Jmercier

Public records reform introduced

January 12, 2010 in Blog

The recommendations of State Auditor Brian Sonntag's and Attorney General Rob McKenna's Open Government Task Force have taken bill form. HB 2736 and SB 6383 (Establishing the office of open records) was introduced this afternoon.

According to the bills, a requester seeking relief from a records dispute may either use the new office of open records or the current legal remedies available. The major change, however, is that a requester would not be entitled to penalties for a records violation unless they first sought relief from the office of open records.

&quot!
;However, in no event may a court award a penalty unless such person received a final order from the office of open records before prevailing against an agency in court pursuant to this subsection." - (Section 4, 4)

We made this recommendation at the October 5 meeting of the Open Government Task Force to help incentivize the use of the new office of open records while not restricting the right of citizens to go directly to court for relief.

Liquor privatization bill to have hearing

January 12, 2010 in Blog

There will be a public hearing on Thursday at 3:30 p.m. to consider SB 6204 - Privatizing the sale of liquor. This reform has surfaced since the end of prohibition but is receiving added attention in light of the state's budget deficit and a favorable report by the State Auditor's Office highlighting the potential savings from ending the state's liquor monopoly.

State Auditor Brian Sonntag was recently interviewed by KING 5 News and said, "Is it a core function of the state to be selling alcohol? I don't think so."

!
The state's liquor monopoly was also the subject of this editorial today in the Longview Daily News: Don't ignore long-term benefits of privatizing liquor sales.

Here are additional details on Thursday's hearing:

Labor, Commerce & Consumer Protection -  01/14/10  3:30 pm
Full Committee
Senate Hearing Rm 4
J.A. Cherberg Building
Olympia, WA

REVISED 1/11/2010 4:10 PM

Public Hearing: 

   1. SB 6239 - Making technical corrections to gender-based terms.
   2. Exempting pipe tobacco from restrictions on shipping tobacco to consumers in Washington [S-3480.1].
   3. An act relating to creating a beer and wine tasting endorsement to the grocery store liquor license [S-3579!
.1].
   4. Concerning beer and wine tasting a!
t farmers markets [S-3563.1].
   5. SB 6204 - Privatizing the sale of liquor.

Lawmaker wants Legislature to meet every other year

January 12, 2010 in Blog

Do you think the Legislature meets too often? At least one state lawmaker thinks so. Rep. Bill Hinkle (R-13) has introduced a bill to end the annual sessions of the Legislature. HB 2656 would set up regular sessions of the Legislature only in odd numbered years. The bill is accompanied by a constitutional amendment HJR 4217 to implement the provisions. The proposal makes no changes to procedures for special sessions.

According to the National Conference of State Legislatures:

"Legislatures continually look for ways to improve their effectiveness.  One reform frequently debated is annual versus!
biennial sessions.

In the early 1960s, only 19 state legislatures met annually.  The remaining 31 held biennial regular sessions.  All but three (Kentucky, Mississippi and Virginia) held their biennial session in the odd-numbered year.  By the mid-1970s, the number of states meeting annually grew tremendously—up from 19 to 41.  However, several of these states used a 'flexible' session format in which the total days of session time was divided between two years; these states included Minnesota, North Carolina, Tennessee and Vermont.  Today, 45 state legislatures meet annually.  The remaining five states—Montana, Nevada, North Dakota, Oregon and Texas—hold session every other year.  All of the biennial legislatures hold their regular sessions in the odd year.  Arkansas, Kentucky, New Hampshire and Washington were the last states to change from biennial to annual regular sessions; these states held the!
ir first annual sessions in 2009, 2001, 1985 and 1981, respect!
ively.

There are several basic arguments used by the respective proponents of annual or biennial sessions.  Listed below are the ones set out by political scientists, William Keefe and Morris Ogul."

