Jmercier

States face at least $405 billion unfunded liability for retiree health benefits

December 29, 2009 in Blog

While states attempt to deal with their short term budget problems, elected officials must not lose sight of the long term obligations being placed on taxpayers. Highlighting this fact is this report from the U.S. Government Accountability Office (GAO) on state and local government retirement health benefits (OPEB - Other Post Employment Benefits):

"We found that the total reported unfunded liabilities for OPEB (which are primarily retiree health benefits) for state and select local governments exceed $530 billion. The $530 billion includes about $405 billion for states and about $129 billion for the 39 local governments we reviewed. We reported in 2008 that various studies available at that time estimated the total unfunded OPEB liability for the states and all local governments to be between $600 billion and $1.6 trillion, although the studies!
’ estimates were based on limited government data. It is not surprising that our total is on the low end of that range because we did not review data for all local governments, though we did review reported liability data for the largest local governments and all 50 states. Five-hundred and thirty billion dollars is still a large unfunded liability for governments. As variation between studies’ totals shows, totaling unfunded OPEB liabilities across states and local governments can be challenging."

To address this problem GAO noted:

"Some state and local governments have taken actions to address their liabilities associated with retiree health benefits by setting aside assets in order to prefund the liabilities and reducing these liabilities by changing the structure of retiree health benefits . . .

Another action some state and local governments have taken to address their retiree!
health liabilities has been to change the structure of the he!
alth benefits they offer retirees. While governments also make relatively routine changes to the health benefits they offer retirees (such as changing co-payments, deductibles, or covered benefits) that could affect their liability, we identified three key types of changes our selected governments have made to the structure of retiree health benefits: changing the type of retiree health benefit plan, changing the level of the government’s contribution toward retirees’ health insurance premiums, and changing the eligibility requirements employees need to meet to qualify for retiree health benefits."

According to the Office of State Actuary, Washington's unfunded OPEB liability as of 2008 was $7.9 billion (including K-12 and political subdivisions). OPEB benefits are separate from and provided in addition to pensions.

Can stimulus strings be cut?

December 29, 2009 in Blog

Faced with closing a projected $2.6 billion budget deficit, lawmakers have been told that 70% of their budget options are off limits meaning reductions need to occur in only 30% of spending. Here is how Governor Gregoire describes this dilemma:

"Parts of our state’s budget, including basic education, debt service and pensions, are considered ‘protected’ because of constitutional mandates require these cost be paid. Other parts are considered protected, too, due to requirements imposed by the federal government when the state accepted funds under the American Recovery and Reinvestment Act, primarily in Medicaid and higher education."

A recent federal audit conducted by the Government Accountability Office (GAO), however, noted that states may seek a waiver from the "stimulus strings" for Education State!
Fiscal Stabilization Funds.

According to GAO:

"If states fail to meet the maintenance of effort requirements for K-12 education or IHEs [institutions of higher education], Education’s guidance directed states to certify that they will meet requirements for receiving a waiver—that is, that total state revenues used to support education would not decrease relative to total state revenues. Because the measure used to determine eligibility for a waiver from maintenance of effort requirements—state revenues used to support education—can be defined differently from the maintenance of effort measure—state support for education—states may have to track both measures to make sure they can meet their assurances. States that need a waiver are directed to submit a separate waiver application to Education . . .

Education official!
s told us that four states—Florida, New Jersey, Rhode Island!
, and South Carolina—have requested maintenance of effort waivers for fiscal year 2009. Florida has requested Education waive maintenance of effort requirements for elementary and secondary education, and New Jersey has requested Education waive maintenance of effort requirements for public IHEs. Education officials told us states will get final waiver approval in the form of a written letter of approval after the states submit final maintenance of effort amounts to Education. Education officials also told us they will work closely with states on a case–by-case basis to ensure that the information submitted complies with the waiver criteria under the Recovery Act."

The U.S. Department of Education has provided states with this waiver worksheet:

Waiver

While most of the stimulus funds are off limits, it appears states can cut the stimulus strings for federal education funds by seeking a waiver.

