The State Auditor's Office (SAO) today released its Statewide Accountability Report for fiscal year 2007. According to the report, SAO "identified 20 conditions or concerns significant enough to be reported as federal findings." An additional 20 accountability findings were issued against state agencies in fiscal year 2007.
It is important to remember an accountability audit is different than a financial or performance audit. A clean accountability audit does not necessarily mean an agency will not have any findings for financial or performance issues.
On a positive note, of those agencies receiving an accountability audit in 2007, 59 didn't receive any accountability findings. This includes the Office of Attorney General, Department of Corrections, Office of Financial Management, Department of Health, Department of Transportation and Department of Revenue to name a few.
Last week SAO released its summary of fraud investigations for 2007. SAO noted that in 2007 it "reported on 24 [fraud] cases totaling more than $1.7 million at state agencies and local governments." Of those:
Last Thursday the state filed notice of appeal of a May 23 court ruling that invalidated three rules the Department of General Administration (GA) adopted to implement the competitive contracting provisions of the 2002 Civil Service Reform. The Washington Federation of State Employees (WFSE) sued to have the rules thrown out. The state's brief has yet to be filed.
It is encouraging to see the state willing to defend the importance of competitive contracting.
Washington State isn't the only government battling union efforts to roll back competition. Members of Congress sympathetic to unions continue to battle the White House's contracting reforms. According to a June 19 article on NextGov.com:
A House subcommittee has introduced a bill that would effectively end the Bush administration's already weakened competitive sourcing initiative.
In a markup of its fiscal 2009 appropriations bill, the House Appropriations Financial Services and General Government Subcommittee approved on Tuesday a one-year moratorium on any new A-76 competitions, leaving the decision to continue the public-private job competition program up to the next administration.
"The provision halts this administration's controversial and detrimental federal workforce program until the next administration has had an opportunity to consider and implement its own workforce policies," said subcommittee Chairman José Serrano, D-N.Y.
The bill has the support of federal labor unions who have lobbied against competitive sourcing by arguing that it amounts to little more than a thinly veiled outsourcing and privatization agenda.
"I think a governmentwide suspension of A-76 makes a lot of sense," said Randy Erwin, legislative director for the National Federation of Federal Employees in Washington. "The competitive sourcing program has not exactly been a glowing success, and who knows if the next president is going to want to continue what has been a very controversial program."
The bill provoked a strong rebuke from the Bush administration, which has made competitive sourcing a top priority of its management agenda.
"A moratorium would inappropriately interfere with agencies' ability to manage resources in the most cost-effective manner," said Robert Shea, associate director for administration and government performance at the Office of Management and Budget. "Competitions completed across government since fiscal 2003 are expected to produce more than $7 billion in savings, the majority of which are expected within the next five years. Most of these savings will be achieved by federal employees who have fared well under public-private competition by creating 'most efficient organizations' to eliminate inefficiencies from the federal workplace."
At least we don't have our legislators actively trying to undermine competitive contracting, yet. The battle for now is in the courts.
On June 18, the Joint Legislative Audit and Review Committee (JLARC) released the annual report required by I-900 on the implementation of the State Auditor's performance audit recommendations by the Legislature. According to the report:
Status Following the 2008 Legislative Session
Adopted as Presented - 5
Addressed with Different Approach - 6
Legislature Made Different Policy Choice - 2
Bills Introduced on Topic But Not Adopted - 2
Other Circumstances - 8
No Information - 4
Total - 27
Legislative Meeting Activity Directly or Indirectly Related to the 2008 SAO Performance Audits
Legislative public hearings or work sessions specifically on an SAO performance audit - 14
Legislative public hearings or work sessions on the topic reviewed in an SAO performance audit - 14
Total - 28
The full report is available here. The Appropriations Subcommittee on General Government & Audit Review has scheduled a public hearing on the JLARC report for July 9 @ 10 am.
" . . . the nine audits have made 434 recommendations to improve the efficiency and effectiveness of government. They point the way toward millions in savings of taxpayer dollars, and they recommend ways to transform government operations and to make significant improvements in services to citizens.
The audits identified $240 million in one-time and long-term potential cost savings and in unnecessary spending over five years. In addition, our audit of Puget Sound traffic congestion pointed to $3 billion in economic impacts to citizens and businesses and to the environment – provided all the audit recommendations are put in place.
