As lawmakers put the finishing touches on their 2009-11 budget proposals, there is still time to shift the focus to needed reforms to ensure the state is moving towards a performance-based government.
One way to facilitate this debate could be to review just how well the state is following the current performance-based budgeting requirements already in law.
JLARC (Joint Legislative Audit & Review Committee) is the perfect vehicle for this type of exercise. If interested, lawmakers could insert a proviso in the budget for JLARC to review current requirements in the statutes governing budget development. It could direct JLARC to:
Evaluate the executive branch’s performance measurement requirements related to budget requests and budget development (RCW 43.88.030 and RCW 43.88.090).
The study will focus on these statutory provisions by evaluating the extent to which:
(1) State agencies establish goals for achieving results that conform to statutory direction and limitations.
(2) State agencies establish quality and productivity objectives that are outcome-based, objective, and measure progress toward goals.
(3) The office of financial management assists state agencies with the development of performance measures.
(4) State agencies budget requests link performance measures to achievement of quality and productivity objectives.
(5) The office of financial management analyzes whether the measures for state agency activities are demonstrating progress toward objectives.
> (6) Agency budget requests !
include proposals for improvement when the office of financial management identifies insufficient progress toward goals.
(7) The governor’s biennial budget proposal includes indicators that demonstrate measurable progress toward priority results.
Although the current budget proposals reduce JLARC’s funding, lawmakers should weigh the benefits of directing JLARC to conduct this type of review to help lay the ground work for the Legislature to move towards performance-based budgeting.
By now you’ve either closed the books on the 2008 tax year or are putting the finishing touches on your tax return. If you don't by midnight, however, you’ll be hearing soon from the IRS and becoming intimately acquainted with what it means to face federal tax penalties.
But just because you can put last year’s taxes behind you doesn’t mean it’s too early to look ahead to what your bill may be next year. In fact, if some state House and Senate Democrats have their way your 2009 state tax bill might be much higher.
The current debate in the Legislature is whether to put a tax increase package on the ballot for voters to approve.
Senate Democrats are leaning towards an income tax for the “rich.” House Democrats are tossing around a “temporary” sales tax increase.
Ok, so apparently playing off of yesterday's posting about the New York Post's story on new wireless taxes and fees for New Yorkers, lawmakers today introduced HB 2351, which would raise the e-911 fee for wireline communications. The fee would raise the current county tax from $0.50 to $0.70 and the city tax from $0.20 to $0.25. This would result in an extra $3.25 per year in fees (about $11.40 total) and represents a 40% increase from current levels. This fee would go largely towards funding new equipment to handle newer communications technology. But every year the rate would be adjusted based on the state's "enhanced 911 coordinator." So don't expect the fee to go down.
But there's a catch and one I a!
m going to need some follow-up on. This fee will be extended to VoIP (Voice over Internet Protocol) phones, which were previously exempt. This is a big change. As I've pointed out in the past, people are fleeing traditional wireline telephones as if the old phones were covered in the ebola virus.
Mostly, consumers are dropping their wireline service for a cell-phone only plan because the barrier to entry on cell phones is so ridiculously cheap. (Seriously, how many people above the age of 18 do you know that do not own a cell phone?) Recapturing some of this lost revenue is one of the reasons for this bill.
But people have been taking advantage of the cheaper VoIP options as well, largely because VoIP services are also inexpensive and allow you to call pretty much anywhere in the U.S. for one low price. And because VoIP c!
urrently is regulated by the FCC and not the state's Utili!
ties and Transportation Commission, it can be offered in the bundling packages from cable and phone providers for a further discount.
So here's my question. What about non-stationary VoIP services? Specifically, services such as Skype? A Skype Pro subscription lets you use your computer as a phone and so all you need is an internet connection and I can call anyone and anyone can call me. Skype does say that it is not, and cannot, be used for emergency purposes, so I am guessing that Skype-type VoIP services are exempt, whereas Comcast/Verizon/Qwest VoIP subscribers will have to pay.
As a subscriber to both Skype and a traditional VoIP service, will I have to pay twice?
Last night the Senate voted 30-20 to pass an amendment to a bill, HB 1329, which considerably slowed down the union-led effort to force small day care workers into a union. A study will now be undertaken to determine if collective bargaining improves quality of day care or benefits for workers, or not.
