Washington Policy Blog

As the projected $3.2 billion general fund budget deficit continues to loom over the upcoming legislative session, let us not forget about the projected revenue slowdown in the state's transportation budget.

The Office of Financial Management recently released its quarterly revenue forecast for the transportation budget. It shows that over the next 16 year construction horizon, (an important time frame for the Nickel and TPA gas tax projects) transportation revenues are $1.352 billion lower than projected from the baseline, which was updated during the 2008 legislative session. And this does not yet include the labor and material cost increases that are expected to drive the shortfall even higher.

While it's not clear what the precise shortfall will be for the Nickel and TPA projects (OFM has not broken that out yet), it does mean the legislature will be facing another significant hole.

Earlier, I wrote about how the legislature funded the previous holes in the gas tax projects. In just the last two years, cost increases and slower revenue growth created a $3.8 billion hole in the Nickel and TPA projects. Through a series of budget maneuvers and project delays, the legislature was able to fund the deficits.

But after bridging $3.8 billion, the Legislature is probably out of tricks. They will either have to outright cancel some projects or fund them from a different revenue source, like the general fund. Both of which are highly controversial.

Ironically, as much as some lawmakers dislike Eyman's Initiatives, one of them would unwittingly offer a solution. According to the analysis in our 2008 Citizens' Guide to I-985, if the initiative passes, it would create more than a billion dollars for the Reduce Traffic Congestion Account within the first decade. The legislature controls the account and can allocate the money to projects that reduce congestion, which probably all of the Nickel and TPA projects do.

Another option is bonding. Since the primary revenue stream of the account would be sales tax, the state could leverage it through debt and produce enough to cover the shortfall. While this money does originate from the general fund and adds to its overall projected deficit, the voter approved initiative would provide cover for legislators who choose to support such a move.

Certainly, neither Tim Eyman nor those who vote for I-985 intend to bail out the Nickel and TPA projects. But given how Olympia has overspent the general fund, lawmakers will probably consider all options.

It's also important to consider that the projected hole in the transportation budget is not the result of less revenue but rather a result of a slower projected growth. Both overall revenue and gas tax revenue are higher than the previous biennium. The transportation budget ended the 2005-07 biennium with total revenue of $3.634 billion. This biennium is projected to end with $4.132 billion. Gas tax revenues are also higher. Last biennium had $2.215 billion and this biennium is projected to have $2.524 billion in gas tax revenues.

So the funding hole is not a taxpayer problem but a planning problem.

With yesterday's announcement of various budget actions by the Governor, for the first time all the potential players have acknowledged the projected $3.2 billion overspending problem facing the state. Up until now the Governor has not accepted the budget projections of the nonpartisan Senate Ways and Means Committee staff.

With the scope of the problem no longer being questioned the real work can begin to finally put the state on the path of sustainable budgeting. One way not to do this is to rely heavily on one time funds such as the new constitutional savings account still in its infancy of existence.

Instead a commitment must be made by those making the decisions next January that the state will not plan to spend more than forecasted revenue. The long-term answer is not to extend today's problem by balancing the budget with raids of every fund possible.

In the meantime it will be important to ensure that the cost savings measures announced actually materialize. Next week we should know if the hiring and contract freeze requested in August are taking root. Numbers to date, unfortunately, have not been encouraging.

The state faces a budget deficit of $3.2 billion.  Olympia's usual prescription to solve the budget mess would be to implement a mix of tax increases and spending "cuts."  This approach is misleading because it ignores the fact that the state will collect $2.4 billion MORE in tax revenue in the next budget cycle than in the current budget.  So here are few constructive ideas to help lawmakers balance the state budget, without raising taxes:

1. Slow down the rate of spending growth.  If lawmakers simply increase General Fund spending to $36 billion in the next budget, up from the current $34 billion, there would be no deficit.
2. Eliminate the new entitlement that will send a check from the state treasury to everyone in the state below a certain income level.
3. Eliminate the $160 million in wasteful spending identified in the Washington State Piglet Book.
4. Ask state public employees to again contribute 16% to the cost of their health benefits, as was standard a few years ago, instead of the current 12%.  They would still get a great deal - the average in the private sector is 28%.
5. Delay implementation of the new all-day kindergarten entitlement.
6. Delay implementation of the new family leave entitlement.
7. Use the Priorities of Government process to slow down the rise in low-priority spending.  Each year state agencies rank their programs by importance: one!
-third top priority, one-third mid-priority, and one-third low priority, but lawmakers usually ignore their recommendations.

