Washington Policy Blog

Public Option by Another Name

December 11, 2009 in Blog

The latest "compromise" in the Senate debate on health care reform is the expansion of Medicare to anyone 55 - 64 years of age and the potential expansion of Medicaid to anyone who makes less than 150% of the federal poverty level (FPL). These measures would take the place of the "public option" passed in the House bill.

This is like something right out of Alice in Wonderland, where up is down and in is out.

Medicare is a public option, where everyone over the age of 64 is essentially required to join and where all participants are locked into a government run and controlled health care program. It is estimated that 3-5 million people would be eligible for the proposed Medicare buy-in. These new enrollees would be people without current health insurance and would be high utilizers of health care.

At present, Medicare has an unfunded liability of $89 trillion according to the CMS trustees. Adding millions more people to the program will not bend the cost curve of health care down unless significant rationing takes place. For the first three years there will be a buy-in for the 55 - 64 year olds to defray costs, yet after 2013 the federal government would simply wrap all participants into the standard Medicare plan.

Likewise, Medicaid is a government controlled health care program for the poor, where states share the cost with the federal government - in other words, tax payers from all over the country. Medicaid is also one of the largest budget items for virtually every state and is a main cause of the huge financial deficit states are facing.

Expanding Medicare and Medicaid is simply a bold move to place more of the American public in government controlled health insurance programs without calling it a "public option".

Unemployment Insurance Taxes to Increase 54% in 2010

December 11, 2009 in Blog

No sooner has the dust settled from the Governor's announcement that she intends to seek tax increases in 2010 to help shore up the $2.6 billion budget deficit than the Employment Security Department today announced that Unemployment Insurance taxes for the state's employers are going up in 2010.

In a release from ESD, Commissioner Karen Lee outlined the plan that will see the average total tax rate to increase from 1.55 percent in 2009 to an estimated 2.38 percent in 2010 -- a 54% increase, even if the 2010 rate is less than the previous recession-recovery years of 2004-05.

The Department also said,

"Many employers will pay higher taxes in 2010 due to their own layoffs and the effec!
t those layoffs have on their experience rate. Employers that had no layoffs in the past four years will pay no experience tax in 2010. However, they will pay the minimum social-cost tax, which is increasing from 0.35 percent in 2009 to 0.95 percent in 2010...

The social-cost tax will increase sharply because benefit payouts far exceeded taxes collected in 2009 -- e.g., nearly $2 billion paid out and about $1 billion in taxes collected..."

No one could realistically forecasted just how bad the economy would get and its effect on state finances. However, the recession is also wreaking havoc on our state's business community. Couple this with the 7.6% workers' comp increase and the talk of $700 million in taxes for 2010, and this is a recipe for prolonging the economic hurt in this state, particularly for small businesses. 

Earlier!
this year the state legislature authorized a permanent increa!
se in UI benefits, along with a temporary increase through the end of 2009. We had concerns that bumping up the benefits, and adding a temporary "economic stimulus benefit" on top of that would draw down the state's substantial reserves too quickly, which would force the state to raise UI taxes in the future. 

In fact, I wrote in a Legislative Memo earlier this year that, 

"Unemployment Insurance was created to aid workers with insurance benefits against the risk of losing a job. It cannot be suddenly passed off as a way to grow the economy, because it does not. Real growth in the economy is the only way out of a deep recession. Raising UI benefits may be a laudable goal for helping those who lost jobs through no fault of their own, but passing higher UI benefits off as something that stimulates the e!
conomy is disingenuous...

As long as policymakers avoid drawing down the UI trust fund too much, they will avoid the problems that accompany “stimulus” spending – that of prohibitive transaction, opportunity and debt service costs.

But a major worry with the state increasing UI benefits through drawing down the reserve is what happens if the reserve is drawn down too far? The coffer would have to be repaid through higher UI taxes, thus raising the cost of business in Washington and negating the benefits of any multiplying effect."

