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Thursday, August 21, 2008

Public Schools Get Lower Grades than the Post Office?

Posted by Richard Davis on 8/21/2008 2:22:00 PM

The valuable Joann Jacobs blog recently pointed to the 2008 Eduction Nex-PEPG Survey of Public Opinion report showing that Americans give the public schools a not-so-respectable C on performance. Although the nationwide survey of 2,500 adults and an oversample of 700 public teachers reveals "an abiding commitment to public education," this might hurt.

Local public schools receive lower marks than they did a year ago. More significantly, perhaps, survey respondents claim that their local post offices and police forces outperform their local schools.

The survey contains an abundance of good information. For example,

Though support for No Child Left Behind is dwindling, Americans continue to believe that schools should be held accountable through national standards and tests. No less than
69 percent ofthe public think the federal government should set standards for the country and administer tests in math, science,and reading. (Page 17)

As they did in 2007, a plurality of the overall public and every subgroup continue to support charter schools.Indeed, supporters of charter schools outnumber opponents more
than two to one.The modal response, however,continues to be ƒ?neither support nor oppose.ƒ� (Page 20)

The schools seem to be doing better than the nation.

A slight majority of those surveyed, nonetheless, think that the public schools in their community are improving. Fifty-six percent ofthe public say that the local public schools
are heading in the right direction,compared to 44 percent who believe they are on the wrong track.In this respect, Americansƒ? views of the nationƒ?s education system appear to be considerably more optimistic than their views about the affairs ofthe
nation more generally.When Gallup,NBC and the Wall Street Journal,and the Associated Press used the same language to ask Americans about the direction ofthe nation as a whole
while our survey was in the field,less than one-quarter reported that it is on the right track achievement... (Page 16)

Most of that seems to square with perceptions of Washington schools. The national souring on NCLB has not eroded support for accountability. Neither has Washingtonians' growing apprehension about the WASL diminished enthusiasm for standards. The challenge, of course, is that its easier to embrace accountability and standards in the abstract than it is to agree on a particular set of criteria against which to judge. Tossing NCLB and the WASL in hopes of coming up with something better sometime in the future seems self-defeating.

For an excellent account of California's unrealized Scharzeneggerian education reform, see No Country for Strong Men. Daniel Weintraub documents how caution, budget woes, and the lack of a comprehensive and coherent reform vision doomed the governor's plans for major improvements in that state's public schools.

And, to end this on a positive note, George Will writes today of a successful charter school in Oakland, California.

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Wednesday, August 20, 2008

Canadian Physician Pans Canadian Health Care System

Posted by Richard Davis on 8/20/2008 3:56:00 PM

The incoming head of the Canadian Medical Association, no less, has some pretty harsh words to describe the Canadian health care system. (h/t State Policy Blog) The Canadian Press reports on his inaugural address to the association. He says a private system can help where the public system is "overburdened."

He cited a host of statistics to back his case: Canadian health-care costs have quadrupled in the last 20 years; the country's doctor-to-patient ratio has plummeted; by 2011, the number of Canadians over 80 will have jumped by 43 per cent.

Ouellet called the overall state of Canadian health care "alarming."

"We have one of the most costly and least efficient health systems of any industrialized country," he said.

Looks like that's one model we needn't emulate.

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Wednesday, August 20, 2008

Some Post Primary Thoughts on Business Taxes

Posted by Richard Davis on 8/20/2008 2:00:00 PM

With nothing to say here about yesterday's election, I thought it might be helpful to sort through some recent news on US business taxes. Steven Malanga, a senior fellow at the Manhattan Institute, uses the New York budget crunch as a peg to offer some helpful perspective on taxes and shortfalls.

Of the approximately $48 billion in accumulated budget shortfalls that the 29 states with projected deficits are facing, $33 billion, or two-thirds of the gap, is concentrated in those five states considered by corporate executives to be the least friendly to business. [Ed. note: He's citing this DCI study.] Meanwhile, among the five states ranked as having the best business environment, Texas and North Carolina have no projected budget gaps, and Georgia, Tennessee and Florida are facing shortfalls amounting to about $4.1 billion, or less than one-tenth of the statesƒ? total.

Earlier this year Stephen Moore and Arthur Laffer made a similar case in Rich States, Poor States, though they were not focused exclusively on business taxes.

"States that have controlled spending and taxes are doing better than states that have not done these things," Moore said. "High taxes don't redistribute income; they redistribute people."

A recent GAO study showing that two-thirds of US corporations paid no income taxes ginned up some enthusiasm for tax hikes in Congress and some editorial pages. It also created some embarrassing confusion at the New York Times (read the correction at the end of the article).

Today Malanga clearly explains why the anti-business hype accompanying the GAO report makes no sense.  Read the whole thing, as they say, but here's a taste.

The impression one gets from corporate critics is that many are prospering but exploiting loopholes in the tax code and leaving the rest of us to pick up the tab. But that criticism is based on the mistaken notion that in robust years, such as 2005, virtually all businesses do well. Nothing could be further from the truth.

Even in good times, there are plenty of losers in a dynamic economy. The BLSƒ? Business Dynamics Survey, for instance, shows that in 2005 there were 7.3 businesses that were contracting for every 7.6 that were expanding, including 1.3 that were closing their doors for every 1.5 that were starting up. Large businesses were hardly immune to this kind of tumult. For every 5.8 jobs added by firms with more than 500 employees, other firms that big eliminated 4.9 jobs. Among those hit hard in 2005 was General Motors, which despite $193 billion in revenues wracked up a $10.4 billion loss and cut its workforce.