I have an inquiry in to the Office of Financial Management to see if Washington plans to request a waiver. I'll post an update once I hear back.

State Auditor releases update on performance audit recommendations

December 22, 2009 in Blog

State Auditor Brian Sonntag this morning issued a report highlighting the status of performance audit recommendations made to date. According to the report:

"From February 2007 through June 30, 2009, performance audits identified nearly $3.6 billion in cost savings, unnecessary expenditures and economic benefits.

Some recommendations have a financial impact, such as past costs that were questionable or avoidable, those with future cost savings and recommendations with future revenue opportunities. The figure below is focused on recommendations with future revenue opportunities or future cost savings that can be realized when the recommendations are implemented.

We made 214 recommendations with future cost savings or revenue opportunities; 67 percent of those recommendations have been fully or part!
ially implemented or are in progress, as shown below.

Most state agencies do not track the cost of their products and services or any realized cost savings from performance audits. They are, however, encouraged to track the cost of participating in performance audits.

We followed up with the following governments to obtain their estimates of the net cost savings they were able to achieve by implementing our recommendations."

Audit
Click this link to see the full report.

State Auditor: "Opportunities for Washington"

December 17, 2009 in Blog

The State Auditor's Office this morning released a report titled "Opportunities for Washington." In a letter to citizens State Auditor Brian Sonntag wrote (in-part):

I am pleased to present to you "Opportunities for Washington," our performance review of state government operations. For such a time as this, state government has an opportunity and a need to significantly change how it does business. As Governor Gregoire and the Legislature deal with the state's difficult financial challenges, this review reflects our first such effort to help.

It contains ideas and recommendations to save money, to streamline government programs and functions and to provide better service to citizens. The review also identifies areas in which we can direct performance audits in the near future. Thos!
e audits are intended to identify actionable efficiencies.

Here are some of the report's conclusions:

  • Washington likely could increase revenue by several million dollars and bring unregistered businesses into the state tax system by conducting an amnesty program to collect delinquent debts.
  • The state could increase its collection of delinquent debts by more than $5 million in the first year by participating in a U.S. Treasury program in which government vendor payments are garnished to satisfy overdue tax obligations before the payments are made.
  • The Department of Social and Health Services could increase the amount of Medicaid pharmacy overpayments it recovers by expanding its small but effective audit program that consistently recovers more funds than it spends for audits.
  • State agencies could reduce printing costs and improve service by changing the Department of Printing business model to better respond to agency needs and to reflect 21st century advances in technology.
  • Washington could increase revenue from liquor sales and distribution by up to $350 million over five years beginning in fiscal year 2012 if it sold the state distribution center and auctioned licenses to sell liquor to private-sector businesses.

The report also makes several recommendations to improve and streamline the delivery of state Information Technology (IT) and lease management services.

Throughout the report, however, is this warning:

Many of the state employees whose jobs would be affected by the adoption of these options are represented by unions and covered by existing collective bargaining agreements. Management would be required to fulfill any bargaining obligations or contractual requirements if any of the options were adopted. The extent of the bargaining obligation would depend on the provisions of the option adopted. Also, the competitive contracting provisions of state law (RCW 41.06.142) could apply to any option under which the agency contracted out work that had been performed by state employees.

As we highlighted last week, the state's competitive contracting law must be simplified to facilitate many of the reforms necessary to streamline delivery of state services.

The State Auditor's Office asked these questions in developing the recommendations (questions that should guide future performance audits):

  • Is the program or service a core function of government? If not, could it be scaled back, made more efficient or eliminated?
  • Could costs be reduced or state revenue increased?
  • Could program effectiveness be improved?
  • Has the idea produced positive results elsewhere?
  • Are there opportunities to consolidate or streamline programs?
  • Could some programs be transferred to the private sector?
  • Would the reform benefit the broad public interest rather than narrow special interests?