Considering the $8 million cost of conducting the audits, the findings and recommendations represent a healthy return on investment."
The state's budget outlook took a turn for the worse today with news that the expected increase in the revenue forecast is $167 million smaller than anticipated. Even before this news the state was facing a self-inflicted $2.5 billion deficit caused by overspending.
It looks like some in the legislature are all ready planning to address this problem with tax increases. The Senate Majority Leader filed a lawsuit earlier this year to help make it easier to raise taxes.
Perhaps the question candidates should be asked before the election is: "Do you plan to use budget restraint or resort to tax increases to fix the state's fiscal health?"
The answer will have a big impact on our wallets next year.
Last month the Office of Financial Management (OFM) sent state agencies instructions on how to make their budget submittals for the Governor's 2009-11 budget proposal. One of the new sections in the instructions is the requirement for agencies to define their performance expectations for the money received. From page 33 of the OFM budget instructions:
What specific performance outcomes does the agency expect? Describe and quantify the specific performance outcomes the agency expects as a result of this funding change. As appropriate, describe:
- What desired results will be achieved? - What undesired results will be reduced? - Will efficiency increase? How? - Will outputs change? How? - What is the expected impact on clients? On services provided? On citizens? On other agenci!
es or governments?
Note: Proposals that do not make a compelling case for a quantifiable and positive performance impact on activity or statewide results will likely fare poorly in the budget competition.
Page 46 further explains:
OFM will ask some agencies to submit specific budget decision packages or additional information as part of their budget submittal. There are two key drivers for these requests:
The Priorities of Government result teams may recommend ideas for improving results, reducing costs, or gaining research to aid the evidence-based prioritization of activities. OFM may select some of these proposals and ask agencies to prepare proposals or information as part of their 2009-11 budget submittals.
HB 1242 was enacted in the 2005 legislative session, establishing new requirements for performance measure review and followup. Key requirements include:
Each agency must establish performance measures for each major activity in its budget that measure whether the agency is achieving or making progress toward the purpose of the activity and toward statewide priorities
OFM must regularly conduct reviews of selected activities to analyze whether measurements submitted by agencies demonstrate progress toward statewide results
When a review determines the agency's measurements demonstrate that the agency is making insufficient progress toward the goals of any particular program or is otherwise underachieving or inefficient, the agency's budget request shall contain proposals to remedy or improve the selected programs
The Governor's operating budget documents will identify activities that are not addressing the statewide priorities. [RCW 43.88.090, RCW 43.88.030(4)]
It is encouraging to see OFM focusing agency spending requests on their performance. This is especially important as state officials look for ways to close the projected $2.5 billion spending deficit.
Yet another federal audit has been released begging our elected leaders to address the country's fiscal situation. The following is from acting Comptroller General Gene L. Dodaro's testimony before Congress today:
"The nation’s long-term fiscal challenge is a matter of utmost concern. The federal government faces large and growing structural deficits due primarily to rising health care costs and known demographic trends. There is a need to engage in a fundamental review of what the federal government does, how it does it, and how it is financed. Understanding and addressing the federal government’s financial condition and the nation’s long-term fiscal challenge are critical to maintain fiscal flexibility so that policymakers can respond to current and emerging social, economic, and security challenges.
While some progress has been made in recent years in addressing the federal government’s short-term fiscal condition, the nation has not made progress on its long-term fiscal challenge. However, even this short-term deficit is understated: It masks the fact that the federal government has been using the Social Security surplus to offset spending in the rest of government for many years. If the Social Security surplus is excluded, the on-budget deficit in fiscal year 2007 was more than double the size of the unified deficit . . .
At some point, action will need to be taken to change the nation’s fiscal course. The sooner appropriate actions are taken, the sooner the miracle of compounding will begin to work for the federal budget rather than against it. Conversely, the longer that action to deal with the nation’s long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing and future generations will have to bear a greater burden of the cost. Simply put, the federal government is on an imprudent and unsustainable long-term fiscal path that is getting worse with the passage of time."
On the same day the general election campaign for the presidency officially began, Sen. Barack Obama (D-IL) and Sen. John McCain (R-AZ) co-sponsored legislation to enhance the federal spending transparency website they previously teamed up to create in 2006.
This Act would expand information on USASpending.gov to include:
A copy of each Federal contract in both PDF and searchable text format.
Details about competitive bidding, the range of technically acceptable bids or proposals, and the profit incentives offered for each contract.