Richard Roesler's blog points out that critics of the bill were also uncomfortable with a provision of the bill that would have taken union dues directly out of the state's subsidy payments, instead of directly from workers. (This involves a considerable sum of money---$6.1 million in dues from subsidy payments to the union of family day care providers.)
Last legislative session, we pointed out in the Seattle PI here that the proposed bill would turn the state into a bill collector for the union, essentially allowing the state and union to act as one party for the purpose of dues collection, threatening the interest of the public and taxpayers to understand what is really going on. I said : "When you have a contract, you are supposed to have an arm's length relationship so that the interests of the parties are clearly defined and not veiled to the public."
Another analogy can be made here to illegal contracts of adhesion, which are contracts so imbalanced in favor of one party over the other that there is a strong implication it was not freely bargained, for example, a rich landlord imposing onerous contract provisions on a poor tenant, or a large and powerful union imposing onerous contract provisions on small day care centers.
By passing this amendment, our legislators have demonstrated their understanding of the need to put a powerful union at arm's length from the state. The legislature is wise to prevent the deduction of union dues from state subsidy payments. The legislature should consider that the same lack of arm's length, the same appearance of impropriety, exists when the state directs day care centers to deduct union dues from workers' paychecks.
Every other professional organization (Bar Association, the American Institute of Architects, the Professional Engineers, the Association of General Contractors, to name just a few) has to collect dues from its members without help from the state. Why is the state in the business of helping unions collect their dues?
Legislators should extend this arm's length thinking to other contracts with other unions. Local school districts automatically deduct teachers' union dues from their paychecks. This allows powerful unions to act like rich landlords, forcing school districts to agree to contracts they cannot afford.
The state's Employment Security Department released March unemployment rate numbers for Washington this morning. The rate is now 9.2%. This is almost a ten percent rise above February's 8.4%. The federal unemployment rate for the month of March was 8.5%.
It is important to remember that unemployment rate numbers are a lagging economic indicator -- meaning this is a look backwards to assess the past month in regards to job levels. There are other economic indicators that are more forward looking (ala stock market, construction permit levels, etc.).
Earlier this year, Washington state Economic and Forecast Council director Arun Raha indicated that he expects the unemployment rate to top out around 10% in 2010. This is despite the fact that some areas of the economy see!
m to be bottoming out. Even if the economy "turns around" in 2009 3rd quarter, don't be surprised to see a continuation of jobs lost.
The U.S. economy has lost just over 5.1 million jobs since it's December 2007 peak. Washington's nonfarm payroll has declined by almost 100,000 jobs since March 2008.
According to the ESD release, practically every sector of the economy lost jobs. The construction industry was hit hardest; accounting for half the job losses in the goods-producing industry and March marked the 14th consecutive month with employment declines in this sector. The financial services industry also was hit very hard, losing 9,000 jobs. Professional and business services shed 16,100 jobs.
But government reflected year-over-year growth of 4,400 job!
s. The federal government expanded by 1,600 jobs, state govern!
ment by 1,100 jobs and local employment by 1,700 jobs.
Back in March 2008, Washington's unemployment rate was 4.8%. Today's numbers represent a 92% increase.
Today the House Capital Budget Committee will consider HB 2334, asking voters to approve a $3 billion package to fund capital improvement projects that promise increased health, safety and energy efficiency in public facilities.
Supporters of the legislation claim the bonds would be repaid in part from cost savings of improved energy efficiency. In addition, proponents highlight requirements to use performance based contracting to achieve the savings.
Unfortunately, these claims are misleading and could potentially threaten the bond ratings of other investments.
Proponents of HB 2334 are wrong to tie promises of energy savings to cost repayments through performance based contracting. Performance based contracting was established as a tool to ensure that, when a contractor makes promises through a contract, results are achieved.
The State's General Administration (GA) website provides a good explanation of how the State has used performance based contracts on a variety of projects, with promising results.
According to the site about 100 projects have used this system. These projects have cost taxpayers more than $150 million to complete with a claimed savings of roughly $11.5 million annually. At this rate of return it would take more than thirteen years to pay back the costs of all of these projects. These numbers, however, have several flaws.
For instance, they are not audited and it is difficult to promise actual energy savings. When a building uses the performance based contract process, an inspection will identify what systems can be changed to achieve greater efficiency. If the agency chooses to change light fixtures, a contractor can promise savings from changing each fixture because they are essentially changing light bulbs for more energy efficient bulbs. The contractor, however, does not guarantee that the light fixture will be utilized or operated in the same manner as the previous fixture, and, according to the GA, is unlikely to promise a return on investment through cost repayment.
