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 don?t see the economic downturn as a recession, they think the economy is resetting to a lower level of consumer spending.
It?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 ?less rigorous, even if it meant saving time or money.
At Wednesday?s news conference, Mullin spoke cautiously, saying the Roundtable appreciated being consulted on the matter, and that there?s plenty of common ground ? in requiring a test for graduation, for instance.
But as far as other specifics, Mullin would say only that ?I think there are potentially some parts of what he?s proposed that we may have continuing concerns about.
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. ?We need to learn from history. In 1982, our state?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, warned Brunell.
?Proposals may be well-intentioned, but we continue to worry about the long-term consequences if our economy continues to erode, Brunell said. ?We need to be cautious because we just don?t know how many jobs will be lost this year.
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 who?ve been on the hook to finance the trust fund.
...Its size is an argument for drawing it down some. But it?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:
Washington?s unemployment insurance taxes are the second highest in the nation. Our workers? 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 legislature?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 ?voluntary quits 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 ? 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 ? an unparalleled one at that ? to question assumptions about how the state spends money. The priorities must be meeting the state?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 performance?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.
