, R-Moses Lake on the February 12 episode of TVW's Inside Olympia.
He brings up the Washington Alliance for a Competitive Economy in the clip below. Watch the whole thing.
Mark says: ƒ?Using data from the stateƒ?s Economic and Revenue Forecast Council, ESD forecasts include a worst-case scenario modeled after a 1980s-style recession with a sustained high unemployment rate. This scenario assumes passage of HB 1906 and the continuation of the recently-triggered extended benefits program. Under this worst-case scenario, the Washington Unemployment Trust Fund would drop to $1.6 billion, or 8.6 months of benefits, in 2011.ƒ
When the fund drops to seven months, she notes, tax rates automatically go up.
This post from Richard Florida's Creative Class blog sheds some light on the likelihood of that "worst-case scenario" of a 1980s-style recession. He includes a good chart, which you really should examine. His prediction:
Itƒ?s bad already. My guess is it will overshoot ƒ?81 by a considerable margin, especially taking into account Carmen Reinhart and Ken Rogoffƒ?s research which finds that unemployment rises, on average, by seven percentage points over four years in the wake of serious financial crises.
Fooling themselves into believing they have a reserve large enough to handle contingencies is one of the reasons we're facing a $6-7 billion budget deficit. Looks like they're eager to repeat the mistake with the UI fund.
And Washington businesses continue to carry one of the nation's highest tax burdens. Here's thetable, from the Council on State Taxation. Kriss Sjoblom, Research VP and Economist at the Washington Research Council provides this additional insight.
The change is not dramatic, from 13th to 12th in business tax share and from 14th to 13th in taxes as a percentage of GSP. We should be cautious interpreting this change as the new study includes this note:
Note that business tax estimates for prior years have been revised from those published in earlier editions of this study due to feedback from state tax agencies, the use of updated and more detailed information on local business taxes and refinements to the property tax estimation methodology to reflect the rapid rise in the value of residential property since 2002. The most significant change was to general sales on business inputs, which we estimated to be $132.3 million for FY2007 in the April 2008 study and have been revised in the current analysis to $129.0 million for FY2007.
For comparison, here's the corresponding table from the 2009 WashACE Redbook.
There's a reason businesses - large and small, rural, exurban, suburban and urban - continue to urge lawmakers not to increase business taxes. The burden is already high and rising.
We continue to urge the legislature to focus on these essential issues and not increase the risk of future UI tax hikes by dipping into the fund now. For background see this and this.
We noted here yesterday that the Legislature's leisurely response to the state budget crisis has begun to attract attention from the governor. Curt Woodward's AP story continues the theme. Writing about the federal stimulus package, he notes this response from Gregoire.
The aid will be welcome, Gregoire said, but it won't make a huge difference in the state's budget picture. Tax collections are expected to keep falling, and the drop-off easily could wipe out the roughly $2 billion in Medicaid help, for example.
"We need to be understanding that, as wonderful as this package is, it is not going to be the relief to the legislative budget-setting process," Gregoire said. "There is a lot of very difficult work to be done."
In The News Tribune, Les Blumenthal has more details about the federal money. (It gets hard to keep referring to this as stimulus.)
A little panic would be a healthy thing at this point, yet it seems to be missing from the mix in Olympia. The Legislature has yet to pass a single spending cut, to the frustration of a governor who had advised quick action.
Each day that lawmakers delay represents a missed opportunity to make immediate cuts that will shrink the carry-forward cost of government ƒ? and therefore the crater that awaits Washington in the two-year budget that begins in July.
The editorial offers a sadly plausible pair of explanations for the dithering.
There are two possible explanations for why lawmakers are being slow to act: Theyƒ?re in denial about the size of the problem, or they are waiting for the situation to get so desperate that tax increases will become an easier sell.
A Thurston County Superior Court Judge today ruled that Gov. Gregoire had the right to scrap the collective bargaining agreements reached with public employee unions last fall. See here, here and here.
Gregoire confused the process when she had her budget director serve as both the negotiator and the person who later declared that contracts for raises and health benefits were financially unreasonable, the judge said.
But the governor does have the power to back out of contracts after the Oct. 1 deadline to finish talks, Hirsch said, noting the law separately requires the budget office to certify them as feasible.
The union will appeal.
See also this post by Jason Mercier at the Washington Policy Center.
Update: Wilson has more. And, FWIW, returning the setting of public employee wages and benefits to the Legislature does make a lot of sense.
Governor's Impatience Grows; Senate Majority Leader Willing to Wait a Bit
Posted by Richard Davis on 2/12/2009 3:44:00 PM
Gov. Gregoire's impatience with the Legislature's dilatory approach to budget-cutting, noted previously, seems to be ratcheting up a bit. From Brad Shannon's report:
"So the pressure is on for us. I think what has happened is everybody is kind of sitting there and waiting to see what will be in the stimulus. And I think it has kind of frozen people thinking we need to wait and see what is happening " Gregoire told reporters at the Red Lion Hotel Olympia after she spoke to the Association of Washington Business on Wednesday morning.
"I think it's come clear now the stimulus is not going to bail out the budget. It simply isn't. So they are going to have to pass a supplemental budget," she said.
Rich Roesler writes that Sen. Lisa Brown wants a little more time. He includes comments from her blog, a nice vehicle for Brown to use.
Gov. Chris Gregoire and Brownƒ?s Republican colleagues have both said that theyƒ?re frustrated by Democratic legislative leadersƒ? slow pace enacting cuts. Brown has said that she didnƒ?t want to cut people off of health care or aid, for example, only to find out later that federal help or changing economic news rendered those cuts unecessary.
Two key numbers will come next week, Brown writes. On Monday, President Obamaƒ?s slated to sign the final version of the stimulus bill. And on Thursday (Brown says Tuesday in the blog post), the stateƒ?s economic weather forecasters will deliver an unusual early ƒ?preliminary forecastƒ of state revenues.
But Brown doesn't expect good news. And she's not shy about submitting a tax hike to a public vote, Roesler reports.
Unlike Gregoire, who pledged ƒ? and delivered ƒ? a no-new-taxes budget proposal, Brown has for months been hinting that the solution the stateƒ?s deep budget woes is likely to include some tax increases. That, after all, is whatƒ?s happened in Olympia in every other economic downturn for the past 40 years. And Brown is convinced that voters, if shown the need, will support paying more.
My Take on the Employer Gag Rule, Union Neutrality or Worker Privacy Act
Posted by Richard Davis on 2/12/2009 3:11:00 PM
Whatever you call it, it's unnecessary, unconstitutional, but not, as I write in this column, inconsequential.
If they pass this bill, lawmakers send a resounding anti-business message to companies considering locating or expanding in Washington. Skewing public policy in favor of union organizers will not stimulate economic development.
At AWB's Legislative Day in Olympia (yesterday), Attorney General Rob McKenna said that his office has been asked for a legal opinion on the legislation (HB 1528 and its companion bill SB 5446). He didn't tip his hand. But I'd be surprised if his office reached a different conclusion than the U.S. Supreme Court did on California's similar law.
February Revenue Collection Report: 5 Percent Below Forecast
Posted by Richard Davis on 2/10/2009 4:36:00 PM
The new revenue collections report has been released.
General Fund-State (GFS) tax payments in the January 11, 2008 - February 10, 2009 collection period fell short of the November forecast. Receipts for the month were $62.6 million (5.3 percent) lower than expected. Revenue Act receipts were $53.0 million (4.7 percent) below the forecast, and non-Revenue Act payments were $9.7 million (18.1 percent) below the forecast. The cumulative shortfall since the November forecast is now $196.8 million (5.1 percent).
Sen. Joe Zarelli was quick to comment through his Budget Tidbits.
While the Legislature waits, non-entitlement caseloads grow, salary increases for union employees continue to be granted, and agencies seeking flexibility to make cuts are hamstrung.
The cost of this inaction is ultimately lost savings opportunities. And this means one of three things -- or a combination thereof -- will result:
a. Cuts will be deeper than needed if quick action had been pursued
b. More one-time money and gimmicks will be relied upon to balance budget
Gov. Gregoire thinks so. Who can blame her? Still no supplemental budget and little sense of urgency from the legislature. Jerry Cornfield wrote Sunday that Democratic leaders say their moving as quickly as they can, leading Cornfield to conclude:
All I can say is they must be on Democrat time.
Here it is the 28th day of the 2009 session and the majority party has yet to send Gov. Chris Gregoire a single piece of legislation to cut a single dollar of spending by state government. Tomorrow, on the 29th day, they won't again, and maybe not even Tuesday.
Joe Turner breaks it out in The News Tribune. Read his complete blog post, but here's the bottom line.
If the cards fall just right, maybe $1 billion to $1.5 billion might be available to help the state with its $6 billion, going on $7 billion budget deficit over 30 months. That's the best-case scenario. So does that mean the Legislature is looking at a tax increase to put on the ballot? Probably.
And for a thoughtful assessment of the federal stimulus package, read this piece in the Wall Street Journal by Gary Becker and Kevin Murphy. After a rundown of key provisions, they conclude:
Our own view is that the short-term stimulus from the legislation before Congress will be smaller per dollar spent than is expected by many others because the package tries to combine short-term stimulus with long-term benefits to the economy. Unfortunately, short-term and long-term gains are in considerable conflict with each other. Moreover, it is very hard to spend wisely large sums in short periods of time. Nor can one ever forget that spending is not free, and ultimately it has to be financed by higher taxes.
Gov. Gregoire's announcement yesterday of a comprehensive government reform campaign looks like an appropriate respond to the challenges of the time. Few of us would argue the the effort's three goals: reducing the bureaucracy, improving government service, and streamlining government operations? And it's encouraging to see the business-labor committee includes AWB president Don Brunell and Puget Sound Energy executive Phil Bussey.
As expected, she's cutting the number of state boards and commissions, something other governors have attempted with minimal success. Fifty of them disappear with a stroke of the gubernatorial pen. Not a bad start. (Link to disappearing groups here.)
Rich Roesler has more, including the governor's plan to restructure the Department of Community, Treade and Economic Development into a more focused Department of Commerce. Roesler also posts on Senate Democratic staff director's awarding the governor (on his personal blog) the Herbert Hoover for her decision to handle the budget challenge with cuts, not new taxes. (Looks like that post may have been taken down.) Roesler also links to my column in the Puget Sound Business Journal. (Thanks, Rich!)
It's good to see that the governor's plans include a statewide performance audit undertaken the direction of Brian Sonntag, state auditor.
Stimulating Business To Stay in Washington Should be Legislature's Priority
Posted by Richard Davis on 2/6/2009 3:20:00 PM
But, as I argue in the Puget Sound Business Journal today, an awful lot of what's being considered in Olympia seems designed to stimulate business departures.
Right now we need a long-term vision for the recovery. What weƒ?re getting are recycled union and environmental initiatives that will deepen our recession and send jobs and investment out of state.
For example, with unemployment rising dramatically, the governor wants to divert money from the Unemployment Insurance Trust Fund. And with manufacturing layoffs piling up like pizza boxes after the Super Bowl party, lawmakers are considering job-threatening climate change regulations. They call this stimulus?
As well, they continue to impose paid family leave requirements on every business in the state. And unconstitutional, union-backed restrictions on employer free speech have gathered significant legislative support.
Provides for a temporary increase in unemployment benefits by adding $45 tothe weekly benefit amount, and making $155 the minimum amount payableweekly.
Expands eligibility for the training benefits program to low-wage workers,honorably discharged military personnel, and persons who are disabled.
Eliminates restrictions in the shared work program on the number of an employer's employees that must be enrolled, and the number of weeks thatsuch employees may receive benefits.
Provides for non-charging of the additional $45 and training benefits.
Unemployment filings have soared so high in recent months that seven states have already emptied their unemployment-insurance trust funds, which were supposed to see them through recessionary periods. Another 11 states are in jeopardy of depleting reserves by year's end, according to the National Conference of State Legislatures, which published a January report entitled "The Crisis in State Unemployment Trust Funds." So far, states have borrowed more than $2.3 billion in emergency funds from the federal government, money they are required to pay back.
Our trust fund is high, no doubt. But I thought that we got over that peculiar Washington exceptionalism ("we're not like other places") when the deficit projections reached $6 billion. You know, it can happen here.
The February revenue forecast shapes up as a bleak tune-up for the big show in March. Today's Wall Street Journal has a couple of stories assessing the January damage. Auto sales for the Detroit carmakers plunged, again.
The declines were steeper than anticipated and came against a backdrop of sluggish consumer spending for all types of goods...
Overall, auto makers industrywide sold 656,976 cars and light trucks in January, according to Autodata Corp., down 37% from January 2008. It was the lowest total since December 1981 -- and the first time U.S. sales were lower than in China, where about 790,000 cars were sold last month, according to GM.
Granted, those are national numbers, but we're over the illusion that Washington's immune. I doubt we'll look much different.
And the longer people look at the federal stimulus plans, the more troubled they appear to be. Bruce Ramsey raises some unwelcome and thoughtful concerns in his Seattle Times column this morning. Today's Rasmussen Reports reveals that half of America believe the package will make things worse.
Fifty percent (50%) of U.S. voters say the final economic recovery plan that emerges from Congress is at least somewhat likely to make things worse rather than better, but 39% say such an outcome is not likely.
It's beyond strange that with things looking this bleak lawmakers are giving serious consideration to any legislation that will drive up costs (climate change) or make Washington an outlier in labor relations (Worker Privacy Act).
Brad Shannon from the Olympian reported both sides of the story this morning. KPLU's Austin Jenkins put up a short broadcast piece as well. Finally, Niki Sullivan at TVW's new Capitol Record blog has a series of blurbs about the hearings, including the humorous (and spot-on) observation that House and Senate floor sessions routinely start with a prayer, which under this legislation apparently means the chambers could not require legislative employees' attendance at the sessions.
AWB's message at both hearings yesterday was clear: in these extraordinary, almost surreal, economic times, when the focus must be on maintaining jobs and keeping Washington working, the Legislature should not waste its time with a bill that will not withstand legal challenge and which fosters a political atmosphere that unfairly slams employers at a time when we need jobs the most. If ever there were a time for business and labor to beat their swords into ploughshares and work together on job creation, this is it. And yet the agenda is consumed by the most divisive labor law bill the Legislature has heard in decades.