The "annual savings" identified by the GA's spreadsheet are snapshots in time and are not meant to predict actual savings. The GA is honest that these numbers do not represent actual, audited energy savings. Given the difficulty they are having identifying those savings in the current, modest program, how likely is it that they will do better when the program spends thirteen times as much in a two year period over what was spend during the past 10 year period?
Given the amorphous nature of the energy savings estimates, is it wise to base the State's bond payments on hoped-for, but hard to recover, energy savings?
While it may be true that the money spent will provide greater health or safety improvements, there is no data available to suggest that this results in cost savings. In fact, as our research shows (What Washington's "Green" Schools Tell Us about HB 2334's $3 Billion Spendnig Plan), such modifications to systems that would improve air quality, like an HVAC system run more frequently to bring in fresh air, often results in higher energy cost. Savings have yet to be realized as was promised in previous energy saving packages. The performance data available thus far for "green" schools provides legislators with a valuable tool for better understanding the promises of cost savings and energy efficiencies in HB 2334.
In addition, the proposal to increase the indebtedness of the State has caught the attention of Democrat State Treasurer Jim McIntire. In a statement regarding the $3 billion bond package he noted that, "added debt called for in HB 2334 is too much" and that, "It would threaten our credit rating and would affect the rest of our investments in transportation and public infrastructure." Harming the credit rating could lead to an increase in rates and additional cost to the taxpayers, minimizing further any potential benefits from the proposed projects.
Finally, if these projects will truly deliver the claimed savings, one has to wonder why they were not funded when the state had surpluses. The State's 2007-09 biennial Capital Budget is $4.6 billion and the 2009-11 proposed biennial Capital Budget before the House is $2.9 billion with the bonds making up approximately half of these budgets. Increasing the debt to fund projects that have not met priorities when funding was available makes the return on investment even more unlikely.
As the House Capital Budget Committee considers HB 2334 it is important to understand that the proposal before them over promises on what it can deliver.
Today, the Port Orchard Independent published two letters reacting to my editorial "Our schools need better teachers, not more money." The first letter concludes that "the entire education system is out of whack, and money isn't what it will take to fix it." The second letter states that in order to have good teachers, we have to pay extra education dollars for "coaching, training, development, performance management, classroom audits" and such.
More money will not fix our schools. Only better hiring and spending decisions at the local school level will improve our schools.
We have already spent billions of dollars to raise teacher quality. Between 1993 and 2008 the legislature spent over $5 billion in 80 education reform programs aimed at teacher training and other efforts--see Appendix to our Education Reform Plan.
Yet only 19 students out of every 100 manage to earn an associate or four year college degree. Many of the kids who make it to college drop out, as they have not been prepared for the rigor of college by their K-12 education.
As the most important factor for student learning is the quality of the teacher, why can't we allow principals to hire the best possible teachers (by not limiting the hiring pool to those who hold a credential) for the classroom? And why can't we allow principals to control their budgets, so they can spend education dollars in the best way possible to reduce student loads on classroom teachers--a reform which is now working in other states to raise achievement?
Pouring more money into a dysfunctional, broken system will not improve our schools.
That looks to be the case. Senate Bill 6158 delays the system implementation date from October 1, 2009 to October 1, 2012. It is evident the legislature recognizes the financial difficulty the state is in and that piling another expensive government benefit on top of everything would be irresponsible.
But by simply delaying for three years its implementation, policymakers are gambling the state and national economy will have turned around enough that no one will notice this potential payroll tax. Chances are good that the "Great Recession" will be a blip in our rearview mirror -- and besides, there's always less resistance to expanding government when times are good.
We'd rather see it permanently go away -- to be handled by companies on their own -- but at least there seems to be an acknowledgement that new and expansive government !
programs have a direct cost on citizens and therefore should be avoided when times are tough.
A New York Post story hit the news today about how wireless phone subscribers are paying up to 33 percent in federal, state and city levies.
But this isn't news to the 260+ million wireless subscribers in the United States. Every month we get our bill and see the "government fees and taxes" section and have no idea what, if anything, that money goes towards. We simply shrug our shoulders and write out the checks.
Which is exactly what they want you to do.
A tax analyst the Post used to look at the information hit the nail on the head:
"There's a tendency to feel no one is going to notice this little tax...[policymakers] can do this without a lot of pushback from their constitu!