If you don't make money, you don't pay the corporate income tax, which - unlike Washington's B&O tax - is based on profits. And as Malanga points out, a lot of firms lose money even during a boom.

The Tax Foundation points out that the US imposes the second highest corporate tax rate of any OECD nation (see also here). Alarmed about the declining global competitiveness of US firms, TF has launched the CompeteUSA campaign

...to raise the public's awareness of America's high business tax rates and how those taxes have a "real-wallet" impact on our competitiveness, wages, and living standards.

As part of this look at the "real-wallet" impact of business taxes, the CompeteUSA campaign will also talk about how the American worker shoulders a disproportionate amount of the corporate tax, and the fact that the poorest 20 percent of households pay more in corporate income taxes each year than they pay in individual income taxes. In fact, corporate taxes were 6.3 percent of low-income households' tax bills last year compared to just 4 percent for individual income taxes.

They've set up a campaign website.

Also today, the Wall Street Journal reports on a revived tax revolt in some states, including Oregon, Nevada and Massachusetts. Successful tax cuts threaten to deepen the budget crisis in several states. But, as Malanga concludes in his commentary on taxes and shortfalls,

... any look at the states with the biggest deficits reminds us that governors and legislatures are largely the authors of their own problems, and that the biggest trouble some of them seem to have is that their taxing and chronic overspending have made them toxic to the business community.

As we look toward the fall elections, it's important to let the candidates know that Washington employers already pay heavy business taxes. Increasing that high tax burden will only deepen the state's economic problems.

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Monday, August 18, 2008

Budget Red Ink and Public Employee Unions

Posted by Richard Davis on 8/18/2008 3:17:00 PM

You've gotta believe it's easier to go into collective bargaining when the coffers are full. In most places, including Washington, that's not the case right now. The Spokesman-Review reminds state workers that the well is dry.

New York faces a substantial budget crisis, as well. Lawmakers there want to cap property taxes. The state's largest teachers union opposes the gap. The Niagara Gazette is fed up.

... the cap may or may not be an answer. The ultimate answer is fiscal responsibility. But since this is New York, thatƒ?s probably not going to happen anytime soon. So if the crutch of a tax cap is needed to instill discipline, so be it.

One thing we cannot do is to let the teachers and other public employee unions dictate the terms of our fiscal future. Weƒ?ve allowed that to happen in the past. Look where thatƒ?s brought us.

The S-R has it right.

State workers lament that pay isn't keeping pace with inflation, but compare that with workers who have been laid off, had their pay cut or haven't had a raise in years. In that context, recent state pay raises of 2 percent and 3.2 percent look pretty sweet.

Since 2004, funding for pay and benefits for teachers has risen 29 percent. For other state workers it's up 31 percent. Some of that is due to new hires. Some is due to compensation increases...

Ultimately, and soon, state leaders will have to apply the brakes to state spending. This round of negotiations sets the stage.

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Monday, August 18, 2008

A Little More on the Forbes Ranking

Posted by Richard Davis on 8/18/2008 3:05:00 PM

Washington CEO's Bryan Corliss offers a little more on that Forbes ranking. He managed to talk with Kurt Badenhausen, the Forbes editor in charge of the lists. Corliss focuses on the regulatory ranking, where this state does uncommonly well.

For starters, [Badenhausen] said, this category incorporates a broad range of data to get a sense of how well a state government performs on issues important to business. "It's really five factors: rules on the books, how hard it is for companies to cut thru red tape."

Badenhausen said Forbes (using data collected by Pollina Corporate Real Estate) also looks at the incentive environment within the state, and surprisingly Washington scores very high here - No. 6 - despite the fact that it doesn't offer companies incentives for relocating here.

These rankings are "not strictly 'we hand out the most incentives,'" he said. "They look at job training programs, they look at tax abatement, they look at economic development office's - how proactive are they, are they doing anything." And, comparatively, Washington does very well.

However, Washington does pretty poorly on another component of this sector: the tort environment, where we rank 37^th.

But that's off-set by a good Moodie's debt rating, which Forbes considers a "loose proxy for what kind of fiscal shape the government is in," Badenhausen said. Moodie's puts the state at a AA1, which is the second-highest rating.

Finally, Washington scores a slightly-above-average 20^th for transportation. Badenhausen said Forbes isn't trying to measure traffic congestion, but instead judge whether states have the appropriate transportation infrastructure, including highways, rail lines and airports.

Convinced?

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Friday, August 15, 2008

States Turning to Health Care to Ease Budget Crunch

Posted by Richard Davis on 8/15/2008 10:51:00 AM

State governments across the country are responding to deepening budget holes by pulling back on planned spending. With health care costs claiming an increasing share of state spending, as WashACE pointed out in this recent report, health care programs inevitably come under deeper scrutiny during lean times. The Christian Science Monitor reports on some of the proposals. While the story takes a dim view of the cuts, it does a pretty good job of laying out why they're being considered.

Facing budget deficits, two of the nation's most populous states, California and New York, are proposing changes in Medicaid that could affect the eligibility of hundreds of thousands of people or decrease funding for hospitals, doctors, dentists, and pharmacists.                 

Last month, California cut reimbursements to providers by 10 percent...       

Other states are tacking on fees or cutting funds for charity care in hospitals.

On the other coast, the effects are similarly dramatic.

In New York's situation, Gov. David Paterson, facing a growing budget deficit, has proposed freezing Medicaid reimbursement          rates for hospitals for the rest of 2008 and for 2009. Normally, the state factors in inflation.       