First Steps Taken to Close the Deficit with Spending Cuts
Posted by Richard Davis on 2/3/2009 4:07:00 PM
With the continued erosion of state revenues, Washington's current budget, the one for the biennium ending June 30 this year, is in the red. Legislators have been working to trim spending to bring it into balance.
Ordinarily such midterm corrections are handed in the supplemental budget. This year, the House has passed what it's calling an "early action savings plan." Moving right along, the Senate Ways and Means Committee is hearing the bill right now.
It's a start. But there's a long way to go.
How far we have yet to go we'll learn sooner than later, with news that the Economic and Revenue Forecast Council will hold a special February meeting . The governor and legislature wanted to track revenues more closely given the depth of the recession. Arun Raha, the state's chief revenue forecaster, warns that this won't be the last word.
The preliminary forecast is meant to provide the Legislature, at its request, with early guidance regarding the impact of deteriorating economic conditions on state revenues since the official November 2008 forecast.
Please note however, that given the current uncertainty about the economic environment and stressed financial markets, conditions may change enough between the preliminary forecast and the official one, such that the final forecast may differ significantly from the preliminary estimate.
That's been the pattern. No one's expecting a quick uptick in tax revenues.
New WashACE Brief on Economic Impact of Cap-and-Trade
Posted by Richard Davis on 2/2/2009 3:58:00 PM
Don't believe the Western Climate Initiative's promises of a cost-free cap-and-trade system. That's one of the important findings in anew Competitiveness Brief by the Washington Alliance for a Competitive Economy.
... the WCIƒ?s conclusions about the cost of its proposed cap-and- trade system are wildly optimistic and are not justified by the incomplete modeling work.
The report includes some good estimates of the impacts cap-and-trade would have on Washington businesses.
Forecasts of emissions prepared for the state indicate that baseline 2020 greenhouse gas emissions (the level of emissions forecast absent the cap-and-trade system) would total 121.9 million metric tons, of which 113.4 million metric tons would be subject to the WCI cap. At the WCI predicted price of $24 per ton (which we believe understates the 2020 allowance price) allowances sufficient to cover the baseline emissions would cost state residents and businesses $2.7 billion.
Of this $707 million would be borne by the industrial sector; $295 million, by the commercial sector, $354 million, by the residential sector; and $1.4 billion, by the transportation sector (this includes personal automobiles). The cost of gasoline would rise by $698 million; the cost of diesel fuel, by $288 million.
The burden on manufacturing businesses would be significant. Emissions data from the Boeing Company indicate that at $24 per metric ton the annual cost would be $8.4 million. Emissions data from the Northwest Pulp and Paper Association indicate the annual cost to a large pulp and paper mill would be $1.8 million, while the cost to a medium sized mill would be $980,000.
Numbers like that put jobs at risk. And the economic modeling of the WCI falls far short of what's required to estimate the economic impact of this legislation on the state. With the Obama administration ready to implement a national climate change policy, Washington lawmakers should reject efforts to push us ahead unilaterally, with predictable negative impacts on our state's industry and long-term competitiveness.
Read the brief. And tell your legislator not to risk good jobs on flawed analysis.
Today's Wall Street Journal carried a front-page story about what states are doing to build their economies during the recession. Under the headline, More States Considering Tax Breaks to Woo Jobs, Stephanie Simon reports the intense jockeying for position as state governments compete for new investment and to retain the employers they have.
Rising unemployment has touched off a race among state governors to woo companies with tax breaks and financial incentives, even as budget shortfalls force cuts in education, health care and other services.
She notes that most states are counting on federal stimulus money, but
they're not convinced it will be enough. So they've laid out urgent calls to chase private-sector jobs with public money.
Why? This is what Missouri's Democratic Gov. Jay Nixon says:
"Everything stems from jobs," Mr. Nixon said. "Now is not the time to back off the field of economic development."
It's a good, balanced account of the current competitive landscape. And, it's a reminder that when we say "location is a choice" 49 other states are working to make themselves the right choice by reducing costs and uncertainty for employers.
One of the problems with plans to increase unemployment insurance benefits and temporarily cut the tax is that it increases uncertainty by raising the specter of higher costs in the future. With the economy still deteriorating, employers rightly fear reducing the trust fund when demand for benefits continues to rise.
Snohomish County Exec: "Eliminate Barriers to Competitiveness"
Posted by Richard Davis on 2/2/2009 12:27:00 PM
In his "State of the County" address last week, County Executive Aaron Reardon put economic competitiveness at the top of his agenda. And he framed the issues effectively, with a sobering assessment of the conditions facing Washington business, particularly his county's largest employer. There's a refreshing summons to action in Reardon's comments that doesn't yet seem to have hit Olympia.
Staying competitive in this global economy means continued vigilance...We must act with a sense of urgency to make our region more competitive and to shore-up investor confidence. But our most important short-term economic opportunity isnƒ?t being discussed in the halls of Olympia and on the front page of our newspapers, or at the tables of the many good and decent associations and committees of government and business leaders.
Though times may be different, our key economic objective remains tied to the future of the Boeing Company in Washington State. We must do all that isnecessary as a region and state to make certain that the second line of the Boeing 787 is built here in the Puget Sound.
For the last five years, as our state reaped the benefits of our success in landing the 787, other states have made tremendous efforts to gain a competitive advantage. It is imperative that the second line of the 787 not be taken for granted...
It's not, of course, just about Boeing. It's about doing what's necessary to make this state the smart choice for business location. But as Reardon knows, a Boeing decision to move operations from Washington would be devasting to his county and the regional and state economies.
With more than 20,000 jobs disappearing in the last few weeks, there's nothing more urgent than keeping the jobs we have.
I've not had as much time at the keyboard as I'd like the last couple of days. So here's a quick link to some important announcements and observations from AWB's Olympia Business Watch blog:
Balance the Budget Without Kicking a Tax Plan to the Voters
Posted by Richard Davis on 1/28/2009 12:25:00 PM
That's the theme of my column this morning (also here).
Meanwhile, legislators continue to wrestle with the "early savings action plan" (don't call it a supplemental budget - I don't know why). There's an important hearing this afternoon in the House Ways and Means Committee.
What happens in the House today will help us get a handle on what they mean by early, by savings, and by action.
UPDATE Schmudget, the blog for the Washington Budget and Policy Center, posted a commentary on my column, arguing for keeping "revenue options" in the mix. We disagree. Read Schudget for the other side, effectively presented.
Catching Up (a bit) with the Budget Gap and Stimulus Plans
Posted by Richard Davis on 1/28/2009 8:59:00 AM
Big money is coming to the states. How much and for what remains a bit cloudy, but things are moving along now. Joe Turner yesterday reported that Dick Thompson, the governor's stimulus chief, a $4 billion injection of stimulus dollars. On this interactive map by the Center for American Progress, the number is quite a bit higher: $10.39 billion, but I'm guessing we're comparing apples with oranges. It just goes to show how hard it is to nail anything down right now.
And, even as the Congress moves the plan along, some economists are asking how much good it will do. Harvard economist Greg Mankiw points out:
... only 8 percent of this spending occurs in budget year 2009, and only 41 percent occurs in first two years. Note that spending on transfer payments and tax relief occurs much faster than this...
Mankiw also provides a "mature perspective" on the effectiveness of infrastructure spending by Keynes himself. (h/t Instapundit)
Microsoft, {CEO Steve Ballmer] said, is making cuts because they donƒ?t see the economic downturn as a recession, they think the economy is resetting to a lower level of consumer spending.
Itƒ?s not just semantics: The difference is at the heart of the public budget-related disagreements between Republicans and Democrats here.
Go to the blog and listen to the distinctly different takes on the budget offered by Sen. Joe Zarelli and Rep. Kelli Linville. Zarelli points out that the state and embarked on an unsustainable budget path well before the recession. Linville contends that the deficit stems primarily from the economic downturn and defends spending decisions made in recent years as restoring cuts made during the previous downturn.
If you believe that the recession is just a cyclical dip, you might be inclined to use stimulus funds to maintain spending until the eventual recovery. If you buy the "resetting" argument, then you'll want to use this time to rightsize spending to a lower and sustainable level.
The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall.
Welcome to the new normal. Even during the upcycle, state government was spending more than it collected in tax revenues. The recession sharply accelerated the inevitable budget collapse. Pulling back now won't be easy, but it's necessary. And we're beginning to see small steps in the right direction. Getting an earlier fix on revenues also seems like a good idea.
After surveying the global economic picture and the "debt bubble," Schiff concludes:
Taking on more debt to maintain spending is neither sacrificial nor beneficial.
What's true of debt is also true of the use of one-time stimulus dollars to prop up a spending plan that cannot be sustained under normal economic conditions. Entrepreneur.com offers good advice to business owners, advice that applies equally to state budget writers. (h/t eff Cornwall at The Entrepreneurial Mind)
The economy tanks. You have two options: hole up in a bunker and hope it ends before you run out of tinned peas, or innovate and emerge stronger than when the economy took the hit.
There can be no return to spending-as-usual. But we can use this time to build a better, sustainable budget that protects essential services while increasing economic opportunity.
At a press conference recently, new Superintendent of Public Instruction Randy Dorn announced his plans for replacing the WASL. Dorn asserts that he has the authority to change the test without legislative approval.
Dorn consulted with legislators and Gov. Chris Gregoire before making his announcement, but emphasized that he did not need their approval to make the changes. Under state law, the superintendent can, in consultation with the state Board of Education, develop and revise a statewide system to test proficiency in reading, writing, math and science.
Some disagree.
Senate Minority Leader Mike Hewitt, R-Walla Walla, called Dorn "pretty arrogant" for speaking about what he could and couldn't do without the Legislature.
"It's as if he's never served in the Legislature before," Hewitt said of Dorn, who was chairman of the House Education Committee. "Well, we're still controlling the budget, and we still make the laws in this state."
WashACE has strongly supported rigorous accountability requirements for the schools. Steve Mullin of the Washington Roundtable appeared with the superintendent at yesterday's press conference. His comments in this Spokesman-Review story effectively capture our conerns.
Mullin said that his group would oppose any changes that might make the WASL ƒ?less rigorous,ƒ even if it meant saving time or money.
At Wednesdayƒ?s news conference, Mullin spoke cautiously, saying the Roundtable appreciated being consulted on the matter, and that thereƒ?s plenty of common ground ƒ? in requiring a test for graduation, for instance.
But as far as other specifics, Mullin would say only that ƒ?I think there are potentially some parts of what heƒ?s proposed that we may have continuing concerns about.ƒ
We'll be watching closely. Meanwhile, watch the press conference.
More on Using the Unemployment Insurance Trust Fund for Stimulus
Posted by Richard Davis on 1/23/2009 9:54:00 AM
In a Senate Labor, Commerce, and Consumer Protection Committee hearing, lawmakers heard public testimony on SB 5319, which taps the unemployment insurance trust fund to support "economic stimulus." It's part of the governor's stimulus package. Among business groups testifying against the proposal were AWB and the Washington Roundtable, founding WashACE members.
The $4 billion in the reserve account is held in trust to insure workers receive their benefits when they lose their jobs through no fault of their own. ƒ?We need to learn from history. In 1982, our stateƒ?s unemployment rate rose to more than 12 percent, depleting the unemployment fund. If lawmakers divert funds from the UI trust account, the money may not be there when people need it,ƒ warned Brunell.
ƒ?Proposals may be well-intentioned, but we continue to worry about the long-term consequences if our economy continues to erode,ƒ Brunell said. ƒ?We need to be cautious because we just donƒ?t know how many jobs will be lost this year.ƒ
Also in The News Tribune's editorial page blog, Patrick O'Callahan makes a solid argument for not rushing to spend UI Trust Fund dollars to other purposes. Acknowledging that there's not nearly enough in the fund to jump-start the economy, he writes that the proposal may still do some good. More important:
Before approving [the legislation], lawmakers should give a hearing to the employers whoƒ?ve been on the hook to finance the trust fund.
...Its size is an argument for drawing it down some. But itƒ?s also an argument for listening to employers who feel the state has been levying excessively high payroll taxes all along. They deserve a say before the Legislature changes the rules on how the money is spent.
And, as the business leaders said yesterday, the major Unemployment Insurance issue before the Legislature this year is getting back into compliance with federal policy.
That's the question surrounding today's reintroduction of House Bill 1528 and Senate Bill 5446, this year's version of the labor unions' notorious gag rule bill. Although deceptively titled the "Worker Privacy Act" and cloaked in talking points about rights to conscience and privacy in political and religious matters, the bill is designed to prohibit employers from effective communication about labor unions during an organizing campaign. It arms the employee with a new right to decide which meetings, communications, and valid job directives he or she will listen to, a right enforced by a new lawsuit against the employer with the threat of punitive damages.
One problem: The bill would prohibit, with respect to unions, a constitutional free speech right that federal law explicitly protects. It's pre-empted. That's why no other state, despite intense national lobbying by the AFL-CIO, has passed this bill. The only state that came close, California, had their similar 2004 attempt struck down last summer by the US Supreme Court on federal pre-emption grounds.
Undeterred, advocates have rolled out this bill again with fanfare, exaggeration, and caricature. But it's a needless diversion.
In this challenging economy, with the state unemployment rate rising to 7.1 percent and the Legislature struggling with a projected $6+ billion deficit, lawmakers waste their time and the taxpayers' money considering a bill the core purpose of which has already been ruled beyond the authority of states to regulate.
A new tax for an expanded paid family leave program?
Posted by Kris Tefft on 1/22/2009 10:36:00 AM
During the first week of the legislative session we noted the bill to repeal our state's unfunded, unimplemented paid family leave law, calling repeal the only responsible move for this troubled program in the midst of a recession. At the same time we predicted the program's remaining legislative advocates would likely push a new payroll tax to try and revive the idea in advance of its improbable October 1, 2009 start date.