Well, that future is almost upon us. 

Do What I Want or the Economy Gets It!

December 9, 2009 in Blog

Yesterday, we released a confidential briefing memo written by Governor Gregoire's current Chief of Staff Jay Manning on the likely impact of her Executive Order on climate change. The memo notes that a "benefit" of the order would be to "increase in the regulated community’s interest in getting a national program." In other words, the impacts of the order on businesses and families will be so significant that it will drive them into the arms of a federal cap-and-trade program.

This is at odds with the constant proclamations that Washington's "leadership" on climate regulation will help our economy. Internally, the Governor's Chief of Staff understands that this is not the case. That fact is not a side effect, however, it is part of the strategy. As we used to say in my computer programming days, "It's not a bug, it's a feature."

News reports today that the federal government is using a similar strategy. According to Fox News, an EPA official says that business better get on board the cap-and-trade program or the EPA will come up with rules that are far more costly and damaging to the economy. They report the unidentified official as saying:

If you don't pass this legislation, then ... the EPA is going to have to regulate in this area. And it is not going to be able to regulate on a market-based way, so it's going to have to regulate in a command-and-control way, which will probably generate even more uncertainty.

This would be a huge "deterrent to investment" for companies. The Administration understands the extremely high costs of this approach, but they see those costs as a benefit because they can be used to coerce the opposition into accepting legislation that kills jobs, but hopefully less than the alternative.

These comments demonstrate that despite the constant rhetoric claiming that the taxes and regulations associated with cap-and-trade and other climate policies will create jobs and help the economy, there is a recognition that this is not the case even among advocates of those programs. What advocates are saying, quite simply, is that they don't care if the economy is hurt because climate policy is more important. We can have that argument but it is clear that they don't really believe their own talking points about the economic benefits of more taxes and regulation.

Governor's budget proposal results in $2.8 billion deficit for 2011-13

December 9, 2009 in Blog

Governor Gregoire today released her proposal to close a projected $2.6 billion deficit in the current budget. While she is to be commended for starting the conversation on the type of changes needed to reset state spending, she failed to identify the changes necessary for a truly balanced and sustainable budget.

The Governor acknowledged that the state is facing at a minimum a three-year problem. In fact, assuming her budget is adopted, a $2.8 billion deficit is projected for the 2011-13 biennium. Here is the 4 year budget outlook provided by the Office of Financial Management.

It is important to remember that prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate. Last session the legislature made a small step toward correcting this past unsust!
ainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.

By continuing to focus on the short-term problem, the Governor missed an opportunity to start the debate on the full budget problem. This may have consequences on the state's credit rating. According to Moody's October 9 report on Washington's credit outlook, the following could result in a reduction to the state's credit rating:

  • Protracted structural budget imbalance.
  • Increased reliance on one-time budget solutions.
  • Failure to adopt plan to cover expenditures once federal fiscal stimulus monies are no longer available.

The Governor's proposal fails each of these tests.

Though making hard choices and proposing real spending reductions, the Governor still plans to issue a tax increase proposal prior to session and has not ruled out a sales tax increase. She was very clear that she wants the legislature to raise any taxes and not put them out for voter approval.

Including the need to replace the billions in one-time federal stimulus funds, tax increases would need to be in the billions, devastating any prospect for the state’s economic recovery and costing the state tens of thousands of jobs.

As noted by these economists, we will not be able to tax our way out of the “great recession.” Instead state spending expectations must be reset to the new economic reality.

The Governor has started the discussion about the reductions needed but the budget&!
#39;s long term sustainability must be addressed, not just the current deficit.

Bill introduced to end state liquor monopoly

December 8, 2009 in Blog

Senators Tim Sheldon (D-35) and Curtis King (R-14) have introduced a bill to end the state's archaic liquor monopoly. From SB 6204 - Privatizing the sale of liquor:

"(1) The legislature intends for privatization of retail and distribution of liquor to result in a system that is more efficient than public sector retail and distribution. The legislature finds that the present system of state control includes a markup amount at distribution that generates revenue for the state and local governments, and that this markup will be eliminated when liquor sales and distribution are privatized. The legislature further intends that the privatization of liquor sales and distribution not result in revenue losses to state or local governments as compared to projected revenues assumed under state control, not including any sep!
arate licenses or franchises.