Agencies were also asked to answer these questions:

  • How does the agency use performance data to support decision-making?
  • Are there gaps in service within agency programs or unnecessary overlaps with programs in other agencies?
  • Are opportunities being identified to transfer programs or services to the private sector or to use private-sector techniques to improve efficiency?
  • How are discretionary cost-saving opportunities identified?
  • How is technology being used to streamline agency operations, improve customer service or produce other benefits?
  • How frequently does the agency update its information technology security systems?
  • How does the agency manage its administrative functions?
  • How are best practices identified and put into practice?

Here is a link to the full report "Opportunities for Washington." 

Newspapers comment on Governor’s budget proposal

December 14, 2009 in Blog

Reactions to Governor Gregoire's proposed supplemental budget have been decidedly mixed. Beneficiaries of the programs identified for elimination have warned taxes should be raised instead of making the cuts. The majority of the state's newspaper editorial boards, however, warn that tax increases should be the last resort and state spending must be reformed first.

Here are the editorials to date:

Pointing to one of the spending reforms needed, these editorials reference our competitive contracting study:

Governor's budget proposal results in $2.8 billion deficit for 2011-13

December 9, 2009 in Blog

Governor Gregoire today released her proposal to close a projected $2.6 billion deficit in the current budget. While she is to be commended for starting the conversation on the type of changes needed to reset state spending, she failed to identify the changes necessary for a truly balanced and sustainable budget.

The Governor acknowledged that the state is facing at a minimum a three-year problem. In fact, assuming her budget is adopted, a $2.8 billion deficit is projected for the 2011-13 biennium. Here is the 4 year budget outlook provided by the Office of Financial Management.

It is important to remember that prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate. Last session the legislature made a small step toward correcting this past unsust!
ainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.

By continuing to focus on the short-term problem, the Governor missed an opportunity to start the debate on the full budget problem. This may have consequences on the state's credit rating. According to Moody's October 9 report on Washington's credit outlook, the following could result in a reduction to the state's credit rating:

  • Protracted structural budget imbalance.
  • Increased reliance on one-time budget solutions.
  • Failure to adopt plan to cover expenditures once federal fiscal stimulus monies are no longer available.

The Governor's proposal fails each of these tests.

Though making hard choices and proposing real spending reductions, the Governor still plans to issue a tax increase proposal prior to session and has not ruled out a sales tax increase. She was very clear that she wants the legislature to raise any taxes and not put them out for voter approval.

Including the need to replace the billions in one-time federal stimulus funds, tax increases would need to be in the billions, devastating any prospect for the state’s economic recovery and costing the state tens of thousands of jobs.

As noted by these economists, we will not be able to tax our way out of the “great recession.” Instead state spending expectations must be reset to the new economic reality.

The Governor has started the discussion about the reductions needed but the budget&!
#39;s long term sustainability must be addressed, not just the current deficit.

Bill introduced to end state liquor monopoly

December 8, 2009 in Blog

Senators Tim Sheldon (D-35) and Curtis King (R-14) have introduced a bill to end the state's archaic liquor monopoly. From SB 6204 - Privatizing the sale of liquor:

"(1) The legislature intends for privatization of retail and distribution of liquor to result in a system that is more efficient than public sector retail and distribution. The legislature finds that the present system of state control includes a markup amount at distribution that generates revenue for the state and local governments, and that this markup will be eliminated when liquor sales and distribution are privatized. The legislature further intends that the privatization of liquor sales and distribution not result in revenue losses to state or local governments as compared to projected revenues assumed under state control, not including any sep!
arate licenses or franchises.

(2) Therefore, the legislature directs the liquor control board and the department of revenue, with assistance from legislative staff and the office of financial management, to present a report to the legislature no later than December 1, 2010, on a recommended method and rates of liquor taxation that would generate the same future projected revenue for the state and local jurisdictions as under the current state control system. The report may also include recommendations on tax enforcement and simplification to the current system of liquor taxation and distribution of revenues." (Sec 101)

"By July 1, 2012, the board must close all state liquor stores and state liquor distribution facilities, and must sell at auction all assets pertaining to the state sale and distribution of liquor. Funds received from these auctions shall be deposited in the state general fund." (Sec 215)

Though this reform h!
as been a perennial discussion each session, the current budge!
t climate may give it added relevance and opportunity for success.