The complete amount of money awarded, including any options to expand or extend under a contract.
An indication if the Federal award is the result of an earmark.
Information about government lease agreements and assignments in the same manner that information is reported for contracts, grants, and other assistance.
An assessment of the quality of work performed on Federal awards.
Information about Federal audit disputes and resolutions, terminations of Federal awards, suspensions and debarments, and administrative agreements involving Federal award recipients.
Information about any civil, criminal, or administrative actions taken against Federal award recipients, including for violations related to the workplace, environmental protection, fraud, securities, and consumer protections.
Information about Federal tax compliance by Federal award recipients.
Information about parent company ownership that will be made accessible, along with other data on USASpending.GOV, through application programming interfaces.
Links to publicly available Government reports.
The Act would improve data quality on USASpending.gov through:
Improved searchability of data and use of unique award identifiers that prevent the release of sensitive personally identifiable information.
A simple method for the public to report errors and track the performance of agencies in confirming or correcting the records for which error reports have been filed.
Agency inspectors general review statistically representative samples of agency awards to verify accuracy and compliance with improved data standards.
General quality audit of website data every six months, including review and report of public error reporting system and recommendations for new quality standards and procedures.
On April 1, 2008, Governor Gregoire signed into law Washington's version of the 2006 federal reform, SB 6818. The new law is based on Washington Policy Center’s (WPC) recommendation for the state to adopt a searchable budget website. It passed the legislature unanimously.
Washington's new law already includes the requirement for performance information to be included on the searchable spending website. It's good to see this information may soon be available on the federal website.
On May 23, 2008, Thurston County Superior Court Judge Chris Wickham invalidated three rules the Department of General Administration (GA) adopted to implement the competitive contracting provisions of the 2002 Civil Service Reform. The Washington Federation of State Employees (WFSE) sued to have the rules thrown out. A copy of the ruling was made available by the Attorney General last night.
At issue are WAC 236-51-006, 236-51-010(11) and 236-51-225. The main issue of contention is on what it means to be a "displaced employee" due to an agency competitively contracting work.
I had an opportunity to talk with the Director of GA, Linda Bremer, after today's GMAP session to ask what the ruling means and what the next steps are. She said that at this time GA was reviewing its options and would make a decision in the next few weeks on whether to appeal or adopt new rules.
Even before the ruling, the use of competitive contracting by state agencies under the 2002 reform has been less than stellar. A performance audit conducted by the Joint Legislative Audit and Review Committee (JLARC) in January 2007 found:
“…few agencies have competitively contracted for services in the 16 months since receiving authorization to do so. Agency managers reported two main reasons for not competitively contracting. First, managers perceive the process itself to be complicated and confusing, providing a disincentive to pursue competitive contracting. Second, competitive contracting is a subject of collective bargaining, which creates additional challenges by requiring labor negotiations. Managers must bargain, at a minimum, the impacts of competitive contracting. Additionally, some agency collective bargaining agreements include provisions which proh!
ibit agencies from competitively contracting.”
Regardless of the ultimate outcome of the court ruling on the GA rules, Washington policymakers should simplify the bidding process to make it easier for agencies to use competition to improve services. Lawmakers should also shield contracting out from union and political influence by removing it from the collective bargaining process. Improving service to the public is too important to be a bargaining chip in government labor negotiations.
The State Auditor's Office released an audit of the Department of Social and Health Services (DSHS) today with 4 findings issued against the agency.
The findings are:
DSHS does not have adequate controls to ensure all payments made through its Social Services Payment System are supported and approved. This resulted in "$88,230.42 in inappropriate payments to 115 clients and providers. The Department had identified 28 of these through its review process and our audit identified the remaining 87. The Department has begun recovery proceedings for 110 of the overpayments identified. The overpayments were a combination of state and federal dollars." - Repeat Finding
DSHS does not adequately monitor contracts with Crisis Residential Centers to ensure compliance with state law and contract requirements. DSHS "is not in compliance with state law or its own contract. By paying a provider who has allowed clients to stay beyond five days, the Department is not receiving the services – open available space for at-risk youth – agreed on in the contract. These facilities are designed to be short-term residences for emergency situations."