(2) Therefore, the legislature directs the liquor control board and the department of revenue, with assistance from legislative staff and the office of financial management, to present a report to the legislature no later than December 1, 2010, on a recommended method and rates of liquor taxation that would generate the same future projected revenue for the state and local jurisdictions as under the current state control system. The report may also include recommendations on tax enforcement and simplification to the current system of liquor taxation and distribution of revenues." (Sec 101)

"By July 1, 2012, the board must close all state liquor stores and state liquor distribution facilities, and must sell at auction all assets pertaining to the state sale and distribution of liquor. Funds received from these auctions shall be deposited in the state general fund." (Sec 215)

Though this reform h!
as been a perennial discussion each session, the current budge!
t climate may give it added relevance and opportunity for success.

Budget prologue

December 8, 2009 in Blog

Governor Gregoire will release her proposed fix to the state's $2.6 billion budget deficit tomorrow at 9 a.m. As required by law, it should be balanced within existing revenue though the Governor has clearly stated she plans to release a tax increase proposal prior to session. The Everett Herald has posted a list prepared by the Department of Revenue of potential tax increases (click here for list).

While everyone will be focusing on the short term $2.6 billion problem for the current budget, solutions debated this coming session must address the long term structural problem and what to do about replacing the billions in one-time fixes being used (such as the federal stimulus funds). If only the current deficit is addressed, elected officials will have this debate to look forward to again in 2011.

For those tuning in tomorrow to watch the Governor's press confere!
nce, keep these points in mind:

  • Prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate.
  • Last session the legislature made a small step toward correcting this past unsustainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.
  • Assuming the Governor used the Priorities of Government (POG) budget process, her proposal reflects what she believes to be the highest priorities that can be purchased with existing revenue meaning by definition that spending identified for reductions was determined to be the lowest priority. As noted by Gregoire, POG "looks at the most essential services provided by state agencies, and asks the question 'What do taxpayers want for their tax dollars?' It isn’t business as usual, but business driven by proven results."
  • Including the need to replace the billions in one-time federal stimulus funds, tax increases necessary to continue the current level of spending would need to be in the billions, devastating any prospect for the state’s economic recovery.
  • As noted by these economists, we will not be able to tax our way out of the “great recession,” instead state spending expectations must be reset to the new economic reality.

Though perhaps the greatest challenge our current elected officials have faced, a real balanced budget can be achieved. Here are WPC budget principles: 

  1. Budgets should fund only core functions of government;
  2. be truly balanced long term; and
  3. not result in a projected deficit in the next budget – i.e. the level of state spending should be sustainable within existing revenue.

Here are the types of questions that should be asked by elected officials before any activity receives taxpayer money:

  • Is the activity a core function of government or commercial in nature?
  • If it is a core function, can the service be provided more efficiently and effectively through competitive contracting?
  • Does it provide a broad public benefit or only serve a special interest?
  • Does it duplicate the activities of non-profits or other private initiatives?
  • Does it duplicate the efforts of other state agencies or programs?
  • Does the activity demonstrate quantifiable performance?

Tomorrow will set the next chapter of the budget debate. Let's hope it is titled "A new way" versus "Tax and spending to the next deficit."

WPC vanpool recommendations

December 8, 2009 in Blog

Here is the final report in our four-part series on Vanpools in the Puget Sound Region:
Part IV: Recommendations

While vanpools are popular, efficient and effective, there are several
structural and political limitations that prevent vanpool operators from
maximizing their value. These obstacles constrain demand, unnecessarily consume
public resources, and prevent vanpool services from reaching market optimization.
Washington Policy Center makes the following recommendations to improve
vanpool performance and move the most people for the least cost.

