Bipartisan 72-hour budget review bill introduced

January 14, 2010 in Blog

Past efforts to improve the transparency of the state's budget process are gaining bipartisan support. Today Representatives Gary Alexander (R-20), Larry Seaquist (D-26), Barbara Bailey (R-10), Mark Ericks (D-1), Bruce Dammeier (R-25), and Joe Schmick (R-9) introduced HB 2872: Establishing a period of public and legislative review of appropriations legislation.

From the bill:

Section 1 
The legislature finds that approval of the state budget is the most important act of the legislature in any year, having profoun!
d consequences for every resident of the state. The legislature further finds that the public is entitled to a reasonable opportunity to learn how public funds are proposed to be expended before bills making appropriations become law. The legislature further finds that public notice, dissemination of information, and informed analysis of proposed budgets is an essential requisite of transparent, accountable government.

The state Constitution charges the legislature, and only the legislature, with the responsibility to fund the operation of state government through the enactment of appropriations legislation. Yet the abbreviated time frame in which the legislature acts on omnibus operating appropriations legislation permits little opportunity for informed legislative deliberation or public review and discussion, which in turn impairs public trust in government. The legislature finds that many other states, in their Constitu!
tions, statutes, or legislative rules, require a reasonable op!
portunity for public and legislative review of budget legislation.

The legislature therefore finds that it is in the public interest to provide for an appropriate period of public and legislative review of all omnibus appropriations bills before they are acted on by the legislature and submitted to the governor for approval.

Section 2
(1) An omnibus operating, capital, or transportation appropriations bill, may not be voted on by the senate or the house of representatives unless seventy-two hours have elapsed since the bill was last subject to amendment.

(2) For the purposes of this section, "amendment" means any proposed change to a bill and includes executive action by a standing committee of the senate or house of representatives, adoption of a conference report, or vote to concur with!
an opposite house amendment.

Joining with the Evergreen Freedom Foundation, I sponsored model language for the American Legislative Exchange Council back in 2007 based on a proposal by Congressman Brian Baird (D-WA), to create a 72-hour budget review period.

Talking about his effort, Baird said: “This is a common-sense proposal about the fundamental principles of our democracy. Our votes have consequences. My congressional colleagues and I owe it to both our constituents and to this institution to know what it is we are voting for.”  

Bills propose advertising on school buses and commercial business at rest stops

January 14, 2010 in Blog

It looks like lawmakers are starting to get serious about exploring opportunities to partner with the private sector to increase state revenues.

Here are details on two bipartisan bills introduced today.

SB 6465 - Authorizing certain commercial activity at state-owned safety rest areas:

"To the extent permitted under federal programs, rules, or law, the department may enter into a lease with private entities allowing them to operate food or beverage retailers, restaurants, grocery and convenience stores, service station businesses, or other private enterprises that are of benefit to the traveling public at state-owned safety rest areas." (Section 1, 1)

SB 6466 - Authorizing advertising on sch!
ool buses

"The rules of the state superintendent of public instruction under RCW 46.61.380 governing the marking of school buses shall allow school districts to place advertising and educational material on and in school buses if such advertising and education material is approved by the school district board of directors. The advertising and educational material shall not be placed on the front or rear of a school bus." (Section 1,1)

It is encouraging to see lawmakers putting these proposals up for public debate.

Study: Cigarette smuggling will grow with tax increase

January 14, 2010 in Blog

The Michigan-based Mackinac Center issued a warning yesterday that a $1.00 increase in Washington's cigarette tax would "ensure that half of all cigarettes smoked in Washington are smuggled in from other states."

From Mackinac's blog:

In December 2008 we published a study "Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review." The study reviewed the efforts of states trying to fight the growth of smuggling, documented the history of cigarette taxes in Michigan, New Jersey and California, and modeled the level of illicit tobacco use in states due to cigarette tax rates. We recently updated the model to include changes to the Federal Excise Tax, as well.

The 2008 study already found that Washington has the fourth highest smuggling rate. In applying the model to the proposed tax increases, we found that a $1.00 per pack increase in taxes would jump the state's smuggling rates from 39.3 percent to 51.5 percent.

Legal sales would decrease by at least 20 percent over 12 months. This is evidence not of people quitting smoking due to higher taxes, but of individuals and businesses finding ways to evade cigarette taxes. A 2004 study helps confirm this by finding that up to 85 percent of the sales tax decrease comes from tax avoidance rather than actual declines in smoking.

The bulk of the cigarette smuggling increase comes from commercial smuggling--of organizations that import cigarettes from lower tax areas or through counterfeiting with distribution systems in state. If the tax hike passes, it's expected that 3 out of 10 cigarettes in Washington will be through these me!

The House Committee on Finance heard public!
testimony this morning on HB 2493: Concerning the taxation of cigarettes and other tobacco products.

Among other things the bill would increase the state's cigarette tax by $1.00 per pack.

Should government compete with the private sector?

January 13, 2010 in Blog

The Governor said yesterday in the State of State that "Jobs are the way out of this recession." Based on a bill introduced today, some lawmakers believe that one way to increase private sector jobs is to stop government from providing commercial type activities.

Here are some of the details from HB 2808 - Regarding commercial activities by state government:

Sec. 1. (1) The legislature finds that in the process of governing, the state of Washington should not engage in commercial activity in competition with its citizens. The legislature finds that the competitive enterprise system, characterized by individual freedom and initiative, is the nation's primary source of economic strength, and that the growth of pr!
ivate enterprise is essential to the health, welfare, and prosperity of the citizens of the state of Washington. The legislature further finds that the role of the private sector is to provide commercial products and services for which there is demand in the marketplace, while the role of state agencies is limited to performing functions that are in the public interest and inherently governmental in nature.

(2) The legislature therefore declares it to be the general policy of the state that state agencies are prohibited from providing to the marketplace for a fee those products or services that could be obtained from a private enterprise . . .

Sec. 2. (1) State agencies are prohibited from engaging in commercial activities for a fee, unless they are granted an exception by the office of financial management.

Continuing this theme, Sen. Joe Zarelli (R-18) issued a new "Budget Tidbit"!
today focusing on the need for the state to take advantage of the seldom used competitive contracting reform adopted in 2002. Zarelli recommends that the state enact a Competition Council to determine "the privatization potential of a program or activity and performing a cost-benefit analysis."

We highlighted how other states are utilizing Competition Councils in our recent competitive contracting study.

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.

;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!
   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!

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."


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:


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.



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. 


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:


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."

Click this link to see the full report.