DSHS Children’s Administration, did not perform adequate monitoring for background checks of foster care providers. DSHS "licensed and paid foster care providers without evidence showing a required criminal background check was completed and cleared. The lack of background checks for all required individuals increases the chance of people with disqualifying criminal backgrounds having access to children served by the Department." - Repeat Finding
Public funds were misappropriated at the Department of Social and Health Service’s Division of Child Support. "On March 27, 2007, a client notified the Division that a payment, that had been made, was not posted to their child-support account. The client contacted their bank and found the payment was deposited into a personal bank account, not the Department account. The Department recognized the name on the personal bank account as a temporary employee and terminated the individual on March 27, 2007. The Department immediately filed a police report with the Olympia Police Department, which referred it to the Washington State Patrol. The Patrol conducted an investigation and interviewed the former employee on June 6, 2007. During the interview, the individual stated she misappropriated the payment. After further investigation, the Patrol concluded the former employee had misappropriated at least $25,571.58 in public funds between December 1, 2!
006 and March 27, 2007. As a result of this loss, the Division has made improvements in its internal controls regarding processing of child-support payments."
It's never good to receive an audit finding but it looks like DSHS is making progress with just a handful of problems identified. That said, there should never be a repeat audit finding. Hopefully the Governor and Legislature will make sure DSHS doesn't repeat this year's violations in next year's audit.
With a worsening federal budget outlook leading the Congressional Budget Office to project the possibility of massive income tax increases, Congress asked the Government Accountability Office (GAO) to study how best to design user fees to fund federal programs. According to a GAO report issued yesterday:
"The federal government will need to make the most of its resources to meet the emerging challenges of the 21st century. As new priorities emerge, policymakers have demonstrated interest in user fees as a means of financing new and existing services. User fees can be designed to reduce the burden on taxpayers to finance the portions of activities that provide benefits to identifiable users above and beyond what is normally provided to the public. By charging the costs of those programs or activities to beneficiaries, user fees can !
also promote economic efficiency and equity. However, to achieve these goals, user fees must be well designed.
GAO was asked to study how user fee design characteristics may influence the effectiveness of user fees. Specifically, GAO examined how the four key design and implementation characteristics of user fees—how fees are set, collected, used, and reviewed—may affect the economic efficiency, equity, revenue adequacy, and administrative burden of cost-based fees. GAO reviewed economic and policy literature on federal and nonfederal user fees, including prior GAO work, and used relevant case examples to illustrate different types of design elements and the impacts they may have . . .
Total federal user fees are in the hundreds of billions of dollars annually and growing. According to Office of Management and Budget (OMB) data, total fee collections increased 69 percent from $138 billion in fiscal year 1999 to $233 billion in fiscal year 2007. Even after adjusting for inflation, fee collections grew 39 percent. During this time period, total user fee collections varied from 6.4 to 7.6 percent of total federal spending (gross outlays).
User fees can be designed to reduce the burden on taxpayers to finance the portions of activities that provide benefits to identifiable users above and beyond what is normally provided to the public. By charging the costs of programs or activities to identifiable beneficiaries, user fees can promote economic efficiency and equity just as prices for private goods and services can do in a free and competitive private market. However, to achieve these goals, user fees must be well designed."
To view the GAO findings and recommendations on federal user fees, click here.
Marking the five year anniversary of the 2003 Bush tax cuts, the White House put out a "fact sheet" today warning "The Largest Tax Increase In History Is Looming." From the White House:
"By the end of last year, Americans would have paid an additional $1.3 trillion in taxes had it not been for the President's tax relief. If the President's tax relief is allowed to expire at the end of 2010, Americans will pay about $280 billion more in taxes each year . . .
If the President's tax relief is allowed to expire, every income taxpayer will see an increase. Taxes will increase for 116 million income taxpayers who will see their taxes go up by an average of $1,800. It will force many families to accept a nearly 200 percent tax increase. In addition:
48 million married couples will face a $3,007 increase on average. Part of the increase is due to the fact that many married couples will once again be forced to pay more taxes as a married couple than if each were treated as a single.
12 million single women with dependents will face a tax increase averaging $1,091.
18 million seniors will face a $2,181 average tax increase.
27 million small business owners will face a $4,066 tax increase on average.
These pending tax increases will be devastating for average American families. A typical family will pay $500 more per child in taxes, and 43 million families with children will face an average tax increase of $2,323. American families are facing higher costs in the grocery line and at the gas pump. Americans deserve to keep more of their income. If Congress allows the President's tax relief to expire:
A single parent with two children earning $30,000 would see an increase of over $1,600 in taxes.
