After attending the state economic forecast meeting last Friday and hearing about the trouble ahead, I needed some good news. Thankfully it came in the way of the Governor's comments yesterday to the Associated Press. As reported in the News Tribune:
Gregoire, describing herself as an optimist, said she’s looking at the budget gap and faltering economy as an opportunity to fundamentally rethink the role of state government in Washington’s economic health.
Without going into specifics, Gregoire said she hopes to identify government functions and programs that might be better handled in the private sector or the nonprofit arena.
“This should not be simply a budget-cutting exercise. We should be thinking about, how do we grow our economy, how do we create jobs, and what reforms we can put in place,” Gregoire said. “Government is really going to have to get back to the absolute, essential basics.”
Count the Washington Policy Center ready to help bring about this fundamental reform to state government.
One idea is to begin a “base closing” process for state programs and agencies to determine which ones can be consolidated or eliminated. We discuss this reform and many others in our Policy Guide for Washington State.
More good news has come in the way of the state's editorial boards, reminding the Governor that they expect her to deliver on her no tax or fee increase campaign pledge. Here is a sampling:
"The people of this state are suffering right now, and a tax increase to pay for programs to address some of these issues is the worst possible idea. Government should not punish Washington families by piling on more fees and taxes that make it harder to make ends meet. Thankfully, Gregoire vowed during the campaign that she is also not in favor of any new taxes. We remind her now of that promise, and promise on our end to do what we can to hold her to her word." - Bellingham Herald (Much work to be done in state; taxes not an option)
"Her biggest challenge will not be Republicans in the Legislature who desire to block and impede her efforts, but fellow Democrats who will clamor to raise taxes to spare pet programs from the budget ax. Gregoire the candidate said she would not raise taxes. How hard will she fight to live up to that promise? Raising taxes is the last thing we need in this dour economy." - Seattle Times (Re-elected Gov. Christine Gregoire has tough work ahead)
With the prospect of a projected $3.2 billion budget problem growing even larger after this month's revenue forecast, some in Olympia are already talking about tax increases - this only two days removed from the election. According to the Seattle Times (Gregoire's next big test: balancing budget without raising taxes):
. . . Senate Majority Leader Lisa Brown, D-Spokane, didn't rule out the prospect of tax or fee increases.
Brown also said lawmakers could look at targeted taxes or fees, or consider ending certain tax exemptions.
"If you look at a tax exemption and you decide you need to close it or limit it somehow, is that raising a tax? Some of it comes down to definitions," she said.
Gregoire was pretty explicit during the campaign when pressed on whether she'd support increasing taxes or fees next year. She said no and reaffirmed the vow Wednesday.
"Now is not the time you put taxes on people," she said, adding that during the campaign she has met people across the state who are suffering from the economic problems that have shaken the nation.
Still, some Democrats see wiggle room for the governor.
Paul Berendt, a former chairman of the state Democratic Party, said he thinks Gregoire and lawmakers could put together a tax package that would help balance the budget and support new programs — and send it to voters.
That would allow Gregoire to propose additional spending without signing a tax increase.
The fact that voters agreed to raise sales taxes for a $17.9 billion Sound Transit light-rail expansion suggests that approach could work, Berendt said.
When asked recently if she'd support sending a tax increase to voters, Gregoire said, "I will leave that to my colleagues in the Legislature. I will forever maintain that the voters ought to be able to decide that. ... I wouldn't be involved in it. It would bypass me. It would not be something that the governor would sign on to or sign off on."
While sending a tax increase proposal to voters would be consistent with the Governor's comments that any tax increase should receive voter-approval, how would a tax increase referendum provide any "wiggle room" on her repeated campaign statements reaffirmed in the Times article that now is not the time to raise taxes on Washingtonians?
Based on her comments above, any doubt now that Sen. Brown's lawsuit to overturn the voter-approved 2/3 vote requirement for tax increases has more to do with the ability to easily raise taxes than the Senator let on?
While some in Washington continue to flirt with the theory that if only the state had an income tax we'd never have another budget problem, our neighbor to the south is discussing repealing its income taxes and moving instead to sales taxes.
Oregon's state government system relies heavily on income taxes, with about 90 percent of its general fund and lottery revenues coming from individual income taxes. That system is volatile because income tax receipts drop during economic downturns, leaving the state short of money to pay for education and other services.
