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Taxes and Spending
Thursday, May 07, 2009
Some Session Perspective
Posted by Richard S. Davis on 5/7/2009 4:42:00 PM
Two podcasts at AWB's Olympia Business watch ( Part 1 and Part 2) take a look at the recently-concluded legislative session. In this column, I take a look at the legislature's uneven budget performance. They simply must engage the public in a constructive conversation about
this state’s overreliance on property and sales taxes and how the
missing third leg of the stool — an income tax — is necessary to level
out the revenue peaks and valleys that this state constantly
experiences.
Peaks and valleys that are routinely experienced in every state when the economy swirls down the drain. Oh well. There are good arguments for considering an income tax, but immunizing the treasury from the fiscal flu isn't one of them.
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Thursday, May 07, 2009
Special Session? We Should Know Today
Posted by Richard S. Davis on 5/7/2009 1:46:00 PM
Little came easy this legislative session. And that goes for discussions about whether to extend it to handle unfinished business.
You'll remember that shortly after the clock ran out on the session, Gov. Gregoire said she'd call lawmakers back for a one-day session. (The link is to Adam Wilson's story in the Olympian.) Details, like what were the must-dos and when must they be done, remained to be worked out. As time passed, urgency waned. Wilson reports that Tuesday the governor told Democratic leaders, "time's up." A decision needed to be made this week. The AP's Rachel La Corte summarizes the issues in a story the Everett Herald headlines "Gregoire may cancel special session." (Can you cancel something that's never been scheduled? Can you lose a friend you never had?) Briefly: The three bills that have been discussed by the governor for a special session are: - A plan to reduce state spending on a program that benefits
"property-poor" schools, saving about $60 million, while allowing
school districts to collect more money from property tax levies. That
bill is seen as the biggest priority.
- A measure to clear the way for illegal immigrants in state prisons to be deported, saving the state more than $8 million.
- A criminal sentencing bill that expands the low and high end of the
sentencing range, allowing more discretion for judges when sentencing
offenders. This bill could save the state nearly $376,000 through 2011
because it is expected that sentences will be reduced.
But, she notes, ... House leaders have been lukewarm about rushing back to Olympia.
House Majority Leader is quoted as thinking September might be better, when legislators have to return to Olympia anyway. Republicans, who seem to have little influence on the governor's decision, have been clear from the beginning that there's no hurry. That's particularly true for Sen. Joe Zarelli, who headlines his latest Budget Tid Bit " no special session to pass bad public policy." He's particularly opposed to the levy equalization measure. He desxribes
Disagreement on the bill tied up lawmakers in the waning hours of the session.
In addition to the aforementioned issues, swine flu could emerge as a special session topic, at least a reason to bump public health funding. It's always a bad idea to make predictions just before decisions are likely to be announced. But here goes: I doubt they'll be back soon.
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Monday, April 27, 2009
Practically the End of a Tough Legislative Session - Some Good Competitiveness Outcomes
Posted by Richard S. Davis on 4/27/2009 6:56:00 PM
It's important to take time to recognize that in a very difficult year, the Legislature accomplished some noteworthy things, foremost among them: balancing a budget without general tax increases. Critics may point at the heavy reliance on one-time money, including the federal stimulus cash, and the likelihood of another shortfall in the next budget. While that argument has validity, it's more important to note that lawmakers bought themselves - and us - another two years to transition to a sustainable spending level, we hope in a stronger economy. Tax hikes would have further hammered struggling families and businesses, delaying the recovery. Commend lawmakers for making the right budget decisions and avoiding new taxes.
Also, at the eleventh hour (literally), lawmakers adopted a clean unemployment insurance reform bill after the House receded from problematic amendments that would have led to a certain tax hike, particularly on mid-size Main Street businesses. Along with a balanced budget that did not rely on new taxes, UI reform has been a top WashACE priority. Thanks to all who contacted their legislators in the last few weeks!
Some other good things:
We'll have more on what did and didn't happen this session in the coming weeks. Facing considerable challenges, lawmakers were able to take meaningful steps to improve our economic competitiveness. That's no small accomplishment.
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Saturday, April 25, 2009
House Passes Fee on Petroleum Products - Equivalent of 4 Cent-a-Gallon Gas Tax HIke
Posted by Richard S. Davis on 4/25/2009 6:31:00 PM
The House just voted, 51-44, to adopt HB 1614, a new fee on petroleum refined in Washington. It looks like a tax to me.
It now goes to the Senate.
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Saturday, April 25, 2009
UI Reform Back to the House
Posted by Richard S. Davis on 4/25/2009 1:18:00 PM
The proposal will return to the House with the request that representatives drop amendments that would:
- Increase the amount of benefits paid to unemployed workers, up to $20 per week.
- Solidify
a state Supreme Court decision from last summer that said some
employees who quit voluntarily can receive state benefits.
The Senate bill is a responsible measure that protects the UI trust fund, brings state policy into compliance with federal law, avoids job destroying tax hikes, and restores unambiguous policy regarding employees who voluntarily leave their jobs. It originally passed the Senate in March on a 38-11, with bipartisan support. In the House, the amended bill passed narrowly, 53-45, Representatives should now quickly accept the Senate version.
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Saturday, April 25, 2009
UI Reform Back to the House
Posted by Richard S. Davis on 4/25/2009 1:12:00 PM
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Friday, April 24, 2009
Seattle Times Provides Good Final Hours UI Advice to Legislature
Posted by Richard S. Davis on 4/24/2009 12:14:00 PM
In the middle of an economic crisis, it makes no sense to make it more expensive to hire a worker.
Just such a measure, Senate Bill 5963, is now in the final steps in the
Legislature. The bill would make unemployment pay more generous for
workers who qualify for less than the $541 maximum weekly benefit — an
increase that is almost certain to trigger an increase in payroll taxes.
The Times editorial board points out that Washington employers already pay among the nation's highest unemployment taxes and unemployed workers here receive among the nation's most generous benefits,
WashACE has written a lot about this in recent weeks, most recently here. The Senate must reject the costly amendments placed on the bill in the House. As amended by the House, SB 5963 will cost the state good jobs.
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Thursday, April 23, 2009
Income Tax Plan, Not Dead but Sleeping in the Senate
Posted by Richard S. Davis on 4/23/2009 4:42:00 PM
Senate Democrats held a press conference this afternoon to discuss the high earners income tax. Majority Leader Lisa Brown says it won't move this session but may come back soon. Rich Roesler has a good account of the discussion.
This really is becoming more urgent every year,” said Sen. Jeanne
Kohl-Welles, D-Seattle. “Our tax system is really not only unfair, but
it’s also out of kilter. She said she’ll introduce a bill in a day or
two for a sales tax on gum and candy, with the money going to
children’s health care... But she also said that the bill is
unlikely to go anywhere in the legislative session’s final few days.
“The point is: we can’t stop discussing
this,” said Kohl-Welles, who has repeatedly introduced bills to launch
a state income tax.
Not sure that "cant stop talking about taxes" is a theme that sells well with a lot of Washingtonians.
Brad Shannon's report on the press conference includes some insight into the thinking of House Democrats.
In the House, Majority Leader Lynn Kessler, D-Hoquiam, said a caucus
last night on four different taxes produced lukewarm interest, and she
speculated that the caucus was tired. She said there appeared to be
more enthusiasm for Rep. Hans Dunshee’s jobs proposal, which is a $3
billion bond project to upgrade energy systems and improve safety at
schools, universities and public buildings.
But Brown said she
detects little support for a bond but that the Senate Democrats would
consider a sales-tax proposal if the House can approve it.
Joe Turner writes in the Political Buzz that House leaders don't have the votes to pass the sales tax increase. And he includes a copy of the letter SEIU is distributing to legislators urging them to send the tax hike to the public. It's about what you'd expect: Bad things will happen without new revenues and, once properly educated, the public will support new taxes. Not convincing.
With just a few days left to adjournment, it's clear that Democrats can't find a tax plan that gathers majority support. It's time they quit looking for one.
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Thursday, April 23, 2009
Close on Budget Agreement, Still No Deal on Taxes
Posted by Richard S. Davis on 4/23/2009 12:33:00 PM
Democratic House and Senate budget negotiators have reached agreement on a spending plan that they'll unveil to their caucuses today. Here's how Brad Shannon of the Olympian reported it last night.
The House hopes to give it a floor vote as soon as Friday, leaving just a couple days for the Senate to hear it briefly in committee then vote to concur.
House Ways and Means Committee chair Kelli Linville, D-Bellingham, said the agreement was reached this evening on major issues, including agreement on K-12 public schools and higher education. Negotiators in the two chambers are working out provisos and language, a task that likely would go well into the wee hours of Thursday.
Rich Roesler has more in his Spokesman-Review blog, including this bit on prospects for a tax package.
The budget does not include a proposed state income tax or three-tenths of a cent sales tax hike. Lawmakers have floated both ideas — which would need voter approval — as a way to offset hundreds of millions of dollars in cuts.
The income tax proposal now seems highly unlikely, and the sales tax plan appears to be faltering.
Shannon reports that three or four tax hikes are theoretically in play, at least for a while.
None seems likely, and for good reason as a couple of good editorials make clear.
Tracey Warner weighs the arguments of tax critics and tax supporters in the Wenatchee World.
People don't die for lack of tax hikes, [tax opponents] say.
Perhaps, but some people are dying for them.
And the Columbian editorial board says, "this is the worst time and the worst place to violate the 'no tax increases' principle."
Right.
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Wednesday, April 22, 2009
No Enthusiasm for Tax Hike
Posted by Richard S. Davis on 4/22/2009 12:42:00 PM
From the editorial:
... we’re dismayed that lawmakers
seem bent on giving state workers their automatic “step” increases and
keeping their share of health insurance premiums well below what
private-sector workers pay. Meanwhile, they’re talking about kicking
thousands of low-income Washingtonians off the Basic Health Plan.
How about putting the sacred cows on the ballot, and protecting the poor in the actual budget?
If
the Legislature decides to punt and tell voters that vital social
services are theirs to save, it will be a dereliction of duty. And,
yes, people might die. But the fault won’t be lawmakers’ for not
sending a tax measure to the ballot. It will be theirs for neglecting
their job.
In my column today, I compare the final days of the session to a game show. We've just entered Double Jeopardy, where anything can happen. Let lawmakers know how you feel about new taxes.
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Monday, April 20, 2009
There Will be A Tax Package on the Ballot ... Or Maybe Not
Posted by Richard S. Davis on 4/20/2009 3:58:00 PM
Lots of stories over the weekend on the prospects of lawmakers sending a tax package to the voters. This close to the scheduled April 26 adjournment, tax and spending issues dominate. And there's a great deal of uncertainty.
I'm told the reason the tax referendum was revived from near-certain death over the weekend was that House Speaker Frank Chopp
has some members of his Democratic caucus who absolutely refuse to vote
for a budget with $4 billion in spending cuts -- unless there is a tax
proposition on the ballot, too.
We'll find out more tomorrow. That when the tax vote coalition
members say whether they are in or out. The campaign really needs two
components: It's gotta have the Service Employees International Union,
which represents homecare workers and nurses, to provide the foot
soldiers for doorbelling. And it needs the hospitals and nursing homes
to pony up the money.
The Everett Herald takes an unusually sharp tone in its Sunday editorial warning lawmakers: " Don't blackmail the voters." They take Rep. Eric Pettigrew to task for saying "people will die" if voters don't approve new taxes.
Yes, the recession has hit the state budget
hard. But before asking taxpayers for more, lawmakers need to do a
better job prioritizing existing dollars. Why not, for example, ask
state employees to share a greater portion of their health-benefit
costs? They're getting a significantly better deal than most
private-sector workers -- the very people who would be asked to pay
more in sales taxes.
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Monday, April 20, 2009
Excellent UI Editorial in The News Tribune
Posted by Richard S. Davis on 4/20/2009 12:49:00 PM
We hear that the state Senate may take up SB 5963 today. We've written a lot on the issue, urging the Senate to strip the House amendments and insist on their version of this vital legislation.
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Thursday, April 16, 2009
Business Urges Senate to Insist on Good Unemployment Insurance Reform
Posted by Richard S. Davis on 4/16/2009 12:19:00 PM
I can't do better than link to this Olympia Business Watch post by Jocelyn McCabe. WashACE worked closely with AWB, the Seattle Chamber, the Washington Roundtable and Enterprise Washington to write the state Senate urging them to insist on the Senate-passed version of SB 5963 and to reject the l ousy House amendments.
Jocelyn also provides a link to this great editorial in the Yakima Herald-Republic.
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Thursday, April 16, 2009
Tax Protests, Proposals, and Perspectives
Posted by Richard S. Davis on 4/16/2009 10:55:00 AM
Yesterday, the folks who wanted a vehicle for tax hikes finally got their shot. Rep. Eric Pettigrew introduced HB 2377, a 0.3 percentage point increase in the state sales tax rate, bringing it to 6.8 percent. The tax hike requires voter approval and would be in effect from January 1, 2010 through December 31, 2012. Interestingly, one-fifth of the new revenue would be used to fund the so-called "working families' tax exemption," with the balance going to a newly-created health care trust account.
Members of the coalition are planning to review the final round of
public polling this weekend to see whether the public has sufficient
appetite to raise taxes to restore health program cuts, she said.
Language in the bill by change by Tuesday, she said.
"Each (member of the coalition) will have to decide by Tuesday
whether they are in or out," Sauer said. That's Day 100 of the current
legislative session. Lawmakers are scheduled to adjourn five days
later, on April 26.
(I should note that Rep. Maralyn Chase introduced HB 2354, a sweeping 1 percent tax on intangible property like stocks and bonds. No analysis has been done on the bill, which looks like the biggest tax hike in state history. We can only hope it's an empty gesture, but ... watch it nonetheless.)
As lawmakers pondered tax hikes, a surprisingly large crowd of protesters rallied against "out of control spending," the growing national debt, and the prospect of increasing tax burdens. Here's Brad Shannon's account in the Olympian.
The rally, which was one of many similar events throughout the state
and nation Wednesday, drew an estimated 4,000 to 5,000 people who
chanted “stop spending my money!”
Coincidentally (??) the Washington Post reported that " Americans' Tax Burden Near HIstoric Low ... for all but the wealthiest Americans." I'm not sure that will placate the folks who see rising debt, unsustainable spending, and economic insecurity threatening their standard of living and the prospects for their children's futures.
The only accurate way to compare tax burdens is by comparing both state and
local taxes among states. By that measure, Washington ranks
19th-highest per capita and 35th-highest in taxes as a percentage of
personal income, http://www.taxfoundation.org/files/sr163.pdf.
Economists generally prefer measuring as a percentage of personal
income because it takes into account economic activity and demand for
services. Rankings have become a popular staple among certain national
publications, but they can be misleading.
Well, yes, they can be. So can business climate rankings, alhtough I don't recall such zealous attention to detail when Forbes reported favorably on Washington's business climate or when the Tax Foundation and Small Business Survival Committee provided equally flawed analyis of the business tax climate in the state. The Department's right: Forbes missed the mark. I'd quibble that it makes sense to look at tax burden from both perspectives - per capita and as a share in personal income - and not pick one over the other. But interstate comparisons should always combine state and local taxes.
Ultimately, I think voters will base their decision on new taxes - should they have a decision to make - on their perceptions of their personal tax situation, their assessment of the quality of government spending, and their confidence in the legislature's fiscal management. How do you think that will come out?
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Wednesday, April 15, 2009
Revenues Down, Unemployment Rate Up ...
Posted by Richard S. Davis on 4/15/2009 1:52:00 PM
Raha has increased the value of the monthly revenue collection reports, now billed as "economic and revenue updates," and justifies his cautious optimism with charts, data and analysis. No one expects an immediate or robust bounce. As he writes of the US recession,
The free-fall phase appears to be over, but the trough of the recession is still several months away.
But for Washington,
The state economy is likely to recover at the same time as the national economy. But, the early signs of recovery seen in the national data are not yet obvious in state data - mostly due to reporting lags, but also due to the type of data reported.
We expect the state economy to continue to lose jobs through the end of 2009, but at a diminishing rate.
It's difficult to preduct a turnaround, one of those things best identified in the rear-view mirror, after the fact. Given the uncertainty and fragility of the economy, legislators should resist calls for tax hikes. There's no excuse for adding to the burdens of struggling families and employers.
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Saturday, April 11, 2009
Slightly More Clarity on Legislative Tax Options, But Not Much
Posted by on 4/11/2009 5:15:00 PM
Sen. Joe Zarelli looks at the final weeks of legislative activy and reviews 10 recommendations for structural reform (Budget Brief #4). The Columbian has more on four of his ideas.
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Saturday, April 11, 2009
House Passes Lousy Unemployment Insurance Bill
Posted by Richard S. Davis on 4/11/2009 12:47:00 PM
Yesterday, the House passed an unacceptable version of unemployment insurance reform. Business groups, including members of WashACE, had urged lawmakers to pass Senate Bill 5963 as it came from the Senate. The House Commerce and Labor Committee had taken that good legislation and tacked on amendments that increased UI benefits, assuring future tax increases for employers, and weakened language clarifying when workers who voluntarily quite their jobs could qualify for UI benefits. The legislation passed yesterday, after a flurry of amendments and heated floor speeches, reflects the committee's work.
"The irony is that the day after the governor rolls out
her plan to make Washington more competitive and improve the state's
business climate, her allies in the House decide to raise business taxes
and she's nowhere to be found," said Condotta.
The bill now goes back to the Senate, where Senators should insist on their original bill.
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Thursday, April 09, 2009
The Home Stretch: All Taxes, All the Time
Posted by Richard S. Davis on 4/9/2009 1:26:00 PM
The mass ascension is the highlight of hot air balloon festivals. Lots of balloons. Lots of color. Lots of, well, hot air on sunny, calm days. A lot of fun.
The tax balloons being floated in Olympia lack color, calm and fun. Totally taxing.
If they're looking to voters to identify the consensus pick, they should be picking up a clear signal: Don't raise taxes. A new Moore Information survey shows voters overwhelmingly rejecting a two-year increase in the state sales tax (from 6.5 percent to 7.5 percent) for education and other important state programs. Down it goes: 56 -39.
OK. Now they're talking about a smaller increase: 0.3 percent. Don't count on it doing much better. Roesler has more on the poll and on a national survey showing some support for taxing the rich. Even if you buy the national data, remember that most states already have an income tax, so support for skewing it to take more from the rich will be an easier sell. Income taxers here have a higher threshold to cross.
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Tuesday, April 07, 2009
Plenty of Tax Talk
Posted by Richard S. Davis on 4/7/2009 3:09:00 PM
Although the economy remains the top issue for voters, a Rasmussen Reports survey finds taxes moving up the list. Nationally,
... 64% of voters see taxation as very important; it’s highest level in nearly two years.
They have a lot of company in Olympia, where at least 64 percent of the legislature also see taxation as very important. In the final three weeks of the session, taxes and talk of taxes dominate the agenda.
The income tax continues to get talked about. Sen. Jeanne Kohl-Welles, who has sponsored a 1 percent income tax for the wealthy, thinks her plan is constitutional, according to an email she sent the Seattle PI.
I believe that the court would apply modern concepts of income tax, and
conclude that this legislation is constitutional, especially with the
support of the voters.
I think "the support of the voters" is supposed to be irrelevant when it comes to determining the constitutionality of a measure. Remember I-695?
One idea is to raise the sales tax by a third of a penny to fund
long-term care, adult family care, mental health and basic health care
services, and mitigate the effects of the cuts to public health care in
the House and Senate budgets. This would include a rebate for working
families, in order to offset the disproportionate burden that low and
middle income families pay under our current tax structure.
The new fashion is to take advantage of hard times to target a class of
people that few politicians are willing to defend -- and then expand
that class.
Our state makes a cameo appearance.
In the state of Washington, which has no income tax, Democratic state
Sen. Lisa Brown raised the idea in her blog. "The New York Legislature
is considering what I think is a fair and stable way of addressing
their revenue challenges. Should we do something similar in
Washington?" she asked. Not long after, one of her Democratic
colleagues introduced a bill proposing a millionaires' tax that would
kick in at $500,000.
Peter Callaghan reminds us in his TNT column that income tax proposals always surface here during a recession.
And in the scheme of things, income-tax talk is just that – a verbal
distraction until lawmakers come up with the actual solutions.
AWB believes it is the private sector--Main Street
businesses providing jobs and tax revenues which will drive us back to
prosperity.
To bring us to that day, lawmakers should abandon talks of present and future tax increases and concentrate on creating a sustainable budget.
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Tuesday, April 07, 2009
$3 Billion Bond Issue Off to Rocky Start
Posted by Richard S. Davis on 4/7/2009 1:08:00 PM
Rep. Hans Dunshee announced plans for a $3 billion bond issue to public building construction and renovation projects. State Treasurer Jim McIntire, a former House colleague of Dunshee, offered compelling early skepticism. Here's Rich Roesler's story from yesterday's Spokesman-Review, with a quote from the treasurer's press release.
“The $3 billion of added debt called for in HB 2334 is too
much,” McIntire said in a press release a few minutes ago. “It would
threaten our credit rating and would affect the rest of our investments
in transportation and public infrastructure.”
House Majority Leader Lynn Kessler, D-Hoquiam, said she had concerns
about the legislation and noted that it got mixed reviews in the House
Democratic caucus last week.
State Sen. Ed Murray, chairman of the Senate Democratic Caucus, said
he had not seen the proposal and that the caucus has not discussed the
issue. However, he said, "the challenge for us is why are you building
schools when you're firing teachers?"
The big problem seems to be that Dunshee is more clear on what he wants to do than he is on how he wants to pay for it.
"I'm proposing this package of $3 billion to fix schools and other
public facilities and create energy savings and put people to work.
Possibly 90,000 people," Dunshee said earlier today.
Garber links to a one-page outline of the Washington Works Act that shows where some of the money goes but provides no info on the revenues backing the bonds.
Dunshee said the bond package would cost about $210 million annually to
finance, but he expects to recoup some of that through increased energy
efficiencies at public buildings. He said no decision has been made
whether to propose paying for the debt with existing state revenue or
through a tax increase.
Looks like a long shot right now, despite the governor's endorsement of the concept.
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Monday, April 06, 2009
Economists Against Tax Increases
Posted by Richard S. Davis on 4/6/2009 3:54:00 PM
Today the Washington Policy Center released a letter from 31 economists warning that tax increases would damage the state economy.
Increasing taxes at this time will shift necessary capital from the
private sector to the public sector, thereby depriving private
enterprise of the source of true economic growth and making Washington
state even less competitive for new businesses and jobs.
