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.
The Office of Financial Management (OFM) today posted on its website an inventory of state agency fees. The 2008 Fee Inventory is in response to a budget proviso passed by lawmakers in the 2008 supplemental budget. According to OFM:
Chapter 329, Section 127(15), Laws of 2008 requires that the Office of Financial Management “conduct a review and analysis of all fees for which the legislature has delegated to state agencies and institutions of higher education the ability to establish and determine the amount, either upon initial establishment or subsequent increases.”
The 2008 Fee Inventory includes only charges that meet the definition of a fee; it does not include charges such as penalties that are not fees for purposes of Chapter 43.135.055 Revised Code of Washington. Both fees set in statute and those set administratively by agencies are included.
The inventory also includes information about programs that these fees support. “Program” was defined by each agency in the most meaningful way for their information. Program may equate to activities used for budgeting purposes, as defined in the Activity Inventory; or, it may tie to program structure. Activity expenditures over the past five years are estimates since accounting for actual expenditures is only by program structure.
One of the features of the OFM Fee Inventory is a description for each fee of who benefits from the program supported. Having reviewed each agency's report, my favorite response to this question is for several fees under the control of the Department of Ecology.
Ecology's answers ranged from: "All Washington Citizens" to "Public" to "Breathing Public."
It sounds like members of the King County Council are on the verge of taking the County out of the animal shelter business and turning these duties over to The Humane Society. According to articles today in the Seattle PI and Seattle Times:
"Today we are faced with the disturbing reality that progress has not been achieved," said Council Chairwoman Julia Patterson. "Enough is enough. We are recommending that King County get out of the business of operating an animal shelter." - Seattle Times
Council Chairwoman Julia Patterson and Vice Chairmen Dow Constantine and Reagan Dunn called a news conference inside the King County Courthouse to promote a plan that would reduce the county's role in animal services by partnering with a private agency to handle shelter services. "It would mean not being in the sheltering business any more," Constantine said. - Seattle PI
"State lawmakers are fond of talking about openness and transparency in government, but generally come up short when it comes to taking positive legislative action.
This year was an exception when the House and Senate passed Senate Bill 6818, which requires the state to make available to the public detailed information about state spending. State officials have until Jan. 1, 2009, to assemble line-by-line state spending data and make it available to the public via a Web site.
It's a great step forward to a more open and transparent government. Now it's time for lawmakers to shift their focus to the revenue side and give the public the same kind of detailed information about the taxes they pay to support government programs . . .
For those who want to delve into the state budget and see how tax dollars are spent, the transparency law will be of great benefit. Residents can thank the Washington Policy Center, a nonpartisan, free-market, state-based think tank in Seattle, for pressing the measure into law.
Now the policy center is back with a second transparency proposal, this time on the revenue side . . .
If passed by the Legislature, the bill would set up an online database where users could find their state and local tax rates — such as property and sales taxes — by entering their zip code, street address or by clicking on a map showing individual taxing district boundaries. An online calculator would let citizens determine their total tax burden and also identify which officials are responsible for each part of the tax bill . . .
In January, legislators once again will be tested on their commitment to openness and transparency — this time on the taxation side. They can pass the test only by passing the taxation transparency measure."
The Seattle PI has also endorsed our proposal for more tax transparency.
The State Auditor's Office today released a performance audit of the state's 10 largest school districts' administrative practices. According to SAO:
"If our recommendations for improved economy and efficiency are followed, school districts could achieve cost savings exceeding $54 million over five years. Of the 13 audit areas we identified, not all affect each district; in fact certain districts are commended for their work in some areas."
One of the areas reviewed was district financial management and cost analysis:
"For school districts to achieve the objectives of accountability and comparability, financial information must be both relevant and reliable for reasonably informed users. Financial reports must satisfy numerous and diverse needs or objectives, including short-term financial position and liquidity, budgetary and legal compliance, and issues that hav!
e a long-term focus such as capital budgeting and maintenance. Additionally, differences exist in the amount of detail that various users need . . .
Currently, Washington school districts do not have a complete and accurate financial picture of their programs or functions. This does not mean that costs associated with each program are not reviewed and carefully monitored throughout the year. Additionally, each district can point to aggressive steps they are taking to cut budgets and reduce costs in all areas. However, without accurate cost accounting for each project, it becomes increasingly difficult to assess and compare programs or departments and determine any areas that can afford budget cuts . . .
One of the important uses of accurate financial data is for comparability purposes. There are an infinite number of ways that financial data can be analyzed using historical data, industry data and 'what-if' scenarios. All cost analysis can be valuable, but in the government sector, especially in entities such as school districts that are subject to rigorous cost scrutiny, the ability to respond to the public and other groups as to why they operate under certain conditions or models is critical to public acceptance, which in Washington State is critical to funding approvals and other school district actions."
This past weekend I was in Baltimore at a national open government retreat working on recommendations for the next President on how to make the federal government more transparent and accountable.
Among the 70 individuals at the retreat were representatives from OMB Watch, National Security Archive, ACLU, Society of Professional Journalists, OpenTheGovernment.org, League of Women Voters and Reporter’s Committee for Freedom of the Press to name a few.
The federal bailout bill also was discussed at the retreat. There is serious concern about the level of secrecy being included in the draft bailout proposal. Here is a memo that was worked on at the conference that is circulating amongst open government groups. Here is the language of the bailout proposal.
Continuing our transparency efforts, last week I also participated on a panel on government transparency in Phoenix at the annual meeting of the State Policy Network, the national organization of state think-tanks. I announced WPC's recommendation for a tax transparency website that would provide an online searchable database of all tax rates in the state. The Seattle Post-Intelligencer endorsed our recommendation shortly after its release. Other SPN groups may now take our recommendation to their own states for their lawmakers to consider.
I’ll provide updates on both these efforts (Baltimore/Phoenix) as they develop.
In response to today's revenue forecast the Governor said she is "directing the Office of Financial Management to locate additional budget savings of $200 million, without affecting vital programs." Hopefully this effort will have more success than her August request that state agencies not sign personal service contracts unless they are an emergency.
Here are examples of some of the personal service contracts signed since the Governor issued this contract freeze:
CTED: $400,000 - "The purpose of this contract is to provide tourism and trade services to Washington in the nations of China, Japan & France."
Department of Archaeology and Historic Preservation: $149,714 - "Develop a feasibility study for a Washington State Maritime Heritage Area."
State Parks and Recreation Commission: $254,701 - "Additional work to address additional funding from the legislature for the Seminary design at Saint Edward State Park."
Turns out the projected revenue for next biennium is better than I reported this morning. I originally used the numbers from OFM's press release which showed $1.4 billion more in revenue for the 09-11 budget cycle than the current budget.
First the good news, the state is projected to have $1.4 billion more in revenue for the 09-11 budget cycle than the current budget. Now the bad news, the carry forward cost of the current budget leads to a projected budget deficit of more than $3 billion.
2007-09 forecasted revenue: $29.9 billion
2009-11 forecasted revenue: $31.3 billion
Projected revenue increase: $1.4 billion
So if the state will have $1.4 billion more in revenue but is facing a $3 billion budget deficit, is that a revenue problem or an overspending problem?
Jason Mercier is 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.