Posted by
October 2008
Thursday, October 30, 2008
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.
Does that seem like a good thing to you?
PermaLink
Thursday, October 30, 2008
Massachusetts Business Survey: Things Don't Look Promising
Posted by Richard Davis on 10/30/2008 1:15:00 PM
According to a recently-released Associated Industries of Massachusetts survey, Bay State employers don't think much of the business climate there. The AIM survey matches the picture painted by the state's tech leaders. Here's how the AIM press release summarizes findings. 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.
PermaLink
Wednesday, October 29, 2008
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. On the front page of today's Seattle PI, the headline sets the stage: "Boeing suppliers celebrate deal - but analysts have different take." 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. From The News Tribune. ?This contract is not as good as the one that we rejected in September, said Ruth Edwards, who picketed outside Boeing?s Auburn parts plant Tuesday morning. ?For all the time we?ve spent out here, we should be getting something much better, said the 24-year Boeing veteran. ?It looks like the union leadership has just thrown us under the bus again. Similar comments in the Herald of Everett. ... 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 ? they?ve been recurring roughly every five years ? 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.
PermaLink
Tuesday, October 28, 2008
10th Anniversary of Minimum Wage Initiative
Posted by Richard Davis on 10/28/2008 9:53:00 PM
I'd have missed this if I hadn't seen Don Brunell's post on Olympia Business Watch. Yes, it's only been ten years since voters adopted Initiative 688. 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?" Certainly, particularly with younger workers, a higher minimum wage is associated with higher unemployment, as this Heritage Foundation web memo finds. 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 families?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.
PermaLink
Tuesday, October 28, 2008
Boeing Strike Agreement Reached
Posted by Richard Davis on 10/28/2008 11:53:00 AM
Appropriately topping the news today is the tentative agreement between the Machinists' union and Boeing Company. Here are some links: Seattle Times, Seattle PI, The News Tribune, Herald of Everett, and Puget Sound Business Journal. 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 PI's James Wallace links to the IAM site for contract details. 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 ?takeaways 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 ?signing bonus of $5,000 for the first year and two $1,500 payments in subsequent years. Here's Scott Carson's comment. "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.
PermaLink
Monday, October 27, 2008
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. In that spirit, consider the factors considered by the Massachusetts High Technology Council. "The legislative scorecard is designed to create a better understanding of the technology sector?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. ?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.
PermaLink
Monday, October 27, 2008
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.
Last week, Bill Virgin reported on a Hebert Research survey of Puget Sound area business executives. At best, it's a mixed bag. ...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.
PermaLink
Friday, October 24, 2008
Initiative 985 Widens State Budget Deficit
Posted by Richard Davis on 10/24/2008 4:35:00 PM
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 2009?11 biennium.
... Last month, following the release of the Economic and Revenue Forecast Council?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 state?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 2009?11.
Now is simply not a good time to divert money away from the General Fund.
As they say, read the whole thing. The Washington Policy Center published a "citizen's guide" to the initiative in August.
PermaLink
Wednesday, October 22, 2008
Solve Budget Problems without Punishing Economy
Posted by Richard Davis on 10/22/2008 8:00:00 AM
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.
PermaLink
Tuesday, October 21, 2008
Mixed Signals in Unemployment Report
Posted by Richard Davis on 10/21/2008 3:50:00 PM
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 Washington?s unemployment levels are more informative at this time. Washington?s employment level increased by 1.0 percent year-over-year, while the U.S. realized a loss of 0.7 percent. Similarly, Washington?s unemployment rate continues to lag behind the U.S. rate of 6.1 percent, suggesting that Washington?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.
PermaLink
Monday, October 20, 2008
Wisconsin State Journal Offers Solid Budget Advice
Posted by Richard Davis on 10/20/2008 8:03:00 AM
State governments around the country are preparing for the next tough budget cycle. "This situation is as bad as I've ever seen it." 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.
Good idea. One that should travel well.
PermaLink
Monday, October 20, 2008
Hawaii Abandons Experiment with Universal Health Care for Children
Posted by Richard Davis on 10/20/2008 7:35:00 AM
The State Policy Blog reports briefly on Hawaii's decision to end its effort to provide universal health care for children in the state. It cost too much and led people to leave private carriers and take the public subsidy. As state budgets get pinched by declining revenue growth, look for more states to dig into the understated costs of unsustainable promises. Also on State Policy, John R. Graham provides some context for understanding Hawaii's health care experiments.