Budget prologue

December 8, 2009 in Blog

Governor Gregoire will release her proposed fix to the state's $2.6 billion budget deficit tomorrow at 9 a.m. As required by law, it should be balanced within existing revenue though the Governor has clearly stated she plans to release a tax increase proposal prior to session. The Everett Herald has posted a list prepared by the Department of Revenue of potential tax increases (click here for list).

While everyone will be focusing on the short term $2.6 billion problem for the current budget, solutions debated this coming session must address the long term structural problem and what to do about replacing the billions in one-time fixes being used (such as the federal stimulus funds). If only the current deficit is addressed, elected officials will have this debate to look forward to again in 2011.

For those tuning in tomorrow to watch the Governor's press confere!
nce, keep these points in mind:

  • Prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate.
  • Last session the legislature made a small step toward correcting this past unsustainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.
  • Assuming the Governor used the Priorities of Government (POG) budget process, her proposal reflects what she believes to be the highest priorities that can be purchased with existing revenue meaning by definition that spending identified for reductions was determined to be the lowest priority. As noted by Gregoire, POG "looks at the most essential services provided by state agencies, and asks the question 'What do taxpayers want for their tax dollars?' It isn’t business as usual, but business driven by proven results."
  • Including the need to replace the billions in one-time federal stimulus funds, tax increases necessary to continue the current level of spending would need to be in the billions, devastating any prospect for the state’s economic recovery.
  • As noted by these economists, we will not be able to tax our way out of the “great recession,” instead state spending expectations must be reset to the new economic reality.

Though perhaps the greatest challenge our current elected officials have faced, a real balanced budget can be achieved. Here are WPC budget principles: 

  1. Budgets should fund only core functions of government;
  2. be truly balanced long term; and
  3. not result in a projected deficit in the next budget – i.e. the level of state spending should be sustainable within existing revenue.

Here are the types of questions that should be asked by elected officials before any activity receives taxpayer money:

  • Is the activity a core function of government or commercial in nature?
  • If it is a core function, can the service be provided more efficiently and effectively through competitive contracting?
  • Does it provide a broad public benefit or only serve a special interest?
  • Does it duplicate the activities of non-profits or other private initiatives?
  • Does it duplicate the efforts of other state agencies or programs?
  • Does the activity demonstrate quantifiable performance?

Tomorrow will set the next chapter of the budget debate. Let's hope it is titled "A new way" versus "Tax and spending to the next deficit."

Reform state's competitive contracting law to realize budget savings

December 7, 2009 in Blog

With the current budget crisis, lawmakers and the governor should take full advantage of every opportunity to promote the efficient delivery of routine state services, so tax money can be freed up to fund high-priority core functions of government. State elected leaders should fix weaknesses in the competitive contracting law, and direct agency managers to use competition to reduce the cost of operating state programs.

Specifically, state leaders should simplify the operation of the 2002 competitive contracting law and, like other states, create a Government Competition Council to assist managers in identifying public services that could be improved through competitive contracting. 

Before 2002, state agencies were barred by law from competitively bidding any public services that had traditionally been provided by state employees. The ban stemmed from a court ruling in the 1978 Spokane Community College case which blocked administrators from hiring a pr!
ivate company to clean newly-constructed school buildings and using the savings to augment the college’s education programs.

Union leaders sought to have the legislature make the ruling binding on all state agencies, colleges and universities. The legislature soon codified the Spokane decision, establishing a state-wide rule that any work historically performed by state workers always had to always be performed by state workers.

The ban on contracting out public services remained in place until 2002, when the legislature passed the Personnel System Reform Act. The new law provided that, beginning in July 2005, agency managers could seek competitive bids to lower the cost of delivering services to the public. Unfortunately, this reform has been seldom used.

