With a stroke of her pen, Governor Gregoire today restored the $29 million raided by lawmakers from the State Auditor's dedicated performance audit account. We first raised the prospect of a veto on April 29 after legislators ignored State Auditor Sonntag's request to reduce the 73% reduction in available performance audit funds. On May 5, Sonntag formally requested a veto in this letter to the Governor.
Discussing her veto, the Governor said the State Auditor has agreed to keep $15 million of the fu!
nds in reserve to be transferred the next time the Legislature meets - this is the amount the Auditor had previously agreed to be reduced from the performance audit account.
At stake was whether or not the Auditor would be able to move forward with the comprehensive statewide performance review requested by the Governor while at the same time conducting robust performance audits of state and local governments to help identify opportunities for savings and reforms during this difficult economic time.
After the Governor issued her veto I asked the Auditor what this means for his performance audit work. This is what Sonntag told me: “We can now move ahead in our effort to help bring about real reform to state government programs, and at the same time honor our commitment to the citizens of the state who gave us performance audit responsibility.”
Illustrating the widespread public support for Sonntag's independent performance audit authority granted !
by the people in 2005, the state's newspaper editorial boa!
rds unanimously called on the Governor to veto the Legislature's raid of $29 million from the performance audit account. Here are those editorials:
After a very spirited discussion about the resolution pitting the lawmakers in attendance (Sen. Kline and Sen. Roach) against the other committee members, by a 4-3 vote the Sunshine Committee voted to table Chairman Carr's proposal (at his request) and move the final vote on this important issue to its July 15 meeting. Here is Carr's original resolution:
The Committee recommends that the legislature eliminate the Legislative exemption, which excludes from public scrutiny personal!
records of the legislature, including e-mails, correspondence, except when designated as a public record by a “official action of the Senate or House of Representatives.” Every other legislative body in the state of Washington is fully subject to the public records act. There is no principled reason why the state legislature should be exempt.
This is not the first delay. The issue of the Legislature's exemption from public disclosure was first presented for consideration back in October 2007. At that time the Four Corners of the Legislature (Democrat and Republican Leadership) asked the Sunshine Committee to delay action until the Supreme Court could rule on whether a Legislative privilege exists in the state Constitution. Here is one of the briefs filed in that case by the Washington Coalition for Open Government and American Legislative Exc!
The Court, however, did not rule on this issue leaving the law unclear. Then the Committee decided that no vote should occur until all four legislative members were present (Sen. Kline, Sen. Roach, Rep. Kessler, and Rep. Rodne). Unfortunately that prerequisite to date has not occurred.
Chairman Carr's proposal was then added to the March 18, 2009 meeting but since none of the legislative members were in attendance the vote was postponed until today's meeting. Although Carr hoped to have a vote today, the agenda failed to note that a vote was scheduled, so he felt it best to postpone action once again so the agenda could explicitly show a vote would occur.
One of the more interesting exchanges today about the legislative exemption focused on the!
state's and Seattle's budget shortfall. Committee member Ramsey Ramerman said that although Seattle's deficit is $43 million, the city council is being forced to discuss the options in public. Ramerman noted, however, that when it came to the state's $9 billion budget shortfall conversations about the options happened behind closed doors.
As for his proposed resolution, Carr is exactly right when he said today, "Open Government is not easy but it is best.”
Hopefully this principle will prevail when the Sunshine Committee finally holds this long overdue vote.
Initiative 960, The Taxpayer Protection Act, loomed large this session as some lawmakers proposed but ultimately failed to adopt any of their tax increase bills. Adopted by the voters in 2007, I-960 (among other things) re-affirmed state law requiring state tax increases be adopted with a two-thirds vote in the Legislature. This threshold proved too high a hurdle for proponents of tax increases to overcome. As a result at least one State Senator has already gone on the record signaling her intention to repeal the law.
TVW's Inside Olympia has the scoop in this video interview with Senator Jeanne Kohl-Welles (D-Seattle):
• Sec 124 (3): Creates a bounty for audit savings to restore performance audit funding – this is a violation of yellow-book standards and the intent of I-900 (budget also raids $29 million from dedicated performance audit account).
• Sec 128 (9): $40,000 for Spanish TV.