The paid-family-leave program that the governor suspended to save money could reappear, only bigger. It would be paid for with a 2-cents-an-hour payroll tax on most employees. Any such tax would have to be approved by voters, but the chairwoman of the state Senate Health Care Committee is confident that the pubic would approve it. . . .
[Senator Karen] Keiser said a new bill that will be introduced soon will not only revive the program, but expand benefits to those caring for sick parents or other family members. She also said President Barack Obama has been supportive of similar programs, and some federal money might be available to finish Washington's computer system.
We had this to say:
"There wasn't the political will to pay for it with a payroll tax even in good economic times, in 2007," said Kris Tefft of the Association of Washington Businesses. "Now is not the time to consider a payroll tax, whether its on employers or employees," he said. "The nature of the program is its ultimate costs won't be borne by the worker even if they're taxed for the insurance premium." Businesses still would be saddled with the administrative paperwork, even as they and their workers grapple with a recession, Tefft said.
Naturally, this would be the day that the Legislature takes up the euphemistically named "labor neutrality" bill, aka the employer gag rule. (For that matter, on the Washington State Labor Council site it also flies under the flags of "worker privacy" or "free speech in the workplace."
Here's the legislation: HB 1528 and companion SB 5446. Last year this stuff was shelved, as noted in this blog post by then-TNT editorial page editor David Seago.
Almost as if they want to give topspin to the rising unemployment rate.
Renewing Renewable Energy Incentives: New WashACE Competitiveness Brief
Posted by Richard Davis on 1/20/2009 4:04:00 PM
Our state's commitment to renewable energy generation enjoys substantial public support. In the last decade, the nascent industry has been nurtured and encouraged by a tax incentive exempting producers from local and state sales and use taxes for the purchase and installation of machinery and equipment used in generating electricity from wind, solar, landfill gases and fuel cells. The exemption is up for renewal this year.
This WashACE Competitiveness Brief, prepared for us by The Simeon Partnership, examines the role of renewable energy and the importance of maintaining the current tax exemptions. The bottom line:
Extending these tax exemptions will help Washington maintain its competitive advantage in energy pricing and, therefore, contribute to a competitive business climate.
It's hard to see how the state could meet the I-937 renewables targets without the exemptions in place.
They call it a "trust" for a reason. It's money held in trust so that it will be available to provide economic security for qualified unemployed workers. Remember Al Gore's Social Security "lockbox?" Same thing: Putting money away for a specific purpose and not dipping into it to fund other things, no matter how desirable.
Right now, Washington has a healthy Unemployment Insurance fund, better than many states have and a rare bright spot in our cloudy fiscal landscape . It's a tempting target for policymakers looking for money to tap for economic relief and economic stimulus.
The WashACE priority agenda includes reforming the state unemployment insurance system to prevent uncompetitive increases in employer costs. Several things drive that objective to the forefront. Here's how we say it on our one-page:
Washingtonƒ?s unemployment insurance taxes are the second highest in the nation. Our workersƒ? compensation benefits are third highest. The federal government has determined that our UI policies are out of compliance with U.S. policy. Further, the state Supreme Court tossed out the legislatureƒ?s carefully negotiated language establishing clear criteria for determining when workers who voluntarily leave employment qualify for UI benefits. We urge lawmakers to adopt unambiguous language reinstating the ƒ?voluntary quitsƒ criteria and to achieve federal compliance without increasing UI taxes.
Dipping into the fund jeopardizes the fund's integrity and backs away from the reforms we're supporting.
Stimulus vies with Sustainability in Deficit-plagued Opening Week
Posted by Richard Davis on 1/16/2009 9:43:00 AM
It's a theme-setting time, the first week of a legislative session. Beyond the pomp and circumstance, lawmakers work to make sure we understand that they understand the direness of the times. Gov. Gregoire delivered her second inaugural address, acknowledging the severity of the state's economic and fiscal problems and telling us what she intends to do about it.
She echoes WashACE priorities with this:
...like our struggling families and businesses, we can and will tighten our belts, balance our budget and focus on basic needs ƒ? protection of our children, our schools and colleges, our public safety, our environment and our economy.
And this:
When this recession ends, and it will end, we must be ready for a new economy. We need to preserve our education system to make sure we provide workers skilled in science, math, engineering and technology.
She also emphasized government reform, streamlining and rightsizing, promoting more effective use of technology and improving the state's competitiveness.
AWB president Don Brunell notes the major problem with that plan (stories here and here),
...Brunell warned it may set a dangerous precedent that could lead increased unemployment taxes in the long run.
... Brunell said his analysis showed that businesses could receive a tax break of about $40 each from the plan, an amount he called "pretty insignificant."
It's early and a lot of what we're seeing will evolve and, we hope, improve. There's still too much apparent confusion between relief and stimulus. At a time when we're seeing jobs disappear too rapidly, stimulating a new, gauzy green economy should take a back seat to retaining those good jobs that remain. (For a glimpse at the jobs picture, check out this frightening layoff ledger from the Seattle Times.)
Well, maybe not just yet. But with the economy tanking, a $6 billion revenue shortfall, and businesses across the state striving to find a way to survive the recession, it makes no sense to impose a new tax and mandate on employers. So, jettisoning the program would seem like an appropriate, practically inevitable. response to current conditions.
AWB's position on paid family leave has always recognized the employees' need for time off and the challenges inherent in balancing work and family. We've supported flexibilty, incentives for paid leave, and streamlining existing leave laws. But the unfunded mandate of paid family leave has now become a check the state can't afford to cash.
Day 1 of 2009 Legislative Session - And the Budget Crunch Gets Crunchier
Posted by Richard Davis on 1/12/2009 9:06:00 AM
Setting the dreary stage for this year's budget debates, the state forecast council reported revenue collections for the December 11,2008 - January 10, 2009 period came in $97.5 million below the November estimate. (Collection report here.) Remember, that November estimate sliced $1.9 billion from earlier forecasts. In the two months since that deep cut, collections have come in $134.1 million below forecast. It's all but certain that the March forecast, which will frame the legislative budget, will again be down considerably. Talk of a $7 billion budget shortfall has become common.
The governor's budget now looks like it hasn't gone far enough. More cuts will be required if revenues continue to plummet. Perversely, the sinking revenue projections that have deepened the shortfall have led some lawmakers to argue for higher taxes. Adding to the burdens of struggling families and businesses would add to the state's recessionary problems. We need policies that will spur economic activity and increase business and consumer spending. Tax hikes would produce the opposite result.
So it's encouraging to read some stern and sound advice on the editorial pages.
Lawmakers are right when they cast the recession as an opportunity. It is an opportunity ƒ? an unparalleled one at that ƒ? to question assumptions about how the state spends money. The priorities must be meeting the stateƒ?s legal obligations and protecting those who cannot fend for themselves. Beyond that, anything should be up for discussion. This habit of spending faster than revenue grows is unsustainable and only makes the inevitable economic downturns that much harder to buffer.
A new year, a new best places report. This week, U.S. News published its take on "the 7 best states to start a business." Washington came out on top. As you might suspect, the study does not rely on a survey of Washington business owners. Rather, it combines the results of a pair of reports produced by other groups. From the article:
U.S.News decided to look at two comprehensive studies that take completely different approaches to measuring the friendliness of the 50 states to entrepreneurs: the 2008 New State Economy Index, by the Kauffman Foundation and the Information Technology and Innovation Foundation, and the Small Business Survival Index 2008, by the Small Business and Entrepreneurship Council.
We've looked at these studies before. In November we put up a brief post about the New State Economy Index. Matthew Bandyk, who wrote the "7 best states" piece for U.S. News, also wrote this week about the index. He makes the right observation.
Robert Atkinson, lead author of the 2008 State New Economy Index and president of the Information Technology and Innovation Foundation, says that the index is not meant to measure economic performanceƒ?which is why rust belt Michigan can come in at 17th in states that have adapted to the new economy and Sun Belt North Carolina comes in at 24th. Instead, it is about which states have the economic structures in place that will allow their entrepreneurs to create long-term innovation: knowledge jobs, globalization, dynamism, and technology.
Fair enough. And for many business poised to capitalize on the technology infrastructure, Washington may look like a very good place to locate. But as we've noted previously, the New Economy Index is not a competitiveness index.Interestingly, Washington ranks 40th for "entrepreneurial activity," hardly what you'd expect of the best place to start a new business.
As for the Small Business Survival Index, we've written before on the heavy anti-income tax bias that accounts for Washington's high ranking on this tool. Although the methodology has changed some, the tax bias continues to skew heavily toward states without an income tax. Consider that the six highest-ranking states have no income tax.
Put the "7 best" article in the entertainment file. Combining a tech-centric index with a flawed small business measure does not yield anything like a "best place to start a new business."
Next week the Legislature convenes, with economic recovery the top agenda item. The fluffy "best places to start a business" story should not become a distraction.
UPDATE On his Eye on Olympia blog, Spokesman-Review reporter Richard Roesler has more on the rankings, including a nice link back to WashACE. Credit Roesler for reporting on the U.S. News story first. I should have.
Friday's Puget Sound Business Journal ran an excellent editorial by George Erb (subscription required). Erb concisely sets out a smart competitiveness agenda for the state, hitting themes similar to those of WashACE. Specifically, he commends the governor for shunning tax increases, encourages investment in the future (public works and higher education), and urges the state to nurture entrepreneurial activity. I encourage you to find a copy or read it on line.
I particularly like Erb's close, which reminds us to look beyond the recession.
The coming state and local budget cuts are unavoidable. They will be painful. But they donƒ?t have to be debilitating, and we cannot let todayƒ?s harsh climate diminish our hopes for tomorrow.
Erb rightly cautions lawmakers not to fall into the trap of thinking their problems could be solved by closing "tax loopholes."
Too often, ƒ?loopholeƒ is just a rhetorical term for an incentive that someone disagrees with. Itƒ?s better to judge incentives on how effectively they meet government policy objectives.
And on that score, Don Brunell's column in today's Columbian provides good support for one possible target, the manufacturing machinery and equipment sales tax exemption.
Research by John Urbanchuk, the nationƒ?s foremost expert on tax incentives, projects that, between now and 2016, the M&E exemption will create 54,100 new jobs in Washington, expand our stateƒ?s economy by $49.3 billion, put $22 billion in the pockets of Washington families, increase tax revenues for state and local governments by $2 billion, prompt $4.4 billion in new investment, and spark $1.3 billion in construction spending and equipment purchases.
Yesterday, the Service Employees International Union filed a lawsuit demanding that the governor withdraw her budget and submit a proposal that includes the negotiated pay raises for home care workers. (Stories in the PI, The News Tribune blog, the Olympian, the Columbian, and the Everett Herald.)
In The News Tribune post, Joe Turner points out that the SEIU may have a better case than the state employees' union that filed a similar lawsuit last week.
The SEIU seems to be on more solid footing than the Federation. The collective bargaining law for them flatly says any contract approved by an arbitrator must be sent to the Legislature.
In its editorial today, the Everett Herald makes the critical point. Noting that the WFSE lawsuit seeks to allow the legislature to act independently on the contracts. The editorial says:
Even if that happens, the only responsible course for the Legislature would be to freeze state workers' pay, sparing some cuts in other, more critical areas for now.
This economic downturn, and the budget problem, are the most serious the state has faced in many years. Everyone is taking their lumps. State workers shouldn't be exempt from that reality.
Not Much Support for Union Lawsuit Over Bargaining Agreement
Posted by Richard Davis on 12/29/2008 11:03:00 AM
Last week the largest state workers' union filed a lawsuit, protesting the governor's decision not to fund the collective bargaining agreement her office reached with state unions last fall. If the governor declines funding, the Legislature cannot on its own authorize the pay hikes. The unions and the state go back to the bargaining table.
Although the governor's office initially signed off on the agreement, there was an important condition: the state budget office had to certify that the deal was financially feasible. With the sharp decline in revenues in recent months, budget director Victor Moore concluded that the agreement did not pass that essential test. The unions are not happy. (I wrote about it last week on The News Tribune's editorial page blog, but forgot to comment here.)
Over the last several days, some of the state's major editorial pages have weighed in, showing remarkable unanimity. This morning's TNT calls foul on the union strategy in their editorial, Collective bargaining, meet economic reality.
The federation is asking a judge to strike down the part of the law that prohibits the Legislature from unilaterally considering employee contracts. The union that helped bench lawmakers now wants them back in the game.
No court can compel state lawmakers to play. Democrats in the Legislature should not kid themselves that state worker raises are an option given the historic proportions of the stateƒ?s budget deficit.
Earlier, the Seattle PI wrote that unforgiving math makes the bargaining agreement untenable.
The Seattle Times says the union is "acting badly."
The Vancouver Columbian calls the union's action "ill-timed greed."
The union is looking for kinder treatment from legislators than theyƒ?re receiving from Gregoire. She promised not to raise taxes, and she kept that promise, by proposing tough cuts in programs, salaries and virtually all other aspects of state government.
When union officials squawk about pay during the worst economic crisis in memory, it only fuels the suspicion that all they care about is the union.
Gregoire called her budget ugly. And while few relish the choices she had to make, here's the view from a couple more editorial pages.
Budgeting in hard times requires hard choices. The governor did what she had to do: balanced among competing interests, set her priorities, and determined a collective bargaining agreement negotiated in better times was no longer feasible.
As the only game in town for those who care about such things, the governor's budget continues to draw a crowd. Much of the stuff is a rehash of entrenched positions taken long before Gov. Gregoire put a plan on the table. Long before last week's announcement, everyone knew the two overriding conditions governing the budget: the structural deficit for the next biennium exceeded $5 billion and the governor opposed tax hikes. So, not much room for surprise.
The no-new-tax pledge, however, does not extend far beyond the governor's office, as Rachel La Corte's AP story makes clear.
"We don't agree with this, that from square one, we cannot raise a dime of new revenue," said Cassie Sauer, spokeswoman for the state Hospital Association.
...The Sierra Club, for example, quickly pitched closing tax exemptions for old-line energy industries in favor of "green" initiatives and spending on state parks.
The Washington Federation of State Employees, whose members would suffer layoffs and flat pay under Gregoire's budget, also called for shrinking tax loopholes.