A 2007 performance audit conducted by the Joint Legislative Audit and Review Committee (JLARC) found that:

“…few agencies have competitively c!
ontracted for services in the 16 months since receiving author!
ization to do so.  Agency managers reported two main reasons for not competitively contracting.  First, managers perceive the process itself to be complicated and confusing, providing a disincentive to pursue competitive contracting.

Second, competitive contracting is a subject of collective bargaining, which creates additional challenges by requiring labor negotiations.  Managers must bargain, at a minimum, the impacts of competitive contracting.  Additionally, some agency collective bargaining agreements include provisions which prohibit agencies from competitively contracting.”

In a 2009 update of the JLARC audit, I asked the state Office of Financial Management’s contract division how many personal service contracts have been requested or approved by agencies under the “Civil Service Competition” provision of the 2002 law. The answer was zero.

I then conducted a direct survey of twenty stat!
e agencies to determine whether and to what extent managers were using their competitive bidding authority under the 2002 law. Of all the agencies surveyed, only the Health Care Authority reported it had used competitive contracting under the 2002 law. Typical of agency responses was this answer from Washington State University:

“I have been advised that WSU has not executed any contracts under this 2002 Civil Service Reform/RCW 41.06.142 process. It’s apparently a complicated process and the administrative decision was made early on that WSU would not participate or take any action that would implicate this process (i.e., contract for purchased services that would displace classified staff).”

The primary flaw of the 2002 Civil Service reform was subjecting an agency’s ability to competitively bid services to collective bargaining. This impediment to competitive contracting must be removed for the!
goals of the 2002 law to be realized. Along with removing the current !
administrative and collective bargaining hurdles to competitive contracting, the state should provide agencies assistance in identifying services that could benefit from competitive contracting.

WPC will be publishing additional details on this issue and the needed reforms later this week.

Governor releases budget video

November 25, 2009 in Blog

Governor Gregoire will be releasing her recommendations to close the state's projected $2.6 billion budget deficit the week of December 7. Giving some insight into her thought process, the Governor and the Director of the state's budget office (Victor Moore) have teamed up to create a short video about the budget situation. Here is a link to that video (Hat tip Niki Reading of TVW).

While no new ground was broken in the video, it is disappointing that two words were never mentioned: Government Reform.

This is in contrast to the Governor's message last session that government must change the!
way it operates versus trying to find new revenues to continue the status quo. Here is what the Governor said in her state of the state address this past January:

“.
. . one thing we have to do together is reform state government to
bring it into the 21st century, and soon. At very basic levels,
businesses are struggling to reform, to change the way they do business
because they simply must to survive. And our business leaders tell me
that American companies, large and small, will emerge from this
recession forever changed.

We have to do the same. And that’s government reform.

This is our chance to reform state government to make it a more nimble and relevant partner in a new state economy.

Ladies and gentlemen, we need to reboot!

Over
the decades, state government has evolved — layer upon layer upon
layer. But too much of what served the people well in 1940 or 1960 or
1990 does not serve the people well in the 21st century. We need to
make sure we have a government for the 21st century so our workers and
businesses can compete with anyone in the world."

While the failure to mention the need for reforms in the budget video may have been unintentional, the solution to the state's structural budget problem has not changed. We need "to reform state government to make it a more nimble and relevant partner in a new state economy."

Harvard economists: Cut taxes to increase growth

November 24, 2009 in Blog

While elected officials at the state and federal level debate the need for tax increases and "fiscal stimulus spending," a recent economic study suggests instead taxes and spending should be cut to spur economic growth and reduce deficits.

Here is the abstract from an October 2009 study by Harvard economists Alberto Alesina and Silvia Ardagna (Large changes in fiscal policy: taxes versus spending):

"We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to!
reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis."

The study concludes (in-part):

"As we argued in the introduction it is unlikely that these deficits and debt will disappear simply because growth will resume at very rapid pace very soon. Primary suppresses would be needed since interest rates cannot go other than up from the close to zero actual levels. The analysis of the present paper suggests that primary spending needs to be kept under tight control otherwise increasing taxes running after ever increasing spending will not work."