In addition, Mr. Paterson wants to cut reimbursement rates by an additional 7.2 percent for the next two years and impose a new tax on hospital revenues.

Controlling health care costs has never been easy. So it's encouraging to read pieces like this editorial in today's Herald of Everett.

The Everett Clinic, long a leader in finding ways to improve the quality and efficient delivery of care [is]  showing exciting results in improving care and reducing costs for Medicare patients as part of a national demonstration project coordinated by the government. The Everett Clinic's efforts, which combine its use of electronic patient records with a highly coordinated, hands-on approach by its care providers, have resulted in impressive, measurable improvements in the quality of care for diabetes, coronary artery disease and congestive heart failure -- conditions often seen in senior patients. In addition to quality improvements, the clinic saved Medicare nearly $1.6 million last year, the second year of the four-year project.

Elsewhere,  budget woes are giving state employees in Georgia an unpaid day off a month and dominating electoral politics in Minnesota.

Finally, Peter Navarro, a UC Irvine economist and business professor, explains how the California budget crisis could tip the nation into recession.

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Thursday, August 14, 2008

H.S. Graduation Standards, Higher Education, and Gaining the Competitive Advantage

Posted by Richard Davis on 8/14/2008 1:25:00 PM

A couple of recent reports link several themes relevant to the competitiveness of our state and nation.

Education Week (free registration required) reports that states that have tied their accountability standards to high school graduation face increased calls to relax the requirement.

Though 26 states have adopted such mandatesƒ?most of them since 2000ƒ?that number has remained static since last year, according to a report scheduled for release this week by the Center on Education Policy, a Washington-based research and advocacy organization that has tracked the trend for the past seven years.

And for nearly a dozen states, compliance deadlines that once seemed far off have begun to bite, leading Arizona, Alabama, Maryland, and Washington, among others, to soften their mandates by offering alternative paths to a diploma, or by also weighing factors such as a studentƒ?s grade point average.

Chester Finn, a supporter of standards-based accountability, aptly frames the challenge.

Mr. Finn, the Fordham Institute president and an assistant U.S. education secretary in the Reagan administration, said the struggle for states is to strike a balance between enforcing a rigorous policy and understanding studentsƒ? needs.

ƒ?I really do think a kid shouldnƒ?t have his entire life blighted because he canƒ?t do well on a particular kind of test,ƒ� Mr. Finn said. ƒ?Yet at the same time, you allow too many alternative paths and too many exemptions and you dilute the meaning of having a graduation test.ƒ�

It's a good overview of the national debate, a debate mirrored in this year's OSPI campaign.

Three valuable reports by AeA underscore the value of education to our state's economic competitiveness. 

Cyberstates, an annual state-by-state overview of the high tech industry, looks at the  contributions of technology to state economies. Washington regularly ranks near the top, led by software publishing.

"Washingtonƒ?s tech industry remains strong, experiencing it's third year of job growth with average wages that are more than double those of the private sector,ƒ� said J.D. Hammerly, Vice President, Energy Infrastructure. "While many people associate Washington state with the software industry, they may not realize how fast it continues to grow. This growth runs on the knowledge and intellectual capital of some of the smartest and most skilled workers in the world. Washington's challenge is that we are not graduating enough scientists and engineers to maintain this growth. All you have to do is look at the websites of our technology companies ƒ? large and small ƒ? and youƒ?ll find thousands of positions going unfilled."

"Our Evergreen state needs to do more to prepare our workforce for careers in the tech industry, from the K-12 system to our universities,ƒ� continued Hammerly.

Cybercities, the metro area equivalent, reports Seattle is now the ninth largest "cybercity" in the nation by employment. Again, Hammerly cites the education challenge.

"... future growth depends on our ability to make high-tech careers attractive to our children. We need to spark more excitement and enthusiasm for technology, sciences, and math. These skills are critical to prepare young students for an increasingly technical world, providing them with the foundation to become highly paid tech workers.ƒ�

In We Are Still Losing the Competitive Advantage, a March 2007 update of a previous study, AeA clearly lays out the challenge.

The United States trails other countries in the number of people graduating with bachelor degrees in engineering.  While the United States is the largest economy in the world and the third most populous nation, it only ranks seventh in the number of bachelor degrees awarded in engineering.  China graduates almost six times as many engineers as the United States, according to the most reliable data available.  Japan, with less than half the population of the United States, graduates 60 percent more engineers. ƒ?

On a country-by-country basis, the United States still leads in the number of science and engineering (S&E) doctoral degrees granted by a wide margin.  But significant portions of these are awarded to foreign nationals who increasingly cannot or choose not to stay in the United States after graduation. Between 2001 and 2005, U.S. S&E doctorates awarded to foreign nationals increased by 25 percent and comprised nearly all of the overall growth in S&E doctorates awarded over this time period.

While our state - like many states - faces a significant budget shortfall, technology has been the key to our strong economic performance during these tough times. We cannot afford to see our position erode because of a failure to adhere to standards and make critical investments in higher education a priority, even during these straitened days.

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Thursday, August 14, 2008

Massachusetts' Health Care "Reform" Hammers Business

Posted by Richard Davis on 8/14/2008 10:00:00 AM

Over at Olympia Business Watch, Don Brunell reports businesses in Massachusetts are joining a national effort to combat rising health care costs. For more on how Bay State employers are responding - and lessons for other states considering similar health care reform - check out this short  National Center for Policy Analysis digest.

And the State Policy Blog has a good assessment of how, under the current law, Massachusetts businesses just can't win.