So far, it looks like most groups are resigned to the idea that tax increases will be put to a public vote. In The News Tribune, Joe Turner underscores one of the arguments working against new taxes: Despite all the cuts, state spending would be $1.2 billion higher.
The $3 billion in "cuts" that Gregoire referred to in her budget release remarks are cuts from a "maintenance level." That is, first you inflate your spending to account for all the increases in inflation (salaries) and caseloads (more kids in school), THEN you cut.
So that's how you can cut $3 billion and still end up spending $1.2 billion more.
...to say now that budget decisions didnƒ?t contribute to the current red-ink menace means we learned nothing ƒ? again. It means weƒ?ll act the same way the next time weƒ?re flush with tax revenue. It means weƒ?ll go through yet another episode of deep budget cuts after the next crash.
And on his much-improved blog (referring to look, feel and function - content's always good), Rich Roesler notes that the state workers' union promises a fight to resist cuts.
As she predicted, reactions to the governor's budget have been swift. While the scramble to understand the details will take us all a while, the broad brush strokes are enough to frame the likely debate.
As we posted earlier today, Sen. Joe Zarelli likes the approach Gregoire has taken, saying it puts the process on the proper course. Zarelli is ranking Republican on the Senate Ways and Means Committee. His counterpart in the House, Rep. Gary Alexander, also likes the direction.
I commend the governor for putting forth a balanced budget that does not raise taxes or fees. House Republicans have long believed that increasing taxes or fees is not the right approach while families are struggling with everyday expenses and workers are losing jobs.
While there are certainly some details of her plan that we might do differently, the governor has offered a good first step in correcting the past four years of overspending.
Alexander and Zarelli both emphasize the importance of building early savings into the 2009 supplemental budget.
AWB president Don Brunell issued a brief statement.Noting that AWB continues to review the budget proposal, Brunell emphasizes the groups support for her decision not to raise taxes on families and employers. He adds:
It is critical that Washington state look beyond the current budget woes and prepare for what happens after we emerge from this recession. Part of that discussion must include creating the conditions for a healthy business environment so that when we do emerge from the recession, Washington is positioned as a good place to create those jobs.
As devastating as the economic conditions may be, the recession is an opportunity to reshape the way government operates and position our state to attract and retain businesses.
The largest union representing state workers call Gregoire's plan dead on arrival. They say that approvingly, looking for legislative support for tax hikes.
ƒ?Our biggest concern is that everything should be on the table and that includes tax loopholes and revenue enhancements,ƒ Federation Executive Director Greg Devereux said. ƒ?If the economic parts of our negotiated contracts that were ratified two months ago can be suspended, why canƒ?t a campaign pledge on no revenue increases be retracted?ƒ
Senate Majority Leader Lisa Brown has reservations as well. She calls reliance on $1 billion in federal assistance a "glaring flaw" and, pointedly, does not pledge to resist tax hikes. Brad Shannon notes her concern in his Olympian story, which includes Alexander's assessment that the estimated federal money is a "reasonable assumption." Today's Wall Street Journal story on the Obama stimulus plan adds weight to the Gregoire/Alexander position.
The broad parameters of the package are known already. It will include a tax cut designed to pump $50 billion to $100 billion into the economy almost immediately; about $100 billion in aid to state governments, primarily to temporarily assume more of the cost of Medicaid, in hopes of staving off benefit cuts or tax increases; and funding in five main areas: traditional infrastructure, school construction, energy efficiency, broadband access and health-information technology.
The first shoe dropped this morning as Gov. Gregoire released her proposed 2009-2011 budget. In addition to coverage on TVW, she has a nice video release laying out her policy priorities and guidelines. In the video, press conference and this press release, she restates her pledge not to solve the problem with tax increases.
The governorƒ?s proposed budget will close the projected shortfall without raising taxes.
ƒ?Now is not the time to be raising taxes on our residents and businesses,ƒ Gregoire said. ƒ?Our families are tightening their belts, and thatƒ?s what government needs to do. The state must squeeze every ounce of value from each taxpayer dollar while maintaining our priorities of protecting families and children the best we can.ƒ
I didn't hear the word "ugly" in her description of the budget, but she says she expects that everyone will find something not to like in a budget that closes - her estimate - a $5.7 billion budget gap. As expected, she rejects salary increases for state workers, teachers, and care workers.
Acknowledging that this is the beginning of an extended budget discussion, she invites public participation through something called "an interactive budget calculator" that will be on the governor's web site in early January.
Instant budget analysis is always dangerous. Details matter. That said, it's encouraging to see that the governor recognizes the importance of balancing the budget within existing revenues and has appeared to take a long-term perspective to the budget.
State senator Joe Zarelli (R- had this to say about it:
The governor has put the budget process on the proper course with her proposal for the 2009-11 biennium... she did what she promised by balancing that budget without tax increases. Those are positive steps. There is some room for discussion about whether the priorities reflected in her budget are the real, core priorities of government. But overall itƒ?s a move in the right direction.
... The governor has done her part and made a solid case for her choices. Now the ball moves into the Legislatureƒ?s court.
Andrew Garber at the Seattle Times has a good overview, including this rhetorical Q&A.
...Gregoire's proposed spending plan for the next two years represents an increase of less than 1 percent over the current budget.
Which raises a question: What's being cut if state spending is essentially flat?
The answer: Mostly proposed increases in state spending.
At the PI, Chris McGann runs down some budget highlights. Joe Turner's Political Buzz blog also provides good insight. And for an excellent national overview of the state-local budget dynamic, check out this story in the Wall Street Journal.
WashACE will be looking more deeply into the budget, with a Competitiveness Brief scheduled in a few weeks. It's critical that the budget adjustments close the structural deficit and put the state on a course for long-term fiscal sustainability. More later.
New WashACE Brief Examines Growth in State Spending
Posted by Richard Davis on 12/17/2008 5:43:00 PM
Just in time to put tomorrow's budget story in perspective, we've published a competitiveness brief looking at state spending trends since the mid-1990s. The brief, drafted by the Washington Research Council, examines the near general fund accounts. It looks at the major areas of state spending -- education, health care, and so on - as well as employment trends.
The brief provides a lot of useful information, a must-read for those who want to understand the current state budget crisis.
Gov. Gregoire will release her budget plan tomorrow. She's not hesitated to call it an "ugly" budget, reflecting the challenges associated with trimming a $5.2 - $6.0 billion shortfall for the 2009-2011 biennium. The announcement will be carried live on TVW at 9:30 a.m. At 2:30, the Seattle Times will provide streaming video of the governor's appearance with the Times' editorial board.
Plenty of other folks also wrote about the budget. In The News Tribune, Rep. Gary Alexander has a good op-ed on the importance of swift budget action.
If the Legislature and the governor pass a supplemental budget that shaves an easier-to-swallow $500 million off the current budget, we will remove $2 billion from our projected $5 billion deficit.
This is not a misprint: If we save $500 million now, immediately, we save $2 billion down the road.
Of course, it depends on the quality of the cuts, but he makes a persuasive argument.
Also in The News Tribune, Peter Callaghan notes that Washington has plenty of company in the budget quagmire. Here's the Stateline story he references.
For the first time in 25 years, states expect to see a decrease in spending in the current fiscal 2009 budget cycle, NGA and the National Association of State Budget Officers said in their latest "Fiscal Survey of States" released Dec. 15.
Thirty-one states will have to close nearly $30 billion in deficits from their current budgets before they even begin drafting new fiscal plans for the coming year, Five additional states also reported shortfalls, but didnƒ?t include figures.
ƒ?As bad as the situation is for states right now, all indications are that the fiscal conditions for states will continue to deteriorate,ƒ NASBO Executive Director Scott Pattison said.
The recession continues to plague us. Unemployment is up again. Paul Nyhan in the Seattle PI has a comprehensive report. He quotes Seattle economist Dick Conway.
...the Puget Sound-area economy is finally succumbing to a recession, according to regional economist Dick Conway. It threatens to last until the end of next year and maybe longer, he added.
That means a tougher job market for the growing ranks of the unemployed.
Here's something that ought to concern us.
"Our economy held up well because of continued employment growth at Boeing and Microsoft," Conway said.
As we know, Boeing hiring as slowed down and layoffs are possible in 2009. And Microsoft is adding jobs faster outside Washington than it is here.
Ugly or not, the state budget will doubtless reflect current economic realities. The governor has rightly said that tax increases would impose greater hardships on families and employers. The legislature must now focus on streamlining, setting smart priorities, and positioning the state for a strong, sustainable recovery.
MORE I just read Kim Bradford's TNT editorial page blog. Seems the governor's interview with their ed board will be carried live at 11:30 a.m. tomorrow.
Faced with more and more job losses, Floridians now are more likely to support incentives for businesses to expand or relocate here, the survey found. Support for incentives rose to 63 percent, up 8 points since last year. Opposition to business incentives dropped to 21 percent from 32 percent last year.
"People say do not bring people here, but now Floridians are more interested in economic development," said USF professor Susan MacManus, the survey's academic adviser. "It's a shot in the arm for business."
I've not seen similar results here, though I imagine Washingtonians are as savvy as their counterparts in the Sunshine State. It's easy to assume incentives don't matter when the economy is strong and growth seems inevitable. When times get tougher, intuitively we know that jobs and investment grow where the return on that investment is greatest. Costs matter and tax incentives work.
Just days before the governor must present her budget proposal, the debate over how to plug a $5 billion shortfall (projected to grow) continues to intensify. Not really much to talk about that hasn't been said before - cut spending, raise taxes, do a bit of both - but the magnitude of the problem amplifies the voices.
On King5 Up Front yesterday, Gov. Gregoire points out the problem with tax hikes (quote at 8:14).
ƒ?I donƒ?t know what you tax. You canƒ?t tax individuals. Theyƒ?re struggling. Theyƒ?re struggling to put food on the table. Our food banks are overwhelmed, overwhelmed. You canƒ?t tax business. Some of them are hanging on by their fingernails. You canƒ?t tax folks at their property tax. So I donƒ?t know what you tax in these kinds of dramatically difficult times.ƒ
She's right. The whole Up Front show is worth watching. Host Dennis Bounds leads with the budget challenges facing higher education and follows the Gregoire quote with a give-and-take between Washington Policy Center president Dann Mead Smith on the right and Washington Budget and Policy Center executive director Remy Trupin on the left.
Andrew Garber reports in the Seattle Times that lawmakers don't have to produce a balanced budget. Legally true, sure, but they should and they will. And, as Rachel LaCorte writes, the effort may provide the opportunity for bipartisan cooperation. When the choices are as difficult as these will be, it's always a good idea to get as many fingerprints as possible on the final document.
Jerry Cornfield's story in the Everett Herald is a good example of the kind of press budget writers will be facing. In the Columbian, John Laird takes a similarly dim view of the spending cuts that may be required, while highlighting two good ideas from a local Republican.
State Sen. Joe Zarelli, R-Ridgefield, issued a written statement Thursday with two excellent proposals. ƒ?The Legislatureƒ?s first action of 2009 should be to pass a supplemental budget within the first week of the session.ƒ ...
Also: ƒ?If a program is proposed to be cut for 2009-11, every effort should be made to examine whether the change should be accelerated for implementation in the 2009 supplemental.ƒ
Important as balancing the budget is, lawmakers must focus on laying the foundation now for sustained economic recovery. They may want to borrow some ideas from some competitor states.
In the Detroit Free Press, columnist Ron Dzwonkowski outlines steps Michigan can take to improve that state's beleagured economy. He cites the work of Detroit Renaissance, whose efforts underscore the intense interstate competition for economic development.
Suburban Chicago's Daily Herald suggests that while it's good to ask tough questions of companies seeking bailouts, government officials should also question themselves.
Government has every right to demand that businesses asking for bailout bucks first make drastic changes in dreadful management. But government also has to be asking itself how it might be getting in the way of efforts by well-run businesses to survive this recession on their own.
In time, the economy will recover. And when it does, some states and regions will be better positioned to take advantage of new growth opportunities than others. The policy choices lawmakers make in 2009 will determine whether Washington will be numbered among the winners.
States, which already have closed $40 billion in fiscal year (FY) 2009 budget gaps, face at least an additional $97 billion they must close over the next 18 to 24 months...
They provide links to a map that shows a pattern of states in the red (not to be confused with red states). Washington, for the first time, joins the list after dropping into a current year deficit with the November revenue forecast.
Texasƒ? watershed year was 2003, with a $10 billion budget shortfall for the biennium, but we were not alone. California faced a whopping $38 billion shortfall that same year. The way the two states responded then, set the stage for what is happening today.
Texas reduced spending to cover the deficit that represented about 15 percent of its general revenue. The commitment was made, and kept, that the shortfall would not be resolved by increasing taxes.
Today, Texas has become the nationƒ?s top job producer, hosts more Fortune 500 companies than any other state, and was cited by the Financial Times as the state best able to weather the financial storm. Although the economic downturn will cause short-term problems, especially in retirement system investments, the state will enter the next budget cycle in the black, just as it did in 2005 and 2007.
The foundation makes this important point.
At the very time when families will need the safety net of Medicaid and [children's health care] the most, states that have not exercised fiscal responsibility, particularly those that have expanded their health care programs beyond sustainability, will not be in a position to help. That is not compassion.
Careless spending hurts those it purports to help.
As the recession deepens, policymakers would be well advised to consider the alternatives ... and emulate Texas.
Sen. Joe Zarelli is back with his fiscally-prudent Budget Tidbits. In his latest release, he looks at how lawmakers should respond to the current shortfall. Noting that early savings reduce ongoing costs, he urges swift action. Good advice.
The incoming Superintendent of Public Instruction, Randy Dorn, is quick out of the box with a call for higher taxes. As the Texas-California comparison demonstrates, raising costs on struggling families and consumers doesn't work. Worse, it drives jobs and investment out of state, leaving a big hole to fill for the folks remaining.
Light blogging note: The blog has been inactive this week. I've been out meeting with groups to discuss competitiveness issues and making brief presentations. My apologies to those of you who have missed it. Over the next few weeks, expect intermittent posts as we implement plans for a new, more robust WashACE website to launch next month. Please let me know if you have suggestions for how we can better serve you. Thanks.