1. Saturate the vanpool market before expanding other intercity transit modes
2. Phase in 100% cost recovery over 5-10 years
3. Expand and loosen restrictions on the state Vanpool Investment Program
4. Examin!
e feasibility of introducing private operators or a public/private arrangement
5. Fund and implement recommendations of the Vanpool Market Action Plan
6. Keep federal money received by vanpools within the vanpool program
7. More emphasis on vanpools in the Puget Sound Regional Council’s Transportation 2040 plan

You can read the full series here:

Part I: The Vanpool Solution, A faster, cheaper and easier way to commute (video)
Part II: Introduction & Background
Part III: Analysis of vanpool performance and market potential
Part IV: Recommendations

Seattle officials get pat on the back: most congested city in America

December 7, 2009 in Blog

Two studies on traffic congestion were released last week and both of them were widely reported by the media.

The Washington State Department of Transportation (WSDOT) released its 2009 Congestion Report, which is the state's annual assessment of travel in the Puget Sound region. And TomTom, a company that makes Global Positioning Systems (GPS), released a study that ranked cities across the United States by those with the worst traffic congestion.

The WSDOT study concluded that traffic congestion in the Puget Sound region had fallen between 2006 and 2008, while the TomTom study showed our very own Seattle as the city with the worst traffic congestion in the nation.

In most local news coverage both reports were men!
tioned together and The Puget Sound Business Journal went so far as to say the TomTom study actually "contradicts" the WSDOT findings.

This is not exactly true.

The WSDOT report measured congestion on state highways while the TomTom study looked at traffic on surface streets at the local level. So you cannot conclude the two studies conflict with one another because they measure two very different variables.

What is most interesting to me, is the TomTom study shows Seattle is the most congested city in America. For anyone who has followed Seattle's anti-car policies over the years, this should not be a surprise. Seattle's habit is to make driving a car so expensive and time consuming that citizens are forced out of their car. For example, city officials replace auto lanes with bus only restrictions and increase parking costs by limiting!
supply and raising parking taxes. Even the EIS for the street!
car showed it would significantly increase congestion along some of its route and the city still went for it.

While most of us are shaking our heads about Seattle's ranking as the most congested city in America, Seattle policymakers probably take it as a pat on the back for a job well done.

Reform state's competitive contracting law to realize budget savings

December 7, 2009 in Blog

With the current budget crisis, lawmakers and the governor should take full advantage of every opportunity to promote the efficient delivery of routine state services, so tax money can be freed up to fund high-priority core functions of government. State elected leaders should fix weaknesses in the competitive contracting law, and direct agency managers to use competition to reduce the cost of operating state programs.

Specifically, state leaders should simplify the operation of the 2002 competitive contracting law and, like other states, create a Government Competition Council to assist managers in identifying public services that could be improved through competitive contracting. 

Before 2002, state agencies were barred by law from competitively bidding any public services that had traditionally been provided by state employees. The ban stemmed from a court ruling in the 1978 Spokane Community College case which blocked administrators from hiring a pr!
ivate company to clean newly-constructed school buildings and using the savings to augment the college’s education programs.

Union leaders sought to have the legislature make the ruling binding on all state agencies, colleges and universities. The legislature soon codified the Spokane decision, establishing a state-wide rule that any work historically performed by state workers always had to always be performed by state workers.

The ban on contracting out public services remained in place until 2002, when the legislature passed the Personnel System Reform Act. The new law provided that, beginning in July 2005, agency managers could seek competitive bids to lower the cost of delivering services to the public. Unfortunately, this reform has been seldom used.

A 2007 performance audit conducted by the Joint Legislative Audit and Review Committee (JLARC) found that:

“…few agencies have competitively c!
ontracted for services in the 16 months since receiving author!
ization 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 prohibit agencies from competitively contracting.”