A report from 2007, published by the Beacon Hill Institute and the Heartland Institute, breaks down which cities have the highest taxes and fees on communications services. Seattle ranked competitively in the "Cable Video Services," and "Wireline Telephone Service" categories. But Seattle's "Wireless Telephone Service" tax rate greatly surpassed the national average. In fact, Seattle's ranking was 5th worst in the nation at a hefty 18.29% (national average: 11.78%).
As policymakers on all levels of government look to raise revenue to deal with their overspending and down economy, watch your communications services. I know I am not the only one who notices slight upticks in taxes and fees every couple of months on my cell phone, cable TV or broadband cable bills. It's often so slight that you wo!
nder if your brain isn't playing tricks on you.
Since 2004, lawmakers have increased spending on K-12 education by 30%, from $7.7 billion to $10.1 billion. Lawmakers have found it easier to ride the wave of increased tax collections during the good times than to pass substantive, systemic school management reforms that produce better academic results for kids.
Students have not benefited from this 30% increase in school spending. Today's Alliance for Excellent Education conference held in Seattle, and sponsored by the College Success Foundation, revealed that 70% of Washington 8th graders are reading below grade level, according to the National Assessment of Educational Progress.
The chart below shows that despite a 30% increase in education spending, academic outcomes for students haven't improved at all. More spending simply doesn't help. School administrators need to make better use of the money taxpayers are giving them now, not just ask for more.
The American Public Transportation Association (APTA) has a new study that shows how much money a household could save by switching to public transit. For example, the APTA study estimates that if a Seattle household traded in one car and used transit they would save about $10,447 per year.
The study conveniently explains the methodology used to estimate their figures:
APTA then compares the average monthly transit fare to the average cost
of driving. The cost of driving is calculated using the 2009 AAA
average cost of driving formula. AAA cost of driving formula is based
on variable costs and fixed costs. The variable costs include the cost
of gas, maintenance and tires. The fixed costs include insurance,
license registration, depreciation and finance charges. The comparison
also uses the average mileage of a mid-size auto at 23.4 miles per
gallon and the price for self-serve regular unleaded as recorded by AAA
on April 8 at $2.047 per gallon. The analysis also assumes that a
person will drive an average of 15,000 miles per year. The savings
assume a household gives up one car.
There is one variable however, the study failed to account for: the value of time. One of the most significant tradeoffs with switching from driving to using public transit is the extra time involved. For example, commuting door-to-door from south King County to downtown Seattle takes about 1 hour in a motor vehcile. (obviously, this estimate can change drastically depending on where you live. Switching to public transit would take 2 hours to make the same trip, door-to-door.
Everyone has their own opinion on how much an hour is worth to them. If I valuled my time at $35 per hour, and added two extra hours of commute time, the cost of moving to public transit would be about $19,600 per year. This means it would cost me about $9,123 per year to switch from driving to public transit.
The following table shows how much two extra hours of commute time per day (annualized) would mean to you, depeding o!
n your personal value of time:
of 1 hour
Extra cost per day
from using Transit
Annual cost, based on
260 work days per year
Assuming your commute time would increase two hours per day, you would have to value your time at less than $20 per hour to make the switch from driving to transit make sense.
Lawmakers in Olympia are wrestling with a $9 billion budget deficit, which raises an important question: How did we get in this mess in the first place? The conventional answer is the lousy national economy. But some states don't have deficits and others have shortfalls that are proportionately much more manageable than ours. Another response is that tax revenues are "down." But the state will collect as much money in the next budget as in the last one. We do not have a deficit because Washington citizens pay too little in taxes.
The clear answer is overspending. In recent years lawmakers and the governor increased permanent spending by 33%, raising the state's financial obligations to unsustainable levels. It might have worked had the good times continued indefinitely, but when the recession hit poor judgment by state leaders had already placed Washington in a weakened financial position. The!
chart below shows how the state's general fund spending has increased over time, especially in the 2003-05 and 2005-07 budgets. If state leaders had not overreached we would not have a deficit today, or at least the budget crisis would not be so severe.
There's no question that our state legislators work very hard. And during the long session (105-day) I know that things can get a little testy. Exhaustion can lead to making poor decisions. And so I'm willing to laugh a bit at some ideas I think are done in jest.
But that doesn't mean I am not concerned about the precedent legislators are setting.