We just released a new report on the November revenue forecast.
With last weekƒ?s forecast, the frame is set for Gov. Gregoire, who will release her budget proposal next month. She predicts that it will be ƒ?uglyƒ and few will disagree. The governor has also said that this is not the time for raising taxes. And, again, few will disagree. Tax increases would deepen the recession and delay recovery.
The brief, prepared for WashACE by the Washington Research Council, adds useful perspective on the dominant competitiveness issue before us.
In this new competitiveness brief, prepared for WashACE by the Washington Research Council, we examine several areas in which state policy may drive up labor costs. Citing several well-known studies of interstate competitiveness that find Washington a high-cost state, the brief examines unemployment insurance, workers' compensation, paid leave, and other issues that are likely to be considered in the coming legislative session.
The cost of doing business has many components, but labor costs make up the largest variable. And within the larger labor cost picture, it is employment taxes and mandated benefits that make the big difference from one state to another. Washington already has among the highest average wage rates in the country, so adding additional costs through taxes and regulation further threatens to let labor costs overwhelm the stateƒ?s competitive advantages.
The memo you knew was coming arrived today. OFM director Victor Moore calls on elected officials, agency directors, and other top state administrators to cut an additional $260 million from their current budgets. The memo includes specific targets and lays out criteria the budget-cutters should use.
1. Identify and take under-expenditures and efficiencies that go beyond those already taken; 2. Continue to pull back on new programs not yet fully implemented; and 3. Scale back existing programs and activities that fall lower in the Priorities of Government process and/or have been identified in your work with OFM as 2009-11 Biennial Budget reduction items.
The largest state workers union, the Washington Federation of State Employees, argues against job cuts. It represents about 40,000 of the state's more than 100,000 employees.
"We believe, as some economists believe, that the worst thing to do during an economic downturn is to lay off, especially public employees," said Tim Welch, the union's spokesman. Demand for state services rises in tough times, he said.
Welch prefers to see tax exemptions repealed. And, as Roesler notes, he has an important ally.
Some lawmakers, notably Senate Majority Leader Lisa Brown, D-Spokane, make a similar argument.
"I think we will absolutely be looking at current tax breaks," she said.
There's already a system in place for evaluating tax exemptions. And, if preserving consumer spending during a recession, an argument Welch makes, it's much more important to create a strong investment climate. Tax incentives that spur capital investment by private firms play a critical role in assuring job creation in Washington. AWB president Don Brunell and I discuss one of those incentives here.
It's also important not to overdramatize the state's fiscal challenge. As the Seattle Times editorialized Sunday, it's possible - not easy - to balance the budget within current revenues. The Times offered a list of $5 billion in savings.
The Olympian also editorialized Sunday on the "bloodletting."
A Competitiveness Warning and a Pair of New Reports
Posted by Richard Davis on 11/21/2008 5:38:00 PM
This morning, the Puget Sound Business Journal wrote out loud what a lot of folks had previously just been whispering. The aggressive courting of The Boeing Company by Southern states gained momentum with the recent machinists' strike. And the South has plenty to offer.
Right-to-work laws in Southern states ... would prevent such costly walkouts.
But the South has another compelling selling point: its industrial muscle. Increasingly, the nationƒ?s aerospace center of gravity is shifting south, creating an extensive and growing base of hundreds of aerospace companies producing helicopters, aircraft assemblies ƒ? even Boeing rockets.
The in-depth article by Steve Wilhelm includes solid comments by economic development pros in the South. As this quote by Gray Swoope, executive director of the Mississippi Development Authority, makes clear, the Southern strategy is comprehensive, looking for a long-term relationship that goes beyond the shop floor.
ƒ?Weƒ?re not just interested in manufacturing, weƒ?re interested beyond that, and how do you build capacity,ƒ he said. ƒ?Weƒ?re even more thrilled GE is going to be working with (Mississippi State University) to partner with them in building the next generation of aircraft.ƒ
Over the long run, the [aerospace] industry is surprisingly mobile. Just ask any old-timer in Long Island or Southern California. Both areas lost major aerospace manufacturers in the 1990s.
A similar aerospace retreat from Washington would be a severe blow. The industry accounts for about 17 percent of Washingtonƒ?s gross state product, according to 2006 data gathered by Deloitte Development LLC.
He concisely inventories the factors putting Boeing and the aerospace cluster here at risk. And, he places them in the context exactly as we would.
Washington needs to improve its business climate and change its attitude.
Starting with the governor and the state Legislature, elected officials need to make Washington more competitive for all companies, including Boeing.
All Washington residents also need to stop taking the aerospace industry for granted. On this issue, the stateƒ?s biggest enemy may be its own complacency.
Read it all. And see earlier WashACE posts on the issue here, here, and here.
MORE About the "pair of new reports" in the header: Here they are.
The 2008 State New Economy Index came out earlier this week, ranking Washington No. 2. (Download the whole report here.) What's it mean? Here's what the authors say.
Rather than measuring state economic performance or state economic policies, the Index focuses more narrowly on a single question: To what degree does the structure of state economies match the ideal structure of the New Economy?
So it's something quite a bit less than a competitiveness index. Not a bad thing, certainly, and being posed to succeed in the "new economy" (I though that expression had been retired) doubtless gives a state an edge when the economy rebounds.
"This is about as real as it gets," said House Majority Leader Lynn Kessler, D-Hoquiam.
We have no recent history to draw upon in responding.
This kind of financial crisis is unprecedented," [Arun] Raha said. "We have not had this kind of problem since the Great Depression."
..."Our state revenues are dependent on people buying cars and homes and gifts over the holidays. Right now no one is buying cars and houses," he said, adding that holiday shopping is looking dismal as well.
In fact, the state expects to collect less money from taxes in the 2009 fiscal year, which runs from July 1 to June 30, than in 2008.
Garber's report identifies the options under consideration, including layoffs, taxes, health and social services cuts in reimbursement and tighter eligibility. Read the whole thing. It's a good preview of the legislative session.
The Washington Federation of State Employees, which represents 40,000 of the more than 100,000 state workers, expects the governor and the Legislature to eliminate tax loopholes and exemptions. Federation spokesman Tim Welch said the union doesnƒ?t believe its recently negotiated contract, which will cost the state $70 million over the next two years, is in jeopardy.
ƒ?Our goal would be to avoid layoffs, which would make the problem worse,ƒ he said.
What problem would that be? And, clearly, the negotiated contract must be in jeopardy. How do you justify service cuts while giving public employees pay increases and heavily subsidized health insurance?
In addition to lower than expected tax collections over the next 2 and 1/2 years, demand on state spending also is on the rise. Last week, the state Caseload Forecast Council reported that it is raising its forecast for public school enrollment by an additional 10,000 students during the 2009-11 biennium because it expects at least 7,000 private school students to transfer to state schools in light of the recession.
The PI's Strange Bedfellows blog sees a wobbly commitment by Senate Democrats to the governor's no-new-taxes approach.
Democratic leaders were wary of making the same no-tax-hike promise as Gregoire Wednesday.
"That is something we will attempt to do to the best of our ability," said Sen. Craig Pridemore, D-Vancouver.
Revenue increases will likely be necessary. Economic theory suggests that contrary to conventional wisdom, tax increases would be preferable to spending cuts in terms of economic growth.
Boosting taxes to get out of the deficit is wrongheaded for three reasons.
First, it is not fair for state leaders to turn to working citizens and businesses that already shoulder a heavy tax burden and make them pay even more to fix Olympiaƒ?s budget mess.
Second, tax increases depress economic growth, so raising the sales tax would only make a dire situation worse.
Third, it doesnƒ?t make sense to reward the very Olympia leaders who created the deficit by letting them ratchet up the stateƒ?s financial commitments.
New Forecast Puts State in Current Year Deficit; $5 Billion Shortfall Ahead
Posted by Richard Davis on 11/19/2008 11:06:00 AM
If Apocalypse Now hadn't been taken, pundits would be affixing the label to today's revenue forecast: Down $1.9 billion for this biennium and the next, deepening the hole to $5 billion.
Although the link is not yet up on the Economic and Revenue Forecast Council site, The Council just finished the grimmest session in memory. Here is the press release and notebook. Adam Wilson has his preliminary story here.
New forecaster Arun Raha maintains a long tradition of deadpan delivery, matter-of-factly reporting that "an official recession has not yet been called, it it's certain it will be." Following a recitation of grim economic news, including historically low consumer confidence, he states, "We are not immunce to these immense headwinds that are buffeting the economic landscape." His best-case prediction for holiday shopping is no decline in sales from the previous year.
Then, the hard news: In the current biennium, revenues will come in $503 million below forecast, dropping the total to $28.6 billion.
The big drop comes in the 2009-2011 biennium: Down $1.4 billion.
Raha points out that, biennium to biennium, there wil be a 5 percent increase in revenues. State budget director Victor Moore later comes back to that point, observing that in 2009 there is an absolute decline of about 4 percent in revenue, the uptick comes in the second year of the coming biennium.
State agencies will immediately be asked to find additional savings in the current biennium, in the neighborhood of $300-400 million. Legislative action to further reduce or reshape current biennial spending can wait until the session convenes in January. Sen. Joe Zarelli says lawmakers' first order of business should be putting together a supplemental budget that reduces spending.
Zarelli, who has been a consistent budget hawk, says, "A crisis is defined by your ability to respond to it." And sounds confident that lawmakers will find a way to do it.
With a $5 billion gap to close, the question of tax hikes came up. So far, the members of the forecast committee, which includes legislators who will play critical budget-writing roles, said that their focus would be on budget development. Rep. Ross Hunter mentioned the Priorities of Government process used by then-Gov. Gary Locke to write a no-new-taxes budget following the 2001 recession. Sen. Craig Pridemore, while saying "everything's on the table," kept the focus on priorities and acknowledged the damage tax hikes would inflict on the economy.
Rep. Ed Orcutt asked the right rhetorical question: "If the economy is this tough, how could the citizens afford more taxes?"
Raha estimates that the economy will begin to recover in the third quarter of 2009, but there will be no "real traction" until the middle of 2010.
Bleak as the budget picture is, our long-term focus must be on laying the foundation for sustained economic growth and a healthy business climate. Increasing costs now would severely damage our prospects for emerging from this recession in a strong competitive position. The WashACE agenda remains the best prescription for the times.
Waiting for the Revenue Forecast to Define Budget Shortfall...and Wondering about Performance Audits
Posted by Richard Davis on 11/19/2008 9:43:00 AM
In about a half hour, the Economic and Revenue Forecast Council will adopt the official forecast of state revenues though the 2009-2011 budget cycle. Joe Turner blogged yesterday that the "usually nerdish" event has become high drama. Like car crashes, I guess.
In my column in the Herald of Everett (also The News Tribune), I speculate that the forecast will again produce bad news. (I do not expect the Nostradamus award for that prediction.) More important, I discuss the harm tax hikes would inflict on struggling families and businesses, further deepening the recession here. And I mention the array of tools lawmakers and the governor have at hand to develop a balanced budget without raising taxes.
State officials have developed an array of tools for evaluating spending and setting priorities. Gov. Chris Gregoire continues to use the Priorities of Government program former Gov. Gary Locke pioneered in 2001 to balance a recession-hammered budget without tax increases. Three years ago voters authorized performance audits of all government programs. And Gregoire's GMAP program (Government Management, Accountability and Performance) focuses on performance and program effectiveness. Lawmakers should use the tools, control spending, and avoid punishing tax hikes.
So it's passing strange to note that the Priorities of Government exercise placed performance audits on the do-not-buy list. Adam Wilson's blog has State Auditor Brian Sonntag's reaction. Of course, the audits come from a dedicated fund stream approved by the voters when they passed Initiative 900. But still, why recommend eliminating a tool that can help you identify waste and inefficiency in tight budget times?
As lawmakers here brace for more budget bad news tomorrow, the arguments against a federal bailout for the states appear to be gaining momentum. South Carolina Gov. Mark Sanford testified against federal funding in Congress recently. Jason Mercier has the best links here. The video is worth watching.
And in this morning's Wall Street Journal, the Manhattan Institute's Steve Malanga argues a federal bailout would just encourage more bad behavior.
In an interview with an AP reporter, Gregoire said she's taking immediate steps to free up millions in federal dollars that would subsidize energy costs, boost the salmon industry and spur the sluggish construction and housing markets.
... If these three specific spending plans can be called "economic stimulus," then just about anything that involves spending money can be labeled "economic stimulus."
And we suspect that's exactly what's going to happen over and over again. Calling a spending request an economic stimulus package provides political Teflon -- criticism doesn't seem to stick.
Clarity of purpose is the key. Relief may be justified, but when the distinctions between relief and stimulus are blurred, neither objective is likely to be achieved. Better, I think, are the governor's calls for spending control. By not increasing taxpayer costs, the governor and legislature will reduce the need for direct stimulus by mitigating the uncompetitive costs of excessive taxation.
Already, an overemphasis on relief risks stifling economic recovery. Michelle Singletary's syndicated column, published here in the Seattle P-I, provides a clear example. She calls for enhanced unemployment insurance benefits.
Amid all the hustle and bustle to fix the economy, there's one thing we can't forget to address: the extension of unemployment insurance benefits and a broadening of the program to provide benefits to more people.
She's writing nationally. Lawmakers here should be very clear that her comments have little applicabiity in Washington, one of the most generous - and highest cost - states in the nation.
Finally, while the governor has put out a call for public comments on ways to save state money, it's disheartening to see the Senate majority leader indicate that she's not prepared to accept a living-within-our-means state budget.
Senate Majority Leader Lisa Brown, D-Spokane, said she knows Gregoire is serious about a no-new-taxes budget. But Brown adds, "I think it's too soon to say whether I share that goal."
Puget Sound Business Journal Reports on Competitiveness Agenda
Posted by Richard Davis on 11/17/2008 5:22:00 AM
This week's Puget Sound Business Journal has a good story on the competitiveness challenges faced by our state's entrepreneurs in the coming legislative session. In a front page article, Deirdre Gregg writes (sigh, subsciption required) of the WashACE competitiveness themes.