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Thursday, August 14, 2008

More Questions About Rankings: Universities This Time

Posted by Richard Davis on 8/14/2008 9:41:00 AM

I hadn't planned on writing again so soon about rankings studies, but this Instapundit post intrigued me. He linked to a longer post by University of Wisconsin law professor Ann Althouse questioning Forbes methodology.

Good questions. And relevant to our "best states" discussions. (Read the comments - some clever stuff there.)

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Wednesday, August 13, 2008

About Business Climate Rankings

Posted by Richard Davis on 8/13/2008 11:52:00 AM

We get a lot of questions about the business climate, how Washington compares with other states, and the different rankings offered by various organizations, including news magazines, research outfits, and economic development consultants.

In my column in today's Herald (Everett), I peg off the Olympics to offer some thoughts.

When we started WashACE back in 2000, some of us considered attempting to construct our own version of the "best states" rankings. We quickly realized that, for reasons including these, such rankings were inherently flawed, as they fail to recognize the diversity within the business world.

Instead, we came up with the Competitiveness Redbook, a set of indicators addressing business costs, labor quality and availability, housing affordability, education, and many more. The 2008 edition includes 54 tables. Next month, we'll be releasing the 2009 edition, with even more information.

Better than any single ranking table, the Redbook allows analysts, business owners, to consider the factors that are important to them and evaluate how our state competes on those criteria.

It's not as cool as a headline, but it's a lot more useful.

That said, because I know everyone likes these things, here's a ranking study I missed earlier this year. This one's a January 2008 report from Chief Executive magazine, based on a survey of 605 top executives. Texas, Nevada, North Carolina, Virginia, and Arizona are the top five. Washington ranks 30th.

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Wednesday, August 13, 2008

Unemployment Up; So's Employment, But Not Enough

Posted by Richard Davis on 8/13/2008 9:32:00 AM

The Employment Security Department reported yesterday that Washington's unemployment rate climbed to 5.7 percent. That's up 0.4 percent from the revised rate for June. Employment was also up slightly.

Washington added an estimated 3,300 non-agricultural jobs in July, after Juneƒ?s employment was revised from the previous report of no change to a seasonally adjusted decline of 1,800 jobs.

Here;s one explanation.

ƒ?More and more people in Washington have decided to look for work,ƒ� said Employment Security Commissioner Karen Lee, to explain why the unemployment rate increased even though the number of jobs went up. ƒ?With fuel prices and other costs rising, families are looking for ways to increase their income.ƒ�

A quick survey of coverage by state newspapers shows the diverse impact.

The Herald of Everett reports:

Snohomish County added 700 new jobs last month and still saw its unemployment rate rise, the state Department of Employment Security reported Tuesday.

...The jobless rate hit 4.7 percent last month, an increase of three tenths of a percentage point from June.

In Spokane, the Spokesman-Review notes a smaller uptick, 0.1 percent, but an unemployment rate of 6.1 percent. ESD regional economist Doug Tweedy notes the county numbers are not seasonally adjusted -  the state numbers are - and says they reflect "downtime " for  area teachers.  Otherwise, he sees slight employment gain.

Yakima hits 6.9 percent unemployment, up 1.4 percent for the same month last year. The Yakima Herald-Republic ties it to the ag economy, particularly a sluggish cherry season.

And Clark County hit 7.0 percent. The Columbian reports it's the highest July unemployment rate since 2004.

Even the generally robust Puget Sound region has been affected. Drew DeSilver does a nice job explaining the numbers, the methodologies, and putting it all in context in his Seattle Times story.

Washington now has the same jobless rate as the United States as a whole, after 13 straight months of outperforming the nation. What growth there is is concentrated in the four-county Puget Sound region ƒ? King, Snohomish, Pierce and Kitsap counties ƒ? which provides nearly two-thirds of all payroll jobs in the state. The region gained 8,800 jobs in July, more than offsetting the 5,500 lost in the rest of Washington.

After adjusting for seasonal variations in the labor force, the unemployment rate in King and Snohomish counties did rise to 4.3 percent last month from 3.9 percent in June. Though 1,800 more people reported they were working, a total 8,500 people entered the local labor force in July.

Overall, the hoped-for summer turnaround hasn't happened, something also reflected in the underperforming state revenue collections.

Ask the candidates what they plan to do to improve economic conditions and address the budget shortfall. And check out their responses on our candidate questionnaire. If you don't see your candidate's response on our site, encourage them to fill it out and return it now.

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Monday, August 11, 2008

AWB Files Legal Brief in Brown v. Owen Lawsuit

Posted by Kris Tefft on 8/11/2008 4:24:00 PM

This afternoon, AWB filed an amicus curiae ("friend of the court") brief in Brown v. Owen, the lawsuit by Senator Majority Leader Lisa Brown challenging the constitutionality of the provision of Initiative 601 that requires a supermajority vote of both houses of the Legislature to raise taxes. From the brief's intro:

 

AWB makes this short amicus submission to add an additional dimension to respondentƒ?s separation of powers argument, contending that the petition raises essentially a political question that the court, as a matter of prudence and restraint, should decline to reach. Should the court reach the merits and grant the writ, it would in essence absolve a coordinate and co-equal branch of government from the difficult political and policy choices it must confront under RCW 43.135.035(1) by invalidating the statute under the same constitutional principle ƒ? majority rule ƒ? that the Legislature may itself use at any time (and has used in the past) to avoid the statuteƒ?s procedural requirements. The court should refrain from granting a single member of a single political caucus of a single chamber of the Legislature the extraordinary relief of striking down an enhanced procedural requirement the full Legislature has chosen for itself when the full Legislature could, by its own authority and through its own processes, loose the binds of that requirement at any time.
 