Speaking of economists and the current budget debate in Olympia, earlier this year more than 30 economists warne!
d state officials

that raising taxes "during a recessionary period is contrary to
responsible economic policy and instead will thwart the state’s
economic recovery."

Executive branch needs unified voice on education priorities

November 20, 2009 in Blog

With Washington already behind the eight ball in the quest for the federal "race to the top funds," the last thing we need is for the state's executive branch to be sending conflicting signals about our commitment to accountability. Unfortunately that is exactly what is happening.

Yesterday State Superintendent of Public Instruction Randy Dorn announced his plan to delay the state's math and science graduation requirements. According to his press release:

Citing major concerns with the passing rates on the high school math and science exams, State Superintendent Randy Dorn has proposed significant changes to th!
e math and science graduation requirements. Dorn unveiled his proposal today at the annual conference of the Washington State School Directors Association.

Dorn said students and schools will need more time with new math and science learning standards that are now being implemented around the state. The new standards won’t be assessed until 2011 for math and 2012 for science. That doesn’t provide ample opportunity for the class of 2013, current ninth graders and the first class required to pass four state exams, to learn the standards, or teachers and schools to align curriculum and materials to them, he added.

“It doesn’t take a mathematician to see that we have a big problem in our state. Less than 50 percent of our 10th graders are passing the math and science exams,” said Dorn, who noted 10th graders’ passing rate on the reading and writing exams is more than 80 percent. “We need to be fair to our students and give them time to learn!
the new standards. It’s simply a matter of doing what’s r!
ight.”

This retreat from the state's graduation standards drew a strong rebuke from Governor Gregoire as noted by The Everett Herald:

"I oppose the proposal. As our state and global economies become more technically driven, we need to ensure that our students leave high school highly-trained in math and science so they can qualify for Washington state jobs or entry into training and higher education programs of their choosing.

“Our students are capable of mastering our state's standards in math and science. They have shown us their capacity to meet our expectations in the past. Schools I visited recently give me every indication that when students know the work is important they dig in and make the most of it.

“We can't lower our standards in math, nor can w!
e communicate that science is not important. We must prepare our students for their future. There is every reason to focus attention on the math and science learning needs of our students so they can succeed after high school. The Superintendent is concerned about the graduation rate. I am concerned about the bigger picture - preparing kids for life. I think parents share that concern.”

Education policy is complicated enough without having two members of the executive branch pursuing conflicting strategies and sending mixed signals to the Legislature and citizens. This latest development is just another example of why the Office of Superintendent of Public Instruction (OSPI) should not be an independently elected office but instead should be an appointed office under the Governor's control via her cabinet. This would follow the model used !
for (in-part):

  • Secretary of Social and Health Services
  • Director of Ecology
  • Director of Labor and Industries
  • Director of Agriculture
  • Director of Financial Management
  • Secretary of Transportation
  • Director of Licensing
  • Director of General Administration
  • Director of Commerce
  • Director of Veterans Affairs
  • Director of Revenue
  • Secretary of Corrections
  • Secretary of Health
  • Director of Financial Institutions
  • Chief of the State Patrol

This type of change would address the diffused accountability under the current system. If problems arise with public education voters would know that the solution lies with the Governor. If the Governor fails to use her appointment powers to improve the management and policies of OSPI, voters could take that failure into account at election time.

Budget deficit grows to $2.6 billion

November 19, 2009 in Blog

Washington's budget outlook took another hit today with forecasted revenue dropping $760 million since the September revenue forecast. The result of this is a projected $2.6 billion deficit in the 2009-11 budget adopted earlier this year. 

According to the press release issued by the state's economist, Dr. Arun Raha:

"While growth has returned to the national and state economies, consumer confidence and more critically, consumer spending remain weak. As a result, we are experiencing a revenue-less recovery."