As Washington state confronts an economic downturn that appears deeper and more painful than any in decades, the business community is coming together to present state lawmakers with a common set of messages.
... In addition to developing a budget that preserves public services without tax increases, state lawmakers should focus on higher education spending that will contribute to economic growth, according to the Washington Alliance for a Competitive Economy, a coalition of business groups that includes the Association of Washington Business and the Washington Roundtable. The group says the budget should finish already-funded transportation projects and reform the stateƒ?s unemployment and workersƒ? compensation programs to keep costs down.
An PSBJ op-ed by this year's chair of the Greater Seattle Chamber of Commerce, Tayloe Washburn, further outlines business concerns. Again, you'll need to be a subscriber to gain access to the online coverage.
State Stimulus: Retaining and Attracting Jobs and Investment
Posted by Richard Davis on 11/16/2008 1:32:00 PM
As we posted yesterday, state governments, most of which are reeling from recessionary revenue downturns, are desperate to turn their economies around. Further discussion comes from the legislative analysts at StateNet. They make a strong case for a stimulus package targeted at state government.
...there are sound reasons why the next federal stimulus should give preference to the states ahead of individuals or favored industries. Traditionally, the objection to subsidizing states is that the money takes so long to work its way into the economy that mild recessions often end before the infusion has a substantial effect. This doesn't feel like a mild recession. Douglas W. Elmendorf of the Brookings Institution, a former economist with the Federal Reserve and the Clinton White House, wrote a paper last January opposing infrastructure spending because it was not fast-acting enough. Now, seeing a "prolonged downturn," Elmendorf has endorsed infrastructure spending.
And they provide report alignment between a couple of groups that don't always agree.
"Jobs are the key," said William Hauck, president of the California Business Roundtable. The U.S. economy has shed 1.2 million jobs this year, with the numbers certain to go far higher. The Economic Policy Institute, a liberal group, estimates that $75 billion in infrastructure spending will create a million jobs. That may be optimistic, but there is no question that infrastructure spending is a good economic value in a down economy.
While I'm not confident anything coming from Congress can be delivered without a larding of inefficient earmarks, the infrastructure case makes sense.
While waiting for Congress, though, we should be careful to preserve what we have here. Don Brunell's latest column looks at Boeing executive Scott Carson's speech and puts it in good perspective.
Boeing has the ability to command the attention of media and public officials. In reality, company officials are speaking on behalf of all private job-producing taxpaying employers in our state. Boeing has laid out the answer to our stateƒ?s economic dilemma. Hopefully, the right people are listening.
What we're seeing is the two-prongs of competitiveness strategy: One prong uses tax revenues to spur job creation through infrastructure investment; the other allows entrepreneurs to invest more of their own money by providing tax relief and maximizing the potential return on their investment. Public spending may provide necessary short-term stimulus. Long-term, it's essential we create an environment that encourages business to invest and create jobs here.
From Deficit to Stimulus: States Looking to Revive Economies
Posted by Richard Davis on 11/14/2008 2:58:00 PM
As they did in 2001-2002, state governments are again looking at "economic stimulus" packages to get their economies growing again. Stateline.org has a nice roundup of state efforts. Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments provides a frame for the efforts.
CanagaRetna said state stimulus packages need to be ƒ?timely, targeted and temporaryƒ to be effective. That guarantees that money will be spent quickly and people will get work right away, he explained.
But the economic downturn is doubly troublesome for states. The states with economies most in need of reviving are also the ones with treasuries that are most likely to be empty ƒ? too empty to be doling out stimulus packages.
...One way cash-strapped states are paying for stimulus packages is through bonding, said CanagaRetna.
The focus on economic growth is welcome. Until we see more details, however, it will be wise to withhold judgment. As important - arguably, more important - as a jump-start stimulus package is a long-term strategy for attracting and retaining jobs and investment. The WashACE four-point program shows how that can be done:
1. Develop a sustainable budget that preserves essential public services without raising taxes. 2. Target higher education investments to programs that contribute directly to economic growth and recommit to education accountability. 3. Emphasize timely completion of authorized transportation projects for which funding has been committed. 4. Reform the state unemployment and workersƒ? compensation programs to prevent uncompetitive increases in employer costs.
New reports on state and municipal deficits underscore the urgency of recovery. The Christian Science Monitor quotes the Center on Budget and Policy Priorities as saying 41 states are or will experience deficits that could reach a combined total of $100 billion by 2010.
Here's what they're looking for.
If the states had their way, they would like Congress to give them help in four areas: help with the growing number of people applying for Medicaid, more funding for the rising unemployed, help with the growing number on food stamps, and an injection of funds to jump-start infrastructure projects that are ready to go.
"We're not asking for a stimulus package because it will fill budget gaps," says Michael Bird, federal affairs counsel of the National Conference of State Legislatures in Washington. "We think it will provide additional benefits for those most disadvantaged by the downturn and create economic activity through the infrastructure package."
Midst all the bleak economic news, it's encouraging to read in The Columbian of Seattle economics editor Michael Parks's optimism.
Despite declines, Washingtonƒ?s economy remains above average, said Parks, editor and publisher of Marpleƒ?s Pacific Northwest Letter, a data-rich twice-monthly economic publication.
As of August, the state was sixth fastest-growing in population, ranked No. 1 in manufacturing job growth and No. 8 for total goods produced. The stateƒ?s above average profile, however, will be much less satisfying, Parks said, because those averages are declining...
And yet, he sees an upturn in the near future.
He shared his optimism that the worst of the recession could be over by the time President-elect Barack Obama takes office and that consumers could soon regain their footing.
ƒ?Americans love to spend and their confidence will return once housing values stop falling and their jobs become more secure,ƒ he said. ƒ?Itƒ?s during times like these that entrepreneurs look for opportunities ƒ? things start to bubble and gel.ƒ
We have a rough road ahead. Holding on to the optimism expressed by Parks will be important. We also must recognize that the policy foundation that we set down today will determine whether we're among the winners or the losers when the economy rebounds, as it surely will.
The latest monthly figures reinforce expectations that the revenue forecast, due Wednesday, will show a wider budget gap.
The repetition of lousy economic news has a desensitizing effect. We're not shocked by much anymore. But some of these declines are nonetheless shocking.
ƒ› Taxes from vehicle dealers were down 21 percent from last year.
ƒ› Stores selling furniture, building materials and garden supplies were down 12 percent in tax receipts.
ƒ› October real estate excise taxes were down 41 percent.
More troubling, perhaps, is the absence of any reasonable expectation for a quick turnaround.
Meanwhile, three Western state governors want to add to the woes of struggling families and businesses by raising taxes. California Gov. Schwarzenegger, Nevada Gov. Gibbons, and Oregon Gov. Kulongoski have all proposed tax hikes. The tax packages are not fully baked yet, and the Stateline.org story provides good context. Here, Stateline.org reports:
In Washington state, Gov. Chris Gregoire (D) won a second term on Election Day, but promised during a hard-fought campaign against Republican challenger Dino Rossi that she would not raise taxes. That pledge could complicate Gregoireƒ?s second term as she addresses a state budget shortfall projected at $3.2 billion over two years.
Breaking the pledge, of course, could also complicate matters.
In about a month, the governor will produce her 2009-2011 budget plan. I'd expect the low priorities to be gone. And the trimming won't stop there. We'll keep you posted.
He quotes Hans Dunshee, vice-chair of the House Appropriations Committee, as saying any tax hike would go to a vote of the people.
ƒ?We really do govern at the consent of the governed and if theyƒ?re not open to options like using the rainy day fund or to targeted tax increases then thereƒ?s no point in going forward with them.ƒ
Dunshee expects the state budget deficit will balloon to as much as $4.6 billion after next weekƒ?s revenue forecast.
That's a lot higher than anything I've predicted. It bears repeating that the size of the shortfall relates directly to the size of the spending plan. Maybe Dunshee just wants to spend more than has been previously rolled into the projections.
Certainly, revenues are falling below the September forecast. Magnifying the size of the shortfall, however, may also be a strategy for building support for revenue increases. I'm not saying that's what's happening here - the state budget is obviously in bad shape - but it has happened before.
States Continue Their Spending Even As Revenues Shrink
Posted by Richard Davis on 11/12/2008 12:04:00 PM
USA Today reports that despite falling revenues state spending continues apace. Curiously, the report runs under the headline, "States cushion slumping economy." To make sense, the ongoing spending should at least be tied to programs and services that directly nurture economic growth. But the article offers no evidence of that. Thelead paragraphs suggest, rather, that the spending simply continues business as usual.
Even as the economy slides into recession, many state and local governments continue to spend freely and expand their workforces.
States are hoping a federal bailout may ease their fiscal stress. Unsurprisingly, conservative critics disagree.
Budget analyst Chris Edwards of the fiscally conservative Cato Institute says states should not be rewarded for high spending. "State governments are like drivers coming off the interstate and having a hard time slowing down," he says.
The Council of State Governments notes that a number of states are now slamming on the brakes.
Perhaps surprisingly, governors are looking for a waiver from federal requirements that they maintain current levels of higher education spending. The Chronicle of Higher Education reports it this way:
the [National Governors Association] argued that states should receive a reprieve from the requirement for the budgets they set for the next fiscal year (or the next two fiscal years, in the case of states with biennial budgets), ƒ?given the current national and state economic crises.ƒ
Given the demonstrated positive economic impact of targeted higher education spending, cutbacks at this time may be exactly the wrong prescription "given the current national and state economic crises."
One of the consequences of the gross receipts tax policy is the extra layer of taxation applied at each stage of production, an effect called ƒ?pyramiding.ƒ Pyramiding, according to the Committee, is the payment of taxes by different companies to produce the same good or service. The B&O tax is similar to a sales tax, yet it is applied to all inputs (raw material needed to produce a good) as well as to the final sale.
While the B&O tax always attracts vocal opposition, particularly from small business owners, efforts to reform it routinely stumble as B&O critics rarely reach consensus on acceptable alternatives. That's one of the reasons the Tax Structure Study Committee recommendations, which included a value added tax and a personal income tax, landed with a thud in Olympia.
A lingering recession may alter the traditional dynamic. Unprofitable businesses in states that tax profits see tax relief during the downturn. Meanwhile, folks here continue to pay on gross receipts. I'm not taking sides - this is complicated stuff right now - but it just may be that we'll see opinions shift over the next several months. It's worth watching.
I've enjoyed reading Jeff Cornwall's Entrepreneurial Mind blog. Cornwall's a business professor at Belmont University and frequently posts on topics that are likely to interest WashACE readers.
Some earlier Cornwall posts relative to competitiveness include his link to NFIB's index of small business optimism and the four factors that may determine small business survival in this economy.
...a ranking of economic freedom in the 50 states. Published in association with Forbes, the Index scores states based on 143 variables, including regulatory and fiscal obstacles imposed on businesses and residents.
This year, Washington comes in at 37, meaning 36 states exhibit more economic freedom or, I guess, fewer "regulatory and fiscal obstacles." In 2004 Washington ranked 31st; in 1999, we were 40th. The top ranked states this year are South Dakota, Idaho, Colorado, Utah and Wyoming. (h/t to John LaPlante at the State Policy Blog.)
Having previously called into question the validity of "best places" rankings, I was pleased to see this response to critics by study author Lawrence J. McQullan,
Businesses locate based on many factors including land and housing costs, transportation and school systems, labor and energy costs, weather, proximity to distribution networks, and government rules and regs, what we call ƒ?economic freedom.ƒ We measured only economic freedom, not the ƒ?business climateƒ generally, which is beyond the scope of our study. This explains why our results diverge from other indexes that measure concepts such as business climate or competitiveness. Apples must be compared to apples. The weight that a business (or an individual) places on any given factor can vary tremendously. Economic freedom might be important and determinant for one business, but not for another. Thanks to the U.S. Economic Freedom Index, however, researchers now have a yardstick by which to measure economic freedom across states and assess its impact on business and personal decisions.
General Fund-State (GFS) tax payments in the October 11, 2008 - November 10, 2008 collection period once again fell short of the September forecast. Receipts for the month were $52.8 million (4.4 percent) lower than expected.
There's some serious bleeding among major retail sectors, particularly automobile sales.
Eight of the twelve 3-digit NAICS retail sectors reported declines this month. The sectors with the largest declines were motor vehicle dealers (-20.7 percent), furniture stores (-11.8 percent), building materials/garden supply retailers (-12.0 percent), apparel and accessories stores (-9.4 percent) and sporting goods, toys, books and music stores (- 6.1 percent). The auto sector, the largest retail trade category, has now reported a year- over-year decline in tax payments for ten consecutive months.
So far, Gov. Gregoire is sticking by her no-new-taxes pledge. The Seattle Times has this story on the budget.
[Gregoire] reaffirmed a pledge made during the campaign not to increase taxes or fees to help balance the budget.
The governor said she's considering dozens of options, including suspending certain state programs and possibly eliminating some entirely. She wouldn't say which ones.
In addition, the governor said, lawmakers could soon face a choice of either giving state workers a pay raise or laying people off.
Reopening the collective bargaining agreement sounds right. First, though, the legislature needs to vote it down and send everyone back to the table. The governor's quote suggests she's prepared to tell the unions that the negotiated agreement guarantees layoffs. Clearly, it does, so that may help frame the conditions that would make it easier for lawmakers to reject the contract.
Gregoire also has announced her ideas for a stimulus package. The details will be decisive. Here's the Times shorthand version.
The immediate stimulus package is made up of:
ƒ› More than $200 million in tax-exempt bonds for housing programs. The money can used for rental housing for poor families, assistance for first-time homebuyers, and refinancing of mortgages at risk of default.
ƒ› About $85 million to help low-income Washingtonians pay heating and energy bills and make weatherization improvements to their homes. Since the money is funneled through utility companies, Gregoire hopes it also will create jobs.
ƒ› An additional $13 million in aid for the salmon-fishing fleet, meant to help those hurt by the sudden collapse of the Pacific Coast salmon industry. Gregoire said she's pushing federal officials to release that money faster.
I'm not sure how much long-term job creation any of that provides. On first reading, it sounds more like assistance to those hard hit by the recession than long-term economic stimulus. What do you think? Am I misreading it?