Long-term options listed by the task force include:
Eliminating the state's personal income tax and imposing an 8.5 percent sales tax with exemptions for items such as shelter and in-home food. The group notes this approach would reduce net income for most households without offsetting provisions . . . The task force began meeting a year ago. While it does not favor any long-term approach over another, it does recommend some short-term changes, including having Oregonians vote on placing the state's rainy day fund, created by the 2007 Legislature, in the Oregon Constitution and increasing the fund's cap.
As demonstrated by Oregon's experience with income tax receipts, there is no recession proof tax structure. Policy makers should not focus tax reform discussions around raising more revenue but instead should ensure the tax system is based on sound principles of taxation.
This is why the state's notorious B&O tax is ripe for reform or replacement - it fails the principles of sound taxation on many levels as identified by WPC's Carl Gipson in this four-part series:
The Olympian reports this morning that state Senator Rodney Tom (D-Bellevue) is proposing a constitutional amendment to allow the governor to appoint the Superintendent of Public Instruction. The article quotes from the Senator's press release:
The goals of GMAP were also placed into statute by the Legislature in 2005 meaning regardless of who wins the election some version of the program will continue. RCW 43.17.385 reads:
(1) Each state agency shall, within available funds, develop and implement a quality management, accountability, and performance system to improve the public services it provides.
(2) Each agency shall ensure that managers and staff at all levels, including those who directly deliver services, are engaged in the system and shall provide managers and staff with the training necessary for successful implementation.
(3) Each agency shall, within available funds, ensure that its quality management, accountability, and performance system:
(a) Uses strategic business planning to establish goals, objectives, and activities consistent with the priorities of government, as provided in statute;
(b) Engages stakeholders and customers in establishing service requirements and improving service delivery systems;
(c) Includes clear, relevant, and !
easy-to-understand measures for each activity;
(d) Gathers, monitors, and analyzes activity data;
(e) Uses the data to evaluate the effectiveness of programs to manage process performance, improve efficiency, and reduce costs;
(f) Establishes performance goals and expectations for employees that reflect the organization's objectives; and provides for regular assessments of employee performance;
(g) Uses activity measures to report progress toward agency objectives to the agency director at least quarterly;
(h) Where performance is not meeting intended objectives, holds regular problem-solving sessions to develop and implement a plan for addressing gaps; and
(i) Allocates resources based on strategies to improve performance.
>(4) Each agency shall conduct a yearly assessment of its qual!
ity management, accountability, and performance system.
(5) State agencies whose chief executives are appointed by the governor shall report to the governor on agency performance at least quarterly. The reports shall be included on the agencies', the governor's, and the office of financial management's web sites.
(6) The governor shall report annually to citizens on the performance of state agency programs. The governor's report shall include:
(a) Progress made toward the priorities of government as a result of agency activities; and
(b) Improvements in agency quality management systems, fiscal efficiency, process efficiency, asset management, personnel management, statutory and regulatory compliance, and management of technology systems.
(7) Each state agency shall integrate efforts made under this section with other management, accountability, a!
nd performance systems undertaken under executive order or other authority.
So why should you care?
If properly utilized GMAP has the potential to help move the budget discussion away from spending outputs and instead focusing the debate on purchasing performance outcomes. This means that if we ever get a meaningful spending limit, a tag team effort of GMAP, Performance Audits, and Priorities of Government budgeting (POG) could lay the groundwork for a sustainable performance based budget focused on purchasing outcomes for Washington citizens instead of the state budget being used as a laundry list of spending goodies for special interest.
Unfortunately this potential hasn't been realized yet.
For those who want to know the election results on Election Night, here is some advice, go to bed early. Washington has more of an "Election Month" than "Election Day" due to the way we conduct our vote-by-mail elections. Highlighting this fact, the Associated Press wrote yesterday (Election day postmark means late results in Wash):
In Washington state, the election won't be over on Election Night.
The state's vote-by-mail system ensures that any close race will be unsettled for days afterward. That's because ballots count if they're mailed as late as midnight on Election Day, a system that usually leaves about half of the vote outstanding at the end of the night, keeping politicians and the public in a state of limbo . . .
Washington state is one of more than two dozen states that allow voters to cast absentee ballots without an excuse like illness, disability or travel. Numerous other states, like Florida, allow early voting at poll sites, along with absentee ballots. Most no-excuse absentee states, including Oregon, which is 100 percent vote-by-mail, require ballots to be in by the time the polls close on Election Day, if not earlier.