Responding to the news the Governor said in a press release:

"I will produce a budget balance!
d to this revenue projection because I am required to by law. We all know a budget reflects the values of our state. All options must be on the table to produce a budget that works."

The Governor, however, has ruled out calling a special session of the Legislature. 

Tax increases are not the answer and should be removed from the table as an
option to help remove any distractions from making the necessary budget
reductions.

Illustrating this point, earlier this year more than 30 economists warned state officials that raising taxes "during a recessionary period is contrary to responsible economic policy and instead will thwart the state’s economic recovery."

Several state newspapers have also called on state officials to avoid tax increases:

Though lawmakers and the Governor will be tempted to address the state's $2.6 billion budget deficit with one-time fixes, doing so is a recipe for future budget pain and the potential for the state's credit rating to be downgraded. According to Moody's October 9 report on Washington's credit outlook, the following could result in a reduction to the state's credit rating:

  • Protracted structural budget imbalance.
  • Increased reliance on one-time budget solutions.
  • Failure to adopt plan to cover expenditures once federal fiscal stimulus monies are no longer available.

Instead state officials should make fundamental changes by "re-booting" state government as called for by the Governor in her state of the state address last January:

 “. . . one thing we have to do together is reform state government to bring it into the 21st century, and soon. At very basic levels, businesses are struggling to reform, to change the way they do business because they simply must to survive. And our business leaders tell me that American companies, large and small, will emerge from this recession forever changed.

We have to do the same. And that’s government reform.

This is our chance to reform state government to make it a more nimble and relevant partner in a new state economy.

Ladies and gentlemen, we need to reboot!

Over the decades, state government has evolved — layer upon layer upon layer. But too much of what served the peo!
ple well in 1940 or 1960 or 1990 does not serve the people well in the 21st century. We need to make sure we have a government for the 21st century so our workers and businesses can compete with anyone in the world."

 

Governor to Commerce Director: "This is not acceptable"

November 18, 2009 in Blog

Attendees at this morning's GMAP session were witness to a visibly disappointed Governor expressing her displeasure with an agency's lack of performance. The focus of the meeting was the state's use of the federal stimulus funds. One of the activities highlighted was Commerce's weatherization program.

Commerce Director Rogers Weed opened his presentation by asking the Governor to lower the target for the number of housing units to be weatherized since it would be unlikely for Commerce to meet the current goal. Weed indicated the problem was caused by questions concerning prevailing wage requirements and how much workers should be paid for the weatherization projects.

The original goal for the 2nd quarter was to weatherize 935 units. Commerce's actual production was 107 units.

Responding to this the Governor said she was absolutely disappointed with how many fingers wer!
e being pointed and the bureaucracy getting clogged up. She also stressed that she didn't understand why the problem surrounding the prevailing wage confusion wasn't identified sooner to allow for corrective action. She concluded her criticism by saying "this is not acceptable" and reminded those who work for government that they are the guardian of taxpayer dollars.

Beyond the Commerce fireworks there was other news of note from today's GMAP meeting:

  • The Governor commented that the accountability states are being held to for the stimulus funds is "mind boggling" and only 1/10 of what the big banks were required to do under TARP.
  • The Governor mentioned a phone call she recently had with the Vice President about the cliff states will fall off if the federal funds for social services (Medicaid, etc) are not extended for use next year and that she is actively lobbying for more federal funds.
  • The Governor stressed the need for agencies to focus on whether results were actually being achieved for expenditures not simply whether the money can be accounted for.

Also discussed was an overview of the state's stimulus funds:

  • $2 billion for program grants - 30,000 jobs (24,000 of which are in education)
  • $2 billion for federal direct expenditures - 2,900 jobs
  • $1 billion for local governments and non-profits - 3,000 jobs
  • $1 billion for assistance to individuals (Medicaid, etc)

The state was not required to keep track of how many of those jobs are new. Last month The News Tribune questioned the 24,000 education jobs reported. From the article:

New numbers released by the federal government Friday estimate that the federal stimulus package has helped create or save 34,500 total jobs in Washington, making it the state with the third-largest reported number of stimulus jobs behind California and New York.