• Sec 128 (27): $300,000 is raided from the dedicated Auto Theft prevention account for CTED to “contract with a community group” for community building (organizing).
• Sec 134: $513,000 for Hispanic affairs commission.
• Sec 135: $487,000 for African American affairs commission.
• Sec 141: $3,622,000 (all funds) for Office of Minority and Women Business.
148: $209,323,000 (all funds) for Liquor Control Board. !
• Sec 152: $9,548,000 (all funds) for Public Employment Relations Commission.
• Sec 153: $4,465,000 (all funds) for Department of Archeology and Historic Preservation.
• Sec 155: $117,122,000 (all funds) for state trade and convention center.
• Sec 215: $6,915,000 (all funds) for Human Rights Commission.
• Sec 501: $50,000 for OSPI is “provided solely for developing and disseminating curriculum and other materials documenting women's role in World War II.”
• Sec 619: $6,736,000 (all funds) for state Arts Commiss!
• Sec 620: $5,228,000 for state Historical Society.
• Sec 621: $3,267,000 for Eastern Washington Historical Society.
Here are some other policy decisions from the budget worth keeping an eye on:
• Sec 303 (4): State parks commission “shall actively pursue transferring ownership of state parks to local governments, tribes, or other entities that have expressed an interest in operating the park.” (Report due on 12/1/09)
• Sec 307 (9): Fish and Wildlife “shall dispose of all fixed wing aircraft it currently owns . . . Disposal of the aircraft must occur no later than June 30, 2010.”
• Sec 308 (8): Natural Resources “shall dispose of the King Air aircraft it currently owns. Disposal of the aircraft must occur no later than June 30,!
• Sec 402 (3-4): “The stat!
e patrol shall implement a cost recovery method to fully recover costs for operating the two king air airplanes. Users of the plane, including the state patrol and the governor's office, shall be charged an appropriate amount to cover all operating and maintenance costs of the plane. The state patrol shall report on this method, the rates being charged, total operational expenses, and information regarding usage of the planes to the office of financial management and the appropriate committees of the legislature. The 2010 legislature will review the use of king air planes by the executive branch and the adequacy of funding in this budget regarding maintaining and operating the planes to successfully accomplish their mission.”
• Sec 605 (7): “By September 1, 2009, the state board for community and technical colleges, the higher education coordinating board, and the office of financial management shall review and to the extent necessa!
ry revise current 2009-11 performance measures and targets based on the level of state, tuition, and other resources appropriated or authorized in this act and in the omnibus 2009-11 omnibus capital budget act. The boards and the office of financial management shall additionally develop new performance targets for the 2011-13 and the 2013-15 biennia that will guide and measure the community and technical college system's contributions to achievement of the state's higher education master plan goals.”
• Sec 612 (1): “Within the funds appropriated in this section, the higher education coordinating board shall complete a system design planning project that defines how the current higher education delivery system can be shaped and expanded over the next ten years to best meet the needs of Washington citizens and businesses for high quality and accessible post-secondary education. The board shall propose policies and specific,!
fiscally feasible implementation recommendations to accomplish the goa!
ls established in the 2008 strategic master plan for higher education. The project shall specifically address the roles, missions, and instructional delivery systems both of the existing and of proposed new components of the higher education system; the extent to which specific academic programs should be expanded, consolidated, or discontinued and how that would be accomplished; the utilization of innovative instructional delivery systems and pedagogies to reach both traditional and nontraditional students; and opportunities to consolidate institutional administrative functions. The study recommendations shall also address the proposed location, role, mission, academic program, and governance of any recommended new campus, institution, or university center. During the planning process, the board shall inform and actively involve the chairs from the senate and house of representatives committees on higher education, or their designees. The board shall report the findings an!
d recommendations of this system design planning project to the governor and the appropriate committees of the legislature by December 1, 2009.”