The rest can be read here.  The Supreme Court takes up the case on September 9th.

(Cross-posted at  Olympia Business Watch)

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Monday, August 11, 2008

Revenue Collections Down Again

Posted by Richard Davis on 8/11/2008 1:03:00 PM

Today's report on report on revenue collections continues the ominous drumbeat, down again.

General Fund-State (GFS) tax payments weakened further in the July 11, 2008 - August 10, 2008 collection period. Receipts for the month were $59.9 million (5.0 percent) lower than expected.  All revenue categories except for estate taxes, DOL revenues and ƒ?otherƒ� came in below their forecasted values.

Coupled with last month's decline, this news suggests  the strong possibility of another downward revision in the September revenue forecast.

The governor specifically tied her hiring freeze to the lower-than-expected revenue collections this summer, independent of the projected $2.7 billion shortfall. (That $2.7 B now looks likely to grow.)

Media assessments of the freeze vary.

• The Olympian agrees that "government also needs to tighten its belt."
• The Walla Walla Union-Bulletin seems to join the governor in withholding judgment on the size of the shortfall and says, "At this point, nobody knows for certain whether Gregoireƒ?s cuts go deep enough."
• The Columbian says, "better late than never."

Here's one approach we know will not work.

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Friday, August 08, 2008

Addressing the Budget Challenge

Posted by Richard Davis on 8/8/2008 10:54:00 AM

For many businesses in the state - from small start-ups to large corporations - the loming budget shortfall poses a major competitiveness concern. Even generally favorable reviews of Washington's business climate cannot avoid pointing out our high business costs. Bumping high business taxes further with tax increases in 2009 could force some out of business or out of state. And it sends a negative message to entrepreneurs Washington wishes to lure here.

A pair of WashACE articles published recently expand on this theme.

In the July/August issue of Washington Business, in my competitiveness column I look at state spending, noting that business groups have been sounding the alarm for several years.

Businesses facing escalating costs for energy and fuel, entrepreneurs struggling with startup costs, and retailers feeling the pinch of constrained consumer spending cannot afford higher taxes. Taking more money out of consumersƒ? pockets will simply accelerate the economic decline.

The clearly foreseen day of reckoning has arrived. Lawmakers need to set priorities now and manage the budget within available revenues. It wonƒ?t be easy. But it can and must be done.

And in an op-ed in today's Puget Sound Business Journal (subscription required), we urge candidates to talk about how they're planning to close the budget gap.

The members of the Washington Alliance for a Competitive Economy believe that the stateƒ?s looming budget deficit poses a significant threat to the competitive position of our stateƒ?s entrepreneurs and job creators. But like all challenges, it also presents an opportunity for lawmakers to show leadership. We offer our assistance. And we ask candidates for public office to use their campaigns to talk to the voters about their plans to bring the budget back into balance.

Thereƒ?s no better time for candor.

Across the country, we see clear evidence of the costs of procrastination (here, here, and here, for example.) No need to delay here.

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Thursday, August 07, 2008

AWB Launches Campaign Videos

Posted by Richard Davis on 8/7/2008 5:22:00 PM

Beginning with the gubernatorial race. See the first one here.

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Thursday, August 07, 2008

Tax Foundation: Washington 35th in State-Local Tax Burden

Posted by Richard Davis on 8/7/2008 12:45:00 PM

The Tax Foundation today released its annual ranking of state-local tax burdens. The quick headline: Washington ranks 35th in the nation (#1 means highest tax burden), with a state-local tax burden esimated at 8.9 per cent of personal income, below the US average of 9.7 percent. But there's more to it than that - quite a bit more.

For example, having revised its methodology and using updated governmental data bases, TF has recast its historical trends. It turns out that 35th is higher than the burden has been here in recent years. Here's how TF sees our recent trend:

• 2008 - 35
• 2007 - 36
• 2006 - 36
• 2005 - 38
• 2000 - 40
• 1995 - 18

Go to the report for the details, but clearly, TF's methodological, well, innovations, have led to a major recasting. On their website, they've already changed the data, but this cached link shows the magnitude of the change. In the report they published last year, TF showed Washington ranking 16th, with a state-local tax burden of 11.1 percent of personal income. Obviously, our tax burden hasn't dropped by 2.2 percentage points, so something big has changed.

What happened? It's a little hard to tell and we'll try to get in touch with the folks at TF for a more complete explanation soon, but it's likely that the group's attempt to deal with tax exporting has something to do with it.

TF explains what they're doing this way:

The goal is to focus not on the tax collectors but on the taxpayers. That is, we answer the question: What percentage of their income are the residents of this state paying in state and local taxes? We are not trying to answer the question: How much money have state and local governments collected? The Census Bureau publishes the definitive comparative data answering that question.

... Every state's economic activity is different, as is every state's tax code. As a result, they vary in their ability to "export their tax burden"-that is, to collect revenue from non-residents. ...

Much of this interstate tax collecting occurs through no special effort by state and local legislators or tax collectors. Tourists spend as they travel, and all those transactions are taxed. People who own property out of state naturally pay property tax out of state. And the burden of business taxes is borne by the employees, shareholders and customers of those businesses, wherever they live.

I'm guessing that TF assigns a significant share of our sales taxes to out-of-state residents. As well, with our heavy reliance on business taxes, they could be assigning those tax collections to nonresident owners and customers.

