Washington Policy Blog

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.

Principles of Taxation for Elected Officials

It's been a busy month at Washington Policy Center and sometimes news stories that are worth pointing out slip through the cracks -- as this story did:

From KOMO on September 21st:

SEATTLE (AP) - Union leaders say striking Boeing workers should apply
for unemployment compensation but concede they have little chance of
collecting....The Machinists union strike has shut down Boeing's aircraft assembly plants since Sept. 6.

As the story says, union leaders concede there is little chance of collecting the benefits. Under current state law, striking or locked out workers are not eligible for UI benefits.

But make no mistake that efforts have been underway for awhile to make it so that workers involved in a labor dispute could, in fact, collect taxpayer-funded unemployment insurance benefits.

SB 6327, introduced earlier this year, would have taken steps to make this a reality. It died in committee, as did its companion bill in the House, but expect it to rise from the ashes in 2009, particularly if the Boeing SPEEA dispute is still going.

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.

Earlier this week, however, the UW announced it was facing a $10 million budget cut. UW's state relations director, Randy Hodgins, explains in his blog:

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.

This column appears in today's Seattle Times and is based on our Citizens' Guide to Sound Transit, Phase 2 and a piece written for the Heritage Foundation, Reforming State Transportation Policy: Washington State's Efforts to Implement Performance-Based Policies.

Guest columnist | Sound Transit's Prop. 1 spends much, delivers little

Sound Transit's Proposition 1 would disproportionally spend large
amounts of public resources on a transit program that will serve less
than 1 percent of all trips.

By Michael Ennis
Special to The Times

ON
Nov. 4, voters in King, Pierce and Snohomish Counties will again decide
on whether to expand Sound Transit's regional mass transportation
system. The new Sound Transit proposal (ST2) would add 36 miles of
light rail, expand the Sounder commuter rail by four daily round trips
between Tacoma and Seattle and expand the Express bus system by 17
percent.

Sound Transit estimates the cost would be about $22.8 billion over the next 30 years.

The agency's officials also estimate that if ST2 passes, it will
carry only 0.4 percent of all daily trips and 2.4 percent of all daily
work trips by 2030. Sound Transit officials also show ST2 would only
reduce the region's carbon-dioxide emissions by about 1 percent.

There is no doubt mass public transportation is part of the solution
to reduce traffic congestion, especially in dense population centers.
But Sound Transit's plan would disproportionally spend large amounts of
public resources on a transit program that will serve less than 1
percent of all trips.

Public-sector spending decisions typically are based on perceived
value and whether taxpayers believe they are receiving a proportional
benefit for the money spent. In other words, the social value of $22.8
billion should be equal to its economic costs. The difficulty is
defining the social value. Is a transit system that carries less than 1
percent of all daily trips worth more or less than doing something else
with $22.8 billion?

In Sound Transit's case, there is a large space between costs and
benefits because the agency's goal is not to reduce traffic congestion
or to reduce carbon-dioxide emissions. In fact, Sound Transit's only
official objective is simply to collect taxes and build a mass-transit
system, regardless of costs or performance.

In other words, there are no performance measures or benchmarks as a
condition to Sound Transit's taxing authority. Oh sure, Sound Transit
officials do have some limitations on how taxes can be spent, but in
terms of measuring success, they are only judged on building and
operating a transit system. It doesn't matter to Sound Transit how few
people they serve or how few pounds of carbon dioxide are reduced. So
it is not surprising that Sound Transit's own analysis shows how poorly
it would perform in these areas.

Spending billions of dollars in public money on a transportation
system that has no relationship to market demand or other performances
goals is only a public construction and employment program. In fact,
supporters tout job creation as a benefit of passing the measure.

As with any public-works project, spending public money to create
jobs is not economically efficient and does not lead to a net social
benefit. Sound Transit officials would only shift $22.8 billion from
one sector of the economy to another.

In economic terms, offsetting the temporary growth in the
construction industry and the permanent expansion of government with
the losses in other sectors would not simply be a neutral shift of
resources. It is well understood that the value of money is always
worth less in the hands of government because public-sector costs are
generally higher and the spending is not based on economic forces.

Either way, while Sound Transit officials are spending $22.8 billion
in the name of transportation policy, traffic congestion will continue
to double or triple over the next 20 years.

Whether or not Sound Transit's ballot proposal passes, policymakers
should change the current system in which transportation spending is
based on other agendas and instead apply a performance-based policy
where value and effectiveness determine where spending takes place.

In business, measuring performance is a way of life. It is viewed as
an indispensable tool that shapes decisions about how resources are
distributed. In the public sector, however, performance measures are
treated as an inconvenience, because they can oppose how policymakers
want to distribute resources.

In Sound Transit's case, the agency exists only to build a
mass-transit system, regardless of objective public need, costs or
performance.

While the legislative process should have the final authority,
basing transportation decisions on anything other than measurable
outcomes inevitably leads to a fragmented collage of spending that has
no relationship to relieving traffic congestion.

Performance-based policies that tie spending to specific benchmarks,
like traffic-congestion relief, is the key to allocating transportation
resources in a strategic and efficient way. Otherwise, government
agencies such as Sound Transit will continue to propose plans that have
no relationship to the one solution citizens want most,
traffic-congestion relief.

Joe Turner over at the TNT has a post about how Light rail isn't always cheaper to operate than buses. Most supporters claim that light rail, once built, is cheaper to operate than a traditional bus service.

Turner draws from an explanation from John Niles, a local transportation consultant and a recent WPC Policy Brief, The Facts on Light Rail.

In the study, we conducted a comparative analysis of the six existing light rail systems on the West Coast that have been operating for at least ten years. The cities include Los Angeles, Portland, Sacramento, San Diego, San Francisco, and San Jose.

As it turns out, operating light rail is more expensive than buses in some cities and less in others. On average:

The total annual operating costs (not including capital) for the six light rail systems on the West Coast was about $439 million in 2005.The total trips for the same systems in 2005 were 167.6 million.

This means the operating cost for the six light rail systems on the West Coast was $2.62 per trip.

The total operating costs for traditional bus service in the same six agencies was about $1.5 billion and annual trips were about 642 million. The operating cost for traditional bus service in 2005 was about $2.34 per trip.

When accounting for passenger demand, light rail on the West Coast is
12 percent more costly to operate than buses in the same six cities.

Niles looked at some other cities, substantiated our findings, and made the following conclusion:

Light rail in big cities like LA, San Francisco, and Dallas is more expensive to operate than buses in the same city.

This is the counterpoint to the Prop 1 Yes campaign and Sound Transit observation that in Portland, light rail operates at lower cost per boarding than buses.

The Seattle Times has an excellent investigative report on how Congress is still hiding the bacon despite passing so called earmark reform. In its article (Despite reforms, Congress hides $3.5B in defense earmarks) the Times notes:

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."

Since Congress apparently doesn't feel the need to be transparent to the American people on earmarks, the Times has created a searchable database of lawmakers, earmarks, and campaign giving.

Meanwhile the state's searchable budget website is scheduled to go live by January 1, 2009.