I do like the sound of this approach to the budget, though.
"This should not be simply a budget-cutting exercise. We should be thinking about how do we grow our economy, how do we create jobs, and what reforms we can put in place," she said. "Government is really going to have to get back to the absolute, essential basics."
Jason Mercier offers some good thoughts on this at the Washington Policy Center blog.
UPDATE The Olympian's Adam Wilson has the union response to layoff talk.
That's how the US Chamber's labor policy official, Randel Johnson, describes the coming fight over card-check in the next Congress, with President-elect Obama in the White House. It's in a weekend New York Times piece, "After Push for Obama, Unions Seek New Rules" that's worth a read.
Boeing Commercial Airplanes CEO Delivers A Competitiveness Agenda
Posted by Richard Davis on 11/8/2008 10:17:00 AM
Scott Carson, CEO of Boeing Commercial Airplanes, told about 800 of the Puget Sound region's business, civic and governmental leaders what they must do to assure the state's long-term competitiveness. His speech, delivered at the annual luncheon of the Prosperity Partnership (speech text here) provided a sober assessment of the challenges facing global businesses - all businesses, as he points out - in an intensely competitive marketplace.
I attended the luncheon and was struck by Carson's sincerity and obvious desire to see Boeing succeed in Washington state. There are, however, no guarantees.
"Location is a choice," he reminded the audience. And, reflecting on the often bitter rhetoric of the just-concluded campaign season, he acknowledged the "urgent sense of desperation" felt by Americans in this turbulent economic period.
After outlining a series of 21st Century business realities, he concluded with a concise list of legislative priorities. WashACE members will recognize them.
First, develop a sustainable budget that preserves essential public services without raising taxes. We need a budget we can all live with as we navigate through tough times and try to strengthen our economy for the long term.
Second, reform state unemployment and workersƒ? compensation programs to prevent uncompetitive increases in employer costs. Such reforms are overdue.
Third, finish up all authorized transportation projects for which funding has been approved. Complete these projects on timeƒ?and preferably as soon as possible.
Fourth and finally, recommit to education accountability and target higher education investments to programs that contribute to economic growth. Letƒ?s strive for an education system that supports a healthy, better economic future for our state.
The payoff from adopting the right policies can be, will be, tremendous.
If we can commit to and accomplish these four critical tasksƒ?a sustainable budget, unemployment and workersƒ? comp reform, transportation improvements and education investmentsƒ?weƒ?ll have a great start in getting Washington back on track. A friendlier, more supportive business climate will help insure that the Evergreen State has an evergreen economy led by healthy companies in robust competitive positions.
Our collective success will in turn continue to fuel the economic growth Washington needs. Growth to create more family wage jobs, to improve our education system, and to take care of our stateƒ?s most vulnerable citizens.
Carson hit the right tone for our times. As we face economic uncertainty and volatility, he offered a prescription for sustainable growth. No glib judgments about present conditions. No threats to pull up stakes tomorrow. And, most important, no assurance that vital businesses will remain here if conditions do not improve.
Excellent coverage in several of the regional papers. Read them all.
The Boeing Co. can remain as an essential part of Washingtonƒ?s economy, but only if leaders here recognize that change is needed for this region to compete in a 21st century global economy.
Sure, the program, enacted in 2007, has not made it out of the gates yet; true, there has been no funding source identified for its administration and benefits; yes, the law must be amended to actually specify a state agency to run it. And of course, Governor Gregoire did say in September the program is officially suspended, which makes its statutory roll-out of October 1, 2009, highly unlikely without a major inflow of cash next session.
Today, in passing on his blog, Adam Wilson at the Olympian describes this:
Neither the Legislature nor the governor could agree on how to pay for benefits for new parents, although proposals have included general funds and a payroll tax. All Keiser would say is, "I donƒ?t think there are any surprises. The Senateƒ?s position on paid family leave is pretty clear."
Senator Keiser is also on record, in a recent talk to the Washington Senior Citizens Foundation (here, 30 minutes into the video), minimizes the Governor's suspension of the program as a "a little bit of an interruption" and yet an "opportunity to revisit the idea of expanding family leave to parents and grandparents."
Remember, the currently projected 3.2 billion + budget shortfall includes about $72 million for paid family leave next biennium. Will the Senate recommend a tax increase to cover that, or even, expand the program and add to it?
Yesterday at Olympia Business Watch I commented on the post-election alerts going out from the law firm and HR world about major anticipated changes in federal labor and employment law.
This article is a notable example, in that it specifically focuses on two less sweeping changes the author thinks are likely to be first up: a bill related to the statute of limitations for filing pay discrimination cases, and another relating to the ability to unionize "supervisors."
Governors go first. By law, Gov. Chris Gregoire will propose a balanced budget next month. Then in January the legislature takes over. But the governor's budget leadership involves more than just the chronological rollout of spending plans. As the state's elected executive, the governor has more than just managerial and administrative authority. She, the only statewide elected official involved in budget development, pulls together the diverse interests of the state, sets priorities, and uses her political clout to see those priorities enacted into law.
So it was a bit puzzling to read this morning's Seattle Times, which has this odd quote from the governor.
When asked recently if she'd support sending a tax increase to voters, Gregoire said, "I will leave that to my colleagues in the Legislature. I will forever maintain that the voters ought to be able to decide that. ... I wouldn't be involved in it. It would bypass me. It would not be something that the governor would sign on to or sign off on."
One thing a governor, especially one recently re-elected with 54 percent of the vote, may never be is a budget bystander. When she proposes a budget in December, does she say, "Here it is. I won't be involved in it further."
Not likely. More to the point is The News Tribune's editorial, addressing the challenges the governor faces with her own party.
Add the looming $3 billion-plus deficit to the picture, and youƒ?ve got the makings of a ruthless tug-of-war over the state budget.
During an economic downturn, tax increases can only be a last, desperate resort. You cannot tax an economy out of slump; you can tax an economy deeper into one.
That leaves major spending cuts on the table, with the 600-pound Democratic gorillas maneuvering to make sure no cuts will be coming their way.
Gregoire ƒ? the only politician in the mix elected by the whole state ƒ? must referee this bruising free-for-all. Sheƒ?ll have to jump into the spending decisions early in the session, and cajole and threaten as necessary.
She must not allow herself to be bypassed. Having accumulated political capital, she has the ability and the responsibility to use it, to be the driving force in Olympia for the next four years.
There's also the peculiar challenge of budget timing. Commenting on the Times story referenced above, Jason Mercier of the Washington Policy Center writes this morning on what some have seen as newly-found wiggle room on taxes. Jason points to Sen. Lisa Brown's lawsuit to overturn voter-approved tax limitations. Here's Brown's comment in the Times.
... Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.
Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions.
"If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said.
This isn't about the meaning of is. If my taxes go up because an exemption is repealed or altered, it's a tax increase.
The state Supreme Court should rule in the next few months on Brown's challenge. Currently, popular votes on tax increases above the expenditure limit my only occur at the November general election. It may be that the next revenue forecast shows that we are already in a deficit position for the current budget cycle. Certainly, we're in a nearly $4 billion hole in the budget to be written next year, which taxes effect July 1, 2009. If lawmakers want to raise taxes, the timing of a public vote under current law appears to be too late to provide them the revenue boost they're seeking.
Which brings us back to the original point. Next month, Gov. Gregoire will present a balanced budget, one that does not rely on new taxes. She needs to defend it. It's the right decision.
Yesterday I briefly linked to November's Site Selection business climate issue. Today, I want to call attention to two features the magazine highlights.
First, this list of the factors corporate real estate executives consider important in their location decision making could be a good punch list for our state legislature.
Ease of permitting and regulatory procedures
Transportation infrastructure
Existing work-force skills
State and local tax scheme
Utility infrastructure
Land/building prices and supply
Workers' comp rates
Flexibility of incentives programs
Higher education resources
Availability of incentives
Excepting flexibility and availability of incentives programs, which are constitutionality limited here, each of the ten has been the subject of considerable legislative and business dialog. In Gov. Gary Locke's Competitiveness Council, which made frequent use of WashACE materials, transportation, regulation, and infrastructure became top priority issues. (Check out WashACE archives for competitiveness briefs on most of these topics.)
More work must be done. With Washington failing to reach the top 25, it's clear objective outsiders have taken a look at our state and found it wanting. Our top four legislative priorities track well with the Site Selection list.
1. Develop a sustainable budget that preserves essential public services without raising taxes. 2. Target higher education investments to programs that contribute directly to economic growth and recommit to education accountability. 3. Emphasize timely completion of authorized transportation projects for which funding has been committed. 4. Reform the state unemployment and workersƒ? compensation programs to prevent uncompetitive increases in employer costs.
The second bit from the magazine I want to highlight is the value of the NASCAR analogy I glossed over yesterday. Here's how North Carolina Gov. Mike Easley (D) puts it in the article.
"NASCAR is a microcosm of the economy in the world today," says Easley. "It's all about competition, it's all about high tech and it's knowledge-based. The guys in the pit are not good-ol' grease monkeys. They are engineers, and their average salary is about $75,000. They have to get faster and better not just every week and every year, but in every race. They're making all these adjustments and as they do so, whoever can adjust their car the most, wherever the communication is best between the crew and the driver and the talent ƒ? that car will win the race, absent bad luck.
"I use that analogy to explain to people that we have to be faster, smarter and stronger in America than we have ever been before," he adds.
With the election behind us, state leaders must immediate turn their attention to addressing the state's competitiveness challenges. That's the argument I make in The Herald of Everett this morning.
Part of the ranking criteria came from a survey of business executives, who graded the states. You won't find why Washington came up short. But you will see what made North Carolina No. 1: Growth of NASCAR, which makes its home there; a state grants fund that can underwrite corporate relocations in targeted, job-producing sectors; a massive reinvestment in higher education.
I'm guessing you can be a great state for business without NASCAR and maybe without the grants fund. But the higher education investment, plus these other factors surely make a big difference. From the magazine:
Great incentives. Low taxes. A receptive economic development department.
That's how one corporate site seeker described North Carolina in a survey of such respondents that makes up half of Site Selection's annual ranking of state business climates. Add a track record of consistently strong business expansion activity as tracked by the publication's proprietary New Plant database ƒ? the other half of the ranking ƒ? and a state has what it takes to land at the top of that ranking.
Check out the rankings. The top listings will be familiar to regular readers of this blog: North Carolina, Tennessee, Alabama. Texas, and Indiana.
Yesterday, the Economic and Revenue Forecast Council released the preliminary November economic forecast. Consider it a preview of the November revenue forecast, which sets the revenue platform on which the governor must build her budget. Unsurprisingly, things don't look good. Here's a summary paragraph. The whole thing is worth a read.
Recently available employment, wage, and housing data all indicate the stateƒ?s economy is weaker that assumed in September. This forecast assumes that the housing sector will not show any significant improvement until the second half of 2009. It also assumes that construction employment will decline by about 22,100 (10.6 percent) from its peak in the fourth quarter of 2007 through the first quarter of 2010. This is larger than the 12,500 peak-to-trough decline expected in the September forecast. The software employment forecast is also weaker than the September assumption. Software employment is expected to rise just 500 (0.9 percent) from the fourth quarter of 2008 to the fourth quarter of 2009 compared to 2,600 (5.0 percent) in the September forecast. Software employment growth during 2010 and 2011 is now expected to average 1,600 (3.0 percent) per year compared to 2,900 (5.4 percent) per year in the September forecast. The Washington aerospace forecast incorporates the impact of the Boeing strike on both wages and employment. Aerospace employment is expected to continue to rise through the end of 2008, reaching 86,200 in December which is 900 lower than assumed in September. The forecast assumes no further changes in aerospace employment through 2011.
Remember, in September the revenue forecast sliced projections by $529.3 million. The folks who win legislative races today could be looking at a deficit approaching $4 billion. Thank them for accepting the challenge. And remind them that this problem must be solved without raising taxes.
According to the Center [on Budget and Policy Priorities], identified as a liberal-leaning think tank, Washington and Idaho were among 15 states with significant revenue drops between July and September. Washington's revenues are down by 11.3% and Idaho is down by 9.3%.
That 11.3 percent number is the same one used by the Wall Street Journal in its October 25 story. But when you follow the link to the CBPP site, you're taken to an October 31 update that shows Washington losing 10 percent (Table 2) in inflation-adjusted revenues from July through September. The US average is -5.9 percent and Idaho is down 9.1 percent.
I don't know why the numbers vary. Regardless, Washington remains the state posting the largest quarterly revenue decline, by a wide margin, of the 15 states that reported complete data.
Not a Lot of Competition in Legislative Races Across the Country
Posted by Richard Davis on 10/30/2008 1:22:00 PM
Washington voters, with their avowed distaste for partisan politics, adopted the "top two" primary scheme to weaken party control over the nomination process. It resulted in a handful of races this year pitting two members of one party against each other.
I'll not weigh in on that here. But I found this report from the Council of State Governments interesting.
Despite more than 5,800 legislative seats appearing on statewide ballots, only 39 percent of those races will feature both a Democratic and Republican contender. The remaining 61 percent are races that are either uncontested or have only one major party candidate squaring off against one or more third party candidates.
When asked to rank specific business concerns that impact the competitiveness of their respective operations, the cost of health care, fuel, electricity, employment costs (unemployment insurance/ workers compensation), and state taxes all ranked as the areas of most concern. Issues such as costs of HR, labor laws and environmental regulations along with the quality of elementary and secondary education, transportation, workforce availability, local taxes, housing costs and global trade issues were also significant in the rankings.
I'm not singling Massachusetts out for special attention, although by any measure it's a state that Washington business leaders benchmark against for its strong tech sector and cluster of top academic institutions. Rather, I think it's important to recognize how business leaders across the country assess their competitive challenges. Health care, energy, employment and state taxes would surely top the list of a similar survey here.
The 2009 legislative session will be the most critical test of our commitment to a competitive economy in more than a decade. And the stakes are higher than ever before, with the increased mobility of labor and capital.
What Does the Strike Mean for Boeing's Future in Washington?