In February, remember, the Washington Budget and Policy Center put out a letter from a group of economists and others that argued for "keeping all options" open, by which they meant a tax increase might make sense.
I'll take the folks who signed in today - a first round knockout.
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Friday, April 03, 2009
Reject $100 MM in New Costs on Restaurant Industry
Posted by Richard S. Davis on 4/3/2009 2:16:00 PM
The Senate's proposed budget includes nearly $100 million in higher costs for the state's struggling restaurant industry. Here's how Bruce Beckett, the Washington Restaurant Association's government affairs director, describes the measures in a letter to state senators:
1. Tax on Spirit Sales to Liquor Licensees (SB 6119)
The proposed Senate budget includes revenue resulting from the elimination of the 15 percent discount on liquor purchases by liquor licensees. This effectively imposes a $72 million tax ($36 million state general fund revenue and $36 million revenue to cities and counties) on the restaurant industry. This liquor tax increase will undoubtedly lead to additional job losses in our industry, and for those restaurants on the brink of closing, may very likely push them over the edge to closure .
This discount has been in effect since 1949. It recognizes the efficiency in providing quantity discounts to volume purchasing
customers like restaurants. It also recognizes the lower costs to the state in serving wholesale restaurant customers, as opposed to the higher cost associated with retail sales to the general public.
2. Transfer of $25 million from the Liquor Revolving Account to the General Fund.
The proposed budget transfers $25 million to the general fund and states that this amount could be made up from a "liquor price increase or implementing efficiency measures."
Restaurants have been particularly hard hit during this recession, as consumers clamp down on discretionary spending. The repeal of the longstanding discount should be viewed as the repeal of a tax exemption, requiring a two-thirds legislative vote to pass. Even better, it should quickly fall off the table as the House and Senate reconcile budgets in the coming weeks. It's just a bad idea. For more information on this, check out the restaurant association web site.
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Friday, April 03, 2009
As the Week Ends, the Income Tax Talk Revs Up
Posted by Richard S. Davis on 4/3/2009 10:22:00 AM
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Wednesday, April 01, 2009
Income Taxes? Really?
Posted by Richard S. Davis on 4/1/2009 3:36:00 PM
Senate Majority Leader Lisa Brown gets candor points for talking about a state income tax. I wrote about this Monday at The News Tribune's editorial page blog. Both Brown and Sen. Adam Kline, D-Seattle, have suggested that this might be a good time to push the issue.
Last week, Kline brought up the notion of a "high incomes" tax on his Senate blog.
Some recent polls show that a slim majority of folks would support an
income tax for folks who earn over $250,000 per year. My preference
would be institute an income tax for individuals who make over $100,000
per year or for couples (either married or in a domestic partnership
arrangement) whose combined income is over $200,000 per year.
He noted that voters passed an income tax in 1932, during the Great Depression (what exactly was so great about it?), only to have the Supreme Court toss it out as unconstitutional in 1933.
In spite over overwhelming public support, a Supreme Court ruling kept that income tax from being implemented.
...Would an income tax be found unconstitutional today?
Prominent constitutional attorney and law professor Hugh Spitzer has an interesting analysis that suggests today might see a different outcome.
There’s been a lot of talk in Olympia recently about a sales tax
increase, but we need a revenue proposal that makes things better and
fairer for regular families in our state -- not worse.
Brown links to a New York Times story describing a push in New York for a tax increase on high earners, calling it a "fair and stable way" of tackling the problem. Here's how the NYT describes that plan:
The new plan, which would expire after three years, would represent
the largest state income tax increase in recent history, significantly
larger than the surcharges imposed from 2003 to 2005, when the state
last faced a major recession.
The plan would raise $4 billion a
year by creating two new tax brackets, the highest one affecting those
who earn $500,000 or more. If approved by rank-and-file lawmakers in
the Assembly and State Senate, the tax increases would be a major
victory for unions and liberal advocacy groups and a signal of the new
balance of power in Albany, where Democrats won control of both houses
of the Legislature and the governor’s office in last year’s election.
Somehow, that doesn't sound like a winner to me.
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Wednesday, April 01, 2009
Yesterday's Release of the House Democrats' Budget
Posted by Richard S. Davis on 4/1/2009 10:35:00 AM
It's going to take some time to unravel the House and Senate budgets, particularly to determine how they backfill state budget cuts with federal dollars. Right now, appropriately, there's a lot of focus on the cuts in state funding.
What's less clear is how much those cuts may be offset by federal stimulus money, either money flowing through the state or directly to, for example, school districts. An unusually sharp - and apt - editorial from the Yakima Herald-Republic gets to the critical issue.
What the two proposed budgets for 2009-11 don't accomplish is a
structured spending plan that will return this state to fiscal
responsibility. The proposed cuts of nearly $4 billion fail to produce
a significant and lasting reduction in labor costs. Instead, they rely
too heavily on $3 billion in one-time federal stimulus funds and on
questionable revenue raised through closing several tax loopholes.
Missing in this process is a profound change in the way the state
operates. Without that, we could find ourselves in 2011 in the same
spot we are today -- staring at a budget that's upside down.
Unsustainable spending contributed to our current problem. Even absent the recession, this year's budget writers faced a multi-billion dollar shortfall. Using $4-5 billion in one-time money to fund ongoing programs sets us up for another "upside down" budget in two years.
... these budgets are balanced only with the stimulus money and massive
raids on construction funds and other separate accounts. The
one-time-only fixes exceed $4 billion. That’s a huge bet – necessary in
this crisis – that the economy will be recovering by the next biennium.
The chief hedge against further calamity is a relatively healthy $850
million reserve fund. Wisely, lawmakers made no assumptions that
Washingtonians would approve new taxes in November.
As Joe Turner reported yesterday, budget writers considered the federal stimulus money a "godsend." Even so, House budget chair Kellii Linville says it's "very likely" that they'll put up a tax package for voter approval.
Watch for more analysis in the next few days. For now, it's hard to see how these budgets accomplish the essential goal of resetting spending to a sustainable. level. A tax package would be another step backward.
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Monday, March 30, 2009
First Reactions to Senate Budget
Posted by Richard S. Davis on 3/30/2009 6:57:00 PM
Here's a quick set of links to coverage of the Senate budget plan.
This Saturday editorial from the Daily World still seems timely. Editor Chris Rush offers this:
I’m no prophet, but I don’t believe
voters here on the Twin Harbors are in any sort of mood to throw more
of their hard-earned wages back into the black hole of state
government, especially as they witness many programs and services being
eliminated.
After having failed to plan for this particular
rainy day at the state level, it would be unwise for elected leaders to
dig deeper into our pockets and ask us to throw more good money after
bad.
Bet that's true for folks outside the Twin Harbors, too.
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Monday, March 30, 2009
Senate Releases Budget
Posted by Richard S. Davis on 3/30/2009 2:18:00 PM
At 10:30 this morning, Senate Democrats released their proposed 2009-2011 budget proposal. I watched the press conference on TVW as did, I imagine, thousands of others. While not exactly 24, it had an immediacy that the budget debate has lacked through much of this legislative session. That's because we were finally seeing the numbers. (Go to the Senate Ways and Means Committee web site to download documents.)
Senate Majority Leader Lisa Brown said they were presenting an "honest and responsible budget that does balance our revenues and expenditures." It "does not eliminate the social safety net," she said, but does trim many social service programs. Higher education absorbs a more than $500 million hit. As well, K-12 programs that fall outside the definition of "basic education" were also cut. Initiative 728 and Initiative 732, class size reduction and cost-of-living raises for teachers, respectively, were suspended. Federal stimulus dollars were targeted to backfill much of the 728 cut. The budget summary says that "the net reduction in school district funding will average 3.5 percent."
As expected, there's no cost-of-living increase for any employees, and the annual "step increases" for management employees are suspended.
In addition to the federal stimulus money, the budget uses nearly $750 million in funds that usually go to the capital budget, $242 million in fund transfers, and $450 million in rainy day money. One analyst pegs the use of one-time money at $5 billion in total. I suspect that's about right. If so, under the slow-recovery scenario most envision, this budget still fails to come to grips with the state's need to reset spending to a sustainable level.
Although the Senate leaders said they had not yet decided on a tax package, most of us figure there's another shoe left to drop. Just a few minutes ago, Sen. Brown put up a post suggesting it's time to talk about an income tax.
We hope to have a WashACE analysis of the budget available later this week.
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Sunday, March 29, 2009
Next Week is Budget Week
Posted by Richard S. Davis on 3/29/2009 1:49:00 PM
The Senate budget comes out Monday, with the House version scheduled for a Tuesday release. The initial releases, with no revenue package attached, suggest dire consequences, inviting interest group support for higher taxes.
Budget writers in both chambers have talked about a $9 billion
budget shortfall for 2009-11. But that’s a misleading term, referring
to the shortfall between the hopes of continuing spending levels from
2008 and the reality of state revenues available in 2009-11.
[Sen. Rodney] Tom said earlier this week that cuts to real programs amount to about $3.7 billion to close the $9 billion gap.
We continue to believe that, difficult as the resetting will be this session, spending must be reset to a sustainable level - a level not requiring increasing the tax burden on families and employers.
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Tuesday, March 24, 2009
Budget Rollout May Be Delayed
Posted by Richard S. Davis on 3/24/2009 4:53:00 PM
Sen. Rodney Tom, vice chairman of the Senate Ways and Means
Committee, told me a few minutes ago that he was pretty certain the
budgets would not come out this week.
However, House Majority Leader Lynn Kessler said she felt both sides
were very close to an agreement and it's still possible for the budgets
to be released this week.
The two chambers have been working together this year, with the House budget expected to come out a day after the Senate release. As Garber writes, by agreeing on the major cuts Democratic leaders hoped to reduce divide-and-conquer strategies from affected interest groups.
David Ammons, spokesman for Secretary of State Sam Reed,
just told me the Legislature would have to decide by "early to
mid-April" if it wants to put something on the June 30 ballot. (That's
a Tuesday, by the way.) And they'd have to act quicker if they want a
vote earlier in June.
I called Ammons because I got word that county auditors -- the local
elections folks -- were being alerted to a possible special election in
June.
A June vote is important if the new taxes are tied to education. The public schools put together their budgets early. August is tough. November is too late.
They should just shelve the tax hike question altogether. Don Brunell points out the budget can be balanced without new revenues.
Now is not the time to burden taxpayers with another layer of costly
government programs. And this is not a problem outside our reach. We
should be prioritizing within the state budget based on the income
available, just as Main Street does with its books every day.
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Monday, March 23, 2009
Legislators Looking at Taxes; Gov. Gregoire Agrees They May Be Necessary
Posted by Richard S. Davis on 3/23/2009 3:32:00 PM
KIRO radio's Tim Haeck reports that, while legislators haven't shared their tax plans with her, Gov. Gregoire thinks new taxes are required. That's a shift in her oft-stated opposition to raising taxes during a recession, though she's generally said that if the Legislature wanted to submit a package to ther voters, they were free to do so. Here's the problem, in her view:
...Gregoire says it's a horrible time to hike property taxes or business
taxes, "That leaves you with a sales tax. One of our major problems
right now is a lack of consumer confidence. So people aren't buying
anything so I don't know how much that really gets us?"
The tax coalition may be unraveling, as members grow frustrated with the options, according to Austin Jenkins report on Crosscut. He notes that three labor groups have left the coalition, citing opposition to tax proposals that fall most heavily on "working families."
The UFCW's frustration with the "coalition" seems to support what
many in the legislature are hinting - that the leading contender for a
tax hike package is a temporary increase in the state sales tax.
The Washington State Labor Council, an umbrella organization, says
it left the coalition because its affiliates began bowing out and it
wanted to show support for them. In an email, the Labor Council’s Kathy
Cummings adds her group isn’t confident the tax effort will succeed.
Read Jenkins' report: It's a good summary of the challenges tax-boosters face this year.
The governor also allowed as to how there might be two tax-hike
measures on the ballot this fall: one for the operating budget; a
second one that would take the form of a bond measure that would pay
for school construction and create jobs.
That timetable would not be much help to folks wanting a tax hike for the public schools. They'd need a June election to give them timely budget certainty, something House majority leader Lynne Kessler told a business group tleadership is considering.
Sixty-four percent of those polled would approve a temporary 1-cent
increase in the state sales tax. This could generate more than $1
billion over a two-year period.
As she writes, it's not enough to close the gap.
She said that although she supports the Legislature's efforts to look at
tax options, it's "an open question whether I'll support it."
Garber quotes Gregoire spokesman Pearse Edwards as saying the governor hasn't changed her position.
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Friday, March 20, 2009
New WashACE brief Pegs Shortfall at from $4 Billion to $6 Billion
Posted by Richard S. Davis on 3/20/2009 6:11:00 PM
The WashACE budget brief mentioned here is now available for downloading here (if the download doesn't work, please go here). The brief, prepared for us by the Washington Research Council, breaks down the components of the budget shortfall and assesses the deterioration of state revenues.
Read the whole thing. It provides valuable perspective on the state budget shortfall.
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Friday, March 20, 2009
Revenue Growth Nearly Flat with Yesterday's Forecast
Posted by Richard S. Davis on 3/20/2009 12:58:00 PM
Yesterday the Economic and Revenue Forecast Council met to approve the official March forecast. This is a big deal because it sets the frame for state budget writers, telling them how much they'll have to spend in this budget cycle and the next. As expected, state forecaster Arun Raha had little good news to report. Since our last official revenue forecast in November, the state economy has weakened considerably. The weakness in housing activity and auto sales has spread to other sectors of the state economy – non-residential construction, manufacturing, aerospace, software publishing and retail sales. Our new baseline forecast assumes that the U.S. and Washington economies will be in recession for most of this year, flattening out sometime late in the third quarter. Growth will remain flat in the first half of 2010, and improve only in the second half of the year. Job losses will continue even after the economy is in recovery.
Taking away the policy items and adding the stimulus money, the shortfall approaches $4.5 billion. (A new WashACE Competitiveness Brief to be released later today goes into this in some detail.)
If you take emergency state reserves, the federal stimulus money
recently approved by Congress and some other recent belt-tightening
moves into account, the real problem the Legislature has to solve is
around $4 billion. That figure includes leaving several hundred million
dollars in reserve.
That's still an enormous, and unprecedented, shortfall.
Agreed. But still much more manageable than the touted $9 billion.
The News Tribune reports on budget deliberations, with Joe Turner writing that the Senate may run out its budget by the end of next week. He also notes the current year deficit.
Victor Moore, budget director for Gov. Chris Gregoire,
said the revenue forecast puts the state back in the red and that state
will have to dip into its $430 million Rainy Day savings account and
use more federal stimulus money to balance the current budget, which
comes to a close on June 30.
Rich Roesler writes on his Spokesman-Review blog of some of the anticipated cuts.
Brad Shannon provides useful links for folks wanting more detail.
Adam Wilson reports on the growth/decline numbers: general fund is down some, near general fund up 0.2 percent as we noted above.
And plenty of speculation about taxes, but no one is saying much definitively. Austin Jenkins finally gets his public records request answered and tells us what some legislators are considering. It doesn't add up to a lot and may not make it past the "what if" stage.
For the record, no one has specified a tax package for a public vote. Some Tacoma-area legislators are telling constituents to brace for cuts.
What we've heard is that there may be a single package, several designer packages earmarking tax hikes to specific programs, and no package. That latter option is generally seen as a bridge to tax hikes next year, when they can be passed by a simple majority vote. The thinking is that after the public experiences the so-called "all cuts" budget, they'll be more in the mood to support tax hikes. First the pain of the cuts, then the, well, pain of the tax hikes. If, as expected, education programs are among the options for a voter-approved tax package, the election would have to be held in June. You can't begin a school year without having the revenue side nailed down - a November tax increase is too late.
If voters reject a tax package, that makes it more difficult for legislators to raise taxes in the 2010 session, which might be one reason to forego the vote now and adopt a no-tax-hike budget.
Enough speculation for now. We'll know more soon.
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Monday, March 16, 2009
Expect Another Revenue Trim Thursday
Posted by Richard S. Davis on 3/16/2009 12:19:00 PM
The most recent economic forecast from the Economic & Revenue Forecast appears to confirm predictions that Thursday's official revenue forecast will further reduce estimates of state tax receipts for thirty odd months. Here's how state economist Arun Raha describes it.
Compared to the preliminary forecast, our updated Washington economic forecast is generally weaker, as a result of the weaker national economic forecast.
Following three months in which actual collections lagged the already-reduced November forecast by about 5 percent, this is clearly anticlimactic, but it ought to spur action on the major task before the Legislature in its final fifty days (we hope final fifty). Several good accounts in the weekend papers describe the situation and reveal what went on at a few town halls hosted by Democratic lawmakers.
Washington did get a lot of money from the federal stimulus package
– almost $5 billion. But about $2 billion is going to highway, water,
sewer, school and other construction projects or must be spent on other
things that make it of little direct help to the state operating
budget. For instance, some of the money is passing through the state
treasury but is headed straight to cities, counties, transit districts
and others to help with their budget problems.
Moreover, the $3
billion that is helpful to the state is limited to a three-year period,
and the Legislature already has spent $340 million of it.
It's a lot of money. But, as Turner writes, there's still a hole to fill.
If all of the governor’s spending cuts were adopted, the Legislature
would have to deal with about a $1.5 billion to $2 billion gap between
spending and tax revenues. That assumes Thursday’s forecast lowers
revenue collections by another $200 million.
He notes that the $1.5 billion to $2 billion have health and social service advocates working hard to gain legislative support for tax hikes, including polling to find the right package. He quotes Sen. Joe Zarelli pushing his plan to solve the problem without raising taxes.
Zarelli said the state should freeze spending at today’s levels. Not
all spending can be frozen – utility bills will be higher, landlords
will charge higher rent to state tenants – but state agencies should be
given the same amount of money they got for the past two years and be
told to live with it, he said.
“If business can do it and homeowners can do it, government can do it,” he said.
The Kitsap Sun reports that Sen. Derek Kilmer, D-Gig Harbor, believes lawmakers will pass what he and others call an "all cuts" budget. (In fact, the next budget will be made up of cuts and increases; what they call "all cuts" will be a budget without tax increases.)
Proposals to generate revenue will, in all likelihood, not be part of
the Legislature's strategy to address an $8.5 billion state budget
deficit — at least, not in this session, Kilmer said.
But he thinks tax hikes are coming.
He predicted that a tax measure of some sort is likely in the next biennium.
The Associate Press reports on the Bellevue Town Hall. After running down the options, the report describes the Democrats' endgame. Balance the budget with spending cuts that are deep and broad, combined with one-time fixes like the federal stimulus bailout.
After
that budget becomes law and the cuts become reality, voters will have
to consider a tax increase that would pay for specific programs not
bankrolled in the bare-bones budget.
Lawmakers know that could
be a tough sell in this economy. In the Senate, which takes the first
crack at balancing the budget this year, "We're not betting that the
public is going to say yes," [Sen. Rodney] Tom said.
Better not to waste everyone's time. Set priorities, identify efficiencies, and pass the budget within available revenues.
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Thursday, March 12, 2009
Budget & Tax Plans Begin to Emerge
Posted by Richard S. Davis on 3/12/2009 3:19:00 PM
With the pivotal March revenue forecast coming out next Thursday, we're beginning to see what the budget might look like. It's going to be rough.
Budget cuts under consideration by a state House subcommittee include
more than $2 billion in reductions in health care and human services,
potentially twice as many cuts in health care as what Gov. Chris
Gregoire proposed.
• Elimination of the Basic Health Plan's subsidized insurance for about 100,000 of the working poor. Gregoire proposed cutting its funds by 42 percent.
• Elimination of a so-called "GAU" cash grants and health program for 22,000 unemployable, needy people. Gregoire called to dismantle it.
• Elimination of an adult day health
program that gives respite care to low-income and disabled people who
are cared for at home by family members. Gregoire also sought cuts.
• Cuts 10 percent deeper for nursing homes than what Gregoire proposed.
• Elimination of "backfill" money given to county public health programs after passage of Initiative 695 in 1999.
The story confirms much of what's been suggested previously. The Olympian also reports that interest groups continue to poll in search of a tax package voters might buy. Curt Woodward with the Associated Press has additional detail on the polling.
In an interview with The Associated Press, Washington State Hospital
Association spokeswoman Cassie Sauer says the coalition is planning
another round of polling, to narrow down options for a possible tax
vote.
Labor unions and environmentalists are also part of the coalition working with lawmakers on a possible tax vote.
The group's first round of polling showed voters might be open to
"sin" taxes and even some broader sales tax increases, depending on
what type of state programs could be saved.
Sin taxes don't cut it. And anything puts more jobs at risk. Joni Balter at the Seattle Times has it right.
A tax increase is the worst possible solution to what ails the state. Which tax would you raise, she asks, and by how much?
An increase in the business tax is not smart in a great
recession-depression. Property tax should be an absolute no in a
foreclosure-crazed climate. A sales-tax boost? Though that is the most
likely scenario, somebody please explain how it helps struggling
middle- and lower-income families.
Spending cuts, even hacking into generally untouchable benefits for state employees, offer the better course.
That's right.
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Wednesday, March 11, 2009
Revenue Collections Down Again, But Trend is No Worse Than Expected
Posted by Richard S. Davis on 3/11/2009 1:01:00 PM
Yesterday's The News Tribune and The Olympian, The official March revenue forecast comes out March 19. Based on the actual collection reports, it will again be down about 4-5 percent. But we'll know soon enough.
As we read these things, some wonder about an apparent lack of legislative urgency. When are they going to get serious about the budget? Of course lawmakers have known that they'll have less to spend now than the governor thought she add in November. So, presumably, they're quietly working hard to come up with a realistic budget, one that doesn't rely on unlikely voter approval of new taxes and one that sets the state on a "reset" sustainable spending pattern. In addition to declining revenues, they face some unavoidable increased spending for school enrollments and social service caseloads.
The governor has acknowledged sin taxes, the first recourse of the desperate, won't provide much new money.
According to a fly on the wall of the caucus room, during her
briefing Brown told her fellow Democrats that polling showed "90
percent of the public knows we have a serious financial problem..."
And Sen. Craig Pridemore, D-Vancouver, immediately quipped, "..and the other 10 percent are in the Legislature."
That's my latest nominee for Quote of the Session.
If you have a better nominee, let me know.
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Wednesday, March 04, 2009
More Calls for Budget Transparency, Action
Posted by Richard Davis on 3/4/2009 11:53:00 AM
This morning, the Seattle PI editorial board called on the Legislature to "make bold changes" in its way of thinking and tackle the budget challenge directly and swiftly.