The latest example of this comes from HB 2337, which basically takes Boeing to task for wanting a better business climate for itself and its second 787 line, otherwise it is considering leaving to greener pastures.
The bill lists several national rankings that put Washington near the top of states with the best business climate. We've largely!
debunked these rankings in the past. And the legislation goes on to direct the soon-to-be-formed state Depart of Commerce to:
"consider the societal benefits of unleashing the innovative, creative and entrepreneurial talents of the Washington state workforce to 'innovate here' through...the aerospace industry."
That sounds all well and good, despite the fact that it assumes the private sector isn't already doing just that. The legislation also directs Commerce to conduct a worldwide search for potential aerospace investors -- specifically encouraging direct foreign investment; and to bring them here by offering the same goodies that Boeing received as a result of the 2003 legislation.
"We should do everything we can to keep Boeing here, within reason. Boeing is a good citizen when they behave. Sometimes they need to be taken outside the woodshed and spanked." (h/t Jerry Cornfield, Everett Herald)
So, let me get this straight. When a large business complains that the business climate it functions in is unsuitable for future expansion, it's the legislature's job to apply the smack down? Or, perhaps policymakers can feel cavalier enough to make their own threats against Boeing, apparently forgetting that Boeing already moved its headquarters to Chicago.
If Boeing, and its supporting subcontractors, skip town, why would other aerospace companies m!
ove in to take its place? I highly doubt Airbus and its parent company EADS will say to themselves, "hey, we're struggling just as much as Boeing. Let's invest billions into an infrastructure Boeing couldn't make work!"
And how about including in the legislation this independent Deloitte report that says Washington's aerospace industry faces more disadvantages than advantages by staying here?
I'd say that between the spanking in this bill and HB 2316, which prohibits threatening the relocation of manufacturing jobs based on pending legislation, that we have certainly rolled out the welcome mat for any future aerospace or other manufacturing companies thi!
nking about relocating or expanding in Washington.
iv>I guess it's all fun and games until Boeing and its 70,000+ jobs head off into the sunset.
As governments scramble to look for ways to cut costs over the next couple of years one area that is being highlighted is information technology (I.T.). Our post-industrial society, and therefore government, rely on the rapid transfer of information. The broad, indiscriminate dissemination of information helps keep governments accountable and citizens informed. This is a good thing.
And so a movement has formed that supports open-sourced software that is largely free to the user. These are programs such as the very popular Firefox internet browser and OpenOffice, a free suite of office tools (similar to Microsoft's dominate Office).
I use Firefox, it's a great browser, and I use a lot of other open-source programs for my computer and mobile phone. I am not a developer, but if I were, I would apprecia!
te the openness and ability to take the core building blocks of a software program and be able to customize it to my specific needs.
But this is where things get interesting. Some proponents in the open source community are baiting policymakers with promises that mandating open source software will save taxpayers millions of dollars. But this is disingenuous. As the saying goes, "there is no such thing as a free lunch," and this axiom applies here as well.
Unfortunately, many in the open source crowd are also supporters of the "anti Intellectual Property" movement. They are against patents, property protection, profit motives, or basically anything to do with making money off of your idea and work. These are also largely the same folks advocating for the utopian Network Neutrality -- asserting that Internet access is a fundamental human right.
Open source software requires a lot of work to tailor-make it to!
your, the customer, needs. This means companies can offer ope!
n source programs to your department at a very low price, but then sell the consulting services in order to actually make it work to your exact needs. Proprietary software, ala Microsoft Office, is ready to use right out of the box. You pay more for it upfront, but then spend a lot less time, if any, customizing it on the back end. This is because you are paying for their Intellectual Property, as opposed to the open source programs, where you pay for their customization skills.
Personally, I think that we need both systems. A robust IP protection system in order to encourage proprietary development, and an open source system that harnesses the power of the community (for a great example of this see Apple's iPhone SDK and App store). I like having the choice. And governments should as well. In fact, several have already looked at mandating an open source only policy and have!
rejected the notion because of the limits it puts government IT crews into (see Texas' report on the subject).
Lastly, Raymond J. Keating, Chief Economist for the Small Business & Entrepreneurship Council hits the nail right on the head:
"Providing a clear and stable intellectual property system is critical to innovation, entrepreneurship and economic growth...After all, patents spur innovation in two ways. First, they incentivize invention and innovation by assuring that inventors reap the rewards of their inventions. Second, they in way stop others from finding better ways to better serve the market."