Posted by Richard Davis on 10/29/2008 12:12:00 PM
After the initial feelgood of a settlement, it's time for sober reflection on where Boeing goes from here. Take that literally ... because Boeing's going may be something we're confronted with unless things in Washington turn around quickly. The speculation is widespread.
Suppliers to The Boeing Co. rejoiced at the possible settlement of the Machinists' strike, in its 53rd day Tuesday, but several aircraft industry analysts said they view the strike more grimly.
They warned that, whether or not it ends soon, the strike will help drive Boeing's assembly plants out of Washington to states where unions have less power.
Ten years?
... the Machinists may have fatally damaged the employer-union relationship, said Richard Aboulafia, an aviation analyst with Teal Group Corp.
"This strike was the straw that broke the camel's back, and I think Boeing is out of here," he said. "Given its history of labor relations and the attraction of a right-to-work state, the likelihood of them moving out of state is 90, 95 percent in the next 10 years."
He said states where workers can't be required to join unions, particularly in the South, are making "tremendous efforts" to lure aerospace companies such as Boeing.
"They're going to provide the same tax breaks and incentives as Washington state and a much better labor environment," Aboulafia said. Modern aircraft manufacturing uses fewer people and lighter equipment, making it more portable, he said.
We cited Aboulafia in yesterday's post. Here's a copy of his October Letter for The Teal Group (my highlighting added). Compelling as I find his analysis to be, reporters seem have had little difficulty finding machinists' union members who dislike the settlement and sound prepared to dig in for longer. Granted, it's unlikely that the contract will be rejected, but quotes like these underscore the ongoing tension.
ƒ?This contract is not as good as the one that we rejected in September,ƒ said Ruth Edwards, who picketed outside Boeingƒ?s Auburn parts plant Tuesday morning.
ƒ?For all the time weƒ?ve spent out here, we should be getting something much better,ƒ said the 24-year Boeing veteran. ƒ?It looks like the union leadership has just thrown us under the bus again.ƒ
... Tuesday afternoon, after reading the union's summary of the contract, many Machinists were inclined to reject the offer. That includes Rebecca Groves, her sister-in-law Jodi and her mother Pam, all materials handlers at Boeing. While the offer protects their jobs for the next four years, Pam Groves was worried about the future.
"I'd love to be back to work next week, but I just don't know yet," she said.
Even those inclined to vote for the contract sound dissatisfied. From The Seattle Times.
Joe Albanese, 44, who works as a parts deliverer in Everett, said he'll vote for the deal, if there are no surprises in the details, because the contract holds the line on parts outsourcing that could affect him directly.
"They want to get rid of us," he said. "At least we've stopped them for four years."
TNT editorial writers also wonder whether the game was worth the candle, and go on to consider the consequences.
But the frequency of these strikes ƒ? theyƒ?ve been recurring roughly every five years ƒ? bodes ill for the survival of aerospace manufacturing in this state.
We hope the leaders of both the Machinists and Boeing are approaching these these negotiations with the future in mind.
... Boeing, more than most companies, operates in a ruthlessly competitive global marketplace.
And the company has options. The strike may be over ... the competition continues.
As Don writes, passing the initiative did not end the push to steadily raise the wage floor.
Today, politicians are blending minimum wage into a living wage. That may prove to be counterproductive and actually decrease job opportunities during these economic times especially. While everyone wants to be paid more, the question which needs to be answered: "Is continually increasing the minimum wage actually reducing jobs?"
Why has the economic slowdown hurt teenage workers particularly hard? Economic theory predicts that the recent increases in the minimum wage disproportionately affect teen employment.
Minimum wage jobs are entry level positions for workers with little experience in the labor market, such as teenagers. Most minimum wage workers are between the ages of 16 and 24. Relatively, minimum wage workers are secondary earners in their familiesƒ?the average family income of a minimum wage worker is over $50,000 a year. As they gain experience, such workers become more productive and earn a raise. Two-thirds of minimum wage workers earn a raise within a year.
Raising the minimum wage makes it more expensive to hire these unskilled workers. Employers will not pay a worker more than the value they add to the company...
Makes sense, doesn't it? Something to think about as the tenth anniversary approaches.
The agreement most likely will bring to an end the 53 day strike. Like all strikes, this one has had costly consequences for the company and many striking workers. Both sides express support for the new contract and expect union members to ratify it in the coming week.
The four-year deal looks pretty good for the union. John Gillie summarizes neatly for The News Tribune.
The union reportedly got more of nearly everything in return for a longer period of labor peace, four years, instead of the three the union had originally considered.
Among the reported concessions, the company withdrew what the union had called ƒ?takeawaysƒ in the medical plan that in the original proposal would have added higher co-pays and fees to some of the medical plans it offers. The company also reportedly agreed to increase the pension formula from the $80 per year of service proposed in its September offer to $81 and then to $83 in the last year of the deal.
The previous proposal included a 11 percent pay increase over three years. The new deal reportedly includes a 15 percent increase over four years, but gives a higher increase, 5 percent, in the first year of the deal. In addition, the new agreement includes an enhanced ƒ?signing bonusƒ of $5,000 for the first year and two $1,500 payments in subsequent years.
"This is an outstanding offer that rewards employees for their contributions to our success while preserving our ability to compete," Scott Carson, president and CEO of Boeing Commercial Airplanes, said in a statement. "We recognize the hardship a strike creates for everyone -- our customers, suppliers, employees, community and our company -- and we look forward to having our entire team back."
While the end of the strike is something to celebrate, no one should assume that it also marks an end to the region's competitive challenges. Boeing's future here hinges on more than simply putting the strike behind them, as analyst Richard Aboulafia points out in today's Times.
Earlier Monday, before news of the contract agreement, respected aerospace analyst Richard Aboulafia predicted the Machinists strike ultimately would drive Boeing from the state.
"Aviation centers are almost impossible to create, but they can easily be destroyed. I think Seattle will be the next to go," Aboulafia wrote in his monthly newsletter. "This strike, following myriad others and with little hope of improved relations, will almost certainly precipitate a (Boeing Commercial Airplanes) exit."
"Almost certainly" does not mean inevitably. But if Washington wants a strong aerospace cluster in its future - and the picture of this state without aerospace is a bleak one - policymakers have to act quickly.
Massachusetts Tech Council Gives State Lawmakers an "F"
Posted by Richard Davis on 10/27/2008 2:14:00 PM
The Boston Business Journal reports that the Bay State's high tech council gives lawmakers a failing grade. Why does that matter here? Well, for a couple of reasons. Our high tech cluster represents a major growth sector and it's important to keep an eye on the competition. Further, what industry looks for does not vary a great deal from state to state. So, by considering the mistakes made by their counterparts in Massachusetts, our lawmakers can avoid doing similar damage here.
"The legislative scorecard is designed to create a better understanding of the technology sectorƒ?s priorities on Beacon Hill and to consistently remind legislators that their votes have an impact long after they have been cast," said Council President Christopher R. Anderson. ƒ?While there were some positive developments in this legislative session, the MassTrack rankings show some severe backtracking on key areas of economic competitiveness."
Legislative passage of a nearly $500 million tax hike and an increased healthcare assessment were two issues that hurt the rankings of legislators who supported those measures, according to MassTrack. Anderson noted some positives from the session, including the passage of the $1 billion Life Sciences investment package and the Green Communities Act.
Additionally, legislators were afforded the opportunity to self-identify as supporters of the 2008 Unemployment Insurance rate freeze that, if not passed, would have resulted in a $153 million rate hike for Massachusetts employers. The UI rate freeze was a top priority of the Council and was approved by both branches without a roll call vote.
Tax hikes, rising healthcare assessments, and UI costs - sounds pretty similar to the competitiveness threats we're looking at here. Let's work to make sure Olympia does a better job than Boston did.
Bleak Economic News Continues, Underscoring Need for Better Business Climate
Posted by Richard Davis on 10/27/2008 12:47:00 PM
Some Monday mornings are bleaker than others. Nothing says gloom like this Arthur Laffer op-ed in the Wall Street Journal proclaiming "the Age of Prosperity is Over." It's a thoughtful recitation of missteps that he believes have damaged the nation's economy for the forseeable future. A lot of it has to do with bad decisions made in crisis.
These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't <snip> Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.
That seems unjustifiably bleak, denying both the resilience of the economy and the ingenuity and determination of investors, business owners, and other job creators. Nonetheless, the current economic news underscores the challenges ahead.
...Puget Sound-region chief executives and chief financial officers say business conditions are, for the moment, not that bad...
But ask those same executives what they're expecting for the next 12 months, and far more caution and concern show up in their assessment of local and national business conditions.
In fact, the quarterly business confidence index was the lowest since Hebert began doing the survey in 1990, lower even than the post- 9/11 dip in the regional economy.
The toll on state revenue collections provides too much opportunity to trigger the panic tax-hike response in state capitols that could severely damage chances for recovery. Stateline.org has another useful roundup of fiscal conditions. And the Wall Street Journal shows Washington as an unhappy winner in the biggest loser competition.
The state reporting the biggest decline in tax revenue was Washington, which had an inflation-adjusted drop of 11.3%.
The major challenge of 2009 will be reigniting economic growth without imposing recovery-killing cost increases on business here.
That's the conclusion reached by the Washington Research Council in a new policy brief. WashACE doesn't take positions on ballot issues, but I thought readers here would appreciate the Council's thoughtful, objective analysis. The looming $3.2 billion budget shortfall represents a serious competitiveness challenge in the next legislative session. Read the WRC brief to understand how I-985 plays into the budget debate.
Here's the crux.
Redirecting a share of motor vehicle related sales tax from the general fund to the new Reduce Traffic Congestion Account would add about $290 million to the budget shortfall projected for the general fund in the 2009ƒ?11 biennium.
... Last month, following the release of the Economic and Revenue Forecast Councilƒ?s quarterly update to the forecast of General Fund revenue, Senate Ways and Means Committee staff projected a $3.2 billion shortfall in the General fund by the end of the 2009-11 biennium. (Fully draining the stateƒ?s rainy day fund would reduce the shortfall to $2.4 billion.) Prospects for the economy have darkened significantly in the last month, and the next forecast update will show a much larger shortfall for 2009ƒ?11.
Now is simply not a good time to divert money away from the General Fund.
In the Herald of Everett today, I look at the budget problems facing our state (and many others) and suggest that how we close the gap will set the stage for the next round of intense interstate economic competition.
Although global competition gets all the press, most business migration occurs between states. Interstate competition will intensify as states seek to rebuild sagging economies. Competitive states want to attract the new investment that creates jobs, stabilizes communities and, not incidentally, supports public services. Washington is already a high-cost state for business. Tax increases would accelerate the economic decline ...
As a bonus, let me introduce you to a nice business blog I discovered recently, The Entrepreneurial Mind, written by Jeff Cornwall of Belmont University (site of the what's been called "the worst debate ever" - no fault to the school). Here he shares some good tips for small business and public policy.
Today's announcement that the state unemployment rate has dropped from 6 percent to 5.8 percent looks like good news, but there's a dark cloud over the silver lining. A closer read of the report indicates that our economy continues to slump. Although the rate dropped, the state lost jobs.
A large reduction in government jobs contributed to a seasonally adjusted loss of 18,200 nonfarm jobs in Washington in September 2008, down to 2,968,000. The decline comes after a revised gain of 13,900 jobs in July and 1,400 jobs in August.
So how does the unemployment rate decline even as jobs are disappearing. There are several explanations: people may be leaving the workforce faster than the labor market is shedding jobs; and, the data sources are different.
The job numbers are based on a survey of some 7,000 employers, while the unemployment rate is based on a smaller survey of households. Mary Ayala, chief economist for the Washington State Employment Security Department, said the surveys last month presented somewhat differing results, probably due to error rates that are inherent in telephone surveys.
The employer survey is undoubtedly more reliable. The Employment Services Department, which released the data, expects revisions.
... given the recent financial crisis that jolted every sector of the national economy, a revision to the September 5.8 percent is likely to occur. Therefore, the longer term estimates of Washingtonƒ?s unemployment levels are more informative at this time. Washingtonƒ?s employment level increased by 1.0 percent year-over-year, while the U.S. realized a loss of 0.7 percent. Similarly, Washingtonƒ?s unemployment rate continues to lag behind the U.S. rate of 6.1 percent, suggesting that Washingtonƒ?s economy is in relatively better shape at the moment than the rest of the nation.
Here are some highlights (lowlights?) on the job market. Key sectors continue to shed employment.
Employment in the goods-producing sector shed another 3,600 (-0.71 percent) jobs in September, after losing 2,800 jobs in August. Among industries that fared better than others, aerospace industries added 200 jobs (+0.23 percent), after remaining unchanged in August, and other food manufacturing gained 200 jobs (+0.81 percent).
The construction sector shed another 2,200 jobs (-1.1 percent) in September, following a series of consecutive monthly job losses that began in January 2008. The cuts primarily affected commercial construction; employment in residential construction exhibited no change from the prior month.
Employment in the manufacturing sector declined by 1,400 jobs (-4.7 percent) in September, with most of the losses (-1,000) concentrated in the manufacture of durable goods.
Despite the drop in the unemployment rate, it's much too early to mark a turnaround.
That's according to William T. Pound, executive director of the National Conference of State Legislatures, who has been leading the organization and working on behalf of state legislatures for more than 20 years. "States have been confronted with bad economic circumstances in the past, but not so many and not all at once," he says. "State budgets have a very rough road ahead."
In his litany of reasons - declining revenues, plummeting consumer confidence, stock market losses - Pound doesn't mention overspending. Clearly, though, the surging revenues associated with the housing bubble led many states, including Washington, to overcommit.
Wisconsin, another state that boosted spending on a transient revenue boom, faces a $3 billion shortfall in the coming budget cycle. (This is the same state that recently considered a $15.2 billion payroll tax for health care reform.) The Wisconsin State Journal has some advice for lawmakers looking to close the gap.
State government has desperately been trying to live beyond its means.
It's time to stop.
It's time to recognize that to put together a sound state budget for the next two years, the governor and lawmakers need a dose of fiscal reality.
They need to get far more serious about setting priorities. The state can no longer afford everything at once.