We'll look into it. More later.

UPDATE Kriss Sjoblom, economist with the Washington Research Council, and I spoke with morning with Gerald Prante, the Tax Foundation economist responsible for the recast state-local tax burden study. Prante confirmed that TF treats sales taxes on business inputs - including the B&O tax - as being passed forwardd to consumers. That assumption leads to a larger share of our state's business taxes showing up in the TF study as being paid by residents of other states.

Prante agrees that the assumption is "not entirely true in the real world," where competitive pressures make it difficult for business to pass on the full tax burden. Business taxes, ultimately, are paid by shareholders, workers, or consumers.

That assumption matters relatively more in our state with its high business tax burden, because a higher share of our overall tax burden will be exported under the TF methodology than would be the case for states that tax business less heavily.

Finally, most tax burden rankings, such as that prepared by the Federation of Tax Administrators, gauge taxes against personal income, as calculated by the Department of Commerceƒ?s Bureau of Economic Analysis. TF uses a broader measure of income, which includes capital gains among other things. This lowers Washingtonƒ?s ranking because realized capital gains are relatively high for our stateƒ?s residents.

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Thursday, August 07, 2008

Excellent Editorial on the Economics of Tax Incentives

Posted by Richard Davis on 8/7/2008 9:13:00 AM

In the Wenatchee World. Editorial page editor Tracy Warner makes the sensible observation that "you can't tax what isn't there. The issue involves server farms and the state sales and use tax credit for manufacturing facilities, an issue in the last legislative session. Although a bill appeared headed for passage, it didn't happen.

Legislation was required after the attorney general determined that data centers did not qualify for the existing rural manufacturing credit. As Warner points out,

...manufacturing is not what it was, and the products are not what we imagined. What these big, international companies "make," in our narrow mid-20th-century minds, is quite intangible. ...But it exists ...

The product is made in massive factories called server farms.

Loss of the credit increased the cost to construct and equip the facilities by 7.9 percent. Warner explains what that means.

Kevin Timmons, vice president of operations for Yahoo, visited last week to explain that his company has grown very fond of this part of Washington. It has invested many millions here, to build a massive server farm at Quincy and a small facility in Wenatchee...

Yahoo would like to do more ƒ? expand at Quincy and build a large facility somewhere near Wenatchee. They are serious. But with all the state's taxes, they won't. "It just doesn't make economic sense," Timmons said, shaking his head in regret.

Warner thinks that it will be tough to get the 2009 legislature to extend the breaks, given that they failed to do so last session, when they had a little more cash available. And then, he identifies what's wrong with that thinking.

... all the estimates that say if every company that wants to build a tax-exempt server farm does, the state will lose $33 million soon and more later...

But, those are taxes that without the server farms the state will never collect. Those few jobs ƒ? hundreds in construction, dozens afterward ƒ? will come to be in some other state, some other nation. The power that could be used locally will go elsewhere, perhaps far away. The local sales and property taxes, in massive amounts, will never be paid.

And the long-suffering rural areas will return to their accustomed condition, standing ready with the tax breaks not often used, for the "manufacturing" not here.

The way the state estimates the "costs" of these exemptions assumes the economic activity would occur without the incentive plan. As the server farm experience demonstrates, the credits and exemptions often are the key to landing investment and jobs. As it stands now, the companies are exploring their options. There's interest here and here, for example.

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Wednesday, August 06, 2008

Mixed Reaction to Hiring Freeze

Posted by Richard Davis on 8/6/2008 4:49:00 PM

The governor's hiring freeze has met with mixed editorial page reviews.

At The News Tribune, the editors call it "welcome, if overdue," and offer a measured assessment.

The governor has spent too much time disputing estimates of the coming shortfall and dismissing suggestions that state spending was setting Washington up for a fall.

But at the same time, Gregoireƒ?s political opponents go too far in laying all the blame for pending budget troubles at her feet. She may not have been the model of fiscal restraint, but neither has she been its nemesis.

As support for the latter assessment, they cite the rainy day fund and reserves.

At the Chronicle, they're more critical.

Gov. Gregoire, since being elected narrowly over Dino Rossi in 2004, has raised state spending by 33 percent.

That, more than energy prices and the national economy, is the reason we are staring at that looming $2.7 billion hole.

We do agree with Gov. Gregoireƒ?s actions on Monday to trim back spending, but it appears to be too little too late.

The Seattle Post-Intelligencer reprises a familiar theme.

No one wants to raise taxes during a recession ƒ? but one idea that has merit is for the Legislature to enact an income tax on the state's wealthiest citizens, starting at $200,000. That would at least help balance the basic unfairness of the sales tax ƒ? and help fund government.

We're hearing calls to cut state government services, but that misses the other half of the ledger.

As it required an amendment to the state constitution - supermajority approval in the legislature and an affirmative vote of the people - the "tax the rich" scheme won't do anything for "the other half of the ledger," either. But at least we're getting the beginnings of a budget debate. That's progress.

MORE For a good round-up of ballot initiatives across the country, check out Stateline.org, more than a few of them will be of interest here. Also,

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Tuesday, August 05, 2008

Budget Problems Mount in Olympia, Sacramento, Denver, Tallahassee, and ...

Posted by Richard Davis on 8/5/2008 1:44:00 PM

Yesterday Gov. Gregoire announced a hiring freeze plus, estimated to save about $90 million. Her office reports that it's a response to the decline in revenue collections since the June forecast, not the $2.7 billion shortfall projected for the next biennium. According to the Herald of Everett,

Gregoire's action could net $90 million in savings this budget year if carried out across all of state government and higher education. It was spurred by a new report showing tax collections in June came up nearly $61 million less than anticipated.