In a 2009 update of the JLARC audit, I asked the state Office of Financial Management’s contract division how many personal service contracts have been requested or approved by agencies under the “Civil Service Competition” provision of the 2002 law. The answer was zero.

I then conducted a direct survey of twenty stat!
e agencies to determine whether and to what extent managers were using their competitive bidding authority under the 2002 law. Of all the agencies surveyed, only the Health Care Authority reported it had used competitive contracting under the 2002 law. Typical of agency responses was this answer from Washington State University:

“I have been advised that WSU has not executed any contracts under this 2002 Civil Service Reform/RCW 41.06.142 process. It’s apparently a complicated process and the administrative decision was made early on that WSU would not participate or take any action that would implicate this process (i.e., contract for purchased services that would displace classified staff).”

The primary flaw of the 2002 Civil Service reform was subjecting an agency’s ability to competitively bid services to collective bargaining. This impediment to competitive contracting must be removed for the!
goals of the 2002 law to be realized. Along with removing the current !
administrative and collective bargaining hurdles to competitive contracting, the state should provide agencies assistance in identifying services that could benefit from competitive contracting.

WPC will be publishing additional details on this issue and the needed reforms later this week.

Will anyone buy electric cars?

December 7, 2009 in Blog

From The New Republic:

This is certainly one way to entice people into plug-in vehicles:

Perhaps the main reason to think electric cars might have a shot in Denmark is their remarkable tax advantage.

The country imposes a punitive tax of about 200 percent on new cars,
so a vehicle that would cost $20,000 in the United States costs $60,000
here. For a quarter-century, electric cars have been exempt from that
tax. But the models on the market were so limited in their capabilities
that only 497 of them are registered in the entire country.

Former Washington Climatologist Phil Mote Trades Science for Semantics

December 6, 2009 in Blog

Former Washington State Climatologist Phil Mote is now at Oregon State University, but despite the change of venue, his penchant for putting politics before science remains consistent.

In the past, Phil has been called to task for fudging the numbers on warming-related snowpack decline in Washington state and committing errors with weather data and forest science when testifying before the legislature. Now he's waded into the debate about the Climategate e-mails.

Last week, Mote wrote an e-mail to colleagues at Oregon State University, trying to put the e-mails from the Climate Research Unit (CRU) at East Anglia University into some context:

The correspondence is being used to claim that CRU and other climate scientists were manipulating data to exaggerate global warming and colluding to prevent skeptics from having a voice. While some of the personal comments about skeptics are embarrassing, the incident primarily represents woeful misrepresentation of the scientists' words (e.g., where 'trick' was used to mean 'clever way to solve a problem', not 'deception') has been blown out of all proportion.

So, what was the "problem" that the scientists were trying to "solve?" Here are the words of Phil Jones, head of the CRU, in one of the e-mails:

I've just completed Mike's Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) and from 1961 for Keith's to hide the decline (emphasis mine).

So, Phil is right. The "trick" is just a clever way to solve the problem of how to "hide the decline." The trick wasn't the deception, it was just a tool used to deceive. Funny that Phil didn't mention the "hide the decline" phrase that appears in the same sentence.

The e-mails from East Anglia are revealing enough, but the efforts of those like Mote who rush in with tortured explanations to downplay the seriousness of the revelations betray how much politics have become a part of the discussion about climate science. Of course just because someone who agrees with you made errors or played games doesn't mean that your beliefs are wrong by extension. There is no denying, however, that the impulse to enthusiastically engage in semantic games to defend your friends demonstrates that Phil is willing to use politics to make up for their failures to follow the scientific method.

WSDOT Secretary Hammond may want to update her talking points

December 4, 2009 in Blog

WSDOT Secretary Paula Hammond attended a summit in Washington DC this week and had the opportunity to bend President Obama's ear on the impact of funding transportation projects on jobs.

She said this: (emphasis is mine)

"We know that investments in transportation not only provide immediate
jobs for the economy
, but also provide longer-term benefits by
preserving roads, shoring up our bridges, repairing 1950s-era concrete
interstates, and making drivers safer."