PermaLink
Tuesday, October 14, 2008
NCSL Warns of Worsening Conditions for State Budgets
Posted by Richard Davis on 10/14/2008 9:51:00 AM
This morning, the National Conference on State Legislatures issued a press release making the by-now commonplace observation that budget conditions are going from bad to worse. They introduce the theme this way: The national economy is the single most important influence on state finances. With the national financial markets in turmoil, state budgets are being adversely affected. But even before recent economic events, budgets in most states were faltering.
That's certainly true in Washington, where the state faced a significant shortfall in the next biennium well before the present ructions. The coming budget cycle, in which Washington will likely face a projected shortfall approaching $4 billion if current trends continue, will be a trying time for most legislatures. "Since we released our last budget report, the state fiscal environment has become increasingly volatile," says Corina Eckl, NCSL's fiscal program director. "If the aggregate state fiscal situation is as bad as anecdotal evidence suggests, 2009 promises to be grim year. The palatable options to close budget gaps are rapidly dwindling."
"Palatable options" dwindling. True enough. This won't be easy for anyone. The smart option, however, will be to use the time to establish a stable foundation for long-term economic growth. Spending restraint, not higher taxes, will be the right first step.
PermaLink
Monday, October 13, 2008
State Revenue Collections Down Again
Posted by Richard Davis on 10/13/2008 2:17:00 PM
The bad news continues. Today's report on state revenue collections continues the downward trend. General Fund-State (GFS) tax payments in the September 11, 2008 - October 10, 2008 collection period returned to the pattern of weakness seen in the July and August collection reports. Receipts for the month were $48.3 million (4.8 percent) lower than expected, due mainly to a $43.5 million shortfall in Revenue Act receipts. All other revenue categories except for cigarette taxes also came in below their forecasted values.
Last month, the sliver of good news was that revenue collections were flat. With today's report that collections are down more than $48 million, it's increasingly likely that the critical November revenue forecast - the estimate upon which the governor builds her budget - will again be down. As consumers tighten their spending, there's no near-term upside in sight. Even if the economy stabilizes some, confidence has been shaken and cautious buyers will be reluctant to return to the malls and auto lots. Here's a short extract from the report. " Preliminary industry detail of tax payments for the September 11 - October 10 period from electronic filers shows widespread weakness: - Tax payments by firms in the retail trade sector were 7.3 percent below the year-ago level. Last month the sector saw a decline of 4.3 percent. Tax receipts from the retail trade sector have declined year-over-year in eight of the last nine months. - Eight of the twelve 3-digit NAICS retail sectors reported declines this month. The sectors with the largest declines were motor vehicle dealers (-18.4 percent), furniture stores (-13.8 percent), building materials/garden supply retailers (-12.5 percent), food and beverage stores (-6.9 percent) and electronics and appliances stores (-5.6 percent). The auto sector, the largest retail trade category, has now reported a year-over-year decline in tax payments for nine consecutive months.
Bleak. As noted earlier, it's likely to get worse. South Carolina's Gov. Mark Sanford yesterday offered a surprisingly upbeat assessment of the opportunities the budget challenges present ... and an invitation to South Carolinians to join him in pressing for reform. Although Washington's problems are in many respects quite different, Sanford's perspective is worth reading for the lessons we may learn.
PermaLink
Monday, October 13, 2008
States' Fiscal Situation Likely to Worsen
Posted by Richard Davis on 10/13/2008 8:36:00 AM
About the only thing clear about the current national/global economic situation is that state governments will likely be facing hard times for the next few years. Stateline.org has a realistic, if not uplifting, assessment of the escalating fiscal crisis. The entire post is worth reading. Here's the crux. Grim-faced state officials, seeing reports from the first three months of the budget year that began July 1 for all but four states, are bracing for further declines in tax revenue because of the housing slump, rising unemployment and a slowdown in consumer spending.
In a special to Stateline.org, Raymond Scheppach, head of the National Governor's Association, says it could get worse before it gets better. He considers the ongoing credit crunch and lack of liquidity, rising unemployment, and the sluggish world economy. The bottom line is that states are facing a very difficult fiscal outlook over the next two to three years. This economic downturn will likely be longer and more severe than any states have experienced since the downturn of 1982?1983, when unemployment hit double-digit levels. In short, the fiscal situation for states could get really ugly.
Neal Peirce, a syndicated columnist focusing on state and local government, also weighed in on the issue recently. Peirce, who says taxes will have to rise and tends to favor more assertive intergovernmental fixes, sees an opportunity in all this. The often-ignored reality, says [John] Petersen [a senior analyst of state/local fiscal systems at George Mason University], is that state and local budgets are 12 percent to 13 percent of the entire national economy. "In the last (2000-01) recession, they held up because property taxes were doing well. But now it's the fatal storm ? everything is going down. It's a 9/11 for government finance." Yet there may be something of a silver lining, Petersen suggests: "This financial ? and now fiscal ? crisis means we're all in this together. We will need strong government ? federal and state-local ? to lead us."