Washington is one of just a handful of states that require a postmark by Election Day or the day before, allowing ballots to arrive days later. But of those states, only Washington has a vast majority of mail voters who create a crush of ballots for county auditors to count after Election Night.
This doesn't have to be the case. Having lived in Oregon and participated in that state's 100% vote-by-mail process it was shocking to move to Washington and learn election results weren't hours from being known but in some cases weeks.
There are a couple of great articles on taxes this morning discussing why voters should pay closer attention to the tax increase requests of elected officials. The first is in the Seattle PI (Time for Seattle to say no to taxes) quoting WPC's Paul Guppy:
Seattle voters have shown a remarkable willingness to tax themselves, even in the face of folly.
Not even President Bush, in his oil exploration days, managed to drill as many dry holes as elected officials operating out of Seattle's arid new City Hall.
We spent $444 million on the downtown bus tunnel, only to find that light rail tracks were the wrong size. A $45 million retrofit was required.
The monorail was a bust that cost local motorists $110 million. After investing $5 million in self-cleaning, high-tech toilets, the city ended up selling them on eBay for $12,500.
With a passive public -- and no political opposition -- city fathers and mothers have continued to pile on parking taxes, head taxes, bag taxes and various costs associated with politically correct garbage disposal and food recycling.
Paul Guppy, vice president for research at the conservative Washington Policy Center, offers up a provocative argument that every liberal Emerald City voter ought to ponder.
"Seattle leaders have learned that when they shape public funding choices in a certain way, voters will almost always go along," he writes. "From an elected official's point of view, this funding strategy makes perfect sense. After all, as long as voters continue to say 'yes' to paying more taxes, why not keep asking them for more taxes?
"One would expect this pattern to continue until city officials see voters express an unwillingness to go along and, because of economic worries or awareness of the accumulating tax burden, reject a special levy."
In short, just say no.
The second article is in the Seattle Times (Can we tax Peter, pay Paul?) highlighting the prospect of "intergovernmental cannibalism" on taxes:
OK. So I have a dumb question. It came to me when I realized last year's tax increases by coincidence almost equal this year's draconian cuts.
Why not use that money to solve this "crisis?" Why not, at the least, cancel those ridiculous foot ferries?
They are the old Mosquito Fleet walk-on ferries, between Kirkland, Renton and Seattle on Lake Washington. And Shilshole to downtown Seattle on the Sound. The council raised property taxes to reincarnate them last November.
None of these cities are on islands — a large part of why the last such ferry petered out in 1939. Each run today will carry maybe 300 riders. Yet we're steaming ahead with it. Even as we cut 59 cops. And call it all "a recipe for disaster."
The sheriff liked my dumb question.
"We can't tax people for all these special projects and then allow core functions of government, like public safety, to go down and down," she said . . .
On my way out, I ran into Scott Noble, the county tax assessor. I said this seems like no way to run a government. You have no idea, he said.
"There are 160 taxing districts in this county, all overlapping and competing," he said. "In tough times, you're going to see every one hard after the same buck. Something's got to give, but nothing's giving. So many are responsible that no one is accountable.
"I predict intergovernmental cannibalism."
He said that last part like he was looking forward to it.
It looks like now more than ever policymakers need to agree to a set of guiding principles of taxation to help keep taxpayers from being at risk of intergovernmental tax cannibalism.
With Washington facing a projected $3.2 billion budget deficit (the difference between growing revenues and even faster projected spending growth), the temptation exists for elected officials to close the budget gap with tax increases. Already policymakers are being encouraged to enact a “temporary” sales tax increase. Before any conversation about raising taxes can occur, however, state officials should first agree to a set of guiding principles on taxation.
The proper function of taxation is to raise money for core functions of government, not to direct the behavior of citizens or close budget gaps created by overspending. This is true regardless of whether government is big or small, and this is true for lawmakers at all levels of government. Many lawmakers think of the tax code as a way to penalize “bad” behaviors and reward “good” ones. They have sought incessantly to guide, micromanage and steer the economy by manipulating the tax laws.
Taxation will always impose some damage on an economy’s performance, but that harm can be minimized if policymakers resist the temptation to use the tax code for social engineering, class warfare and other extraneous purposes. A simple and fair tax system is an ideal way for advancing Washington’s economic interests and promoting prosperity for its residents.