So far, the Legislature and the governor still haven't fully faced the horrendous losses in health, education and social services that can occur in what is called, with only some exaggeration, an $8 billion budget gap. We do see bright spot that could point the way toward transcending politics as usual. Gregoire stood up to public employee unions by proposing wage freezes. In the Legislature, Senate Majority Leader Lisa Brown signed on as a co-sponsor to Republican Sen. Joseph Zarelli's measure to guarantee that, in the future, any exceptional jumps in revenues go into the state's rainy-day savings fund, not regular spending.
They also include a nice mention of the Washington Alliance for a Competitive Economy. Austin Jenkins, meanwhile, continues to search in vain for information about lawmakers' tax plans. The latest email confirmed what I suspected. The email reads in part: ƒ?ƒ?more time will be needed to finish our response to your public records request. The remaining records consist of communications between the Department of Revenue and the State Legislature. The Department and the Legislature are currently evaluating whether any exemptions or privileges apply to the documents that are responsive to your request.ƒ Translation: The Legislature maintains it can invoke ƒ?legislative privilegeƒ when it doesnƒ?t want to make public certain documents. This includes emails. It also apparently includes when lawmakers ask a taxpayer funded state agency to analyze a potential piece of legislation. As Jenkins notes, the delay serves lawmakers much more than it serves the public. He'll keep at it. More discussion at Sound Politics. Obfuscation and delay also characterize a peculiar bit of silliness that took place in the House yesterday. As Joe Turner reports in his TNT blog, Republicans tried to get a ruling on whether repealing a tax exemption is the same thing as a tax increase. It matters because tax hike require a two-thirds vote, hard to get in the best of times. Turner includes the GOP press release. It's worth reading. Bottom line: the acting speaker said because the requested ruling addressed hypothetical, he would not respond. Let's be clear. If legislative action causes someone's taxes to go up, it's a tax increase. Although, as Turner notes in an earlier post, House Bill 2212...appears to be an attempt to "clarify" that repealing a tax break isn't really raising taxes for anyone. Reminds me of the Lincoln riddle: How many legs does a dog have if you call its tail a leg? Still four, calling a tail a leg doesn't make it one. "Clarifying" the definition of a tax hike doesn't alter the facts, either.
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Monday, March 02, 2009
A Constitutional Right to Health Care?
Posted by Richard Davis on 3/2/2009 3:19:00 PM
Adam Wilson reports in the Olympian that House Speaker Frank Chopp is backing a constitutional amendment making health care for children a constitutional right. Speaker of the House Frank Chopp said Friday that he wants coverage for children to become part of the state's fundamental obligation to children, like basic education. "Sometimes it will look like we're pitting education for our kids versus health care for our kids. We have a historic opportunity to mingle those together, to move both groups forward," Chopp told a crowd of 150 during a children's services rally Friday at the Capitol. It's true, health care and education are the two largest shares of state spending. In recent years, as this WashACE brief points out, Health-related expenditures accounted for more than one-third of state general spending in the 2005ƒ?07 biennium, an increase of nearly 8 percentage points from their share of spending in 1997ƒ?99. Over the period, the growth in healthcare costs squeezed other spending priorities. Looking to the future, as health-related expenditures represent an ever-increasing share of overall spending, the squeeze their growth places on other priorities will become more severe
I've not seen any detail on the plan Wilson reports, but we know that the constitutional requirement making basic education the paramount duty of the state has spurred lots of costly litigation.
Think it'd be any different with health care? This TNT editorial on national health care reform points out the problem: Universal access to quality care cannot happen if costs arenƒ?t controlled. Cost and access are the same problem. And costs are least likely to be controlled when a generous Congress pretends to offer patients something for nothing.
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Monday, March 02, 2009
What's Happening with the Budget?
Posted by Richard Davis on 3/2/2009 1:30:00 PM
On Day 50, it's still hard to tell. Friday I posted a short item indicating that legislative leaders think they're doing pretty well. But, as we knew on Day 1, the budget is the $1.5 billion (or $8 billion) gorilla this session. It's the beast that must be tamed before lawmakers go home. Among the sadly dwindling team of reporters covering the Legislature, some are showing impatience with the pace and transparency of budget deliberations. This late in the game, it's fair to assume that one of two things is true: Either there's a plan for resolving the shortfall and no one's willing to talk about it, or there's no plan and no one's willing to admit it. Neither option is particularly appealing. Joe Turner, whose earlier TNT blog post brought the tension into the open, published some additional comments from anonymous insiders yesterday. First, let's look at what Turner wrote in the original post. I'd love to be able to tell you that Democratic leaders are showing all kinds of leadership, but we'll have to take their word for it. Because if they are, it's all behind the scenes. And they won't give us a glimpse.
Moreover, he suggested that the media factored into legislative strategy to set us up for a tax hike. We in the Press Corps are supposed to soften you up. You voters. We're supposed to write stories about how bad things are going to get if you, the voters, don't agree to approve whatever tax package they put before you.
It's a game reporters aren't willing to play. In yesterday's post, Turner quoted extensively from two insider emails. Here's what one has to say. Read the whole post. We are facing either deep cuts or tax increases. Let's get the facts out on the table as soon as possible, and have a real debate that engages the whole citizenry, and then decide what kind of state we want to be. I trust the people to make fair decisions, but only if they have the facts in sufficient time to really digest the information and weigh their options.
The Olympian's Brad Shannon offers another perspective, suggesting why things may be happening beneath a dome of silence. The simplest answer is the Democrats are at a complete loss over what to do. They waited for the stimulus package to help, but the preliminary revenue forecast of Feb. 19 showed new revenue losses that pretty well wiped out the gains from the stimulus. The Democrats don't appear to have any answers yet.
But if lawmakers donƒ?t have a public willing to pay for tax increases, and they donƒ?t think they have time to build a case before the end of session on April 26, maybe it makes sense to hide the cuts until after the March 19 revenue update. Then they would have five weeks to pass an ugly budget and run home. Shannon cites this Survey USA poll showing that 70 percent of Washington voters think raising taxes is a bad idea. At Publicola, Josh Feit turns to Facebook to see what legislators are thinking. In the end, though, I think this editorial from the Yakima Herald-Republic pretty much sums up public sentiment. What does appear likely is some sort of tax measure ending up in the laps of voters. A growing contingent of Democrats believes the state really has no other choice and that voters will pass a tax increase because the alternative -- severe cutbacks -- would be too painful to endure. Not so fast. We don't believe the state has reached this point of no return.
It hasn't. And it's time for lawmakers to lay out their budget balancing strategies, the ones that don't rely on new taxes. There will not be a taxpayer bailout. More media comments from Sam Taylor at the Bellingham Herald and Rich Roesler at the Spokesman-Review.
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Friday, February 27, 2009
State Unions Renogiating Contract
Posted by Richard Davis on 2/27/2009 2:55:00 PM
I wonder how this will affect the budget. After the governor scrapped the collective bargaining agreement, wisely, because it cost too much in these straitened times, the unions sued. The governor won. And now labor is back at the table. Jerry Cornfield reports there are some hard feelings: They call her Gov. Union Buster. But at labor's rally yesterday, legislative leaders were effusive. No hemming and hawing about if there will be tax hikes. [Senate Majority Leader Lisa] Brown told the Labor Council, Washington's largest union advocacy group, that its members will have to help lawmakers sell a tax package to the public ƒ? a game plan that has become widely accepted in Olympia. "We're going to need your help to put this thing forward in a productive and fair way," she said. Rich Roesler does a nice job of sorting through the mechanics of a tax vote and some of the tactics to expect. And in the PI story, Brown sets her sights on the state's Unemployment Insurance Trust Fund. "Washington state has a healthy unemployment trust fund. We can utilize these funds to expand benefits and training," she said.
Nationally, the unemployment benefit provisions of the federal stimulus plan have been controversial. For a good overview of who's taking what, read this Stateline.org piece.
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Friday, February 27, 2009
Zarelli's Useful Budget Perspective
Posted by Richard Davis on 2/27/2009 1:13:00 PM
Talk of an $8 billion budget hole got you down? Feeling defeated by the fiscal crisis? Worried about mammoth tax hikes? Sen. Joe Zarelli offers another way of looking at the problem. Earlier we wrote about the "yes we can" campaign. Yesterday Zarelli issued another of his useful "budget tidbits," laying out his alternative take on the problem. Download the file and read it. Here's Zarelli's explanation of the $8 billion hole. The deficit has been characterized as $8.3 billion. This is composed of: A $1.3 billion deficit in the current biennium, which ends June 30th;
A $6.5 billion shortfall next biennium if we do not address the current biennium deficit, continue doing everything government currently is doing, plus do new policy enhancements;
An assumption of the need for a $500 million ending fund balance.
But keep in mind about this figure: $1.4 billion represents proposed policy enhancements and compensation increases, including maintaining employees' health care benefits at 12% and providing COLAs and step-salary increases.
It assumes the current-biennium budget deficit remains unaddressed. Some savings have already in fact been achieved with passage of a mini-supplemental budget (ESHB 1694) last week.
It assumes no federal money is available to reduce the deficit. Likely, there will be around $3.1 billion available to the operating budget.
It assumes the constitutional rainy day fund, which will contain $700 million, is not utilized to address the problem.
The first step in solving the budget problem is a correct diagnosis. The second step is believing that the problem can be solved. Zarelli's views are helpful on both counts.
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Thursday, February 26, 2009
Balance the Budget Without Tax Hikes
Posted by Richard Davis on 2/26/2009 10:34:00 AM
Good advice for state legislators from the Columbian this morning: Read her lips. Referring to the governor's stated opposition to raising taxes to balance the budget, the paper notes
If the governor can keep that pledge and write a budget during horrific economic times ƒ? which she did two months ago ƒ? then so can the Legislature.
And forget about sending a tax proposal to the voters.
Legislators should stop wasting time wondering if voters ƒ? many of whom are joining the growing ranks of the unemployed ƒ? would approve tax increases. Instead, budget writers, just keep cutting.
I made a similar observation in The Herald of Everett yesterday.
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Tuesday, February 24, 2009
About Those Economists Supporting Tax Hikes
Posted by Richard Davis on 2/24/2009 3:56:00 PM
Apparently, they're not all economists. But I reckon they all would like to see "all options on the table," which has come to mean "raise taxes" in much the same way "tax reform" means "pass an income tax."
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Tuesday, February 24, 2009
Senate Republicans Plan to Balance Budget without Tax Hikes
Posted by Richard Davis on 2/24/2009 3:52:00 PM
Although heavily outnumbered, Senate Republicans expect to be heard on the budget. And, as Brad Shannon reports in the Olympian, they're saying "yes we can." They just had large campaign-style buttons made up with an Obama-esque color scheme ƒ? mainly blue with white letters and a swash of red. "Yes we can!" the buttons say, with an asterisk followed by the words, "balance the budget without raising taxes." Senate GOP caucus spokeswoman Rebecca Japhet was handing out the buttons early this afternoon, and members should start popping up with them on lapels. Click here to see the button and a 17-page explanation from Republican Sen. Joe Zarelli of Ridgefield and his colleagues about how the budget-balancing feat can be accomplished.
Clever. You can also download the Republican plan here.
In The News Tribune Michelle Dupler identifies points of conflict. Republican leaders say Democrats are painting too negative a picture of state finances in an effort to impose a tax increase. Democrats are firing back by saying Republicans are oversimplifying the state's problems to gain support for cutting important programs.
Meanwhile, the state jobless rate climbs to 7.8 percent.
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Monday, February 23, 2009
More Editorials Opposing Tax Hikes to Solve State Budget Woes
Posted by Richard Davis on 2/23/2009 2:58:00 PM
Two excellent editorial in recent days underscore the importance of balancing the state budget without raising taxes. Yesterday, the Everett Herald editorialized that it is time for lawmakers to lead. With the state budget gap now beyond $8 billion and widening, the buzz in Olympia is all about an inevitable public vote on tax increases to help close it.
Such talk, which the Legislature's Democratic leadership is doing nothing to quell, is premature and probably unrealistic. And, we'd argue, unwise...
Besides, voter approval of tax increases in this economic environment may be a longer shot than the Huskies winning the Rose Bowl next year. People and businesses are hurting, and while many are still doing what they can to help those in worse straits, good luck convincing voters to include state government on their list of favorite charities.
It's a good read, making solid substantive points, unlike the letter from tax-supported economists supporting tax hikes.
And the Seattle Times tells the legislature not to count on a taxpayer bailout. There is the problem for Democrats who would send a tax package to voters. If their tax does the job, it will be an economy-killer. If it is a bearable tax, it won't do the job. The remaining option is cuts. They are painful, but they will have to fill most of that $5 billion gap. The state must cut, cut, cut. Right. And sooner rather than later. UPDATE Missed a good Union-Bulletin editorial (h/t Jason Mercier). Read the whole thing. Here's a taste. As the revenue forecast for Washington state's government grows grimmer -- from a shortfall of $6 billion in November to $8 billion this month -- talk of raising taxes is swirling in the Capitol.
It's crazy talk.
A deep economic recession is not the time to raise taxes. Washingtonians are not in the mood to approve or accept a tax increase of any size.
Sensible.
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Friday, February 20, 2009
Deeper Budget Deficit Increases Risk of Tax Hikes
Posted by Richard Davis on 2/20/2009 11:08:00 AM
Yesterday's special forecast council report undoubtedly stimulated the tax talks already underway among majority Democrats. The meeting handouts are now available and well worth reviewing (download the color version). Raha places the state's recesion in a national context that includes "one of the worst 'bear markets' sinc WW II," the rapid decline of household net worth (down 19 percent from its peak in 2007), tight credit markets, lousy car sales, record-low consumer confidence, sluggish housing activity, and "plummeting" exports from our state (affected heavily by the Boeing strike). He describes the problems in housing, banking, and jobs as a "three-legged stool of misery" and says that restoring the financial markets will be critical to any recovery. There's nothing in the data that suggests a quick turnaround. Still, as this exchange from Curt Woodward's AP story reveals, rather than cutting now, legislative leaders want to wait. Democratic leaders said they still must wait until March, for a more firm projection of revenue and state spending growth, before writing their budgets in earnest. The governor's budget director, Victor Moore, agreed. Minority Republicans, however, reiterated their call for even more immediate spending cuts, saying the Democratic majority isn't moving fast enough in the face of a massive budget hole. "I think still that there's an opportunity to do some things here and save some pain by moving earlier," said Sen. Joe Zarelli, R-Ridgefield. And, while Democrats on the forecast council yesterday called talk of a tax package "premature," Andrew Garberreports, Democratic leaders in the state House said earlier this week they'll likely propose sending a tax package to the ballot this year to help deal with the budget shortfall. And Senate Majority Leader Lisa Brown, D-Spokane, said she expects to bring ballot proposals to her caucus to consider. Joe Turner writes in The News Tribune's political blog that labor groups are already designing the tax plans. Meanwhile, the shadow legislature of unions and other stakeholders is out their holding "focus groups" in communities. They're trying to figure out how much a tax increase (just a temporary one, I'm sure) the public can stomach, which taxes they would vote to increase or which tax exemptions they would vote to remove, which wholesome programs the money should be spent on to make the taxes more palatable (pay raises for state workers probably won't cut it, but warm, fuzzy stuff for school kids and colleges might) and, of course, how much money the tax increases should raise. $1 billion? $1.5 billion? $2 billion? It's a tough job, but somebody's gotta do it. I'd tell you more, but most of the people involved are still either hiding in the shadows, refuse to talk to me or mumble a lot of indecipherable stuff when they answer me. Legislative mumbles, taxpayer grumbles.
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Thursday, February 19, 2009
Unofficially, the Budget Defict Just Got Deeper: Maybe $8 Billion Shortfall
Posted by Richard Davis on 2/19/2009 8:00:00 PM
The unofficial "early revenue guidance" meeting of the Economic and Revenue Forecast Council provided the expected bad news. Emphasizing that official March 19 forecast "may differ significantly" from today's report, Arun Raha took the forecast council and the standing room only audience through the economic changes the state/nation/globe have seen since his November forecast. Quick bottom lines: - He expects revenues to be down $721 million in the current biennium, which ends June 30, 2009.
- And he anticipates $1,587 million less for the 2009-2011.
Noting that he sliced $1.9 billion from the forecast in November, Raha said, "We were not pessimistic enough." And he acknowledged that the volatility of the economy makes forecasting unusually imprecise. "My magic crystal ball," he said, "is still cloudy." Good handouts from the meeting haven't been posted to the website yet. I'll check tomorrow. If they're not up, I'll scan what I have and upload it. Andrew Garber has a brief account here and TVW posts running commentary on the Capitol Record (you may need to scroll down). More tomorrow.
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Tuesday, February 17, 2009
There's No "All Cuts" Budget
Posted by Richard Davis on 2/17/2009 4:09:00 PM
Lately, interest groups arguing for tax increases have taken to deriding Gov. Gregoire's budget as an "all cuts budget." Some of the rhetoric gets a little hot. Gregoire kept her campaign pledge and produced a budget that did not require new taxes. Admittedly austere, her spending plan does require a number of program reductions. She said she hated it. Revenues continued to drop after the governor released her budget, so even that tight budget will require further trims. Even after they take those cuts, however, this will not be an "all cuts budget." Spending on many education and health care programs will likely be up from the previous biennium. Many employees will receive pay hikes, because so-called "step increases," regular pay hikes for seniority, will continue to take effect. Some jobs will be reclassified so allow promotions. To pay for necessary increases, lower priority programs will get cut. It's a recession. That's to be expected. But there's little rhetorical flair in decrying the "some cuts budget." The governor made the right decision, the only responsible decision under these conditions. Let the legislature debate the priorities, not the outcome: a budget that lives within our means.
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Friday, February 13, 2009
So How Healthy is the UI Trust Fund?
Posted by Richard Davis on 2/13/2009 4:54:00 PM
Niki Sullivan at the Capitol Record blog asked Mark Veradian of the Employment Security Department. Mark says: ƒ?Using data from the stateƒ?s Economic and Revenue Forecast Council, ESD forecasts include a worst-case scenario modeled after a 1980s-style recession with a sustained high unemployment rate. This scenario assumes passage of HB 1906 and the continuation of the recently-triggered extended benefits program. Under this worst-case scenario, the Washington Unemployment Trust Fund would drop to $1.6 billion, or 8.6 months of benefits, in 2011.ƒ
When the fund drops to seven months, she notes, tax rates automatically go up. This post from Richard Florida's Creative Class blog sheds some light on the likelihood of that "worst-case scenario" of a 1980s-style recession. He includes a good chart, which you really should examine. His prediction: Itƒ?s bad already. My guess is it will overshoot ƒ?81 by a considerable margin, especially taking into account Carmen Reinhart and Ken Rogoffƒ?s research which finds that unemployment rises, on average, by seven percentage points over four years in the wake of serious financial crises.
Fooling themselves into believing they have a reserve large enough to handle contingencies is one of the reasons we're facing a $6-7 billion budget deficit. Looks like they're eager to repeat the mistake with the UI fund.
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Friday, February 13, 2009
New Report on Business Tax Burdens
Posted by Richard Davis on 2/13/2009 2:33:00 PM
And Washington businesses continue to carry one of the nation's highest tax burdens. Here's the table, from the Council on State Taxation. Kriss Sjoblom, Research VP and Economist at the Washington Research Council provides this additional insight. The change is not dramatic, from 13th to 12th in business tax share and from 14th to 13th in taxes as a percentage of GSP. We should be cautious interpreting this change as the new study includes this note: Note that business tax estimates for prior years have been revised from those published in earlier editions of this study due to feedback from state tax agencies, the use of updated and more detailed information on local business taxes and refinements to the property tax estimation methodology to reflect the rapid rise in the value of residential property since 2002. The most significant change was to general sales on business inputs, which we estimated to be $132.3 million for FY2007 in the April 2008 study and have been revised in the current analysis to $129.0 million for FY2007.
For comparison, here's the corresponding table from the 2009 WashACE Redbook. There's a reason businesses - large and small, rural, exurban, suburban and urban - continue to urge lawmakers not to increase business taxes. The burden is already high and rising.
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Friday, February 13, 2009
Senate Votes to Tap Unemployment Insurance Trust Fund
Posted by Richard Davis on 2/13/2009 1:20:00 PM
Yesterday the Senate voted to tap the state's UI trust fund to increase benefits (43-4) and provide highly conditional B&O tax relief to qualifying businesses (46-0). The Seattle Times' Andrew Garber reports on the votes. And, yes, they called it stimulus. TVW's Capital Record blog also has good links here. WashACE has a different set of UI priorities. We've argued previously that the legislature must act this session to adopt unambiguous language reinstating the ƒ?voluntary quitsƒ criteria and to achieve federal compliance without increasing UI taxes. We continue to urge the legislature to focus on these essential issues and not increase the risk of future UI tax hikes by dipping into the fund now. For background see this and this.
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Thursday, February 12, 2009
Governor Wins Round 1
Posted by Richard Davis on 2/12/2009 5:47:00 PM
A Thurston County Superior Court Judge today ruled that Gov. Gregoire had the right to scrap the collective bargaining agreements reached with public employee unions last fall. See here, here and here. Adam Wilson has the story here. Gregoire confused the process when she had her budget director serve as both the negotiator and the person who later declared that contracts for raises and health benefits were financially unreasonable, the judge said. But the governor does have the power to back out of contracts after the Oct. 1 deadline to finish talks, Hirsch said, noting the law separately requires the budget office to certify them as feasible. The union will appeal. See also this post by Jason Mercier at the Washington Policy Center. Update: Wilson has more. And, FWIW, returning the setting of public employee wages and benefits to the Legislature does make a lot of sense.
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Thursday, February 12, 2009
Governor's Impatience Grows; Senate Majority Leader Willing to Wait a Bit
Posted by Richard Davis on 2/12/2009 3:44:00 PM
Gov. Gregoire's impatience with the Legislature's dilatory approach to budget-cutting, noted previously, seems to be ratcheting up a bit. From Brad Shannon's report: "So the pressure is on for us. I think what has happened is everybody is kind of sitting there and waiting to see what will be in the stimulus. And I think it has kind of frozen people thinking we need to wait and see what is happening " Gregoire told reporters at the Red Lion Hotel Olympia after she spoke to the Association of Washington Business on Wednesday morning. "I think it's come clear now the stimulus is not going to bail out the budget. It simply isn't. So they are going to have to pass a supplemental budget," she said. Rich Roesler writes that Sen. Lisa Brown wants a little more time. He includes comments from her blog, a nice vehicle for Brown to use. Gov. Chris Gregoire and Brownƒ?s Republican colleagues have both said that theyƒ?re frustrated by Democratic legislative leadersƒ? slow pace enacting cuts. Brown has said that she didnƒ?t want to cut people off of health care or aid, for example, only to find out later that federal help or changing economic news rendered those cuts unecessary. Two key numbers will come next week, Brown writes. On Monday, President Obamaƒ?s slated to sign the final version of the stimulus bill. And on Thursday (Brown says Tuesday in the blog post), the stateƒ?s economic weather forecasters will deliver an unusual early ƒ?preliminary forecastƒ of state revenues. But Brown doesn't expect good news. And she's not shy about submitting a tax hike to a public vote, Roesler reports. Unlike Gregoire, who pledged ƒ? and delivered ƒ? a no-new-taxes budget proposal, Brown has for months been hinting that the solution the stateƒ?s deep budget woes is likely to include some tax increases. That, after all, is whatƒ?s happened in Olympia in every other economic downturn for the past 40 years. And Brown is convinced that voters, if shown the need, will support paying more. I think she's misreading the moment.So does the Seattle Times editorial board.