But then at the same event, President Obama addressed the group, and as the Journal of Commerce points out, he apparently did not share Hammond's optimism on job growth:

President Obama says large-scale transportation projects that are
supposedly “shovel-ready” may not provide the quick boost for jobs
needed in the halting American economic recovery.

Speaking Thursday at the White House “jobs summit” aimed at
addressing persistent unemployment, the president told transportation
executives and state officials he was skeptical about the impact big
infrastructure projects would have in the near term.

“The term ‘shovel-ready,’ let’s be honest, it doesn’t always live up to its billing,” Obama said.

WSDOT Secretary Hammond may want to update her talking points.

WSDOT: You Can Build Your Way Out of Congestion

December 3, 2009 in Blog

The WSDOT just released their 2009 Annual Congestion Report, which measures traffic volumes throughout the state. The very first thing I noticed was the positive impact some of the Nickel and TPA gas tax projects were having on traffic congestion.

The WSDOT study compared traffic volumes and delay before and after on 15 of the gas tax projects. Here is what they found:

An analysis of 15 mobility projects financed by the 2003 Nickel and
2005 Transportation Partnership Account gas tax packages shows that
users experienced a 15% improvement in peak period travel times,
despite a 14% increase in volume at the same project locations.

Why I Like Sightline

December 2, 2009 in Blog

Our ideological counterpart on environmental issues is the Sightline Institute in Seattle and I chat with them occasionally to test my thinking and hear what they are thinking about environmental issues. Here is one good example of why I like them.

Sightline is committed to a cap-and-trade system, but they are more realistic about it than others. And they are willing to take their fellow-travelers on the left to task when they make dumb arguments.

The latest example is a silly video, "The Story of Cap and Trade" by Annie Leonard. Leonard also made a previous video predicting the end of the planet called "The Story of Stuff" that is little more than an updated statement of the 1970sclaims about resource depletion of the kind made by the President's science adviser John Holdren. Except this time the end is truly near!

Here is what Sightline has to say about the video:

It's not just the trading part that she butchers. She comes close to flat out lying about offset programs (and I say this as a card-carrying offsets skeptic), fumbles on allocations, blinks on consumer fairness, and mangles a description of Europe's experience. In fact, so childish is the video that most of the criticisms are actually directed at "these guys," a pair of stick figures in pin-striped suits. No kidding, the critique is literally directed at a caricature.

It reminds me of Orwell's 1984, where the government attacked the enemy with caricatures of capitalists in "top hats."

Given all of the problems with cap-and-trade, I wish Sightline would abandon it altogether for the right reasons, but I am glad that they reject the extreme leftism that sees cap-and-trade as too flexible and too little government intervention.

Sigthline is subject to giving in to populist impulses that are fundamentally anti-prosperity and they often argue that with the right kind of government regulation we can achieve anything without conceding that unintended consequences make that approach costly and ineffective. I do appreciate their willingness, however, to call out those on their side of the spectrum for arguments that are more about reflexive opposition to the free market and trying to control people's lives than reality.

ObamaCare: Government can kick you off your health care plan

December 2, 2009 in Blog

In a stunning YouTube video, Henry Waxman, Chairman of the
House Energy and Commerce Committee, explains how under ObamaCare the
government would have the power to “suspend” the enrollment of any American in
any health care plan, that is, kick you off your plan.  With the help of an aide, he begins reading
from the 2,074-page bill;

“The remedies described in the paragraph with respect to a
qualified health benefit plan, they [federal officials] can levy civil money
penalties, or can suspend the enrollment of individuals under such a plan after
the date the commissioner notifies the entity of the determination under
paragraph 1 that the plan does not qualify.” 

If federal officials determine your health plan does not qualify, you will be disenrolled.  In government-speak “remedies” means punishment, and
“suspend” means cancel.  Watch it here.