But there’s a caveat on those job creation numbers: 24,000 of them probably weren’t in danger in the first place.

State officials used a chunk of stimulus money to cover paychecks for 24,000 teachers who were already contracted to finish out the school year. That money came from a pot of stimulus funds given to the state to hel!
p offset budget cuts.

Without that funding, the money to pay the teachers would have come out of the state general fund, said Jill Satran, Gov. Chris Gregoire’s main adviser on stimulus projects.

That would have meant cuts elsewhere, Satran said, but the job losses that would have resulted from such cuts is difficult to quantify. Few, if any, of the 24,000 teacher jobs would have been among them, Satran said.

Governor willing to wait on budget fix

November 17, 2009 in Blog

Governor Gregoire will not call a special session of the Legislature despite a budget deficit likely to exceed $2 billion after Thursday's state revenue forecast. Sen. Joe Zarelli (R-18), ranking member on the Senate Ways and Means Committee, has been calling for a special session for months. Zarelli issued this statement in a press release last week:

“The Legislature doesn’t have to sit back and wait for the governor to bring out her budget proposal next month. We can call ourselves into special session in early December, when we’re already scheduled to be at the Capitol. The budget writers already know where they can reduce spending; the sooner we act, the more can be saved to preserve important programs which otherwise would be subject to slashing later.
 
The alternative to spending reductions is tax hikes. The majority party won’t come out and say it is planning to fill the budget gap t!
hrough higher taxes, but if the taxpayers don’t see quick action in Olympia to lower spending, they will see something else: the writing on the wall that tax increases are coming in 2010, even though people can’t afford higher taxes.”

According to The Olympian, the Governor has no plans to call a special session and instead will wait to take action next year:

Gov. Chris Gregoire rejected new Republican calls for a special legislative session in early December to deal with the growing budget shortfall, despite her prediction it might hit $2.5 billion after Thursday's revenue forecast . . .

“This is not something you do overnight. It’s something you do thoughtfully,” she said, rejecting Republican Sen. Joe Zarelli’s renewed calls for a special session in early December when lawmakers !
are in town. Gregoire contended special sessions would cost mo!
ney and that budget-writers in the Legislature that she’s talked to “haven’t gone in-depth” on the budget and don’t want to do anything piecemeal.

State law prohibits a cash deficit from occurring by requiring the Governor to take action. Here is what RCW 43.88.110(7) says:

If at any time during the fiscal period the governor projects a cash deficit in a particular fund or account as defined by RCW 43.88.050, the governor shall make across-the-board reductions in allotments for that particular fund or account so as to prevent a cash deficit, unless the legislature has directed the liquidation of the cash deficit over one or more fiscal periods . . .

Since the Governor has not ordered across-the-board reductions as required by law and will not call a special session to address the $2 billion plus de!
ficit, she should veto any bills passed by the Legislature until the budget deficit is resolved.

Delay only exacerbates the budget problem and makes the needed corrections more difficult. If there isn't the will to fix the problem now the Governor and lawmakers must commit to fix the problem at the beginning of the session versus waiting until the waning days.

Tax increases, however, should be removed from the table as an option to help remove any distractions from making the necessary budget reductions.

As noted by these economists, the worst time to raise taxes is during a recession or fledgling recovery.

It appears that at least one Democrat member of the House Ways and Means Committee recognizes this. From The Everett Herald:

style="margin-left: 40px;">Rep. Mark Ericks, D-Bothell, who is vice chairman of the House Ways and Means Committee, said the Legislature tried to “spread the pain” last year by paring a little from everywhere. Now they must look at mothballing entire programs.

“From my perspective, that is what we have to do,” he said. “That won’t make some people happy but that is what is ahead for us.”

No one’s talked to Ericks about hiking taxes. Nor does he think it’s a panacea.

“Where’s that tax that people would raise that would temporarily increase our revenue to get us over the hump? I don’t see it,” he said. “The whole issue about the tax is a red herring.”