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Tuesday, February 10, 2009
February Revenue Collection Report: 5 Percent Below Forecast
Posted by Richard Davis on 2/10/2009 4:36:00 PM
The new revenue collections report has been released. General Fund-State (GFS) tax payments in the January 11, 2008 - February 10, 2009 collection period fell short of the November forecast. Receipts for the month were $62.6 million (5.3 percent) lower than expected. Revenue Act receipts were $53.0 million (4.7 percent) below the forecast, and non-Revenue Act payments were $9.7 million (18.1 percent) below the forecast. The cumulative shortfall since the November forecast is now $196.8 million (5.1 percent).
Sen. Joe Zarelli was quick to comment through his Budget Tidbits.
While the Legislature waits, non-entitlement caseloads grow, salary increases for union employees continue to be granted, and agencies seeking flexibility to make cuts are hamstrung. The cost of this inaction is ultimately lost savings opportunities. And this means one of three things -- or a combination thereof -- will result: a. Cuts will be deeper than needed if quick action had been pursued
b. More one-time money and gimmicks will be relied upon to balance budget
c. Tax increases will be proposed
He's right. No wonder the governor is frustrated.
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Tuesday, February 10, 2009
Moving Too Slowly to Control State Spending?
Posted by Richard Davis on 2/10/2009 2:17:00 PM
Gov. Gregoire thinks so. Who can blame her? Still no supplemental budget and little sense of urgency from the legislature. Jerry Cornfield wrote Sunday that Democratic leaders say their moving as quickly as they can, leading Cornfield to conclude: All I can say is they must be on Democrat time.
Here it is the 28th day of the 2009 session and the majority party has yet to send Gov. Chris Gregoire a single piece of legislation to cut a single dollar of spending by state government. Tomorrow, on the 29th day, they won't again, and maybe not even Tuesday.
Yesterday, the governor stepped up her criticism.
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Tuesday, February 10, 2009
Governor's Reform Effort: A Good Step Ahead
Posted by Richard Davis on 2/10/2009 1:17:00 PM
Gov. Gregoire's announcement yesterday of a comprehensive government reform campaign looks like an appropriate respond to the challenges of the time. Few of us would argue the the effort's three goals: reducing the bureaucracy, improving government service, and streamlining government operations? And it's encouraging to see the business-labor committee includes AWB president Don Brunell and Puget Sound Energy executive Phil Bussey. As expected, she's cutting the number of state boards and commissions, something other governors have attempted with minimal success. Fifty of them disappear with a stroke of the gubernatorial pen. Not a bad start. (Link to disappearing groups here.) The governor also proposes some agency merger and office consolidation but, Adam Wilson notes, no layoffs. Rich Roesler has more, including the governor's plan to restructure the Department of Community, Treade and Economic Development into a more focused Department of Commerce. Roesler also posts on Senate Democratic staff director's awarding the governor (on his personal blog) the Herbert Hoover for her decision to handle the budget challenge with cuts, not new taxes. (Looks like that post may have been taken down.) Roesler also links to my column in the Puget Sound Business Journal. (Thanks, Rich!) It's good to see that the governor's plans include a statewide performance audit undertaken the direction of Brian Sonntag, state auditor.
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Wednesday, February 04, 2009
More Danger Signs for State Budget & Economy
Posted by Richard Davis on 2/4/2009 1:36:00 PM
The February revenue forecast shapes up as a bleak tune-up for the big show in March. Today's Wall Street Journal has a couple of stories assessing the January damage. Auto sales for the Detroit carmakers plunged, again. The declines were steeper than anticipated and came against a backdrop of sluggish consumer spending for all types of goods... Overall, auto makers industrywide sold 656,976 cars and light trucks in January, according to Autodata Corp., down 37% from January 2008. It was the lowest total since December 1981 -- and the first time U.S. sales were lower than in China, where about 790,000 cars were sold last month, according to GM. Econbrowser has a graph tracking the trend. Also from the WSJ, more than a half million jobs disappeared last month. Granted, those are national numbers, but we're over the illusion that Washington's immune. I doubt we'll look much different. And the longer people look at the federal stimulus plans, the more troubled they appear to be. Bruce Ramsey raises some unwelcome and thoughtful concerns in his Seattle Times column this morning. Today's Rasmussen Reports reveals that half of America believe the package will make things worse. Fifty percent (50%) of U.S. voters say the final economic recovery plan that emerges from Congress is at least somewhat likely to make things worse rather than better, but 39% say such an outcome is not likely. It's beyond strange that with things looking this bleak lawmakers are giving serious consideration to any legislation that will drive up costs (climate change) or make Washington an outlier in labor relations (Worker Privacy Act).
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Tuesday, February 03, 2009
First Steps Taken to Close the Deficit with Spending Cuts
Posted by Richard Davis on 2/3/2009 4:07:00 PM
With the continued erosion of state revenues, Washington's current budget, the one for the biennium ending June 30 this year, is in the red. Legislators have been working to trim spending to bring it into balance. Ordinarily such midterm corrections are handed in the supplemental budget. This year, the House has passed what it's calling an "early action savings plan." Moving right along, the Senate Ways and Means Committee is hearing the bill right now. It's a start. But there's a long way to go. How far we have yet to go we'll learn sooner than later, with news that the Economic and Revenue Forecast Council will hold a special February meeting . The governor and legislature wanted to track revenues more closely given the depth of the recession. Arun Raha, the state's chief revenue forecaster, warns that this won't be the last word. The preliminary forecast is meant to provide the Legislature, at its request, with early guidance regarding the impact of deteriorating economic conditions on state revenues since the official November 2008 forecast.
Please note however, that given the current uncertainty about the economic environment and stressed financial markets, conditions may change enough between the preliminary forecast and the official one, such that the final forecast may differ significantly from the preliminary estimate.
That's been the pattern. No one's expecting a quick uptick in tax revenues.
After it was reported that the state constitution does not require a balanced budget, some folks suggested temporary deficit spending might be appropriate. Others responded by introducing a constitutional amendment fixing the oversight. Moore Information today released a poll showing that nearly three-fourths of Washington voters would support such an amendment. (Wish he'd asked them how they wanted to see it balanced. Doubt there's much support for a multi-billion dollar tax hike.)
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Monday, February 02, 2009
Competitiveness Lessons from Other States
Posted by Richard Davis on 2/2/2009 3:25:00 PM
Today's Wall Street Journal carried a front-page story about what states are doing to build their economies during the recession. Under the headline, More States Considering Tax Breaks to Woo Jobs, Stephanie Simon reports the intense jockeying for position as state governments compete for new investment and to retain the employers they have. Rising unemployment has touched off a race among state governors to woo companies with tax breaks and financial incentives, even as budget shortfalls force cuts in education, health care and other services.
She notes that most states are counting on federal stimulus money, but
they're not convinced it will be enough. So they've laid out urgent calls to chase private-sector jobs with public money.
Why? This is what Missouri's Democratic Gov. Jay Nixon says:
"Everything stems from jobs," Mr. Nixon said. "Now is not the time to back off the field of economic development."
It's a good, balanced account of the current competitive landscape. And, it's a reminder that when we say "location is a choice" 49 other states are working to make themselves the right choice by reducing costs and uncertainty for employers. One of the problems with plans to increase unemployment insurance benefits and temporarily cut the tax is that it increases uncertainty by raising the specter of higher costs in the future. With the economy still deteriorating, employers rightly fear reducing the trust fund when demand for benefits continues to rise.
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Wednesday, January 28, 2009
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.
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Saturday, January 24, 2009
Asking the Right Question about the State Budget and Stimulus Plans
Posted by Richard Davis on 1/24/2009 1:52:00 PM
At TVW's new and useful public affairs blog, Niki Sullivan aptly frames the budget debate: Is it a recession? Or is the economy "resetting?" Microsoft, {CEO Steve Ballmer] said, is making cuts because they donƒ?t see the economic downturn as a recession, they think the economy is resetting to a lower level of consumer spending. Itƒ?s not just semantics: The difference is at the heart of the public budget-related disagreements between Republicans and Democrats here. Go to the blog and listen to the distinctly different takes on the budget offered by Sen. Joe Zarelli and Rep. Kelli Linville. Zarelli points out that the state and embarked on an unsustainable budget path well before the recession. Linville contends that the deficit stems primarily from the economic downturn and defends spending decisions made in recent years as restoring cuts made during the previous downturn. If you believe that the recession is just a cyclical dip, you might be inclined to use stimulus funds to maintain spending until the eventual recovery. If you buy the "resetting" argument, then you'll want to use this time to rightsize spending to a lower and sustainable level. This opinion piece in Friday's Wall Street Journal by Peter Schiff makes a strong case for those who believe we're seeing a fundamental, long-term resetting. 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. Another encouraging move to increase budget sustainability is Zarelli's proposed constitutional amendment to increase deposits in the state rainy day fund. 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.
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Tuesday, January 20, 2009
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.
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Monday, January 19, 2009
Preserving the Unemployment Insurance Trust Fund
Posted by Richard Davis on 1/19/2009 9:10:00 AM
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. Governor Gregoire has proposed taking $400 million from the trust fund to increase benefits and reduce business taxes. Senate Democrats also propose dipping into the fund for job training. The WashACE priority agenda includes reforming the state unemployment insurance system to prevent uncompetitive increases in employer costs. Several things drive that objective to the forefront. Here's how we say it on our one-page: Washingtonƒ?s unemployment insurance taxes are the second highest in the nation. Our workersƒ? compensation benefits are third highest. The federal government has determined that our UI policies are out of compliance with U.S. policy. Further, the state Supreme Court tossed out the legislatureƒ?s carefully negotiated language establishing clear criteria for determining when workers who voluntarily leave employment qualify for UI benefits. We urge lawmakers to adopt unambiguous language reinstating the ƒ?voluntary quitsƒ criteria and to achieve federal compliance without increasing UI taxes. Dipping into the fund jeopardizes the fund's integrity and backs away from the reforms we're supporting. Several recent articles do a good job of further expressing business concerns. See especially this Olympia Business Watch blog post by Don Brunell and Steve Mullin's' comments in the Seattle Times story.
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Friday, January 16, 2009
Stimulus vies with Sustainability in Deficit-plagued Opening Week
Posted by Richard Davis on 1/16/2009 9:43:00 AM
It's a theme-setting time, the first week of a legislative session. Beyond the pomp and circumstance, lawmakers work to make sure we understand that they understand the direness of the times. Gov. Gregoire delivered her second inaugural address, acknowledging the severity of the state's economic and fiscal problems and telling us what she intends to do about it. She echoes WashACE priorities with this: ...like our struggling families and businesses, we can and will tighten our belts, balance our budget and focus on basic needs ƒ? protection of our children, our schools and colleges, our public safety, our environment and our economy.
And this: When this recession ends, and it will end, we must be ready for a new economy. We need to preserve our education system to make sure we provide workers skilled in science, math, engineering and technology.
She also emphasized government reform, streamlining and rightsizing, promoting more effective use of technology and improving the state's competitiveness. And there were proposals that garnered legitimate criticism from business group, particularly her plan to dip into the state Unemployment Insurance Trust Fund to increase benefits and pay for tax relief. 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." Senate Democrats also unveiled their version of stimulus, also tapping UI funds. 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.)
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Monday, January 12, 2009
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. The News Tribune gets it exactly right: Job 1 for the Legislature: Make the pain count.
Lawmakers are right when they cast the recession as an opportunity. It is an opportunity ƒ? an unparalleled one at that ƒ? to question assumptions about how the state spends money. The priorities must be meeting the stateƒ?s legal obligations and protecting those who cannot fend for themselves. Beyond that, anything should be up for discussion. This habit of spending faster than revenue grows is unsustainable and only makes the inevitable economic downturns that much harder to buffer.
And the Seattle Times reminds the governor of her most important task this session: Urban Democrats are itching to raise taxes or at least get rid of certain tax breaks. Tax increases will not help the state's flagging economy. Gov. Christine Gregoire promised to present a no-new-taxes balanced budget and she did that. But that cannot be a mere starting position. She should go further and promise to veto a bill that raises taxes.
It's going to be a long hard session. Executive equivocation will only make it worse.
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Tuesday, December 30, 2008
Two Important Competitiveness Articles
Posted by Richard Davis on 12/30/2008 2:16:00 PM
Friday's Puget Sound Business Journal ran an excellent editorial by George Erb (subscription required). Erb concisely sets out a smart competitiveness agenda for the state, hitting themes similar to those of WashACE. Specifically, he commends the governor for shunning tax increases, encourages investment in the future (public works and higher education), and urges the state to nurture entrepreneurial activity. I encourage you to find a copy or read it on line. I particularly like Erb's close, which reminds us to look beyond the recession. The coming state and local budget cuts are unavoidable. They will be painful. But they donƒ?t have to be debilitating, and we cannot let todayƒ?s harsh climate diminish our hopes for tomorrow.
Erb rightly cautions lawmakers not to fall into the trap of thinking their problems could be solved by closing "tax loopholes."
Too often, ƒ?loopholeƒ is just a rhetorical term for an incentive that someone disagrees with. Itƒ?s better to judge incentives on how effectively they meet government policy objectives.
And on that score, Don Brunell's column in today's Columbian provides good support for one possible target, the manufacturing machinery and equipment sales tax exemption.
Research by John Urbanchuk, the nationƒ?s foremost expert on tax incentives, projects that, between now and 2016, the M&E exemption will create 54,100 new jobs in Washington, expand our stateƒ?s economy by $49.3 billion, put $22 billion in the pockets of Washington families, increase tax revenues for state and local governments by $2 billion, prompt $4.4 billion in new investment, and spark $1.3 billion in construction spending and equipment purchases. Pretty good deal.
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Tuesday, December 30, 2008
SEIU Sues Governor Over Pay Hikes
Posted by Richard Davis on 12/30/2008 11:01:00 AM
Yesterday, the Service Employees International Union filed a lawsuit demanding that the governor withdraw her budget and submit a proposal that includes the negotiated pay raises for home care workers. (Stories in the PI, The News Tribune blog, the Olympian, the Columbian, and the Everett Herald.) In The News Tribune post, Joe Turner points out that the SEIU may have a better case than the state employees' union that filed a similar lawsuit last week.
The SEIU seems to be on more solid footing than the Federation. The collective bargaining law for them flatly says any contract approved by an arbitrator must be sent to the Legislature.
In its editorial today, the Everett Herald makes the critical point. Noting that the WFSE lawsuit seeks to allow the legislature to act independently on the contracts. The editorial says: Even if that happens, the only responsible course for the Legislature would be to freeze state workers' pay, sparing some cuts in other, more critical areas for now.
This economic downturn, and the budget problem, are the most serious the state has faced in many years. Everyone is taking their lumps. State workers shouldn't be exempt from that reality. Does anyone disagree?
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Monday, December 29, 2008
Not Much Support for Union Lawsuit Over Bargaining Agreement
Posted by Richard Davis on 12/29/2008 11:03:00 AM
Last week the largest state workers' union filed a lawsuit, protesting the governor's decision not to fund the collective bargaining agreement her office reached with state unions last fall. If the governor declines funding, the Legislature cannot on its own authorize the pay hikes. The unions and the state go back to the bargaining table. Although the governor's office initially signed off on the agreement, there was an important condition: the state budget office had to certify that the deal was financially feasible. With the sharp decline in revenues in recent months, budget director Victor Moore concluded that the agreement did not pass that essential test. The unions are not happy. (I wrote about it last week on The News Tribune's editorial page blog, but forgot to comment here.) Over the last several days, some of the state's major editorial pages have weighed in, showing remarkable unanimity. This morning's TNT calls foul on the union strategy in their editorial, Collective bargaining, meet economic reality. The federation is asking a judge to strike down the part of the law that prohibits the Legislature from unilaterally considering employee contracts. The union that helped bench lawmakers now wants them back in the game. No court can compel state lawmakers to play. Democrats in the Legislature should not kid themselves that state worker raises are an option given the historic proportions of the stateƒ?s budget deficit. Earlier, the Seattle PI wrote that unforgiving math makes the bargaining agreement untenable. The Seattle Times says the union is "acting badly." The Vancouver Columbian calls the union's action "ill-timed greed." The union is looking for kinder treatment from legislators than theyƒ?re receiving from Gregoire. She promised not to raise taxes, and she kept that promise, by proposing tough cuts in programs, salaries and virtually all other aspects of state government.
When union officials squawk about pay during the worst economic crisis in memory, it only fuels the suspicion that all they care about is the union. Gregoire called her budget ugly. And while few relish the choices she had to make, here's the view from a couple more editorial pages. The Walla Walla Union Bulletin says the budget "provides a solid foundation for the difficult task ahead" and wisely avoids tax hikes. The Olympian calls it "tough, responsible." Budgeting in hard times requires hard choices. The governor did what she had to do: balanced among competing interests, set her priorities, and determined a collective bargaining agreement negotiated in better times was no longer feasible. Right.
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Monday, December 22, 2008
More Thoughts On Governor's Budget Proposal
Posted by Richard Davis on 12/22/2008 12:52:00 PM
As the only game in town for those who care about such things, the governor's budget continues to draw a crowd. Much of the stuff is a rehash of entrenched positions taken long before Gov. Gregoire put a plan on the table. Long before last week's announcement, everyone knew the two overriding conditions governing the budget: the structural deficit for the next biennium exceeded $5 billion and the governor opposed tax hikes. So, not much room for surprise. The no-new-tax pledge, however, does not extend far beyond the governor's office, as Rachel La Corte's AP story makes clear. "We don't agree with this, that from square one, we cannot raise a dime of new revenue," said Cassie Sauer, spokeswoman for the state Hospital Association. ...The Sierra Club, for example, quickly pitched closing tax exemptions for old-line energy industries in favor of "green" initiatives and spending on state parks. The Washington Federation of State Employees, whose members would suffer layoffs and flat pay under Gregoire's budget, also called for shrinking tax loopholes. So far, it looks like most groups are resigned to the idea that tax increases will be put to a public vote. In The News Tribune, Joe Turner underscores one of the arguments working against new taxes: Despite all the cuts, state spending would be $1.2 billion higher. The $3 billion in "cuts" that Gregoire referred to in her budget release remarks are cuts from a "maintenance level." That is, first you inflate your spending to account for all the increases in inflation (salaries) and caseloads (more kids in school), THEN you cut. So that's how you can cut $3 billion and still end up spending $1.2 billion more.
Yesterday's Seattle Times budget editorial says Gregoire balanced interests well. And Peter Callaghan in The News Tribune says that, unless we learn from this crisis, we can count on it happening again.
...to say now that budget decisions didnƒ?t contribute to the current red-ink menace means we learned nothing ƒ? again. It means weƒ?ll act the same way the next time weƒ?re flush with tax revenue. It means weƒ?ll go through yet another episode of deep budget cuts after the next crash.
Senate Majority Leader Lisa Brown shares her lecture notes to give us an idea of how she'll approach budget writing next month. She does not rule out a tax hike.
And on his much-improved blog (referring to look, feel and function - content's always good), Rich Roesler notes that the state workers' union promises a fight to resist cuts. It's going to be a long session.
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Thursday, December 18, 2008
Early Reactions to Governor's Budget
Posted by Richard Davis on 12/18/2008 2:09:00 PM
As she predicted, reactions to the governor's budget have been swift. While the scramble to understand the details will take us all a while, the broad brush strokes are enough to frame the likely debate. As we posted earlier today, Sen. Joe Zarelli likes the approach Gregoire has taken, saying it puts the process on the proper course. Zarelli is ranking Republican on the Senate Ways and Means Committee. His counterpart in the House, Rep. Gary Alexander, also likes the direction. I commend the governor for putting forth a balanced budget that does not raise taxes or fees. House Republicans have long believed that increasing taxes or fees is not the right approach while families are struggling with everyday expenses and workers are losing jobs. While there are certainly some details of her plan that we might do differently, the governor has offered a good first step in correcting the past four years of overspending.
Alexander and Zarelli both emphasize the importance of building early savings into the 2009 supplemental budget.
AWB president Don Brunell issued a brief statement.Noting that AWB continues to review the budget proposal, Brunell emphasizes the groups support for her decision not to raise taxes on families and employers. He adds: It is critical that Washington state look beyond the current budget woes and prepare for what happens after we emerge from this recession. Part of that discussion must include creating the conditions for a healthy business environment so that when we do emerge from the recession, Washington is positioned as a good place to create those jobs. As devastating as the economic conditions may be, the recession is an opportunity to reshape the way government operates and position our state to attract and retain businesses.
The largest union representing state workers call Gregoire's plan dead on arrival. They say that approvingly, looking for legislative support for tax hikes.
ƒ?Our biggest concern is that everything should be on the table and that includes tax loopholes and revenue enhancements,ƒ Federation Executive Director Greg Devereux said. ƒ?If the economic parts of our negotiated contracts that were ratified two months ago can be suspended, why canƒ?t a campaign pledge on no revenue increases be retracted?ƒ
Senate Majority Leader Lisa Brown has reservations as well. She calls reliance on $1 billion in federal assistance a "glaring flaw" and, pointedly, does not pledge to resist tax hikes. Brad Shannon notes her concern in his Olympian story, which includes Alexander's assessment that the estimated federal money is a "reasonable assumption." Today's Wall Street Journal story on the Obama stimulus plan adds weight to the Gregoire/Alexander position.
The broad parameters of the package are known already. It will include a tax cut designed to pump $50 billion to $100 billion into the economy almost immediately; about $100 billion in aid to state governments, primarily to temporarily assume more of the cost of Medicaid, in hopes of staving off benefit cuts or tax increases; and funding in five main areas: traditional infrastructure, school construction, energy efficiency, broadband access and health-information technology.
Finally, both the Evergreen Freedom Foundation and the Washington Policy Center have posted first impression comments on the new budget.