A family of four earning $40,000 would see an increase of over $2,300 in taxes.
A family of four earning $50,000 would see an increase of over $2,100 in taxes – an increase 191 percent
A family of four earning $60,000 would see a tax increase of approximately $1,901 in taxes – an increase of 70 percent.
A family of four earning $80,000 would see a tax increase of about $2,000 in taxes."
So will Congress allow the 2003 tax cuts to expire? What about the spending side of the equation? Until Congress makes up its mind taxpayers will be left wondering what fate awaits them.
The cost of government is going up this year. During the 2008 Legislative Session, lawmakers proposed over $200 billion in fee and tax increases. Of that, they imposed $768 million in increases over a ten-year period.
State senators proposed 46 bills (including companion bills) that would increase state taxes or fees. The initial versions of these proposals sought to raise $215.4 billion in revenue over a ten-year period. Of these proposals, the legislature adopted five, raising $13 million in fees or taxes.
State representatives proposed 36 bills (including companion bills) that initially sought to raise $98.8 billion in fees or taxes over a ten-year period. The legislature ultimately adopted nine of these bills, raising $755 million in fees or taxes. In total the legislature enacted 14 bills raising fees and taxes by $768 million over a ten-year period.
For a list of the tax and fee increases proposed and enacted in 2008, click here.
The Department of Revenue has released a report summarizing all the 2008 legislation impacting tax collections. From DOR's website:
"The Department of Revenue has posted online a summary of tax-related legislation enacted during the 2008 and late 2007 legislative sessions. It also has published an annual update of tax exemptions with expiration dates and reporting requirements.
The Department generates the tax summaries annually to help make businesses aware of changes to the state tax system. See the 2008 summary, which covers 38 bills that will reduce state revenues by $2.2 million in Fiscal Year 2009, and see the summary of the two property tax measures enacted during the 2007 special session.
The Washington Research Council released a policy brief yesterday highlighting Washington's tax burden ranking. According to the Research Council:
Washington’s $3,948 per capita in state and local taxes for FY 2005–06 ranked 18th highest among the 50 states. New York had the highest per capita tax burden, $6,413; Alabama had the lowest, $2,782. The nation-wide average was $4,001. Washington’s per capita ranking has not changed much over the last three years. For FY 2004–05 Washington ranked 21st; for FY 2003–04 it ranked 18th.
For FY 2005–06 Washington’s $111.99 in state and local taxes per $1,000 in personal income ranked 28th highest among the states. Wyoming collected the most state and local tax revenue per $1,000 of personal income; South Dakota collected the least, $91.03. T!
he nation-wide average was $116.22.
We've been sounding the alarm (along with others) about the serious spending problems facing the nation and the lack of attention our elected officials are paying to this growing fiscal disaster. Now come projections out of the Congressional Budget Office (CBO) on what further delay means to taxpayers and the economy. The following is from a CBO letter dated yesterday to Rep. Paul Ryan (R-WI):
"Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy. If tax revenues as a share of gross domestic product (GDP) remain at current levels, that additional spending will eventually cause future budget deficits to become unsustainable. To prevent those deficits from growing to levels that could impose substantial costs o!
n the economy, the choices are limited: Revenues must rise as a share of GDP, projected spending must fall, or both."
Let's assume that tax increases are the preferred solution for the powers that be to resolve this self-inflicted spending problem. How large of a tax increase are we talking about?
"With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88percent. The top corporate income tax rate would also increase from 35 percent to 88 percent. Such ta!
x rates would significantly reduce economic activity and would!
create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would probably not be economically feasible . . .
The United States faces serious long-run budgetary challenges. If action is not taken to curb the projected growth of budget deficits in coming decades, the economy will eventually suffer serious damage. The issue facing policymakers is not whether to address rising deficits, but when and how to address them. At some point, policymakers will have to increase taxes, reduce spending, or both. Much of the pressure on the budget stems from the fast growth of federal costs on health care. So constraining that growth seems a key component of reducing deficits over the next several decades. A variety of evidence suggests that opportunities exist to constrain health care costs both in the public programs and in the health care system overall without adverse health consequences, although capturing those opportunities involves many challenges."
So what do the current presidential candidates plan to do about this? As noted by former U.S. Comptroller!
General David M. Walker, they aren't saying. Voters should demand an answer before it is too late.
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.