Recommendations for tax reform:
Adopt guiding principles based on equity and economic neutrality to shape changes in Washington’s tax system, so the tax system is focused on raising needed revenue for core functions of government, not directing the choices and behavior of citizens. Basic to the concept of a fair tax system is that the state should take no more from citizens than it needs to pay for the core functions of government. This consideration goes beyond the need to balance the budget; it is a matter of fundamental respect and trust between citizens and their government.
Policymakers should seek to lower the overall tax burden to promote prosperity and opportunity in the economy for the benefit of all citizens. Washingtonians require and expect basic government services, and taxes must be collected to pay for these services, but government revenue should be limited to real public needs, so the tax system itself does not become one of the major problems of life. A fair and efficient tax system is a matter of having respect for the citizens of our state.
Embrace tax transparency by creating an online searchable database of all state and local tax rates. Policymakers should build on the state’s transparency reforms and help citizens learn more about what government decisions mean to their pocket books.
The people of Washington work hard for what they earn. Money paid in taxes is by definition not available to meet other needs. As a matter of respect to citizens, policymakers should work to keep the overall level of taxation to the absolute minimum needed to pay for the core functions of government while being transparent about the total tax burden being imposed.
It appears the University of Washington is hoping a "liberal" Legislature will be sympathetic to its quest to receive tax revenue to renovate Husky Stadium. The Seattle PI reports (UW votes to advance stadium work):
The nation's slumping economy and the state's budget woes won't stop the University of Washington from pressing forward with plans to overhaul crumbling and badly outdated Husky Stadium.
University regents voted Thursday to authorize negotiations with a contractor for the stadium, moving a giant and potentially expensive step toward the project's design phase. But regents acknowledged that it could be a risky move for the university, since funding for half of the project has yet to be obtained.
The UW wants to finance half of the $300 million project through private funding and the rest through public tourist tax revenue -- the same revenue that funded Qwest and Safeco fields. But the Legislature shut the tourism-tax idea down earlier this year, and it's not yet clear if lawmakers will be more receptive to the proposal in 2009 when they'll be staring at a projected $3.2 billion spending shortfall . . .
"It is a tough sell, but the Legislature is pretty liberal, and I'm preaching Keynesian economics now," Woodward said, referring to the theory that the state can stimulate economic growth by means of -- among a long list of other things -- government spending.
Conversations with staff in the Governor’s budget office today indicate that the UW’s share of these reductions is $9.6 million, which represents about two percent of our total FY 2009 state funds appropriation. It’s important to note that this is not an “automatic” budget reduction, but will be included in the Governor’s budget recommendations t!
o the Legislature. Ultimately, it will be up to the state legislature to decide whether these reductions are implemented and how much will be cut from each agency’s current biennial budget.
So will what the UW calls a "liberal" Legislature slow the growth of the UW's budget while approving a tax increase for its stadium renovation? Talk about mixed signals.
In a 5-4 ruling the state Supreme Court today ordered the Port of Seattle to treat health care benefits for its employees like pension benefits and pay them into retirement. The case is Navlet v. Port of Seattle. The majority ruled:
. . . the Port is obligated to provide retirement welfare benefits for life to Appellants who have satisfied the eligibility requirements to receive such benefits . . . The trial court held that Appellants had no vested right to receive retirement welfare benefits because the [Collective Bargaining Agreement] CBA did not “unambiguously” vest the welfare benefits beyond the duration of the CBA itself. The court misconstrued our precedent regarding the creation of a vested right to retirement benefits. The conferral of compensatory retirement welfare benefits through a collective bargaining agreement creates a vested right for eligible re!
tirees absent express language in the agreement specifically limiting the right to such benefits.
I have great sympathy for the workers in this case, but the fact is that their contractual agreement with the Port does not authorize the benefits they seek. The unfortunate result of the majority opinion is that many employers will cease providing any health care benefits at all to employees in order to avoid the possibility of incurring an obligation to provide benefits for life -- at the least they will cease providing retiree health care benefits. The majority opinion is likely to affect a great many employees who, although not before us in this case, will suffer loss of health coverage and possibly loss of jobs before they acquire vested rights under the majority opinion.