Update University of Washington president Mark Emmert says the proposed budget would "seriously harm" the UW.
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Thursday, December 18, 2008
Governor Releases Austere Budget Plan
Posted by Richard Davis on 12/18/2008 12:15:00 PM
The first shoe dropped this morning as Gov. Gregoire released her proposed 2009-2011 budget. In addition to coverage on TVW, she has a nice video release laying out her policy priorities and guidelines. In the video, press conference and this press release, she restates her pledge not to solve the problem with tax increases. The governorƒ?s proposed budget will close the projected shortfall without raising taxes.
ƒ?Now is not the time to be raising taxes on our residents and businesses,ƒ Gregoire said. ƒ?Our families are tightening their belts, and thatƒ?s what government needs to do. The state must squeeze every ounce of value from each taxpayer dollar while maintaining our priorities of protecting families and children the best we can.ƒ
I didn't hear the word "ugly" in her description of the budget, but she says she expects that everyone will find something not to like in a budget that closes - her estimate - a $5.7 billion budget gap. As expected, she rejects salary increases for state workers, teachers, and care workers.
Acknowledging that this is the beginning of an extended budget discussion, she invites public participation through something called "an interactive budget calculator" that will be on the governor's web site in early January. Instant budget analysis is always dangerous. Details matter. That said, it's encouraging to see that the governor recognizes the importance of balancing the budget within existing revenues and has appeared to take a long-term perspective to the budget. State senator Joe Zarelli (R- had this to say about it: The governor has put the budget process on the proper course with her proposal for the 2009-11 biennium... she did what she promised by balancing that budget without tax increases. Those are positive steps. There is some room for discussion about whether the priorities reflected in her budget are the real, core priorities of government. But overall itƒ?s a move in the right direction.
... The governor has done her part and made a solid case for her choices. Now the ball moves into the Legislatureƒ?s court.
Andrew Garber at the Seattle Times has a good overview, including this rhetorical Q&A.
...Gregoire's proposed spending plan for the next two years represents an increase of less than 1 percent over the current budget. Which raises a question: What's being cut if state spending is essentially flat? The answer: Mostly proposed increases in state spending. At the PI, Chris McGann runs down some budget highlights. Joe Turner's Political Buzz blog also provides good insight. And for an excellent national overview of the state-local budget dynamic, check out this story in the Wall Street Journal. WashACE will be looking more deeply into the budget, with a Competitiveness Brief scheduled in a few weeks. It's critical that the budget adjustments close the structural deficit and put the state on a course for long-term fiscal sustainability. More later.
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Wednesday, December 17, 2008
New WashACE Brief Examines Growth in State Spending
Posted by Richard Davis on 12/17/2008 5:43:00 PM
Just in time to put tomorrow's budget story in perspective, we've published a competitiveness brief looking at state spending trends since the mid-1990s. The brief, drafted by the Washington Research Council, examines the near general fund accounts. It looks at the major areas of state spending -- education, health care, and so on - as well as employment trends. The brief provides a lot of useful information, a must-read for those who want to understand the current state budget crisis.
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Wednesday, December 17, 2008
Ugly Budget Coming Tomorrow
Posted by Richard Davis on 12/17/2008 4:31:00 PM
Gov. Gregoire will release her budget plan tomorrow. She's not hesitated to call it an "ugly" budget, reflecting the challenges associated with trimming a $5.2 - $6.0 billion shortfall for the 2009-2011 biennium. The announcement will be carried live on TVW at 9:30 a.m. At 2:30, the Seattle Times will provide streaming video of the governor's appearance with the Times' editorial board. This morning, in the Herald of Everett, I wrote about the budget challenge as a leadership test. Plenty of other folks also wrote about the budget. In The News Tribune, Rep. Gary Alexander has a good op-ed on the importance of swift budget action. If the Legislature and the governor pass a supplemental budget that shaves an easier-to-swallow $500 million off the current budget, we will remove $2 billion from our projected $5 billion deficit. This is not a misprint: If we save $500 million now, immediately, we save $2 billion down the road. Of course, it depends on the quality of the cuts, but he makes a persuasive argument. Also in The News Tribune, Peter Callaghan notes that Washington has plenty of company in the budget quagmire. Here's the Stateline story he references. For the first time in 25 years, states expect to see a decrease in spending in the current fiscal 2009 budget cycle, NGA and the National Association of State Budget Officers said in their latest "Fiscal Survey of States" released Dec. 15. Thirty-one states will have to close nearly $30 billion in deficits from their current budgets before they even begin drafting new fiscal plans for the coming year, Five additional states also reported shortfalls, but didnƒ?t include figures. ƒ?As bad as the situation is for states right now, all indications are that the fiscal conditions for states will continue to deteriorate,ƒ NASBO Executive Director Scott Pattison said.
The recession continues to plague us. Unemployment is up again. Paul Nyhan in the Seattle PI has a comprehensive report. He quotes Seattle economist Dick Conway.
...the Puget Sound-area economy is finally succumbing to a recession, according to regional economist Dick Conway. It threatens to last until the end of next year and maybe longer, he added.
That means a tougher job market for the growing ranks of the unemployed. Here's something that ought to concern us. "Our economy held up well because of continued employment growth at Boeing and Microsoft," Conway said.
As we know, Boeing hiring as slowed down and layoffs are possible in 2009. And Microsoft is adding jobs faster outside Washington than it is here. Ugly or not, the state budget will doubtless reflect current economic realities. The governor has rightly said that tax increases would impose greater hardships on families and employers. The legislature must now focus on streamlining, setting smart priorities, and positioning the state for a strong, sustainable recovery.
MORE I just read Kim Bradford's TNT editorial page blog. Seems the governor's interview with their ed board will be carried live at 11:30 a.m. tomorrow.
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Tuesday, December 09, 2008
Support for Business Incentives Increases as Economy Worsens
Posted by Richard Davis on 12/9/2008 9:10:00 AM
With jobs and the economy uppermost on people's minds, public support for business incentives has increased substantially, according to a survey of 1,200 Floridians. Faced with more and more job losses, Floridians now are more likely to support incentives for businesses to expand or relocate here, the survey found. Support for incentives rose to 63 percent, up 8 points since last year. Opposition to business incentives dropped to 21 percent from 32 percent last year. "People say do not bring people here, but now Floridians are more interested in economic development," said USF professor Susan MacManus, the survey's academic adviser. "It's a shot in the arm for business." I've not seen similar results here, though I imagine Washingtonians are as savvy as their counterparts in the Sunshine State. It's easy to assume incentives don't matter when the economy is strong and growth seems inevitable. When times get tougher, intuitively we know that jobs and investment grow where the return on that investment is greatest. Costs matter and tax incentives work.
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Monday, December 08, 2008
Framing the Debate over the Budget Shortfall
Posted by Richard Davis on 12/8/2008 1:45:00 PM
Just days before the governor must present her budget proposal, the debate over how to plug a $5 billion shortfall (projected to grow) continues to intensify. Not really much to talk about that hasn't been said before - cut spending, raise taxes, do a bit of both - but the magnitude of the problem amplifies the voices. On King5 Up Front yesterday, Gov. Gregoire points out the problem with tax hikes (quote at 8:14). ƒ?I donƒ?t know what you tax. You canƒ?t tax individuals. Theyƒ?re struggling. Theyƒ?re struggling to put food on the table. Our food banks are overwhelmed, overwhelmed. You canƒ?t tax business. Some of them are hanging on by their fingernails. You canƒ?t tax folks at their property tax. So I donƒ?t know what you tax in these kinds of dramatically difficult times.ƒ
She's right. The whole Up Front show is worth watching. Host Dennis Bounds leads with the budget challenges facing higher education and follows the Gregoire quote with a give-and-take between Washington Policy Center president Dann Mead Smith on the right and Washington Budget and Policy Center executive director Remy Trupin on the left. Andrew Garber reports in the Seattle Times that lawmakers don't have to produce a balanced budget. Legally true, sure, but they should and they will. And, as Rachel LaCorte writes, the effort may provide the opportunity for bipartisan cooperation. When the choices are as difficult as these will be, it's always a good idea to get as many fingerprints as possible on the final document. Jerry Cornfield's story in the Everett Herald is a good example of the kind of press budget writers will be facing. In the Columbian, John Laird takes a similarly dim view of the spending cuts that may be required, while highlighting two good ideas from a local Republican. State Sen. Joe Zarelli, R-Ridgefield, issued a written statement Thursday with two excellent proposals. ƒ?The Legislatureƒ?s first action of 2009 should be to pass a supplemental budget within the first week of the session.ƒ ...
Also: ƒ?If a program is proposed to be cut for 2009-11, every effort should be made to examine whether the change should be accelerated for implementation in the 2009 supplemental.ƒ
Important as balancing the budget is, lawmakers must focus on laying the foundation now for sustained economic recovery. They may want to borrow some ideas from some competitor states. In the Detroit Free Press, columnist Ron Dzwonkowski outlines steps Michigan can take to improve that state's beleagured economy. He cites the work of Detroit Renaissance, whose efforts underscore the intense interstate competition for economic development. Suburban Chicago's Daily Herald suggests that while it's good to ask tough questions of companies seeking bailouts, government officials should also question themselves.
Government has every right to demand that businesses asking for bailout bucks first make drastic changes in dreadful management. But government also has to be asking itself how it might be getting in the way of efforts by well-run businesses to survive this recession on their own.
In time, the economy will recover. And when it does, some states and regions will be better positioned to take advantage of new growth opportunities than others. The policy choices lawmakers make in 2009 will determine whether Washington will be numbered among the winners.
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Friday, December 05, 2008
Budget and the Economy: Have We Touched Bottom Yet?
Posted by Richard Davis on 12/5/2008 2:23:00 PM
Probably not. The National Conference of State Legislatures, which tracks these things closely, yesterday released another in the bleak series of budget breakdowns.
States, which already have closed $40 billion in fiscal year (FY) 2009 budget gaps, face at least an additional $97 billion they must close over the next 18 to 24 months...
They provide links to a map that shows a pattern of states in the red (not to be confused with red states). Washington, for the first time, joins the list after dropping into a current year deficit with the November revenue forecast.
The State Policy Blog points out that not all states have fallen into budget holes, with a nice contrast between California and Texas. The SPN release pegs off this Texas Public Policy Foundation observation. Texasƒ? watershed year was 2003, with a $10 billion budget shortfall for the biennium, but we were not alone. California faced a whopping $38 billion shortfall that same year. The way the two states responded then, set the stage for what is happening today. Texas reduced spending to cover the deficit that represented about 15 percent of its general revenue. The commitment was made, and kept, that the shortfall would not be resolved by increasing taxes. Today, Texas has become the nationƒ?s top job producer, hosts more Fortune 500 companies than any other state, and was cited by the Financial Times as the state best able to weather the financial storm. Although the economic downturn will cause short-term problems, especially in retirement system investments, the state will enter the next budget cycle in the black, just as it did in 2005 and 2007. The foundation makes this important point. At the very time when families will need the safety net of Medicaid and [children's health care] the most, states that have not exercised fiscal responsibility, particularly those that have expanded their health care programs beyond sustainability, will not be in a position to help. That is not compassion. Careless spending hurts those it purports to help. As the recession deepens, policymakers would be well advised to consider the alternatives ... and emulate Texas. Sen. Joe Zarelli is back with his fiscally-prudent Budget Tidbits. In his latest release, he looks at how lawmakers should respond to the current shortfall. Noting that early savings reduce ongoing costs, he urges swift action. Good advice. The week's dreadful economic news provides little relief for lawmakers looking for the turnaround. Vast job losses in November, deteriorating retail sales, and plummeting consumer confidence ground projections of a sustained recession. The incoming Superintendent of Public Instruction, Randy Dorn, is quick out of the box with a call for higher taxes. As the Texas-California comparison demonstrates, raising costs on struggling families and consumers doesn't work. Worse, it drives jobs and investment out of state, leaving a big hole to fill for the folks remaining. Light blogging note: The blog has been inactive this week. I've been out meeting with groups to discuss competitiveness issues and making brief presentations. My apologies to those of you who have missed it. Over the next few weeks, expect intermittent posts as we implement plans for a new, more robust WashACE website to launch next month. Please let me know if you have suggestions for how we can better serve you. Thanks.
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Wednesday, November 26, 2008
WashACE Competitiveness Brief Examines $5.1 Billion budget Shortfall
Posted by Richard Davis on 11/26/2008 3:46:00 PM
We just released a new report on the November revenue forecast.
With last weekƒ?s forecast, the frame is set for Gov. Gregoire, who will release her budget proposal next month. She predicts that it will be ƒ?uglyƒ and few will disagree. The governor has also said that this is not the time for raising taxes. And, again, few will disagree. Tax increases would
deepen the recession and delay recovery.
The brief, prepared for WashACE by the Washington Research Council, adds useful perspective on the dominant competitiveness issue before us.
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Tuesday, November 25, 2008
Governor Orders Additional State Budget Cuts
Posted by Richard Davis on 11/25/2008 4:19:00 PM
The memo you knew was coming arrived today. OFM director Victor Moore calls on elected officials, agency directors, and other top state administrators to cut an additional $260 million from their current budgets. The memo includes specific targets and lays out criteria the budget-cutters should use. 1. Identify and take under-expenditures and efficiencies that go beyond those already taken;
2. Continue to pull back on new programs not yet fully implemented; and
3. Scale back existing programs and activities that fall lower in the Priorities of Government
process and/or have been identified in your work with OFM as 2009-11 Biennial Budget
reduction items.
Stories by Rich Roesler and the Associated Press.
Roesler also has a good article on how state workers see things. The largest state workers union, the Washington Federation of State Employees, argues against job cuts. It represents about 40,000 of the state's more than 100,000 employees. "We believe, as some economists believe, that the worst thing to do during an economic downturn is to lay off, especially public employees," said Tim Welch, the union's spokesman. Demand for state services rises in tough times, he said.
Welch prefers to see tax exemptions repealed. And, as Roesler notes, he has an important ally.
Some lawmakers, notably Senate Majority Leader Lisa Brown, D-Spokane, make a similar argument. "I think we will absolutely be looking at current tax breaks," she said. There's already a system in place for evaluating tax exemptions. And, if preserving consumer spending during a recession, an argument Welch makes, it's much more important to create a strong investment climate. Tax incentives that spur capital investment by private firms play a critical role in assuring job creation in Washington. AWB president Don Brunell and I discuss one of those incentives here. It's also important not to overdramatize the state's fiscal challenge. As the Seattle Times editorialized Sunday, it's possible - not easy - to balance the budget within current revenues. The Times offered a list of $5 billion in savings. The Olympian also editorialized Sunday on the "bloodletting." Echoing WashACE's education priorities, the Thicket at State Legislature's blog, has a good podcast on STEM programs. Within current revenues, it's critical that lawmakers preserve the investments that spur economic growth, including tax incentives.
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Thursday, November 20, 2008
Reactions to the $5 Billion Budget Shortfall
Posted by Richard Davis on 11/20/2008 7:20:00 AM
This line in Andrew Garber's Seattle Times story pretty well sums it up. "This is about as real as it gets," said House Majority Leader Lynn Kessler, D-Hoquiam.
We have no recent history to draw upon in responding.
This kind of financial crisis is unprecedented," [Arun] Raha said. "We have not had this kind of problem since the Great Depression."
..."Our state revenues are dependent on people buying cars and homes and gifts over the holidays. Right now no one is buying cars and houses," he said, adding that holiday shopping is looking dismal as well. In fact, the state expects to collect less money from taxes in the 2009 fiscal year, which runs from July 1 to June 30, than in 2008. Garber's report identifies the options under consideration, including layoffs, taxes, health and social services cuts in reimbursement and tighter eligibility. Read the whole thing. It's a good preview of the legislative session. In The News Tribune, Joe Turner has the union response. The Washington Federation of State Employees, which represents 40,000 of the more than 100,000 state workers, expects the governor and the Legislature to eliminate tax loopholes and exemptions. Federation spokesman Tim Welch said the union doesnƒ?t believe its recently negotiated contract, which will cost the state $70 million over the next two years, is in jeopardy. ƒ?Our goal would be to avoid layoffs, which would make the problem worse,ƒ he said. What problem would that be? And, clearly, the negotiated contract must be in jeopardy. How do you justify service cuts while giving public employees pay increases and heavily subsidized health insurance? Good coverage also in the Everett Herald, Seattle PI, and in Rich Roesler'
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Wednesday, November 19, 2008
Quick Roundup of Responses to $5 Billion Budget Shortfall
Posted by Richard Davis on 11/19/2008 3:30:00 PM
A $5 billion budget shortfall quickly captures everyone's attention. First, the pressblog coverage from The News Tribune and Seattle PI. Joe Turner for the TNT says, In addition to lower than expected tax collections over the next 2 and 1/2 years, demand on state spending also is on the rise. Last week, the state Caseload Forecast Council reported that it is raising its forecast for public school enrollment by an additional 10,000 students during the 2009-11 biennium because it expects at least 7,000 private school students to transfer to state schools in light of the recession. The PI's Strange Bedfellows blog sees a wobbly commitment by Senate Democrats to the governor's no-new-taxes approach. Democratic leaders were wary of making the same no-tax-hike promise as Gregoire Wednesday. "That is something we will attempt to do to the best of our ability," said Sen. Craig Pridemore, D-Vancouver. Think tanks weighed in quickly as well. The Budget and Policy Center sent out an email citing unidentified "economic theory" to justify higher taxes. Revenue increases will likely be necessary. Economic theory suggests that contrary to conventional wisdom, tax increases would be preferable to spending cuts in terms of economic growth.
I'll go with conventional wisdom on this one.
Paul Guppy at the Washington Policy Center was quick out of the gate with an extended assessment. Boosting taxes to get out of the deficit is wrongheaded for three reasons. First, it is not fair for state leaders to turn to working citizens and businesses that already shoulder a heavy tax burden and make them pay even more to fix Olympiaƒ?s budget mess. Second, tax increases depress economic growth, so raising the sales tax would only make a dire situation worse. Third, it doesnƒ?t make sense to reward the very Olympia leaders who created the deficit by letting them ratchet up the stateƒ?s financial commitments.
There will be more, much more, tomorrow.
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Wednesday, November 19, 2008
New Forecast Puts State in Current Year Deficit; $5 Billion Shortfall Ahead
Posted by Richard Davis on 11/19/2008 11:06:00 AM
If Apocalypse Now hadn't been taken, pundits would be affixing the label to today's revenue forecast: Down $1.9 billion for this biennium and the next, deepening the hole to $5 billion. Although the link is not yet up on the Economic and Revenue Forecast Council site, The Council just finished the grimmest session in memory. Here is the press release and notebook. Adam Wilson has his preliminary story here. New forecaster Arun Raha maintains a long tradition of deadpan delivery, matter-of-factly reporting that "an official recession has not yet been called, it it's certain it will be." Following a recitation of grim economic news, including historically low consumer confidence, he states, "We are not immunce to these immense headwinds that are buffeting the economic landscape." His best-case prediction for holiday shopping is no decline in sales from the previous year. Then, the hard news: In the current biennium, revenues will come in $503 million below forecast, dropping the total to $28.6 billion. The big drop comes in the 2009-2011 biennium: Down $1.4 billion. Raha points out that, biennium to biennium, there wil be a 5 percent increase in revenues. State budget director Victor Moore later comes back to that point, observing that in 2009 there is an absolute decline of about 4 percent in revenue, the uptick comes in the second year of the coming biennium. State agencies will immediately be asked to find additional savings in the current biennium, in the neighborhood of $300-400 million. Legislative action to further reduce or reshape current biennial spending can wait until the session convenes in January. Sen. Joe Zarelli says lawmakers' first order of business should be putting together a supplemental budget that reduces spending. Zarelli, who has been a consistent budget hawk, says, "A crisis is defined by your ability to respond to it." And sounds confident that lawmakers will find a way to do it. With a $5 billion gap to close, the question of tax hikes came up. So far, the members of the forecast committee, which includes legislators who will play critical budget-writing roles, said that their focus would be on budget development. Rep. Ross Hunter mentioned the Priorities of Government process used by then-Gov. Gary Locke to write a no-new-taxes budget following the 2001 recession. Sen. Craig Pridemore, while saying "everything's on the table," kept the focus on priorities and acknowledged the damage tax hikes would inflict on the economy. Rep. Ed Orcutt asked the right rhetorical question: "If the economy is this tough, how could the citizens afford more taxes?" Raha estimates that the economy will begin to recover in the third quarter of 2009, but there will be no "real traction" until the middle of 2010. Bleak as the budget picture is, our long-term focus must be on laying the foundation for sustained economic growth and a healthy business climate. Increasing costs now would severely damage our prospects for emerging from this recession in a strong competitive position. The WashACE agenda remains the best prescription for the times.
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Wednesday, November 19, 2008
Waiting for the Revenue Forecast to Define Budget Shortfall...and Wondering about Performance Audits
Posted by Richard Davis on 11/19/2008 9:43:00 AM
In about a half hour, the Economic and Revenue Forecast Council will adopt the official forecast of state revenues though the 2009-2011 budget cycle. Joe Turner blogged yesterday that the "usually nerdish" event has become high drama. Like car crashes, I guess. In my column in the Herald of Everett (also The News Tribune), I speculate that the forecast will again produce bad news. (I do not expect the Nostradamus award for that prediction.) More important, I discuss the harm tax hikes would inflict on struggling families and businesses, further deepening the recession here. And I mention the array of tools lawmakers and the governor have at hand to develop a balanced budget without raising taxes. State officials have developed an array of tools for evaluating spending and setting priorities. Gov. Chris Gregoire continues to use the Priorities of Government program former Gov. Gary Locke pioneered in 2001 to balance a recession-hammered budget without tax increases. Three years ago voters authorized performance audits of all government programs. And Gregoire's GMAP program (Government Management, Accountability and Performance) focuses on performance and program effectiveness. Lawmakers should use the tools, control spending, and avoid punishing tax hikes.
So it's passing strange to note that the Priorities of Government exercise placed performance audits on the do-not-buy list. Adam Wilson's blog has State Auditor Brian Sonntag's reaction. Of course, the audits come from a dedicated fund stream approved by the voters when they passed Initiative 900. But still, why recommend eliminating a tool that can help you identify waste and inefficiency in tight budget times?
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Sunday, November 16, 2008
State Stimulus: Retaining and Attracting Jobs and Investment
Posted by Richard Davis on 11/16/2008 1:32:00 PM
As we posted yesterday, state governments, most of which are reeling from recessionary revenue downturns, are desperate to turn their economies around. Further discussion comes from the legislative analysts at StateNet. They make a strong case for a stimulus package targeted at state government.