• Sec 906: “The governor shall convene a work group consisting of representatives from the central service agencies and their clients to collaborate on methods for providing commonly needed services to state agencies, including, but not limited to: Human resource management, employee benefits, payroll, accounting, purchasing, information technology, real estate services, facility management, building and grounds maintenance, fleet management, printing services, and office mail distribution. The work group should consider the experience of other states and large organizations and should identify opportunities to improve service delivery and reduce costs, including, but not limited to: (1) Simplifying processes and gaining efficiencies; (2) Using a shared, common service model;(3) Centralizing se!
rvices or activities which may lead to consolidating or eliminating exi!
sting programs or state agencies; and (4) Revising agencies' authority or governance structures. The work group shall submit a proposal that improves the delivery of central services to state agencies, including changes to the current governance structure, organizational changes that improves and simplifies service delivery, and any statutory changes that may be necessary to the governor by October 1, 2009.”
• Sec 912: “As a management tool to reduce costs and make more effective use of resources, while improving employee productivity and morale, agencies may implement a voluntary retirement, separation, and/or downshifting incentive program that is cost neutral or results in cost savings over a two year period following the commencement of the program, provided that such a program is approved by the director of financial management . . . Agencies are required to submit a report by June 30, 2011, to the legislature and the office of!
financial management on the outcome of their approved incentive program. The report should include information on the details of the program including resulting service delivery changes, agency efficiencies, the cost of the incentive per participant, the total cost to the state, and the projected or actual net dollar savings over the 2009-11 biennium.”
Though the forecast for the state's Sunshine Committee was dark and stormy during the 2009 Legislative Session, it still exists and will meet on May 12. Charged with reviewing the hundreds of exemptions to the state's public records law, the Sunshine Committee was targeted for elimination under several bills considered this year. Up until the last day of session it was unclear if any of these bills would pass. Since none did the Sunshine Committee is now free to continue its important work.
Committee recommends that the legislature eliminate the Legislative
exemption, which excludes from public scrutiny personal records of the
legislature, including e-mails, correspondence, except when designated
as a public record by a “official action of the Senate or House of
Representatives.” Every other legislative body in the state of
Washington is fully subject to the public records act. There is no
principled reason why the state legislature should be exempt.
If adopted by the committee, this change would address the Legislature's double standard when it comes to compliance with the public records law.
Another proposal of note is a recommendation to sunset all exemptions to the public records act after two years unless the Legislature reauthorizes them. This resolution is being offered by committee member Patience Rogge:
Be it Resolved that it is the sense of this committee that all
exemptions to the Public Records Act and any statutory basis to
withhold information or records be eliminated after two years unless
specifically reauthorized by the Legislature with the exception of
those ten included in the original legislation; and that the
Legislature examine all of the eliminated exemptions individually, and
Further, that all future exemptions be limited to a term of two years
and be examined by the Legislature upon their expiration on a case by
case basis to determine if they merit reauthorization or should be
eliminated or revised.
The State Auditor's Office sent Governor Gregoire a letter yesterday
formally requesting that she veto changes in the budget to the
performance audit program. Here is the Auditor's letter in full:
Dear Governor Gregoire:
I am writing to respectfully request your veto of Section 124 (3) of the state operating budget and to encourage you to work with state lawmakers to restore at least $14 million of the $29 million in performance audit funding being taken from the State Auditor's budget over the next two years.
As passed, Section 124 (3) of this budget violates government auditing standards, as explained in the attached letters. This section should be vetoed for that reason alone. Additionally, enacting this budget into law could have far-reaching consequences, such as affecting this state's ability to properly account for billions of dollars in American Recovery and Reinvestment Act money that wil!
l be so important in getting the state's families and economy back on their feet. Comprehensive oversight of these dollars is absolutely critical.
Section 124 (3) also sets up a perverse relationship between our Office and state agencies. Tying our performance audit dollars to actual cost-savings by agencies deeply compromises agencies' perception of our objectivity and independence. Regarding funding for performance audits, I wish to re-emphasize that taking away nearly three-quarters of our budget for that work decimates a program Washington citizens made very clear they wanted when they approved Initiative 900.
The size of the reduction also impedes efforts we agreed to undertake on a statewide performance review that we hope will be another step in bringing about true, meaningful reform of state government. With your advocacy and support, we have been putting together a plan for this review !
and we remain committed to producing recommendations to s!
ave money, to streamline operations and to eliminate duplication and outdated programs.
The $15 million we agreed to have the Legislature sweep from our current performance audit fund balance would have reduced that budget by about 50 percent, but it was similar to fund balance sweeps at other agencies, As passed by the Legislature, the budget reflected a 73 percent cut ($29 million) in our performance audit funds.