Ncsl

Tax increases will cost even more Washingtonians their jobs

January 11, 2010 in Blog

A new study by the Washington Research Council shows that tax increases will cost thousands of Washingtonians their jobs. According to the study, increasing the state Business and Occupation tax (B&O) by $1 billion would eliminate up to 15,072 jobs. A $2.6 billion B&O tax increase would cost 38,968 Washingtonian’s their jobs. A $1 billion sales tax increase would eliminate 14,759 jobs. A $2.6 billion sales tax increase would eliminate 38,024 jobs. The study shows jobs losses by 2013. 

Today the Washington Policy Center is running a full-page ad in The Olympian warning lawmakers about the impact of tax increases. The ad focuses on the job loss f!
indings from the study.

Since it is impossible to forecast how the legislature would spend the money collected from tax increases, the ad highlights the impact of just the tax increases. The study shows job losses could be mitigated depending on how lawmakers chose to spend the new tax revenue.

To put the state on firm fiscal footing, any budget adopted must not raise taxes during a recession, or result in a projected deficit in the next biennium. This will mean that some of the programs we’ve grown accustomed to during good times must be eliminated. Taking more money from businesses and cutting people’s take-home pay through higher taxes is not the solution.

Additional Information
The Economic Impact of Hiking Taxes to Close the Budget Gap
Full-page newspaper advertisement !
in The Olympian

Budget solutions will require tough decisions and real reforms
Economists Warn Tax Increases Will Hurt Our State’s Economy
Resources for Building the State Budget
Principles of Taxation for Elected Officials

Washington's credit rating outlook: "Negative"

January 7, 2010 in Blog

One of the state's credit raters has downgraded Washington's credit outlook from stable to negative. In its December 31, 2009 report, Moody's Investors Service said:

Moodys
Moodys2

Last month the State Treasurer warned that Washington would run out of money by September if immediate action was not taken to balance the state budget.

The 2010 Legislative Session starts next Monday, January 11.

Let's hope balancing the budget in a sustainable manner without job-killing tax increases is the first order of business.

Income tax bills introduced

January 4, 2010 in Blog

No session would be complete without the obligatory income tax proposal. Senators Rosa Franklin (D-29) and Joe McDermott (D-34) have introduced SB 6250 and SJR 8219 to fulfill this annual session prerequisite. Here is the intent section for SB 6250:

"It is the intent of the legislature in adopting this title to provide the necessary revenues for the support of vital state services on a more stable and equitable basis."

It will be interesting to hear how this income tax proposal will be able to fulfill this intent and succeed where other income taxes have failed. I'm sure other income !
tax states such as California will be eager to learn how to make income tax revenue recession proof. 

Can budget savings be found in changes to sick leave cash out?

December 30, 2009 in Blog

With Washington facing a short term $2.6 billion budget deficit, all savings opportunities should be on the table. One possibility is to change the practice of allowing state employees to carry forward and cash out unused sick and vacation leave.

According to the state's budget transparency website, Washington paid out $65.3 million in unused sick and vacation leave during the 2007-09 biennium. The state has already paid out $8.7 million since the 2009-11 budget started in July.

As illustrated by the Collective Bargaining Agreement (CBA) with the Washington Federation of State Employees, this is occurring in accordance with sections 12.6 to 12.8 of the CBA:

12.6 Carry Forward and Transfer
Employees will be allowed to carry forward, from year!
to year of service, any unused sick leave allowed under this provision, and will retain and carry forward any unused sick leave accumulated prior to the effective date of this Agreement. When an employee moves from one state agency to another, regardless of status, the employee’s accrued sick leave will be transferred to the new agency for the employee’s use.

12.7 Sick Leave Annual Cash Out
Each January, employees are eligible to receive cash on a one (1) hour for four (4) hours basis for ninety-six (96) hours or less of their accrued sick leave, if:

A. Their sick leave balance at the end of the previous calendar year exceeds four hundred and eighty (480) hours;

B. The converted sick leave hours do not reduce their previous calendar year sick leave balance below four hundred and eighty (480) hours; and

C. They notify their payroll office by January 31st that they wou!
ld like to convert their sick leave hours earned during the pr!
evious calendar year, minus any sick leave hours used during the previous year, to cash.