...there are sound reasons why the next federal stimulus should give preference to the states ahead of individuals or favored industries. Traditionally, the objection to subsidizing states is that the money takes so long to work its way into the economy that mild recessions often end before the infusion has a substantial effect. This doesn't feel like a mild recession. Douglas W. Elmendorf of the Brookings Institution, a former economist with the Federal Reserve and the Clinton White House, wrote a paper last January opposing infrastructure spending because it was not fast-acting enough. Now, seeing a "prolonged downturn," Elmendorf has endorsed infrastructure spending.
And they provide report alignment between a couple of groups that don't always agree.
"Jobs are the key," said William Hauck, president of the California Business Roundtable. The U.S. economy has shed 1.2 million jobs this year, with the numbers certain to go far higher. The Economic Policy Institute, a liberal group, estimates that $75 billion in infrastructure spending will create a million jobs. That may be optimistic, but there is no question that infrastructure spending is a good economic value in a down economy.
While I'm not confident anything coming from Congress can be delivered without a larding of inefficient earmarks, the infrastructure case makes sense.
While waiting for Congress, though, we should be careful to preserve what we have here. Don Brunell's latest column looks at Boeing executive Scott Carson's speech and puts it in good perspective. Boeing has the ability to command the attention of media and public officials. In reality, company officials are speaking on behalf of all private job-producing taxpaying employers in our state. Boeing has laid out the answer to our stateƒ?s economic dilemma. Hopefully, the right people are listening.
PowerLine reports that Congress may be considering corporate tax relief, certainly appropriate for a nation that imposes one of the highest corporate tax rates in the world.
What we're seeing is the two-prongs of competitiveness strategy: One prong uses tax revenues to spur job creation through infrastructure investment; the other allows entrepreneurs to invest more of their own money by providing tax relief and maximizing the potential return on their investment. Public spending may provide necessary short-term stimulus. Long-term, it's essential we create an environment that encourages business to invest and create jobs here.
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Friday, November 14, 2008
From Deficit to Stimulus: States Looking to Revive Economies
Posted by Richard Davis on 11/14/2008 2:58:00 PM
As they did in 2001-2002, state governments are again looking at "economic stimulus" packages to get their economies growing again. Stateline.org has a nice roundup of state efforts. Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments provides a frame for the efforts.
CanagaRetna said state stimulus packages need to be ƒ?timely, targeted and temporaryƒ to be effective. That guarantees that money will be spent quickly and people will get work right away, he explained. But the economic downturn is doubly troublesome for states. The states with economies most in need of reviving are also the ones with treasuries that are most likely to be empty ƒ? too empty to be doling out stimulus packages. ...One way cash-strapped states are paying for stimulus packages is through bonding, said CanagaRetna. The focus on economic growth is welcome. Until we see more details, however, it will be wise to withhold judgment. As important - arguably, more important - as a jump-start stimulus package is a long-term strategy for attracting and retaining jobs and investment. The WashACE four-point program shows how that can be done: 1. Develop a sustainable budget that preserves essential public services without raising taxes.
2. Target higher education investments to programs that contribute directly to economic growth and recommit to education accountability.
3. Emphasize timely completion of authorized transportation projects for which funding has been committed.
4. Reform the state unemployment and workersƒ? compensation programs to prevent uncompetitive increases in employer costs.
New reports on state and municipal deficits underscore the urgency of recovery. The Christian Science Monitor quotes the Center on Budget and Policy Priorities as saying 41 states are or will experience deficits that could reach a combined total of $100 billion by 2010. Here's what they're looking for. If the states had their way, they would like Congress to give them help in four areas: help with the growing number of people applying for Medicaid, more funding for the rising unemployed, help with the growing number on food stamps, and an injection of funds to jump-start infrastructure projects that are ready to go. "We're not asking for a stimulus package because it will fill budget gaps," says Michael Bird, federal affairs counsel of the National Conference of State Legislatures in Washington. "We think it will provide additional benefits for those most disadvantaged by the downturn and create economic activity through the infrastructure package." Midst all the bleak economic news, it's encouraging to read in The Columbian of Seattle economics editor Michael Parks's optimism. Despite declines, Washingtonƒ?s economy remains above average, said Parks, editor and publisher of Marpleƒ?s Pacific Northwest Letter, a data-rich twice-monthly economic publication.
As of August, the state was sixth fastest-growing in population, ranked No. 1 in manufacturing job growth and No. 8 for total goods produced. The stateƒ?s above average profile, however, will be much less satisfying, Parks said, because those averages are declining...
And yet, he sees an upturn in the near future.
He shared his optimism that the worst of the recession could be over by the time President-elect Barack Obama takes office and that consumers could soon regain their footing.
ƒ?Americans love to spend and their confidence will return once housing values stop falling and their jobs become more secure,ƒ he said. ƒ?Itƒ?s during times like these that entrepreneurs look for opportunities ƒ? things start to bubble and gel.ƒ
That's more encouraging than most of what I read. In Nevada recently, economist Arthur Laffer painted a less rosy picture of the recession and the economic competition it spurs.
We have a rough road ahead. Holding on to the optimism expressed by Parks will be important. We also must recognize that the policy foundation that we set down today will determine whether we're among the winners or the losers when the economy rebounds, as it surely will.
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Thursday, November 13, 2008
Grim Reports on State Revenues
Posted by Richard Davis on 11/13/2008 5:18:00 PM
In reporting on the 6 percent drop in October revenues, the Olympian confirms the commonplace.
The latest monthly figures reinforce expectations that the revenue forecast, due Wednesday, will show a wider budget gap.
The repetition of lousy economic news has a desensitizing effect. We're not shocked by much anymore. But some of these declines are nonetheless shocking.
ƒ› Taxes from vehicle dealers were down 21 percent from last year. ƒ› Stores selling furniture, building materials and garden supplies were down 12 percent in tax receipts. ƒ› October real estate excise taxes were down 41 percent. More troubling, perhaps, is the absence of any reasonable expectation for a quick turnaround. Meanwhile, three Western state governors want to add to the woes of struggling families and businesses by raising taxes. California Gov. Schwarzenegger, Nevada Gov. Gibbons, and Oregon Gov. Kulongoski have all proposed tax hikes. The tax packages are not fully baked yet, and the Stateline.org story provides good context. Here, Stateline.org reports: In Washington state, Gov. Chris Gregoire (D) won a second term on Election Day, but promised during a hard-fought campaign against Republican challenger Dino Rossi that she would not raise taxes. That pledge could complicate Gregoireƒ?s second term as she addresses a state budget shortfall projected at $3.2 billion over two years.
Breaking the pledge, of course, could also complicate matters.
Adding to the budget mix is the expected final report of the Basic Education Finance Task Force. Peter Callaghan thinks the task force has a few things going for it, as he writes in his column in The News Tribune. Liv Finne of the Washington Policy Center also has a nice assessment of the bold changes that may lie ahead. Just in time to inform some of the budget debate is the final Priorities of Government report. Jason Mercier summarizes the POG's list of low priorities. In about a month, the governor will produce her 2009-2011 budget plan. I'd expect the low priorities to be gone. And the trimming won't stop there. We'll keep you posted.
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Wednesday, November 12, 2008
State Budget Deficit Growing to $4.6 B?
Posted by Richard Davis on 11/12/2008 3:53:00 PM
Austin Jenkins reports that a key lawmaker believes the state budget shortfall will reach $4.6 billion when the new revenue forecast is released next week. He quotes Hans Dunshee, vice-chair of the House Appropriations Committee, as saying any tax hike would go to a vote of the people. ƒ?We really do govern at the consent of the governed and if theyƒ?re not open to options like using the rainy day fund or to targeted tax increases then thereƒ?s no point in going forward with them.ƒ Dunshee expects the state budget deficit will balloon to as much as $4.6 billion after next weekƒ?s revenue forecast. That's a lot higher than anything I've predicted. It bears repeating that the size of the shortfall relates directly to the size of the spending plan. Maybe Dunshee just wants to spend more than has been previously rolled into the projections. Certainly, revenues are falling below the September forecast. Magnifying the size of the shortfall, however, may also be a strategy for building support for revenue increases. I'm not saying that's what's happening here - the state budget is obviously in bad shape - but it has happened before. UPDATE The revised state economic forecast is out. Makes me think that Dunshee nay not be exaggerating.
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Wednesday, November 12, 2008
States Continue Their Spending Even As Revenues Shrink
Posted by Richard Davis on 11/12/2008 12:04:00 PM
USA Today reports that despite falling revenues state spending continues apace. Curiously, the report runs under the headline, "States cushion slumping economy." To make sense, the ongoing spending should at least be tied to programs and services that directly nurture economic growth. But the article offers no evidence of that. Thelead paragraphs suggest, rather, that the spending simply continues business as usual. Even as the economy slides into recession, many state and local governments continue to spend freely and expand their workforces.
States are hoping a federal bailout may ease their fiscal stress. Unsurprisingly, conservative critics disagree.
Budget analyst Chris Edwards of the fiscally conservative Cato Institute says states should not be rewarded for high spending. "State governments are like drivers coming off the interstate and having a hard time slowing down," he says.
The Council of State Governments notes that a number of states are now slamming on the brakes.
Perhaps surprisingly, governors are looking for a waiver from federal requirements that they maintain current levels of higher education spending. The Chronicle of Higher Education reports it this way: the [National Governors Association] argued that states should receive a reprieve from the requirement for the budgets they set for the next fiscal year (or the next two fiscal years, in the case of states with biennial budgets), ƒ?given the current national and state economic crises.ƒ
Given the demonstrated positive economic impact of targeted higher education spending, cutbacks at this time may be exactly the wrong prescription "given the current national and state economic crises."
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Wednesday, November 12, 2008
Washington Policy Center Releases New B&O Tax Study
Posted by Richard Davis on 11/12/2008 10:34:00 AM
The Washington Policy Center has just released the latest in a series of reports on the Washington Business and Occupation tax. This one looks at tax pyramiding. What's that? Here's how the Policy Center describes it. The "Committee" referred to below is the Washington State Tax Structure Study Committe3, which released its final report in 2002. One of the consequences of the gross receipts tax policy is the extra layer of taxation applied at each stage of production, an effect called ƒ?pyramiding.ƒ Pyramiding, according to the Committee, is the payment of taxes by different companies to produce the same good or service. The B&O tax is similar to a sales tax, yet it is applied to all inputs (raw material needed to produce a good) as well as to the final sale.
While the B&O tax always attracts vocal opposition, particularly from small business owners, efforts to reform it routinely stumble as B&O critics rarely reach consensus on acceptable alternatives. That's one of the reasons the Tax Structure Study Committee recommendations, which included a value added tax and a personal income tax, landed with a thud in Olympia.
A lingering recession may alter the traditional dynamic. Unprofitable businesses in states that tax profits see tax relief during the downturn. Meanwhile, folks here continue to pay on gross receipts. I'm not taking sides - this is complicated stuff right now - but it just may be that we'll see opinions shift over the next several months. It's worth watching.
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Tuesday, November 11, 2008
Budget Hole Deepens; Governor Says She'll Not Raise Taxes
Posted by Richard Davis on 11/11/2008 2:08:00 PM
Yesterday's revenue collections report continues the downward trend.
General Fund-State (GFS) tax payments in the October 11, 2008 - November 10, 2008 collection
period once again fell short of the September forecast. Receipts for the month were $52.8 million
(4.4 percent) lower than expected.
There's some serious bleeding among major retail sectors, particularly automobile sales.
Eight of the twelve 3-digit NAICS retail sectors reported declines this month. The
sectors with the largest declines were motor vehicle dealers (-20.7 percent), furniture
stores (-11.8 percent), building materials/garden supply retailers (-12.0 percent), apparel
and accessories stores (-9.4 percent) and sporting goods, toys, books and music stores (-
6.1 percent). The auto sector, the largest retail trade category, has now reported a year-
over-year decline in tax payments for ten consecutive months.
So far, Gov. Gregoire is sticking by her no-new-taxes pledge. The Seattle Times has this story on the budget. [Gregoire] reaffirmed a pledge made during the campaign not to increase taxes or fees to help balance the budget. The governor said she's considering dozens of options, including suspending certain state programs and possibly eliminating some entirely. She wouldn't say which ones. In addition, the governor said, lawmakers could soon face a choice of either giving state workers a pay raise or laying people off. Reopening the collective bargaining agreement sounds right. First, though, the legislature needs to vote it down and send everyone back to the table. The governor's quote suggests she's prepared to tell the unions that the negotiated agreement guarantees layoffs. Clearly, it does, so that may help frame the conditions that would make it easier for lawmakers to reject the contract. Gregoire also has announced her ideas for a stimulus package. The details will be decisive. Here's the Times shorthand version. The immediate stimulus package is made up of: ƒ› More than $200 million in tax-exempt bonds for housing programs. The money can used for rental housing for poor families, assistance for first-time homebuyers, and refinancing of mortgages at risk of default. ƒ› About $85 million to help low-income Washingtonians pay heating and energy bills and make weatherization improvements to their homes. Since the money is funneled through utility companies, Gregoire hopes it also will create jobs. ƒ› An additional $13 million in aid for the salmon-fishing fleet, meant to help those hurt by the sudden collapse of the Pacific Coast salmon industry. Gregoire said she's pushing federal officials to release that money faster. I'm not sure how much long-term job creation any of that provides. On first reading, it sounds more like assistance to those hard hit by the recession than long-term economic stimulus. What do you think? Am I misreading it? I do like the sound of this approach to the budget, though. "This should not be simply a budget-cutting exercise. We should be thinking about how do we grow our economy, how do we create jobs, and what reforms we can put in place," she said. "Government is really going to have to get back to the absolute, essential basics." Jason Mercier offers some good thoughts on this at the Washington Policy Center blog. UPDATE The Olympian's Adam Wilson has the union response to layoff talk.
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Thursday, November 06, 2008
Budget Leadership Begins with the Governor
Posted by Richard Davis on 11/6/2008 9:44:00 AM
Governors go first.
By law, Gov. Chris Gregoire will propose a balanced budget next month. Then in January the legislature takes over. But the governor's budget leadership involves more than just the chronological rollout of spending plans. As the state's elected executive, the governor has more than just managerial and administrative authority. She, the only statewide elected official involved in budget development, pulls together the diverse interests of the state, sets priorities, and uses her political clout to see those priorities enacted into law. So it was a bit puzzling to read this morning's Seattle Times, which has this odd quote from the governor. When asked recently if she'd support sending a tax increase to voters, Gregoire said, "I will leave that to my colleagues in the Legislature. I will forever maintain that the voters ought to be able to decide that. ... I wouldn't be involved in it. It would bypass me. It would not be something that the governor would sign on to or sign off on."
One thing a governor, especially one recently re-elected with 54 percent of the vote, may never be is a budget bystander. When she proposes a budget in December, does she say, "Here it is. I won't be involved in it further."
Not likely. More to the point is The News Tribune's editorial, addressing the challenges the governor faces with her own party. Add the looming $3 billion-plus deficit to the picture, and youƒ?ve got the makings of a ruthless tug-of-war over the state budget. During an economic downturn, tax increases can only be a last, desperate resort. You cannot tax an economy out of slump; you can tax an economy deeper into one. That leaves major spending cuts on the table, with the 600-pound Democratic gorillas maneuvering to make sure no cuts will be coming their way. Gregoire ƒ? the only politician in the mix elected by the whole state ƒ? must referee this bruising free-for-all. Sheƒ?ll have to jump into the spending decisions early in the session, and cajole and threaten as necessary. She must not allow herself to be bypassed. Having accumulated political capital, she has the ability and the responsibility to use it, to be the driving force in Olympia for the next four years. There's also the peculiar challenge of budget timing. Commenting on the Times story referenced above, Jason Mercier of the Washington Policy Center writes this morning on what some have seen as newly-found wiggle room on taxes. Jason points to Sen. Lisa Brown's lawsuit to overturn voter-approved tax limitations. Here's Brown's comment in the Times.
... Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.
Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions. "If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said. This isn't about the meaning of is. If my taxes go up because an exemption is repealed or altered, it's a tax increase. The state Supreme Court should rule in the next few months on Brown's challenge. Currently, popular votes on tax increases above the expenditure limit my only occur at the November general election. It may be that the next revenue forecast shows that we are already in a deficit position for the current budget cycle. Certainly, we're in a nearly $4 billion hole in the budget to be written next year, which taxes effect July 1, 2009. If lawmakers want to raise taxes, the timing of a public vote under current law appears to be too late to provide them the revenue boost they're seeking. Which brings us back to the original point. Next month, Gov. Gregoire will present a balanced budget, one that does not rely on new taxes. She needs to defend it. It's the right decision. UPDATE Typos corrected. (Most of them, anyway.)
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Tuesday, November 04, 2008
State Economic Forecast: From Bleak to Bleaker
Posted by Richard Davis on 11/4/2008 3:38:00 PM
Yesterday, the Economic and Revenue Forecast Council released the preliminary November economic forecast. Consider it a preview of the November revenue forecast, which sets the revenue platform on which the governor must build her budget. Unsurprisingly, things don't look good. Here's a summary paragraph. The whole thing is worth a read. Recently available employment, wage, and housing data all indicate the stateƒ?s economy is weaker that assumed in September. This forecast assumes that the housing sector will not show any significant improvement until the second half of 2009. It also assumes that construction employment will decline by about 22,100 (10.6 percent) from its peak in the fourth quarter of 2007 through the first quarter of 2010. This is larger than the 12,500 peak-to-trough decline expected in the September forecast. The software employment forecast is also weaker than the September assumption. Software employment is expected to rise just 500 (0.9 percent) from the fourth quarter of 2008 to the fourth quarter of 2009 compared to 2,600 (5.0 percent) in the September forecast. Software employment growth during 2010 and 2011 is now expected to average 1,600 (3.0 percent) per year compared to 2,900 (5.4 percent) per year in the September forecast. The Washington aerospace forecast incorporates the impact of the Boeing strike on both wages and employment. Aerospace employment is expected to continue to rise through the end of 2008, reaching 86,200 in December which is 900 lower than assumed in September. The forecast assumes no further changes in aerospace employment through 2011.
Remember, in September the revenue forecast sliced projections by $529.3 million. The folks who win legislative races today could be looking at a deficit approaching $4 billion. Thank them for accepting the challenge. And remind them that this problem must be solved without raising taxes.
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Saturday, November 01, 2008
More on State Revenue Losses
Posted by Richard Davis on 11/1/2008 3:14:00 PM
We buried this in an earlier post. But Don Brunell highlights the news here. According to the Center [on Budget and Policy Priorities], identified as a liberal-leaning think tank, Washington and Idaho were among 15 states with significant revenue drops between July and September. Washington's revenues are down by 11.3% and Idaho is down by 9.3%.
That 11.3 percent number is the same one used by the Wall Street Journal in its October 25 story. But when you follow the link to the CBPP site, you're taken to an October 31 update that shows Washington losing 10 percent (Table 2) in inflation-adjusted revenues from July through September. The US average is -5.9 percent and Idaho is down 9.1 percent.
I don't know why the numbers vary. Regardless, Washington remains the state posting the largest quarterly revenue decline, by a wide margin, of the 15 states that reported complete data.
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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 2009ƒ?11 biennium.
... Last month, following the release of the Economic and Revenue Forecast Councilƒ?s quarterly
update to the forecast of General Fund revenue, Senate Ways and Means Committee staff projected a $3.2 billion shortfall in the General fund by the end of the 2009-11 biennium. (Fully draining the stateƒ?s rainy day fund would reduce the shortfall to $2.4 billion.) Prospects for the economy have darkened significantly in the last month, and the next forecast update will
show a much larger shortfall for 2009ƒ?11.
Now is simply not a good time to divert money away from the General Fund.
As they say, read the whole thing. The Washington Policy Center published a "citizen's guide" to the initiative in August.
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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.
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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.
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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.
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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.
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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.
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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 1982ƒ?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 ƒ? 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 ƒ? and now fiscal ƒ? crisis means we're all in this together. We will need strong government ƒ? federal and state-local ƒ? 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.
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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 donƒ?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.
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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.
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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.
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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.
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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. ƒ?But of course, as the budgets get tighterƒ?It seems like everyday we see headlines that say (states are) expecting a bigger deficit than planned,ƒ 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 ƒ? Connecticut, Florida, Hawaii, New York, and Vermont ƒ? 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.
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Tuesday, September 30, 2008
States Respond to Financial Turbulence
Posted by Richard Davis on 9/30/2008 1:24:00 PM
Stateline.org provides a nice roundup of stories on how state governments are responding to the financial mess. (Irrelevant query: What's the difference between a roundup and a rundown?) This puts it in context. ƒ?The feeling in the states is that this is going to be a tough fiscal 2009, and 2010 is looking difficult,ƒ said Scott Pattison, executive director of the National Association of State Budget Officers. The tidal wave of bad news comes on the heels of an already brutal budget year that forced states to dip into rainy day funds, implement hiring freezes and put off projects to collectively plug deficits of more than $40 billion in their fiscal 2009 budgets ƒ? triple the $13 billion shortfall they weathered the previous year.
The helpful overview may also be a preview of our next legislative session. Some bleak Medicaid news adds to spending pressure. After two years of flat Medicaid enrollment ƒ? the same two years which also saw the smallest spending increases for the federal-state health insurance program for the poor ƒ? the failing economy has led to a dramatic growth both in enrollment and spending, according to a new report.
And this from our state. Doug Porter, Washington stateƒ?s Medicaid director, said he has been given a goal of reducing expenses by 15 percent over the next two years. He said he will first cut new services provided by the state, such as interpreters for clients. After that, he would consider cutting payments to doctors, like the 48 percent hike to pediatricians the state enacted last year after years of increasing payments only by 1 or 2 percent. The last resort would be tightening eligibility for Medicaid, he said. ƒ?Weƒ?re in survival mode here, trying to protect the core part of our program rather than improving our standards,ƒ he said.
And here's my column on the budget shortfall.
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Monday, September 29, 2008
State Unions Split on Contract - Does it Matter?
Posted by Richard Davis on 9/29/2008 4:46:00 PM
Members of the Washington Federation of State Employees voted to approve their new contract with the state. The Olympian's Adam Wilson notes: The contract covers 33,000 workers in state government, and set the tone for other union deals: 2 percent raises and an extra day off in each of the two fiscal years it covers.
The News Tribune's Joe Turner probably has it right. I wonder if the prospect of a $3.2 billion budget deficit for 2009-11 had any bearing on the rapid ratification of the contract. Workers may figure this is no time to dicker.
The Teamsters apparently are in a dickering mood.