We also are disappointed at the Legislature's failure to recognize that our 15 completed audits identified nearly $500 million in cost savings and unnecessary spending for state government alone. Considering the cost to conduct those audits, we have achieved a 10-to-1 return on investment.
We remain committed to helping you provide oversight over the stimulus funding and set state government on a leaner, more effective path for the future and again, request a veto of Section 124 and!
restoration of at least $14 million to our performance audit funding.
BRIAN SONNTAG STATE AUDITOR
Included as attachments were the following letters explaining how the performance audit proviso violates auditing standards:
Despite the State Auditor’s willingness to share in the budget pain, lawmakers went a step further and raided $29 million from the dedicated performance audit account (a 74% reduction in available funds). This is the account voters created in 2005 when 57% approved independent performance audit authority for the State Auditor. This will leave approximately $10 million in the performance audit account. By contrast, the State Auditor spent $16 million from this account during the current biennium.
The raiding of the performance audit program brought the following rebuke from the State Auditor who sent this letter on April 24 to House Speaker Frank Chopp (in-part):
“The section that sweeps away most of our performance audit funding is ridiculous and offensive both to us and to citizens. The cuts are unacceptab!
le and will severely undercut our ability to do independent performance audits . . . I am deeply disappointed in the way the budget process has worked this year. The lack of clear, on-going communication with your members regarding our budget has led to confusion and, now, this unacceptable budget proposal.”
This wasn’t the first time the State Auditor expressed outrage at the legislative attacks on performance audit funding.
On March 31, the Auditor testified before the Senate Ways and Means Committee saying (in-part):
“It is unacceptable to me. It is unacceptable to citizens who in such a time as this look to us more than ever to ensure that government is accountable and transparent. They recognize this Office is uniquely positioned to be part of the refor!
m the governance change that everybody talks about and wants.&!
What particularly disappoints me is that the effects of this budget come at a time when our Office is looked upon to be part of the solution. Every discussion we’ve had with legislative leadership and the Governor centered on how we can help bring about meaningful, cost-saving government reform.
We’ve already got several performance audits underway with the intent to identify immediate cost savings as well as long-term efficiencies.
We also have launched a statewide performance review, which we were called upon to do by the Governor. It will focus exclusively on state government, its governance structure and back-office functions such as information technology and leasing office space. Many in the Legislature recognize its potential.
Just like successful performance reviews in other states and nationally, we’re going into it with the full intention of finding and recommending significant !
spending reductions and proposed ways to reshape and recreate what state government does and how state government does it.”
Ultimately the State Auditor’s pleas fell on deaf legislative ears. But there is still one more chance for performance audits and their potential to help the state down the path of government reform -- the Governor’s veto pen should she choose to wield it to restore the performance audit funding.
Here is the full email the Governor sent state employees yesterday (emphasis added):
Dear Fellow State Employee:
As you know, we just finished perhaps the toughest legislative session since the Great Depression. There may be a special session to complete a handful of items, but the truly heavy lifting is done including passage of the operating budget.
I know the last months have been hard for you and your families too. There is uncertainty about the future of programs to which you have dedicated your working life, as well as uncertainty about your own future.
Although overall budget uncertainty has ended, there is still a lot of hard work ahead as our agencies absorb and manage their way through budget cuts to balance a $9 billion shortfall. It is up to us to make this budget work as best we can!
All of us, as a team, must carry out the work ahead with g!
reat sensitivity and care. I know this is not just a budget document. It’s about all of you, the families who depend on you, and the citizens we all came to serve.
In the weeks, months and years ahead, all Washingtonians will feel the impacts of the hard decisions the Legislature made – and we are now required to make along with nearly every other state – after the mortgage and financial markets set off the Great Recession we find ourselves in.
You are the men and women who will connect with Washingtonians at very important and personal levels – explaining, helping us set priorities, and serving wisely and compassionately.
This will be hard work, and your skills will be sorely tested. For example, programs and services may need to be adjusted to accommodate significant reductions in “administrative” spending of about $255 million, which means fewer people to deliver services.
budget calls for difficult personal adjustments. For i!
nstance, we may be asking employees to take unpaid furloughs to save jobs and money. The funding for our health-care benefits is not sufficient to cover health-care inflation, so we may pay higher co-pays.