"We believe the response is more than adequate to the drop in June revenue receipts," said Gregoire communications director Pearse Edwards.

Not necessarily more than adequate to address the larger problem ahead, but it's a start. Republican challenger Dino Rossi calls it too little, too late. From the Seattle PI,

"In addition to a hiring freeze, we should also freeze salary increases for politically appointed state employees. Further, Governor Gregoire should suspend salary negotiations with state employee groups over pay increases until we know the full extent of our deficit next year," Rossi said.

South of here, Gov. Scharzenneger proposes a sales-tax increase to deal with California's $15.2 billion budget gap. According to the LA Times, the immediate and temporary (3-4 year) one-cent sales tax hike comes with strings.

The proposal, floated in meetings with the Legislature's leaders and their staff, hinges on lawmakers agreeing to automatic spending restraints and new powers for governors to cut programs whenever the state falls into the red.

And in Colorado, Gov. Bill Ritter lends his support to an initiative to eliminate an oil and gas industry tax credit. It's not about the money, reports the Denver Post.  Of course not. Or at least not solely about the money.

"It's really about sound tax policy," Ritter said at a rally before delivering the signatures. "There are times when you provide a tax incentive to grow an industry. This is not the time for oil and gas."

It is, though, a large tax increase that ripples through the economy.

And in sunny Florida, Gov. Charlie Crist, facing a large budget shortfall, in June ordered spending reductions. They may not be enough, reports the Orlando Sentinel.

Florida's sagging economy will push state government back into the red this month and force Gov. Charlie Crist to either further cut spending or tap deeper into the state's reserves.

Florida's sales and real-estate tax revenues have continued to plummet this year, forcing Crist in June to order all state agencies to hold back 4 percent of the $25.7 billion operating budget for the fiscal year that began July 1.

There's not room to report all the bad news. Here's a sample of other activity from StateNet Capitol Journal.

Cigarette sales have dropped nearly 25 percent in MARYLAND since the state doubled its tobacco tax in January, exacerbating its budget problems. .. (WASHINGTON POST). ƒ› RHODE ISLAND Gov. Donald Carcieri (R) will seek a federal waiver to cap Medicaid spending at $12.4 billion over the next five years to help the state deal with its worst fiscal crisis in almost two decades. (PROVIDENCE JOURNAL). ƒ› Among the $1.4 billion ILLINOIS Gov. Rod Blagojevich (D) cut from the state budget this month was more than $5.5 million set aside by lawmakers to prevent or correct wrongful convictions.

While the economic slowdown accelerated the reckoning, the current round of belt-tightening comes after lawmakers increased spending during the housing boom.

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Tuesday, August 05, 2008

Washington Supreme Court: Good for Business?

Posted by Kris Tefft on 8/5/2008 10:25:00 AM

AWB looks at that question in its 2008 Scorecard and Guide to the Washington Supreme Court, released this week as an insert to the July-August issue of Washington Business Magazine.

This latest version of the judicial scorecard looks at 26 different business climate cases across six areas -- labor and employment, land use and environmental, tax & fiscal policy, torts and insurance, workers' compensation and safety, and general business issues.  AWB participated as a friend of the court in many of the cases evaluated, arguing for a pro-business outcome.

The top 3 "pro-business" scores in 2008 went to Justice Jim Johnson, whose decisions we agreed with 92% of the time; Justice Richard Sanders at 76%, and Chief Justice Gerry Alexander at 58%.  Down at the bottom end were Justice Tom Chambers, at 40%, and Justices Mary Fairhurst and Susan Owens at 38% and 35% respectively.   

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Monday, August 04, 2008

New Group of Candidate Questionnaires Posted

Posted by Richard Davis on 8/4/2008 4:35:00 PM

To see the responses we've received so far to the WashACE candidate questionnaire, click the link to the right ... or right here.

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Monday, August 04, 2008

Governor Imposes State Hiring Freeze

Posted by Richard Davis on 8/4/2008 3:26:00 PM

As further evidence of the problems facing state budget writers, Gov. Chris Gregoire imposed a hiring freeze today, along with her request that state workers cut travel, gas consumption and discretionary purchases and contracts. Here's the memo (h/t Jason Mercier).

The governor emailed state employees, saying:

Anything we can do to reduce fuel consumption will ease the burden on our budget and on taxpayers.  Thatƒ?s why I have asked all our agencies to reduce their gas consumption by five percent from their 2007 usage.

But each state employee can help.  ... I ask all of us to be creative in determining how to avoid trips ƒ? even across town ƒ? and still get the job done.  In fact, I ask you to be as creative in cutting costs as you are with your own family budgets.  And if you come up with ideas that can be applied across state government ƒ? I want to hear from you.

Along with limits on non-emergency travel, Iƒ?ve asked my agency directors to freeze hiring to fill job vacancies, shelve plans to purchase new equipment, and avoid signing all but emergency personal services contracts.   

Hunter George has more on The News Tribune' Political Buzz blog.

At the Spokesman-Review's editorial page blog, Gary Crooks asks,

Do you think this goes too far? Not far enough?

I'd call it a good start.

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Friday, August 01, 2008

More News (Bad) About State Budgets

Posted by Richard Davis on 8/1/2008 3:14:00 PM

The always useful Stateline.org news service provides a link to this USA Today story documenting the continuing collapse of state budgets.