Adam Wilson reports that at least one key legislator is willing to consider voting no on the deal. Rep. Hans Dunshee, the Democrat who is likely to take over as budget chairman, described the contracts exactly like this: "I think we canƒ?t eliminate any option at this point. Those are well negotiated and such, but we donƒ?t even know what the situation is in February. So at this point Iƒ?d say any option should be talked about."
Washington CEO thinks the tide is about to turn in Olympia and Thurston County. What do you think?
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Monday, September 29, 2008
Budget Problems Spread
Posted by Richard Davis on 9/29/2008 9:28:00 AM
This morning's Seattle Times calls on gubernatorial candidates to be clear on how they're going to resolve the $3.2 billion budget problem without raising taxes. They agree with a no-new-taxes pledge. That is the only rational position for a state that cannot abide higher taxes at a time of such economic fragility.
The Times also carried a great column by Jon Talton on the week that changed Seattle's economy. Make that the state's economy. Talton effectively makes the case for the importance of healthy headquarters companies. And warns that the worse may not be over. Whatever one calls this economic distress, it is putting companies under stress they haven't seen in years ƒ? even decades ƒ? and shows no sign of letup.
That's why WashACE argues that lawmakers must evaluate every decision that make next year by asking: will this enhance or damage the economic competitiveness of our state's private employers? Here's an example of how states dig holes for themselves. (h/t stateline.org) Gov. Rod Blagojevich's administration doesn't know who it's signed up for an enlarged health insurance program, how much money in premiums it's collected or even where that money is, according to a court ruling Friday that blocked the program's expansion. Illinois' First District Appellate Court in Chicago upheld a lower court's decision to deny Blagojevich permission to broaden FamilyCare after he was rebuffed by the General Assembly and the secretary of state.
Expensive, open ended entitlements are always the wrong way to go.
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Wednesday, September 24, 2008
More Analysis of the State Budget Challenges
Posted by Richard Davis on 9/24/2008 10:16:00 AM
The Senate Ways and Means Committee updated its Six Year General Fund Outlook. While it differs slightly from the WashACE report released last week, the differences are minor and the bottom line is unaffected. A shortfall of $3.2 billion is projected for the 2009-2011 biennium. Draining the entire $728 million rainy day fund would still leave a gap of $2.5 billion. If the budget office succeeds in making the $200 million savings the governor ordered on top of the $90 million savings expected from the hiring and travel freeze, there's still plenty of work to do to close the gap. The Governor told the Columbian the rainy day fund may need to be tapped to manage the shortfall (h/t Jason Mercier). Elsewhere in the papers, Sen. Joe Zarelli has an op-ed in the morning Seattle Times, giving his perspective on how the state's fiscal house can be put back in order. And in the Herald of Everett, I write that the state has no budget crisis, it has a problem to manage. (My apologies for a transposition error in the "slice" number, which should be $529 million. Just a typo, it doesn't affect any of the analysis.) Rushing to The Last Resort, the Budget and Policy Center calls for a sales tax increase.
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Wednesday, September 24, 2008
New WashACE Competitiveness Brief on Unemployment Insurance
Posted by Richard Davis on 9/24/2008 9:44:00 AM
Yesterday, we released Make Unemployment Insurance Work, a Competitiveness Brief prepared by the Washington Research Council examining one of the critical issues before the 2009 Legislature. The bottom line: Washingtonƒ?s unemployment insurance system remains one of the nationƒ?s most generous.
The average benefit is fifth highest among the 50 states; the minimum benefit is second highest; the maximum benefit, sixth highest.
Among the factors that must be addressed next session: First, steps must be taken to bring the state UI system back into compliance with federal requirements. Members of the business community are working in a broad coalition to develop solutions, with technical assistance from the Employment Security Department. Second, in accordance with the intent of the 2003 legislation, the Legislature should clarify that the statutory enumeration of 11 good causes for voluntarily quitting is exhaustive. Third, while the UI tax rate of the average employer has declined significantly over the past several years, the stateƒ?s rates have remained among the nationƒ?s highest. As a result, the state has built up an unnecessarily large balance in the UI trust fund. The Legislature should adjust the tax rate system to reduce the inflow of funds at times when the trust fund balance is high.
It's a good overview of our system, recent reforms, and challenges ahead. I encourage you to read it all and share with your colleagues.
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Friday, September 19, 2008
WashACE Takes a Closer Look at the Budget Crisis
Posted by Richard Davis on 9/19/2008 5:40:00 PM
In this just-released WashACE Competitiveness Brief , prepared for us by the Washington Research Council, we look at yesterday's revenue forecast and examine the cause of a likely $3 billion (plus change) budget deficit. The bottom line: The September forecast cut estimates of state revenues by $529 million, sending projections of the looming state budget shortfall to $3.2 billion. Although worsening economic conditions have deepened lawmakers' budget problems, unsustainable state spending dug the budget
hole.
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Friday, September 19, 2008
Everybody's Talking About the Budget Deficit
Posted by Richard Davis on 9/19/2008 4:13:00 PM
Yesterday's revenue forecast firmly placed the impending budget shortfall on the front pages of newspapers . Andrew Garber has Gov. Gregoire acknowledging the deficit in today's Seattle Times. The governor and her budget office still decline to put a number on the shortfall, but few others are so reluctant. The News Tribune's Joe Turner brackets it between $2.5 billion and $3.2 billion, saying the $728 million rainy day fund is the difference. Use it, and you're at $2.5 B; save it, and the hole to be filled is $3.2 B. Here's how he puts it. (The size of the deficit is in dispute because Republican gubernatorial candidate Dino Rossi and state GOP Chairman Luke Esser don't want to count the $728 million in the rainy day fund. That way, it appears Gregoire and Democrats are spending a lot more, and not saving anything.)
I think that misses the point. The size of the deficit doesn't change because the rainy day fund is used. It's just one way of bridging the gap. And no one - no one - seriously argues that you can responsible spend every dime in the state treasury, leaving nothing in reserve, even in normal economic times. And these are far from normal times. We still don't know definitively how deep the hole will be. The modeling for yesterday's forecast was done several days previous and didn't fully reflect the current turbulence. More lousy news could fuel another reduction in November. The upside bet has few takers. Rich Roesler, opting for an estimate of a $3 billion shortfall, puts it in context. That's about 10 percent of the state's discretionary spending.
The PI story points out business concerns, quoting Washington Roundtable president and WashACE supporter Steve Mullin. "With fiscal challenges like this, significant tax increases are clearly going to be on the table -- historically, they have been with problems of this size," he said. "Because our employers have opportunities to relocate to other places. Now is a very bad time to increase the cost burden."
Right.
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Thursday, September 18, 2008
Revenues Down $529.3 Million
Posted by Richard Davis on 9/18/2008 10:12:00 AM
The September revenue forecast today reduced projections for the combined 2007-2009 and 2009-2011 biennia by a net of $529.3 million . That's more than I expected. For the current biennium, the forecast knocks out a net of $273.1 million. For the next budget cycle, the forecast takes it down $256.2 million. Coming as Wall Street, Main Street and myriad paved and unpaved roads reel from a tumultuous ten days in the global financial markets, today's forecast clearly was not expected to produce good news. And this is not good news. The budget hole now exceeds $3 billion, assuming no substantial changes in the forecast spending trajectory. (Leaving for a meeting now, will post links later.) Update: Links added
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Wednesday, September 17, 2008
Looks Like the Rainy Day Fund is On Tap
Posted by Richard Davis on 9/17/2008 7:38:00 AM
More bad economic news this morning. Washington's unemployment rate climbed to 6.0 percent last month, a four year high. Drew DeSilver's story in the Seattle Times goes on: Another sign of weakness came in the nonfarm payroll report, issued along with the jobless figures. The state added just 1,300 nonfarm payroll jobs last month. August marked the fifth month out of the past six in which the payroll-jobs figure barely budged.
He quotes the state's labor economist as saying the slow growth is likely to worsen in coming months. Already, the two legislators largely responsible for writing the next state budget anticipate dipping into the state rainy day fund, writes Joe Turner in The News Tribune. Itƒ?s pretty clear that things are not going to get better soon,ƒ said state Sen. Margarita Prentice, D-Renton, chairwoman of the budget-writing Senate Ways and Means Committee. ƒ?It looks as if we will (tap the rainy day fund). We canƒ?t commit to a figure, but I think itƒ?s pretty clear for now that everything has to be on the table.ƒ
And this: ƒ?I donƒ?t think (voters) would want us to slash $600 million from our education and social services, right?ƒ said Rep. Hans Dunshee, D-Snohomish, vice chairman of the House Appropriations Committee.
As this six-year budget outlook shows, there's about $728 million available in the fund, which can be tapped by a simple majority vote if job growth falls below 1 percent. That possibility now appears likely. Using all of the reserves to mitigate the $2.7 billion shortfall still leaves a $2 billion gap. And no one expects them to take reserves to zero. But the fact that lawmakers are already looking to the rainy day fund demonstrates the growing seriousness of our state's budget challenges.
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Monday, September 15, 2008
State Budget Outline Becomes More Clear
Posted by Richard Davis on 9/15/2008 11:49:00 AM
With tentative agreement between the state and its largest union, another piece of the budget puzzle falls into place. The News Tribune notes that the Washington Federation of State Employees secured a more generous agreement than other groups had settled for. Joe Turner's blog provides the WFSE's account of the deal. The WFSE/AFSCME 2009-2011 General Government agreement includes pay raises above what other unions have settled for so far, plus more time off, special pay adjustments for thousands in job classes facing disparities, an agreement to deal with other classes that may be facing disparities, plus innovative agreements on anti-bullying and workload relief. In these tough economic times where some say state employees should get no pay raises, the WFSE/AFSCME team negotiated across-the-board raises of 2 percent in 2009 and 2 percent in 2010. This tops the 1.6 percent and 1.7 percent settlements agreed to by some other unions. The contract also includes an agreement to create a new longevity step, Step M, but deferred it until state revenues recover. That new step would take effect July 1, 2012. The contract includes two additional days off - one personal leave day in each year of the agreement.
The AP reports on the budget impact. The Office of Financial Management pegged the cost at about $85 million. The deal is subject to ratification by union members in voting through Sept. 29 and the Legislature during the session that begins in January...
"State employees are looking at cost increases like everyone else, but we also had our eye on the bottom line for the state," budget director Victor Moore said. "With recent revenue collections (down) and future collections being tight, we had to be careful with what we agreed to."
Adam Wilson's reporting for the Olympian provides additional detail. Earlier, Tracy Warner, Wenatchee World editorial page editor, wrote of the tough decisions ahead for lawmakers. As the economic downturn increases the deficit, will the state be forced to increase taxes to keep the budget devastation to a minimum? And, will that tax increase magnify the stateƒ?s economic suffering?
This unfortunate decision, if it comes to be, will have fortunate political timing. It will come immediately following a general election. The most difficult decisions will be made by officials not soon facing the voters.
True. But that's all the more reason to press them now for how they'll handle the shortfall. MORE Jason Mercier alerts me to page 116 of the WFSE contract, which the union says contains more procedural protections and more rights for the union and employees as we battle against privatization.
So far, they seem to be doing pretty well in that battle, one front of which Mercier writes about here.
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Thursday, September 11, 2008
State Revenue Collections Flat in August
Posted by Richard Davis on 9/11/2008 3:35:00 PM
And I suppose that's good news. Here's the latest revenue collection report. The first paragraph sums it up. General Fund-State (GFS) tax payments revived somewhat in the August 11, 2008 - September 10, 2008 collection period. Receipts for the month were $6.8 million (0.7 percent) higher than expected, due mainly to a $19.9 million positive variance in Revenue Act receipts. All other revenue categories except for estate taxes and liquor taxes came in below their forecasted values.
Next week brings the September revenue forecast. While this is an improvement over the last few months, it's unlikely to suggest the kind of rebound that would result in an upward revision. And some dark clouds still haunt the horizon. Tax payments by firms in the retail trade sector were 4.3 percent below the year-ago
level. Tax payments from the retail trade sector decreased 6.0 percent last month and
have declined year-over-year in seven of the last eight months. Five of the twelve 3-digit NAICS retail sectors reported declines this month. The sectors
with the largest declines were motor vehicle dealers (-20.0 percent), furniture stores (-7.7
percent), building materials/garden supply retailers (-6.9 percent) and miscellaneous (-
3.7 percent). The auto sector, the largest retail trade category, has reported a year-over-
year decline in tax payments for eight consecutive months.
Yesterday, Gov. Gregoire announced a pilot program, putting some state departments on a four-day work week, which she expects to save on energy and janitorial costs. The state budget office is moving ahead with a Priorities of Government budget process. (Disclosure: I'm a member of the POG guidance team.) Elsewhere, California still does not have a budget and Florida lawmakers have drawn $672 million from budget reserves, after trimming $6 billion from the state's $66 billion budget.
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Tuesday, September 09, 2008
Revenues Down - Budget Hole Deepens
Posted by Richard Davis on 9/9/2008 2:52:00 PM
Brad Shannon reports in his blog for the Olympian what most of us have expected, state revenues continue to slide. The stateƒ?s general operating funds received about $119.7 million less than expected in tax revenues during the last three months, a new state report issued Friday says. The fall in tax collections is a clear sign the next revenue forecast, due for release on Sept. 18, also will be down, according to Rep. Jim McIntire, the Seattle Democrat who chairs the Economic and Revenue Forecast Council. If true, that would reduce the stateƒ?s shrinking ƒ?surplusƒ from $800 million today to something less than $700 million, a far cry from the $1.5 billion it once was.
I'd expect the September revenue forecast to take the estimated $2.7 billion budget gap for 2007-2009 to about $3 billion. That's for the budget lawmakers begin writing in January for the biennium beginning July 1, 2009. A lengthy strike at Boeing would further depress revenues. The Seattle PI has this story speculating on the effect of a 3-month work stoppage on exports. By dollar value, Boeing Co. ranks among nation's top industrial exporters. Exports are one of the few bright spots in the nation's economy. But that could change if the walkout runs beyond three months and customers are spooked, eventually turning to Chicago-based Boeing's European rival, Airbus S.A.S., for future orders of commercial passenger and cargo jets.
Then, after setting us up, they flash the silver lining. Few expect the strike to last that long. Besides, analyst Cai von Rumohr at Cowen and Co. noted on Monday that Airbus has a four- to seven-year backlog and thus is in no position to take any of Boeing's orders in the near term.
A swift resolution would be best for exports and for the state economy. Well into the new fiscal year, Califonia lawmakers remain unable to agree on a budget. And, using ominous language, New York Gov. David Paterson has directed his state agency heads to prepare a zero-growth budget. We cannot continue making excuses for why the State is unwilling to limit its expenses at a time when hard-working taxpayers are forced to do the same thing every day," wrote Governor Paterson. "Change is never easy. But it is unavoidable if we want to stem the tide of unsustainable spending growth, job losses, and declining population that has plagued New York for decades."
Fortunately, Washington's in much better economic shape than New York. But the struggles to bridge budget gaps will nonetheless require some tough decisions. Sooner rather than later.
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Tuesday, September 09, 2008
State Supreme Court Hears Arguments in Brown v. Owen
Posted by Richard Davis on 9/9/2008 12:15:00 PM
The State Supreme Court just concluded hearing oral arguments in Brown v. Owen. I watched on TVW. The case challenged the constitutionality of the Initiative 601 supermajority requirement for certain tax increases. As I've written here, I think the majority of the court believes the requirement fails to pass constitutional muster. But critics still seem to struggle to bring the right set of facts before the Court. And it may be that Sen. Brown's challenge of Lt. Governor Owen's ruling that a tax hike requires a supermajority may stumble on procedural grounds. Over at the Washington Policy Center blog, Jason Mercier thinks the Court will decline the invitation to get involved. Regardless, lawmakers can amend the law to provide for a simple majority vote at any time. Mercier urges a constitutional spending cap , something much more difficult to accomplish in Washington than in Oregon or California, which provide for constitutional amendment by initiative. Here, the legislature would have to put the amendment before the voters - and do it by passing the amendment by a supermajority. Not likely given the state's looming budget shortfall. UPDATE Jonathon Bechtle has more at the Liberty Live blog, with a useful link to court documents. ALSO AWB's Kris Tefft, whose amicus brief for AWB sparked Justice Stephens first question, has more here.
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Thursday, September 04, 2008
Bellevue Teachers' Strike - Some Context
Posted by Richard Davis on 9/4/2008 4:09:00 PM
The brief note on the Bellevue School District this afternoon website pretty much says it all. Public employee strikes are illegal in Washington, but the union has nonetheless called the strike to apply pressure on the District in collective bargaining. Negotiations continue with the assistance of a mediator from the Public Employment Relation Commission. Information about the issues in dispute and the District's contract proposals can be found on the District website.
The Seattle Times doesn't address the legal issue, but makes good substantive points about why the strike is wrong.
First, they point out the economic reality. ... the district's offer of an 8.1 percent pay raise over three years and an additional $1 million in health-care benefits ƒ? allowing a third of the teachers to pay nothing and others to pay between $6 and $62 a month ƒ? shines amid recessionary gloom. Yet, the Bellevue Education Association demands 14.1 percent raises. The district must say no.
The news story in the Times points out that compensation in the Bellevue district is already among the highest in the state. There may be - and probably is - an argument worth making about improving teacher pay in high-cost districts, but it ought to be explored in a more comprehensive conversation that includes performance pay, increased compensation for math and science teachers, and the like. The editorial goes on to dismiss the union's demand for curriculum change. Union cries that the curriculum imposes a one-size-fits-all standard are wrong. Parents ought to know when their children are going to learn fractions. This provides a counterbalance to education reform's emphasis on assessment. Classroom dynamics are constantly changing. Some students come to class half-asleep, others alert and ready to learn. Bellevue has said time and again that teachers can adapt the curriculum to fit individual needs... Bellevue has spent the past five years creating the curriculum with a $2 million grant from the Bill & Melinda Gates Foundation ƒ? an organization known for vetting academic initiatives. Meanwhile, the district continues to be recognized nationally for its quality schools and its emphasis on getting all students into high-level classes.
Education Week provides valuable context in its examination of how teachers are faring in states hit hard by budget woes. Bellevue looks pretty good.
The episode is sadly reminiscent of the WEA's rejection of grant money to improve math and science education. In Bellevue, you have a curriculum that works. So the union demands it be changed? High-performing schools play a critical role in our state's economic competitiveness. We hope for a swift conclusion to this disruption of student education in Bellevue.
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Wednesday, September 03, 2008
Massachusetts Math: Paying Too Much for Health Care Plan
Posted by Richard Davis on 9/3/2008 4:58:00 PM
The blown cost estimates for the still-struggling Massachusetts health care reform are common knowledge. But last week the New York Times ran an editorial touting the plan's success in reducing the number of uninsured in the state. The State Policy Blog takes a look behind the numbers, though, and finds the touted success comes with a hefty price tag. ... even the figures reported in the editorial lead to the conclusion that this is a massively expensive experiment with miniscule results. The editorial reports that hospitals' uncompensated care dropped from $166 million in the first quarter of 2007 down to $98 million in the first quarter of 2008. That's $68 million, or $272 million a year. The state budget for the program is going to be $869 million this fiscal year. $272 million in savings for $869 million of costs: that's $3.19 of taxpayers' dollars spent for every dollar of uncompensated care avoided.
Just one of the reasons Massachusetts is among the states facing large budget deficits this year. And if a proposed income tax repeal is approved by the voters in November, Bay State politics could get exciting quickly. In 2002, a similar measure garnered 45 percent of the vote. Astonishing. Add Maryland and Illinois to the roll call of states in dire fiscal straits. We're not far behind, with a $2.7 billion shortfall projected last June. With a new revenue forecast due in a few weeks and revenue collections running below projections, the state deficit seems poised to deepen. And while the Seattle Times reports that economists say a Boeing strike would have "minimal impact" on the economy, I'm sure no one wants to put the premise to a test. Ask your candidates how they're going to address the shortfall without adding to business costs, taking money from consumers' pockets, and further dampening economic growth.
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Tuesday, September 02, 2008
Salary Negotiations Continue for State Employees ... and Bellevue Teachers
Posted by Richard Davis on 9/2/2008 3:08:00 PM
As state budgets continue to be roiled by the double whammy of excessive spending during good times and the feels-like-a-recession revenue slowdown, public employees here continue to bargain for pay and benefits. Adam Wilson reports in the Olympian that the state's largest public employee union wants a better deal than the ones already negotiated with other unions. The 1.6-, 1.7-percent raises agreed to by the Washington Public Employees Association give you a pretty good idea of where Gov. Chris Gregoireƒ?s negotiators are coming from. Past rounds of bargaining indicate everybody will get the same deal. But the Teamsters have managed to eek out slightly bigger raises in the past, and the federation, which represents 30,000 general government workers and another 10,000 college employees, has never settled for as little as the WPEA got (even when Gov. Gary Locke was facing a deficit). Remember, many public employees also receive so-called "step increases" that increase their pay over time. An earlier Wilson story on pensions shows how that works. The [pension funding] council has assumed salaries would increase by 4.5 percent a year, counting both step increases based on experience and cost-of-living adjustments. But Smith recommended cutting those expectations to 4.25 percent, a move that would reduce costs to public employers by $57 million in the next budget.
Jason Mercier at the Washington Policy Center compares the Bellevue teachers' strike to how the governor handled agency directors' pay hikes. As bad news about the state housing market increases the probability of another downward revision in the state revenue forecast, any pay hike at all may seem generous. Certainly, there are lots of folks running small businesses and working for beleaguered industries that will go without a raise this year and be thankful they still have work. A possible Boeing strike may also negatively affect revenue collections. Washington has never endured the calamitous budget gridlock that routinely plagues California (see previous post). But a potential $3 billion shortfall suggests that we should prepare now for hard times agead. The Washington Policy Center recommends a constitutional limit to rein in expenditures and make it more difficult to raise taxes. In a few weeks, the September forecast will be released. The preliminary economic forecast doesn't give us any reason for sustained optimism. Washington's new chief revenue forecaster joins state government at a particularly challenging time. But then, challenging times are when we most need good forecasts.
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Tuesday, September 02, 2008
Lessons from California ... and elsewhere
Posted by Richard Davis on 9/2/2008 10:29:00 AM
California, ranked as the worst state to do business, failed to write a budget before the legislative session ended this weekend. The Sacramento Bee reports this is the first time ever that lawmakers left with the must-do budget bill unwritten. The Bee's Aurello Rojas frames the stalemate: Gov. Arnold Schwarzenegger's proposed budget, to bridge a $15.2 billion deficit, includes a temporary 1-cent sales tax increase, future spending restraints and an economic stimulus plan. But Schwarzenegger's plan has not been warmly embraced by Republicans who balk at the temporary tax increase, or by Democrats who oppose key elements of the spending restraints and stimulus plan.