Amid these difficult changes, I ask that we continue – and strengthen – the partnership we forged last year when you helped me implement vital budget reductions to better position ourselves for the challenges to come. Imagine the budget we would have if we had failed to take early action to save money.
I continue to need your skill and creativity to reform and improve how we serve our citizens. Reform of state government is not only the right thing to do – it’s now absolutely necessary. We are going to have to reinvent what we do and how we do it, and you have the ideas that can work.
I want and need your ideas. You are the people on the ground, and I can’t do this without you. !
Please respond to this e-mail, as you did last summer and fall, to share your input.
I’ll close with optimism.
I sense a change in this country that bodes well for us and for society as a whole. After years of pursuing other, more financially “lucrative” careers, more college graduates are showing renewed interest in public service. There is a new generation that wants to serve as much as we do. There is a new respect building for the work we do – which is to serve the greater good. What we do does matter. What we do builds the future.
So let’s renew the commitments that brought us to state service in the first place – to serve for the good of our communities. I’m counting on you, and so are the people of this great state.
Thank you, Chris
Meanwhile the Washington Federation of State Employees put out this summary for its members an!
d noted: ". . . your ongoing step increases remain. The Senate on Saturday night defeated an amendment proposed by Sen. Joseph Zarelli that would have blocked step increases. So if you're eligible for step increases, you will continue to get them."
Step increases are pay raises for individuals that move up the state salary grid; these are different than across the board pay raises.
The Office of Financial Management just issued the I-960 tax and fee impact statement for the version of the budget that passed the Senate Ways and Means Committee.
2009-11 impact: Minimum of $270 million in tax and fee increases.
Not included are some higher education fees: "All other fees imposed by institutions of higher education are as of now indeterminate. SSB 5600 gives authority to institutions of higher education to set other fees, but any fee increases have yet to be determined and approved by governing boards of public baccalaureate institutions."
I'm reading through the just released state budget compromise and one clear loser is the State Auditor. It appears lawmakers didn't take too kindly to his complaint about their raids on the dedicated performance audit funding authorized by voters.
Consider Section 805: It raids $29 million of the performance audit funds. The original House budget took $12 million; The original Senate budget $15 million. Looks like the compromise response to the Auditor's complaints was to combine the money raided.
Unfortunately for the State Auditor the hits in this budget just keep coming.
Section 124 (3) appears to set up a bounty for audit savings. I.E. - Auditor can have some of the money back for any savings implemented as a result of performance audits: "It is the intent of the legislature to reduce the 2009-11 legislative transfers from the performance audits of government accounts to recognize actual reductions achieved in expenditures from the state treasury as a result of these performance audits."
Section 927 (2) limits number of audits the State Auditor can do of local governments: ". . . the state auditor shall conduct audits no more often than once every two years of local governments with annual general fund revenues of ten million dollars or less and no findings of impropriety for the three-year period immediately preceding the audit period."
Section 928 reduces the amount the State Auditor can charge local governments for their audits: ". . . the state auditor shall reduce the municipal revolving account charges for financial audits performed on local governments by five percent."
I wonder if the State Auditor is now considering changing the "incomplete grade" he gave lawmakers in this TVW interview yesterday to "failing."
UPDATED: The State Auditor just sent over this letter to House Speaker Chopp expressing his disappointment with the proposed budget.
Also, according to legislative sources the raids on the I-900 funds aren't doubled by the proposed budget - the $29 million taken from the performance audit account is the same as in earlier budget versions but is occurring in a different way.
Either way the State Auditor is very unhappy with the budget proposal as evidenced by his letter.
The talk about how adopting an income tax is the answer to the state's budget woes must be news to states like California that already have high income taxes and large budget deficits.
Despite this fact you can bet that you'll hear that argument made at the hearing later this week to enact a state income tax.