Again, read Peirce's column. I disagree with the assessment that the path out of the crisis leads to strong government and higher taxes. The strength to take control over entitlement spending, manage the structural deficit, and coordinate effectively among the various levels and units of government, however, will certainly be required. Peirce ignores the damaging effects of widespread state and local tax hikes on a clearly struggling economy. Maintaining the governmental status quo at the cost of private sector jobs is a prescription for further economic hardship. No question, Washington, like other states, faces a couple of tough years. Our best way out is to focus on public policies that nurture long-term economic growth, encourage private sector investment and job creation, and assure the intellectual and physical infrastructure required for a competitive economy.
PermaLink
Thursday, October 09, 2008
A Roundup on State Budget Problems
Posted by Richard Davis on 10/9/2008 3:41:00 PM
Accelerating economic decline increases the pressures on state governments. Let's take a look at what's being reported and requested. First, this scary headline from the Wall Street Journal: First into Recession, California Shows Possible Future for the U.S. It's not over, yet, for the Golden State. The Sacramento Bee reports Fiscal News Grows Worse for California. Senate President Pro Tem Don Perata estimated Tuesday the state will face a $3 billion to $5 billion deficit this fiscal year without corrective action, a significant gap that increases the possibility lawmakers will have to consider new spending cuts or tax increases in a special midyear budget session. State Controller John Chiang, meanwhile, announced California has taken in $1.1 billion less through the first quarter than state officials projected earlier this year.
Nationally, state governments reel from the shock. The Thicket at State Legislatures blog favorably cites a New York Times editorial calling for federal assistance to the states. NCSL has pushed since summer for a multi-faceted, temporary fiscal assistance program that would include a temporary increased federal Medicaid match, extended unemployment and supplemental Food Stamps benefits, infrastructure grants and increased child support enforcement funding. Any or all of these ingredients would help states plug budget gaps, protect vulnerable populations or create economic activity and jobs.
The aid might help if this were simply a cyclical downturn, but it's not. State spending during the good times took off, expanding a structural deficit that cannot be erased by a one-time bailout. For a good report on where things stand around the country, Stateline.org points to a recent Rockefeller Institute report. The study, The Damage is Just Beginning, looks at second quarter revenue collections and predicts widespread state budget cuts ahead. In Florida, class size reductions are likely to be put on hold. New York plans a third round of spending reductions, which will likely touch home health care, education, and Medicaid. Even generally health Texas is bracing for fiscal challenges. On and on it goes, states contemplating budget reductions brought on by a combination of overspending and collapsing revenues. Governor Gregoire has also been talking spending restraint here. The Kitsap Sun reports she told them more spending cuts are on the table. On Tuesday, the governor told state agencies that they needed to cut spending by 1 percent as part of a bigger plan to save $330 million in the budget. Earlier the governor instituted a freeze on hiring, out-of-state travel and other expenses. Wednesday she told the board she'd increase the spending cuts to 5 percent, if necessary.
And the Adam Wilson blog in the Olympian reports that employee salary increases are not certain. "The ultimate decision will be left to the Legislature. I don?t make the final decision," she said. "If in fact the economic crisis worsens, I think there will be big question marks when it comes to pay raises."
Wilson also reports GOP challenger Dino Rossi's response to "cuts." Many of the items she refers to as 'cuts' are really just budget items where expenditures have come in lower than expected, such as with health care premiums, or by taking additional federal funds. These are savings that would have been realized anyway when writing the next budget," Rossi said.
And Jason Mercier notices mixed signals on what's likely to happen to the rainy day account. Speaking of mixed signals, Joe Turner of The News Tribune sheds some light on answering the tax question.
PermaLink
Wednesday, October 08, 2008
A Couple of Thoughts on Deregulation and Taxes
Posted by Richard Davis on 10/8/2008 1:36:00 PM
In the Herald of Everett this morning I consider deregulation, good intentions and overreaching. And a Belmont University professor has some taxing thoughts from yesterday's presidential debate. With the likelihood of a growing federal tax burden, watch for more entrepreneurs to choose lower tax states for their businesses.
Good advice for lawmakers considering how to close a budget gap. Tax hikes will shrink the tax base by driving entrepreneurs and other investors to more favorable climes.