All converted hours will be deducted from the employee’s sick leave balance.

12.8 Sick Leave Separation Cash Out
At the time of retirement from state service or at death, an eligible employee or the employee’s estate will receive cash for his or her total sick leave balance on a one (1) hour for four (4) hours basis. For the purposes of this Section, retirement will not include “vested out of service” employees who leave funds on deposit with the retirement system.

The state's sick leave policy should be changed to a set number of days per year that can't be cashed out or carried forward. This is the benefit policy for employees at the Washington Policy Center as well as many other private employers.

Washington's annual financial report released

December 30, 2009 in Blog

The Office of Financial Management has released the state's 2009 Comprehensive Annual Financial Report (CAFR). Some of the details of note:

"Governmental activities resulted in a decrease in the state of Washington’s net assets of $2.2 billion. A number of factors contributed to the decrease:
  • Tax revenues decreased $893 million in Fiscal Year 2009 as compared to Fiscal Year 2008. While certain tax sources showed moderate increases, sales and use taxes reported a decrease of $1.0 billion. Sales and use taxes are the main tax revenue for governmental activities. Taxable sales have declined sharply due to reductions in consumer spending power as a result of job losses as well as weak consumer confidence. Real estate excise taxes also declined by $294 million reflecting the continued decline i!
    n real estate activity as home prices and housing permits continued to decline throughout Fiscal Year 2009.
  • Growth in expenses outpaced growth in revenues. The expenses for human services and education comprised 80.5 percent of the total expenses for governmental activities which is consistent with the 80 percent in Fiscal Year 2008. Human services expenses grew by $1.2 billion or 10 percent in Fiscal Year 2009 over Fiscal Year 2008 reflecting the increased number of citizens seeking assistance from state programs and services due to the economic recession. K-12 education also increased in Fiscal Year 2009 as compared to Fiscal Year 2008 due to increases in enrollment and construction grants to local school districts. Approximately 40 percent of the increased costs of human services and K-12 education were financed with federal fiscal stabilization funds.

Business-type activities decreased the state of Washington’s net assets by $932 million which included losses in both the workers’ compensation and unemployment compensation activities. Key factors contributing to the operating results of business-type activities are:

  • The operating loss in the workers’ compensation activity in Fiscal Year 2009 was $1.8 billion less than in Fiscal Year 2008. A number of factors contributed to the decreased operating loss including an increase in premium revenue of $260 million which resulted when the Fiscal Year 2008 rate holiday did not extend into Fiscal Year 2009 and a decrease in claims costs of $1.5 billion. The decrease in claims costs is attributable to lower projections of supplemental pension costs related to changes in the forecast of future wage inflation.
  • The unemployment compensation activity reported a Fiscal Year 2009 operating loss of $789 million, compared to $333 million operating income in Fiscal Year 2008. Washington’s unemployment insurance program is an experience-based system. Since Washington had relatively low unemployment until Fiscal Year 2009, unemployment premium revenue had been declining. Fiscal Year 2009 premium revenues were $146 million less than Fiscal Year 2008. While this decrease was more than offset by an increase in federal aid of $531 million, which included federal fiscal stabilization funding, costs for unemployment insurance benefits rose $1.6 billion. The increase in costs was the result of increases in the number of claims, the duration of claims and the benefit amounts. The annualized unemployment rate for the state was 7.3 percent in Fiscal Year 2009, up from 4.7 percent in Fiscal Year 2008, a 55 percent increase.
  • The higher education student services activity reported relatively proportional increases in both expenses and charges for services when compared to the prior year. Additionally, both liquor control and Washington’s lottery activities reported operating revenues and expenses consistent with the prior year."

These details are reflected in the tables below.

CAFR 1

CAFR 2

Schedule 17 of the CAFR shows that the largest employer in the state is government coming in at !
17.6% of total employment. The next largest is retail trade coming in at 10.8% of total employment. 

Below are details on the number of state government full-time equivalent employees. 

FTE

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.