...new government figures show that state and local governments boosted spending 7.8% in the second quarter compared with 2007 while revenue rose 2.5%. Government is on a hiring binge, too, even as private-sector jobs disappear.

California with a $15 billion budget gap, may have reached that tipping point where a problem becomes a crisis. The LA Times reports on the executive's action.

Gov. Arnold Schwarzenegger, expressing frustration with lawmakers' failure to approve a state budget, ordered his administration Thursday to lay off thousands of part-time employees and moved to temporarily slash the pay of most full-time staff....

Nearly 200,000 employees could have their pay cut to the federal minimum wage of $6.55 an hour, with full salary reimbursed once a budget is signed. More than 10,000 lost their jobs Thursday.

Folks expecting normalcy to return shortly may be mistaken, according to an expert contacted by USA Today.

Raymond Scheppach, executive director of the National Governors Association, says governors proposed spending increases of just 1.1% this year. He predicts that deep spending cuts and modest tax increases could occur in mid-2009 as tax problems persist and budget reserves become depleted.

"What scares me is this problem may not be deep, but it could last a long time," Scheppach says.

Washington faces similar challenges.

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Friday, August 01, 2008

Reason on the Roads

Posted by Richard Davis on 8/1/2008 11:28:00 AM

The Reason Foundation that is. And yet another ranking study, this one on transportation. The 17th Annual Report on the Performance of State Highway Systems (1986-2006) just came out (h/t the Spokesman-Review's editorial page blog).

Here's what Reason says about us:

Washington ranked 39th in overall performance and cost-effectiveness. In last yearƒ?s rankings, Washington ranked 32nd overall. Washington is 24th in urban interstate congestion, with 42.76 percent congested. The state ranks 42nd in rural interstate condition and 45th in urban interstate condition. Washington ranks 32nd in deficient bridgesƒ?26.18 percent of the stateƒ?s bridges are deemed structurally deficient or functionally obsolete. Washington is 13th in the nation in fatality rates per 100 million vehicle miles traveled.

Although we've made progress, infrastucture investment in the state remains well below documented needs. High gas prices, which have reduced gas tax revenues and boosted the costs of asphalt and other construction materials, have guaranteed that there will not be enough money to cover projects already approved by the voters and lawmakers.

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Friday, August 01, 2008

More Rankings: Ball State Looks at Manufacturing

Posted by Richard Davis on 8/1/2008 11:05:00 AM

Ball State University's Bureau of Business Research recently published its 2008 Manufacturing and Logistics Report Card. The one-pager ranks states on a typical set of indices, including share of population with high school and BA degrees, crime, higher education, health care premiums, workers' comp rates, R&D, manufacturing share of the economy, UI costs, and several tax factors.

Washington gets a "C," ranking 25th among the states. We fare well on most of the education factors, naturally share top billing with other no-income-tax states on that factor and come in last on sales tax. Problem areas for Washington show up with health care premiums (38th), fringe benefits share of wages (49th), and the UI tax index (36th).

Top states were Missouri, Utah, Floriday, Alabama, South Dakota, and Indiana, all of which received "A"s. Failing grades were assigned to New York, Kentucky, New Jersey, Vermont, Rhode Island, Maine, and West Virginia. 

Again, not all of the detail is readily accessible from the web site. A related manufacturing study by the group, focusing on Indiana, provides additional information.

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Friday, August 01, 2008

New "Best States for Business" Ranking: Forbes Pegs WA as No. 3

Posted by Richard Davis on 8/1/2008 10:20:00 AM

Yesterday, Forbes released its annual "Best States for Business" report, ranking Washington No. 3 in the nation, behind Virginia and Utah. (Here's the table with the ranks for the six ranking components.)

Last year, Washington placed fifth. Although Forbes doesn't provide details of its evaluation methods, they appear to have changed little, if at all, from last year, when Virginia and Utah also ranked first and second, respectively.

Our state's high ranking appears to stem primarily from two factors, on which WA ranked No. 2: labor rank. based on "educational attainment, net migration and projected population growth," and growth prospects, based on "projected job, income, and gross state projects as well as business openings/closing and venture capital investment."

According to the story,

Our rankings measure states on six main areas of importance: business costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Business costs are weighted the most... We look at a total of 32 data points to compile rankings of the six main categories.

Again, business costs raise concerns here. Washington ranks 28th on that measure; last year we ranked 33nd. Our other low mark comes in quality of life, where we rank 25th, up from last year's 32nd.

The regulatory environment, where we rank 6th, consists of an odd amalgam of "regulatory and tort climate, incentives, transportation and bond ratings."

More transparency would be nice, but as a marketing coup, this high ranking counts as a plus for the state. In recent weeks we've seen a number of such reports, like the DCI study, the CNBC rankings, KPMG's best cities for taxes, and Inc. Magazines "best cities for doing business."   

As we've written before, there's no "the business climate" and no definitive source. Each list involves a mix of subjectivity and data, as the evaluators judge what they deem to be most important. And that varies from industry to industry, even from entrepreneur to entrepreneur. But when you're engaged in competition, and we all are, it's good to be high on the list of best places. This is good news.

MORE Carl Gipson at the Washington Policy Center has a nice rankings round-up.

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Friday, August 01, 2008

Best Cities for Taxes - Seattle's Not High on the List

Posted by Richard Davis on 8/1/2008 9:51:00 AM

As the Puget Sound Business Journal highlighted, business taxes in the Seattle region rank among the highest  among major metro areas globally, according to this KPMG study.

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