PermaLink
Wednesday, October 08, 2008
More on Boeing, the Strike, and our Aerospace Future
Posted by Richard Davis on 10/8/2008 1:28:00 PM
Yesterday the Aerospace Futures Alliance held its Second Annual Aerospace Summit. Given the warning from the Boeing Company the day before, it was a timely meeting. Dominic Gates has a good report in the Seattle Times. This from Fred Kiga resonates. "It's ironic that I'm speaking at a conference entitled 'Cleared for Takeoff' when at the moment we are grounded," said Fred Kiga, Boeing vice president for government and community relations, at the Governor's Annual Aerospace Summit.
At the Summit link you can find material presented at the summit. For sure, this region doesn't thrive unless the industry is again cleared for takeoff.
PermaLink
Wednesday, October 08, 2008
Governor Orders Budget Cuts
Posted by Richard Davis on 10/8/2008 12:59:00 PM
Gov. Gregoire has ordered additional budget cuts. Dino Rossi calls them cherry-picked. Read the dueling press releases. Then take a look at the stories in The News Tribune, Herald of Everett, Seattle Times, Olympian, and Adam Wilson's Olympian blog. Some reasonable inferences. Wilson's most likely right that the budget crunch spells the end for paid family leave, the low-income "sales tax credit," and an underutilized property tax program. The governor's acknowledgment of a $3.2 billion shortfall in the next cycle is a step forward. The economic turbulence makes it easier for the governor to cut spending and tag her actions to the national economy, though as we've said here often, absent the economic slowdown Washington still faced a budget shortfall in the coming biennium as a result of overspending. At the Washington Policy Center blog, Jason Mercier offers some thoughts. And Amber Gunn at the Evergreen Freedom Foundation is critical. Certainly, these cuts don't come close to closing the budget gap, but they tighen the fiscal jaws some. There's still a lot of work ahead. And if current trends continue, the November revenue forecast - scheduled for November 19 - will contain further bad revenue news, possibly undoing the gains from the governor's proposed cuts.
PermaLink
Tuesday, October 07, 2008
Boeing CEO Warns: Competitiveness is a "Big Deal"
Posted by Richard Davis on 10/7/2008 9:46:00 AM
The Seattle Times, Seattle PI and the Herald of Everett report on a lengthy memo from Boeing CEO James McNerney. (The link to the memo is from the PI"s James Wallace's blog, which also provides the union response and good reporting.) McNerney starkly frames the conditions facing the company: turmoil in the financial markets, emerging global competitors, invigorated old competitors, and more. He specifically focuses on the strike. The crux: Preserving our competitiveness has never been more important--or urgent.
The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business. Markets and business conditions can change quickly and dramatically. And we need to be able to react just as fast. U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands. The unrelenting reality is this: Jobs in today's global economy are created and sustained only through increasing productivity and customer-focused innovation.
I wrote on the strike earlier. It's making ugly times uglier. A bleak prediction, from the PI story. "The odds are heavy against the next new Boeing jet (after the 787) being built in the Seattle area," said Richard Aboulafia, vice president of analysis for the Teal Group, an industry consulting firm near Washington, D.C. Boeing came close to picking Alabama or North Carolina as the final assembly site for the 787 Dreamliner before deciding to build the plane in Everett. Boeing's history of bad blood with its biggest union was one of the issues that weighed on Boeing leaders at the time. "It is highly questionable if there will be any Boeing jets built in Seattle in 10 years," Aboulafia said. ..."For any union to feel enthusiastic about striking now, they have to have zero contact with the outside world," Aboulafia said. "On the other hand, they are the last union with any real power in this country."
As McNerney says, it's a big deal.
PermaLink
Tuesday, October 07, 2008
How Much Do Corporate Headquarters Matter?
Posted by Richard Davis on 10/7/2008 9:19:00 AM
Quite a lot, i think. Richard Florida's Creative Class blog points to a new study by the Institute for Competitiveness and Prosperity, a Canadian group, that takes a comprehensive look at the question. Read the study here. Sadly, it's an important question for our state these days. Here's the ICP bottom line: Our research supports the importance of an economic environment that both drives innovation and creativity by Canadian firms to propel their global expansion and makes Canada a compelling destination for investment. Our economic policies need to support the vibrant growth of our city regions and the continued development of skilled human capital. In a virtuous circle, this supports the success of head offices which in turn enhances our human capital thereby increasing the vibrancy of Canadian cities and the country as a whole.
True in Canada. True here. Headquarters matter.