I wonder what the income tax advocates think about this news coming out of Missouri. According to the Tax Foundation:
Missouri lawmakers are considering a drastic change to their tax system. A bill recently passed by the state’s House of Representatives would allow residents to vote on a Constitutional amendment that would eliminate corporate and individual income taxes in the state and replace them with a broad based sale!
s tax. The plan is essentially a state version of the national FairTax proposal popular with some grassroots groups that would replace the federal income tax with a national sales tax. If the Senate passes the bill Missouri residents would be voting on the amendment in November of 2010.
Missouri currently has a sales tax, a corporate income tax, and a personal income tax. The sales tax rate is 4.225%, and the top corporate and personal tax rates are 6.25% and 6%, respectively. The plan put forth would replace all those taxes with a single sales tax levied at a rate of 5.11%. Accompanying the sales tax rate hike would be a substantially broadened sales tax base that would include all purchases. Currently most services are tax exempt and certain goods, most notably groceries, are taxed at a reduced rate of 1.225%. These exemptions would not exist under the new tax structure.
The overhaul of the tax system is meant to be revenue neutral. In other words, t!
he revenue from the sales tax increase and broadening of the t!
ax base is meant to exactly offset the elimination of income taxes.
Regardless of how you slice up a state's taxes, there is no such thing as a recession proof tax structure. For budget peace of mind states need to use a “three-legged stool” of sound budgeting:
Meaningful spending limit;
Protected 10% reserve account (so you don’t have to resort to tax increases or deep spending cuts in the bad times); and
Limiting base expenditures to core functions within the revenue forecast when in the good times.
The Department of Revenue will have to dedicate 44 full-time equivalent employees to implement the policies.
General Fund B&O tax receipts will be REDUCED by $3 million and the Performance Audit account will be REDUCED by $67,000 due to reduced sales.
"The decrease in the Business and Occupation Tax, Performance Audit Account and Local Government Revenues is due to reduction in taxable sales due to the higher tax rate (elasticity). Elasticities were calculated based on Department of Revenue data."
"As a result of elasticity this bill will decrease local government revenues by $12.4 million in the 2010-2011 Biennium and $15.4 million in the 2012-2013 Biennium. In addition there may be negative impacts to local lodging taxes if their combined state and local tax rates will be above their statutory limits."
"The Department assumes, based on IRS information that approximately 370,000 persons in Washington who file for the Earned Income Tax Credit (EITC) will apply for a rebate under this legislation in Fiscal Year 2010."
"After consultation with the Department of Social and Health Services, the Department assumes that a high proportion of claimants will not have English as their primary language. This requires additional advertising outreach, forms translation, and additional language scripts for the automated phone application system to work most efficiently."
"Review of IRS information indicates that there is a higher than average error rate for EITC claims. This higher error rate will require added collection effort for claims paid in error. The Department has assumed that denied claims can be settled with minimal formal appeals. Should experience show otherwise, additional FTEs may be added in later fiscal years to handle the appeals caseload."
"It is estimated that costs of approximately $1,515,000 may be incurred in Fiscal Year 2012 as the Department continues to respond to taxpayers questions and submission of applications. No costs have been included in the fiscal note to administer the Working Families' Tax Rebate after Fiscal Year 2011. Current law requires specific legislative appropriations in each biennial budget for the program to continue beyond the 2009-2011 biennium."
Compare and contrast the following quotes about the health care priorities of the proposed House budget. Both quotes are from the same lawmaker.
The first is from the March 31 House budget release press conference:
“I really am very proud that the decisions that we made as difficult as they were, were definitely responsible cuts and also again allowed us a body to rise to the occasion to make those difficult decisions.”
The second quote is from the April 17 hearing on a proposed sales tax increase and what might happen if voters don't approve the tax increase to supplement the proposed House budget:
“Make no doubt about it, people will die . . . If this is not in the voters' interest to pass this (tax) piece, people will die."
As for the proposed tax increase, according to these economists raising taxes during a recession will damage Washington’s economy and hamper economic recovery.
Jason Mercier is Director of the Center for Government Reform at Washington Policy Center. He is a contributing editor of the Heartland Institute’s Budget & Tax News, serves on the board of the Washington Coalition for Open Government, and was an advisor to the 2002 Washington State Tax Structure Committee. In June 2010, former Governor Gregoire appointed Jason as WPC’s representative on her Fiscal Responsibility and Reform Panel. Jason holds a Bachelor’s degree in Political Science from Washington State University.