. . . Ultimately, in the absence of anything in the parties’ agreement that states that a vested right to health care benefits for life is intended by the employer, the court is asserting itself as a super-legislature. The court should refrain from overstepping its constitutional role in this way.
This case is yet another example of a 5-4 ruling leaving the minority questioning whether the majority understands its constitutional role.
The Judicial branch is arguably the most powerful branch of government yet it receives the least amount of attention of the three. Thankfully groups like the Federalist Society are doing their part to highlight the decisions judges are making that impact our lives.
The state Supreme Court cases reviewed from 2007/2008 fall under six headings:
The Initiative/Referendum process;
The public’s right to know through the public disclosure/open records laws;
Freedom of political speech;
Private property rights; and
The right to earn a living.
Speaking of the Federalist Society, WPC is co-sponsoring an event with them on October 24 to discuss the Economic Bail-Out of 2008. Here are additional details:
October 24, Washington Athletic Club in downtown Seattle, 11:30am registration and seating, program begins at noon. Cost is $25 per person. Please RSVP by Wednesday, October 22 by email to Sonya Jones at redraider2x [at] yahoo [dot] com, or by phone at 425-753-0984.
To improve citizen access to public information, we recommend cities publish their annual impact fee reports online. Currently, cities that collect impact fees are required to prepare an annual impact fee report per RCW 82.02.070:
“Annually, each county, city, or town imposing impact fees shall provide a report on each impact fee account showing the source and amount of all moneys collected, earned, or received and system improvements that were financed in whole or in part by impact fees.”
It was noted that citi!
es are preparing these annual reports; however the information is generally not published or available online. Requiring the cities to publish these annual reports online would help to facilitate the State of Washington’s initiative to increase transparency and accountability of government agencies and programs.
The main conclusions from the performance audit are:
Lack of clarity in state law may be causing some cities to calculate and spend impact fees in a manner that could be inappropriate.
One city is charging builders higher impact fees than they should and their fees are not supported by a capital facilities plan as prescribed by law.
New developments in some cities are receiving questionable benefits for the impact fees paid.
Last year, Congress promised to shed light on the secretive process. But the lists of earmarks are still buried in obscure documents that are difficult to find and search. Until Congress put them online a couple of weeks ago, the House disclosure letters, linking lawmakers to companies, were thick volumes of paper kept in a cabinet in the offices of the House Appropriations Committee.
When a reporter for the Congressional Quarterly pointed out how difficult it remains to pull all the information together, Rep. John Murtha, D-Pa., chairman of the committee that drafts the defense bill, had a quick answer: "Tough shit."
In addition to the savings in the current budget, the governor’s actions will save an additional $605 million in the 2009–11 budget. Together with the state’s current $850 million surplus, these steps will almost halve what is projected to be an approximate $3.2 billion shortfall in 2011.
Gregoire said she would consider dipping into the $450 million rainy day fund "as a last resort" to fund state operations. Such a move would either require two-thirds approval by the Legislature or other economic indicators. "I wouldn't run it dry under any circumstances," she said. "Bad as it (the economy) is today, how would I know it wouldn't be worse tomorrow."
With yesterday's announcement of various budget actions by the Governor, for the first time all the potential players have acknowledged the projected $3.2 billion overspending problem facing the state. Up until now the Governor has not accepted the budget projections of the nonpartisan Senate Ways and Means Committee staff.
With the scope of the problem no longer being questioned the real work can begin to finally put the state on the path of sustainable budgeting. One way not to do this is to rely heavily on one time funds such as the new constitutional savings account still in its infancy of existence.
Instead a commitment must be made by those making the decisions next January that the state will not plan to spend more than forecasted revenue. The long-term answer is not to extend today's problem by balancing the budget with raids of every fund possible.
In the meantime it will be important to ensure that the cost savings measures announced actually materialize. Next week we should know if the hiring and contract freeze requested in August are taking root. Numbers to date, unfortunately, have not been encouraging.
Jason Mercier is the Director of the Center for Government Reform at Washington Policy Center and is based in the Tri-Cities. He serves on the boards of the Washington Coalition for Open Government and CandidateVerification, and was an advisor to the 2002 Washington State Tax Structure Committee. Jason is an ex-officio for the Tri-City Regional Chamber of Commerce. In June 2010, former Governor Gregoire appointed Jason as WPC’s representative on her Fiscal Responsibility and Reform Panel.