PermaLink
Tuesday, October 07, 2008
New Tax Foundation Report on Business Taxes: Washington Ranks 12th Best
Posted by Richard Davis on 10/7/2008 9:01:00 AM
The Tax Foundaton recently released its 2009 Business Tax Climate Index. On the new index, Washington comes in at No. 12, Last year the state ranked No. 11. We've been critical of the Tas Foundation's assessment of business tax burdens in the past, believing they overweighted income taxes and missed the mark a bit on our state's Business and Occupation Tax. And in this latest version, those concerns remain. Here's the full report, component rankings on page 9. Here's the Washington Research Council's evaluation of severalbusiness tax studies. The COST study continues to be the best interstate comparison - more comprehensive and less judgmental - but from each of these reports objective analysts can learn something useful. Certainly, these comments from the Tax Foundation are on target. American companies often function at a competitive disadvantage in the global economy. They pay one of the highest corporate tax rates of any of the industrialized countries. The top federal rate on corporate income is 35 percent, and states with punitive tax systems cause companies to be even less competitive globally. The modern market is characterized by mobile capital and labor. Therefore, companies will locate where they have the greatest competitive advantage. States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth. Although the market is now global, the Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to an overseas location.
With the recession taking hold, an appreciation of how higher business costs - including especially taxes - could not be more timely. Costs matter.
PermaLink
Monday, October 06, 2008
Initial claims for unemployment insurance are up in Washington
Posted by Kriss Sjoblom on 10/6/2008 10:57:00 AM
Initial claims for unemployment insurance rose by 954 in the week ended September 27, from 10,435 to 11,389. This is nearly twice the 5,904 claims in the corresponding week of 2007. Last week initial claims jumped by 2,359. Table here. The less volatile 4-week moving average of initial claims rose from 8,502 to 9,393. Scary chart here. While it is possible that the recent jump in claims is due to the Boeing strike, I fear that the jump signals the beginning of recession for the Washington economy.
PermaLink
Friday, October 03, 2008
State Budget Woes Mount Nationally, Concerns for Washington
Posted by Richard Davis on 10/3/2008 12:36:00 PM
Congress just passed the bailout bill. And if it works as promised, it should bring stability to the remarkably unstable financial markets. Ongoing economic challenges remain, however, and continue to impose stress on state budgets, many of which grew unsustainably in the last years of the housing bubble. Stateline.org has a good roundup this morning. A number of states are, like Washington, trying hiring freezes. As well, some have imposed salary freezes, reduced work hours, required state workers to pick up a larger share of benefit costs and, when all else fails, moved to layoffs. Leslie Scott, the director of the National Association of State Personnel Executives, said most states seem to be reverting to hiring freezes, instead of the more extreme layoffs and furloughs. ?But of course, as the budgets get tighter?It seems like everyday we see headlines that say (states are) expecting a bigger deficit than planned, she said.
The story links to a new report by the liberal Center on Budget and Policy Priorities. Washington's looming deficit finally makes the national think tank news. After noting that 15 states are already in deficit position for the current fiscal year, they look ahead and find more dark clouds. At least 12 states have looked further ahead and prepared projections of revenues and/or spending for fiscal year 2010 and beyond that foresee continued fiscal distress. These 12 states include five of the states projecting mid-year gaps for the current fiscal year ? Connecticut, Florida, Hawaii, New York, and Vermont ? as well as California, Kansas, Maryland, Minnesota, Oregon, Washington, and Wisconsin.
California already wants a bailout. (Maybe Gov. Schwarzenneger believes the state's too big to fail.) Our state's budget gap - now projected to be $3.2 billion for the coming biennium- is likely to increase over the next few months. After the September forecast was prepared, economic news worsened significantly. Today's Seatte PI carries a sobering story on the hit manufacturing has taken in recent months. At Olympia Business Watch, Don Brunell reports on tanking auto sales. And here we see the Employment Security Department's chart showing sharply rising unemployment insurance claims. The accumulation of information underscores the importance of being certain our state leaders close the budget gap without increasing the costs of doing business here. Economic growth provides the key to long-term stability. Anything that makes it more difficult for employers to hire - for producers to produce - risks inflicting further damage on an already fragile economy. In addition to adding the frustrations and insecurity of the workers and their families already at risk, higher taxes would ultimately deepen the state budget deficit by driving business activity to other, more competitive states.
PermaLink
Thursday, October 02, 2008
The Other Federal Bailout
Posted by Richard Davis on 10/2/2008 5:19:00 PM
Eclipsed by the high drama attending Congressional efforts to pass an economic stabilization package (or, if you prefer, the bailout) and the aid to the auto industry, is a federal gift to the ailing Massachusetts health care system. This last one, remember, is one of the models favored by some of our state's health care reformers. Interestingly, the Massachusetts bailout is being criticized by some of the Heritage Foundation analysts most heavily involved in designing elements of the Romneycare plan. It's a useful reminder of how quickly grand governmental experiments can go wrong, at considerable cost to taxpayers.
PermaLink
|