Today, Rojas reports that the budget impasse has pushed some health care providers to the edge. Businesses and nonprofits that rely on Medi-Cal payments haven't been paid since July 1, when the new fiscal year began. If reimbursements don't start flowing soon - unlikely - expect some agencies to fail. And when they do, the bankrupt California Unemployment Insurance fund won't be much help. It all makes Georgia's threatened golf courses seem like trivial collateral damage, but I'm sure some readers would disagree. Hard to know how California's ranking as the worst place for business could fall. But if it could, it would.
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Tuesday, August 26, 2008
Second Thoughts in NY (family leave) and Wisconsin (health care)
Posted by Richard Davis on 8/26/2008 5:07:00 PM
At Olympia Business Watch Don Brunell takes note of the New York legislature's adjournment without passing paid family leave. It was a matter of dollars and sense. There were many versions of the paid leave circulating around Albany. They were all very costly. Here is a sample of the proposals: - One would impose 12 weeks of disability insurance benefits for family leave on ALL businesses for employees of newborns, families adopting children and caregivers of sick parents, spouses and children.
- Another would provide 13 weeks of leave and would have increased the maximum disability benefit from $170 to $550 per week by 2010 and would have permanently indexed the benefit to one-half of the state's average monthly wage.
As for the proposal to pay for it. Workers would have to pay a mandatory 45 cents per week payroll tax...
In Wisconsin, support for the so-called "Healthy Wisconsin" program proposed last legislative session also seems to be waning. The State Policy Blog reports candidates are in "full retreat" on the pricey "universal health care" plan. Dollars and sense again. The blog links to this story in the Wisconsin State Journal. "The issue is money and right now, not many legislative candidates are talking about big, broad programs simply because we all understand that practically speaking, there's no money," said Jim Holperin, a new Democratic Senate candidate who praised the Healthy Wisconsin plan but said his focus was on reviving the economy.
Few would deny the importance of improving health care access and affordability, or for helping employees work through difficult times, but the lessons being learned in Wisconsin and New York (they're not the only places) should be heeded here.
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Monday, August 25, 2008
How Much Would You be Willing to Pay to Combat Climate Change?
Posted by Richard Davis on 8/25/2008 4:27:00 PM
Not much if you're a typical Californian. And are they so much different from typical Washingtonians? Here's the Reuters story on a recent survey. Most Californians won't support the state's ambitious efforts to fight global warming if they lead to sharply higher energy costs, according to a survey commissioned by a pro-business group released on Thursday. Sixty-three percent of 1,000 registered California voters surveyed this month said they supported the goal of cutting greenhouse gases, but that support fell to 47 percent when the question included the likelihood of higher energy costs.
Power Line understands the dissonance. Reducing carbon emissions will be popular until someone actually tries to do it, and the consequences become apparent. It's a bit shocking that, as this survey suggests, a considerable number of people don't understand that reducing carbon consumption means higher energy costs.
Right.
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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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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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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. 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
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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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
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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Tuesday, July 29, 2008
The Healthcare Spending Squeeze
Posted by Richard Davis on 7/29/2008 6:22:00 PM
In a new WashACE Competitiveness Brief, we take an in-depth look at health care spending in the state budget. The Healthcare Spending Squeeze , prepared by the Washington Research Council, examines the effect of rapid growth in health care spending on the state budget, noting that from 1997-99 through 2005-2007, health-related spending grew by 85.5 percent, compared with a 30.1 percent growth in non-health-related spending. Health care spending in the 2005-07 biennium amounted to one-third of all Near General Fund Spending, up 7.6 percentage points over the 1997-99 biennium. Rising health care costs squeeze virtually all other state priorities and drive up the operating cost of state government. The brief also looks at the costs of state employee health care benefits, a growing share of compensation and extraordinarily generous when compared with the private sector. Controlling health-related spending will play a critical role in overall budget discipline, with clear and direct implications for our state's economic competitiveness. A second brief to be released in December will examine various health care "reform" proposals to be considered by lawmakers next year.
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Monday, July 28, 2008
Stalled Sales Tax Revenue - Stalled Economy
Posted by Richard Davis on 7/28/2008 11:45:00 AM
Washington CEO confirms the continued slump in retail sales tax revenues (here's the state revenue department report). WA CEO writer Bryan Corliss summarizes the bad news: As a whole, Washington companies did $26.6 billion worth of activity subject to sales taxes in during the first quarter 2008 - a scant 1.4 percent increase over 2007's first quarter. When you compare that to previous years, the slow-down is striking. Between Q1 '05 and Q1 '06, for example, state sales tax collections jumped 10.3 percent. Between Q1 '06 and Q1 '07, they were up 7.9 percent.
For another look at the situation, consider this chart presented by WRC president Al Ralston at a recent AWB government affairs committee meeting. Hard to see signs of an uptick before the September revenue forecast. Corliss again: ... for now, two things are clear: Washington's economic growth has largely stalled; and state and local governments will have lots of belt-tightening to do during their next budget cycles.
Agreed. Here's AWB president Don Brunell's take on the story.
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Friday, July 25, 2008
Ailing State Budgets in the News
Posted by Richard Davis on 7/25/2008 12:07:00 PM
I'm a day late with this (and the states are many dollars short). Yesterday's Wall Street Journal ran a front-page story with a tells-it-all headline, States Slammed by Tax Shortfalls. It may be the first time that the National Conference of State Legislatures annual June budget update received play like that from the WSJ. Announcing a $40 billion shortfall will get you that kind of attention. The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year. That gap -- identified Wednesday in a survey by the National Conference of State Legislatures -- is more than triple the size of the previous year's. It is the result of broad economic weakness at the state and local levels that could cause pain throughout this year and into 2010.
Washingtonians who saw the story and the US map highlighting state budget conditions may have been comforted to see that our state was not identified among the states experiencing a shortfall. We shouldn't get too comfortable. As most of us acknowledge, our state faces a $2.7 billion shortfall in the next biennium. As Chris Mulick writes on his Tri-Cities Herald blog, other states are (gasp!) cutting spending. He links to a Stateline.org story that also drew from the NCSL update. I'd like to hear more about what officials here plan to do. January is not that far off.
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Monday, July 21, 2008
Seattle Times Examines State Spending
Posted by Richard Davis on 7/21/2008 9:13:00 AM
Andrew Garber takes an in-depth look at the state budget in Sunday's Seattle Times. It's an interesting read and a balanced, well-executed analysis of a topic that's usually treated episodically through serial anecdotes about what various state programs mean to different constituencies. He gets right to the point: As much as anything, Gov. Christine Gregoire's first term in office is notable for one number: $8 billion. That's how much state spending has increased since Gregoire, a Democrat, was elected in 2004. Another way of looking at it: The two-year general-fund budget has jumped 31 percent, to $33.6 billion. That's the largest percentage increase in the past 16 years.
He compares Gregoire's first term with her predecessors back to John Spellman. The piece comes with plenty of charts and graphs, slicing spending by function and object and examining compensation and workforce growth. Read the whole thing for a clear look at this campaign season's most important issue. Washington Roundtable president Steve Mullin sums up why the budget is a critical concern: "We will have a multibillion-dollar shortfall to deal with," said Steve Mullin, president of the Washington Roundtable, an association of corporate executives. "That's not open to debate."
And, "We think it's become clear that the significant increase in state spending over the past four years is simply not sustainable."
For a look at what happens when these warnings aren't heeded, consider what's going on in California as reported in the July 17 Wall Street Journal. California faces a $15 billion budget deficit and Democrats who rule the state Legislature have proposed closing the gap with a $9.7 billion tax hike on business and "the rich."
The WSJ noted the announcement came as AAA announced its decision to close call center operations in the state, shifting 900 jobs elsewhere, and as Toyota canceled plans to build a Prius plant in Bay Area, opting instead for Mississippi. The root of the California deficit is too familiar. What the politicians in California refuse to address is their own overspending. State outlays were up 44% over the past five years, meaning that California is spending at a faster pace than even Congress.
Enough said. UPDATE Tennessee has attempted to mitigate its budget shortfall with early retirement buyouts. This morning, Gov. Phil Bredesen says it's not going well. MORE Several readers have asked about the difference between the 31 percent growth in spending cited by Garber and the 33 percent figure commonly cited by Republicans. Here's the difference, as I understand it: The governor's budget office says the main state two-year budget has risen 31 percent in four years, from $25.6 billion to $33.65 billion. But the Rs counter that when the governor took office, the budget was $25.2 billion, not $25.6 billion. The budget office excludes the 2005 supplemental budget, which the governor signed. The Republicans count all budget growth since the governor took office. Using the $25.2 billion baseline and including the 2005 supplemental yields a 33.6 percent increase. Either way, as Patrick O'Callahan writes, they're tough numbers.
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Monday, July 14, 2008
State Revenue Collections Below Expectations Last Month
Posted by Richard Davis on 7/14/2008 9:23:00 AM
Well, this isn't good news. The July 11 release from the Economic and Revenue Forecast Council shows June revenue collections coming in about $61 million below expectations. The analysis provides more reason for concern than simply June's underperforming revenue collections. Some excerpts: All revenue categories except for liquor and cigarette sales came in below their forecasted values... Adjusted for special factors, Revenue Act receipts this period (primarily May 2008 business activity) were 0.6 percent below the year-ago level, the second collection period this year that has shown a decline in adjusted year-over-year growth (adjusted April 11- May 10 collections declined 0.7 percent year-over-year)... Adjusted Revenue Act growth has averaged only 1.8 percent in the first five months of calendar 2008 activity. This reflects a sharp deceleration from the 5.9 percent average growth in the last six months of calendar 2007 and the 8.9 percent average growth in the first half of 2007... There has been no improvement in real estate activity. June 2008 real estate tax receipts excluding penaties and interest were 51.8 percent below the year-ago level...
And so on. Chris Mulick's Olympia Dispatch blog reports it this way. Bottom line, thereƒ?s one less month for the state to be rescued by an economic upturn before budget writers have to start figuring out how theyƒ?re going to plug a budget hole that isnƒ?t getting any shallower.
While we track the negative numbers, it's worth remembering that, although the sluggish economy has deepened it, lawmakers dug the hole with two biennia of overspending.
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Thursday, July 10, 2008
What About That $2.7 Billion Shortfall?
Posted by Richard Davis on 7/10/2008 4:17:00 PM
On the Washington Policy Center blog, Jason Mercier writes that Governor Gregoire doubts the Senate Ways and Means Committee projection of a $2.7 Billion gap between revenues and business-as-usual state spending. The comments came during an interview on KIRO radio with Dori Monson. (Jason provides the link.) Without wanting to get between dueling analysts - and, to be sure, we're not, because OFM hasn't offered an alternative budget outlook - we have a lot of respect for the work of the nonpartisan Ways and Means Committee. And, while there certainly a lot of twists and turns yet to be navigated before the governor presents her budget in December, the likely shifts in caseloads, health care costs, and revenues ultimately will be trivial relative to the shortfall. See this WashACE brief for more detail. The governor has reinstated the Priorities of Government (POG) process to set spending priorities. That will work best if she similarly commits to containing spending within available revenues. Ultimately the gap, which is probably in the $2.7 billion neighborhood, will be closed. A disciplined use of the POG will close it without a tax hike.
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Wednesday, July 09, 2008
More on the Cigarette Tax, Health Care, and ...
Posted by Richard Davis on 7/9/2008 5:39:00 PM
Earlier today we noted Massachusetts's desperate resort to cigarette taxes to help pay for their budget-busting health care reform. One problem they face might be the high cost of state health care mandates. We've commented on these costs before, as in this competitiveness brief. We have another recent example in our state. The Health Services Account, which funds the Basic Health Plan here, is projected to be short by about $434 million at the end of the 2009-2011 biennium. What's it mean when it's short? That's money that's likely to be backfilled from the general fund, a common pattern in recent years. So much for the cigarette tax paying for health care.
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Wednesday, July 09, 2008
Cigarette Taxes, Health Care, and State Budgets
Posted by Richard Davis on 7/9/2008 10:02:00 AM
Still catching up on some post-holiday reading, I cam across this bit from the State Policy Network blog. Massachusetts Gov. Deval Patrick recently signed legislation to boost the state's cigarette tax to pay for - wait for it - health care. Up a buck, to $2.51 a pack, that puts the Bay State in the tobacco tax big leagues. Washington, with its tax of $2.025 has played there before. (Here's a brief description of how the Washington cigarette tax is distributed. The revenue department's tax reference manual provides a longer discussion of the uses and issues associated with the tax.) Taxing to discourage consumption works. Sin taxes to fund rapidly growing programs doesn't. As an earlier WashACE Competitiveness brief put it, Health care costs are increasing at the rate of about 10 percent a year. The long-term rate of general fund revenue growth is about 5 percent. And the tobacco and alcohol taxes supporting the Health Services Account increase at an annual rate of from one to two percent. The mismatch results in a rolling fiscal crisis, which can only be averted by controlling spending... A turn to sin taxes provides, at best, temporary relief. Worse, it allows spending growth to continue unabated, increasing the magnitude of the next shortfall and, therefore, the likelihood of larger general tax increases in the future.
The nonpartisan Senate Ways and Means Committee projects a $2.7 billion shortfall in the coming biennium. That includes about $1.4 billion in "backfill" spending to support Near General Fund accounts, several of which were launched with the promise that they would be self-sustaining from earmarked taxes - often "sin taxes," usually the cigarette tax. Remember Initiative 773. How'd that work out? In recent legislative sessions as well as in current policy forums, a number of folks urge us to emulate the Massachusetts health care reform. As far as fund paying for it goes, it looks like Massachusetts has decided to follow us. Bad idea.
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Monday, July 07, 2008
Good Budget Thoughts from the Bellingham Herald
Posted by Richard Davis on 7/7/2008 4:43:00 PM
This editorial in the Bellingham Herald gets the fiscal situation right. Aimed at local officials, the editorial provides good advice for all candidates for public office this year. They must make plans for how to deal with smaller budgets before the realities of the slower economy cause significant problems in the delivery of critical public services. At all levels of government, that means reducing spending, freezing hiring and delaying any project not essential to the basic functions of government.
And this. The biggest possible mistake elected representatives can make in the face of current economic woe is to look to taxpayers to somehow make up the difference. New or increased taxes are a drag on the economy.
Finally, the bottom line. It is now incumbent on our governments to spend more wisely, and frugally, than they have the past few years and to find a way to lead that doesnƒ?t make tough economic times even tougher. Responsible management in tough economic times separates good government leaders from bad.
Well said.
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Monday, July 07, 2008
Two Ballot Initiatives May Deepen Budget Hole
Posted by Richard Davis on 7/7/2008 11:11:00 AM
Credit to Chris Mulick of the Tri-Cities Herald for bringing to light the effects Initiatives 985 and 1029 could have on the state's $2.7 billion budget hole. Both initiatives apparently gathered the required number of signatures for the fall ballot. If both should pass, the budget problems worsen, with the deficit expected to exceed $3 billion. Here's how Mulick reports it. Preliminary estimates from the Department of Revenue indicate that professional initiative promoter Tim Eymanƒ?s traffic congestion measure ƒ? Initiative 985 ƒ?would cost the state about $290 million during the next two-year budget cycle and the rest of the current one. And the campaign for Initiative 1029, a home-care worker training measure backed by the powerful Service Employees International Union, believes its measure would cost at least $23 million during that time. That numberƒ?s based on a nonpartisan analysis of similar measures before the Legislature this year.
Tim Eyman was quick out of the blocks this morning with an email arguing that I-985 would be good for the state's economy. Nothing slows down our economy more than traffic congestion. Nothing would boost our economy more than reducing traffic congestion. State Auditor Brian Sonntag's performance audit report on transportation confirms that implementing his recommendations will result in a $3 billion boost to our state's economy.
I-985 will boost our state's economy both by the implementation of its policies and by illustrating the public's support for making reducing traffic congestion the top transportation priority.
Stopping short of claiming that their initiative will be a boon to the economy, SEIU argues that, well, it's about more than the money. From Mulick's story: Worries about its costs donƒ?t stand up to its benefits, campaign manager Jeff Parsons said. ƒ?How can we not afford to take care of our seniors?ƒ he asked. ƒ?They need to have the best care we as citizens of the state of Washington can afford to give them.ƒ
It's early days yet. And more analyses of the initiatives will be available before the election. It is safe to say, however, that it is about the money. (Cross-posted at Olympia Business Watch)
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Tuesday, June 24, 2008
Considering the State's Widening Budget Gap
Posted by Richard Davis on 6/24/2008 4:11:00 PM
A new WashACE Competitiveness Brief looks at what the June revenue forecast means for budget writers in 2009, if not earlier. The brief, prepared for WashACE by the Washington Research Council, replicates the Senate Ways and Means Committee outlook, updating it with the new revenue numbers. ...projected expenditures exceed current revenues by $2.7 billion in 2009ƒ?11 and $2.5 billion in 2011ƒ?13, indicating a structural deficit. As a result, the GFS shows negative balances of $2.6 billion at the end of FY 2011 and $5.5 billion at the end of FY 2013. The shortfalls might be offset somewhat by funds from the budget stabilization account. Under the current economic forecast, in FY 2009 employment growth will dip below the 1 percent threshold that triggers access to those funds [by a simple majority vote].
Construction activity, which played a large part in the revenue boom, comes in for special attention in the WashACE brief. The ERFC's models did not accurately forecast the recent boom in construction. Our fear is thatƒ?symmetricallyƒ?the models are failing to foresee a sharp decline that is in the works. With the troubles in the mortgage markets, residential construction activity is slowing and the number of new home permits issued is down sharply. Nonresidential construction remains strong, for the time being. But this largely reflects projects that have been in the pipeline for a long time. As the brief points out, there will be additional revenue forecasts before budget writers gather in Olympia, as well as updated caseload forecasts, which will alter the trajectory of proposed spending on social services, education, and health care. A slowing economy typically increases pressure on the state budget, so the good news there may be hard to find. Read the whole brief. And ask your legislators how they plan to close the gap.
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Thursday, June 19, 2008
State Revenue Forecast Down Again
Posted by Richard Davis on 6/19/2008 8:15:00 PM
Not a lot, really, but down. This morning, the forecast council released the June revenue forecast. Excluding legislation enacted in the 2008 session, the General Fund-State revenue forecast has been reduced by $166.8 million for the combined 2007- 09 and 2009-11 biennia.
Given the big numbers, the adjustment doesn't amount to much. The June 2008 forecast for the 2007-09 biennium is $29,402.4 million, which is $60.5 million lower than expected in the February forecast. Of the $60.5 million reduction, $11.0 million is due to legislation and $49.6 million is due to the weaker economic forecast. The forecast for the 2009-11 biennium is $31,754.5 million, which is $163.4 million lower than expected in the February forecast. Of the $163.4 million reduction, $46.1 million is due to legislation and $117.2 million is due to the weaker economic forecast.
Of course, an uptick of the same magnitude would have been a bigger deal, at least psychologically. Two concerns continue. First, a "no change" forecast does nothing to erase the pending shortfall. And, the forecast adopted today is $162 million more optimistic than the average view of the members of the Governor's Council of Economic Advisers, primarily because they take a more pessimistic view of when the housing market reaches bottom.
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Wednesday, June 18, 2008
Zarelli Calls for State Hiring Freeze as Economy Weakens
Posted by Richard Davis on 6/18/2008 4:23:00 PM
State Sen. Joe Zarelli, R-Ridgefield, has issued a new "Budget Tidbit," making the case for a state hiring freeze. He notes that since the February forecast ...Washington has lost jobs in the last three monthly reports,3 and recently the stateƒ?s forecast council revised downward our stateƒ?s economic and job growth projections for the next two fiscal years. Tomorrow brings the new quarterly state revenue forecast, potentially exacerbating the deficit projection.
I'm not sure about hiring freezes, but there's no question that Zarelli's recommendation conforms neatly with Denis Healy's First Law of Holes.
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Wednesday, June 18, 2008
Next State Revenue Forecast Tomorrow
Posted by Richard Davis on 6/18/2008 4:05:00 PM
Tomorrow, the state's economic and revenue forecast council releases its estimate of state tax collections for the general fund. The last forecast, in February, sliced more than $400 million from estimated collections. In the Herald, I suggest that the estimated $2.5 billion budget shortfall is likely to grow over the summer and fall, a consequence of stagnant revenues and the increased cost of maintaining state services. Read today's column here.
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Friday, June 06, 2008
Washington Economy Among Nation's Best, But Budget Problems Persist
Posted by Richard Davis on 6/6/2008 3:45:00 PM
The state's economy grew 4.3 percent in 2007. As Seattle P-I reporter Dan Richman reports, that's good, but it's been better. Washington's 2007 growth rate -- better than its 2006 growth rate of 3.5 percent, but down from 2005's 5.1 percent -- tied with that of the District of Columbia for the third-highest in the nation.
We'll have to grow a lot faster than that to overcome the projected $2.5 billion shortfall the nonpartisan Senate Ways and Means Committee identifies for the coming biennium. And lately, reports of budget crunches abound, with the state's largest county facing a $70 million shortfall. Rising gas prices are adding to the budget challenges facing state and local government. So the $7 a barrel jump in oil prices suggests that the projected shortfalls may be understated. And if that's not enough to cause concern, Rep. Dave Quall offers a Seattle Times op-ed calling for substantial increases in education spending. In the upcoming 2009 legislative session, we must update our definition of "basic education," figure out what it will cost (it will be an enormous number), and come up with a completely new funding system to make it happen.
A completely new funding system? However you slice it, that means either an increase in existing taxes or a new tax (income?). With a predicted multibillion dollar hole in the state budget and cash-strapped taxpayers dealing with increases in the cost of, well, everything (mortgages, rents, food, gas), where's that coming from? Businesses here also see the cost of everything increasing, including one of the nation's highest tax burdens. And, as Quall notes, it's not as if the state hasn't been stepping up education funding. More than 40 percent of our state budget goes to K-12 education. That's more than any other state program. In the past two years alone, legislators invested $1 billion additional dollars in K-12 education.
So, add "an enormous number" to $2.5 billion shortfall and you get a tax hike the likes of which we've never seen before. If that's what lawmakers are proposing, it's time to be clear about it.
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Wednesday, February 27, 2008
State Budget Poses Competitiveness Risk
Posted by Richard Davis on 2/27/2008 11:16:00 AM
The Washington Roundtable recently graded the state's fiscal management. The benchmarks: sustainability, competitiveness, contingency, and clarity. The review assessed historical performance, current situation , and the long-term outlook for the future. Although the Roundtable avoided letter grades, this is not a report card lawmakers would want to bring home to their voters.
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