That last one, initiated under Governor Locke, would be enough to solve the deficit on its own - in combination with other ideas, its a sure-fire winner.   But whatever approach they take, when they convene in January state lawmakers should do two things.  First, say "thank you" for the taxes we're already paying, and second, show they mean it by balancing the budget without adding to our financial woes.

Light-rail foes focus on worst-case figures
The new 520 bridge: a case for 8 lanes
Eyman's I-985 drives slowly in fast lane
Licata swings at Mercer widening project
Getting There: Northgate backups irk driver
More money for mass transit? No: We cannot afford more empty promises

The Olympian this morning offers an endorsement of our proposal for creation of a searchable tax transparency website. From the article (in-part):

"State lawmakers are fond of talking about openness and transparency in government, but generally come up short when it comes to taking positive legislative action.

This year was an exception when the House and Senate passed Senate Bill 6818, which requires the state to make available to the public detailed information about state spending. State officials have until Jan. 1, 2009, to assemble line-by-line state spending data and make it available to the public via a Web site.

It's a great step forward to a more open and transparent government. Now it's time for lawmakers to shift their focus to the revenue side and give the public the same kind of detailed information about the taxes they pay to support government programs . . .

For those who want to delve into the state budget and see how tax dollars are spent, the transparency law will be of great benefit. Residents can thank the Washington Policy Center, a nonpartisan, free-market, state-based think tank in Seattle, for pressing the measure into law.

Now the policy center is back with a second transparency proposal, this time on the revenue side . . .

If passed by the Legislature, the bill would set up an online database where users could find their state and local tax rates — such as property and sales taxes — by entering their zip code, street address or by clicking on a map showing individual taxing district boundaries. An online calculator would let citizens determine their total tax burden and also identify which officials are responsible for each part of the tax bill . . .

In January, legislators once again will be tested on their commitment to openness and transparency — this time on the taxation side. They can pass the test only by passing the taxation transparency measure."

The Seattle PI has also endorsed our proposal for more tax transparency.

Today the State Auditor’s released its Performance Audit Report of the administrative and overhead operations of the 10 largest school districts in Washington State, identifying $54 million in potential savings over five years if these districts implement the suggested improvements. 

Washington's voters approved Initiative 900 in November 2005, which gave the State Auditor the authority to conduct independent performance audits of government programs. 

Here are the largest areas for savings in district “operational inefficiencies” identified by the report:

1)      $20.8 million in savings if districts switch to the use of purchasing cards to make purchases of $2500 or less.  A typical district purchase order involves 39 steps and 9 employees.  A purchasing card process involves 12 steps and 5 employees, a savings of $67 between the two processes. (page 29)

2)      $10.5 million in savings by reducing Executive Staffing Levels  at the Seattle School District, which employs a “significantly higher than average level of District Administration Executive/Managerial/Supervisory personnel” when compared to the other nine districts. (page 23)

3)      $8.4 million in savings by reducing overstaffing of Human Resource personnel in the Tacoma School District, caused by “lack of leadership in the human resource department.” (page 25)

The report states that the Seattle School District has more classrooms than students to fill them and should “reduce the number of school buildings in order to lower maintenance and administrative costs.” 

All districts are criticized by this report for lacking controls for “organizational effectiveness” including:

1)      Seven out of the ten districts lack strategic planning goals.

2)      All ten districts lack sound financial management and cost analysis and are thus unable to create an accurate financial picture of individual schools or programs.  Districts are not required to follow generally accepted accounting principles.  Districts are required to involve affected bargaining units when considering the feasibility of outsourcing programs. RCW 28A.400.285

3)      Vancouver School District’s lack of a fund balance management policy has resulted in a notably low fund balance.

4)      All ten school districts do not fully use internal auditors to make administrative operations more efficient and economical.

Philadelphia Magazine recently published a behind-the-scenes look at why "Philadelphia Wireless" failed to take off like its early proponents claimed it would. I've posted plenty about the perils of muni wi-fi -- city-wide and city-run wireless internet networks -- and referenced several other cities that have faced similar problems. It's safe to say that the failures of muni wi-fi are vast and obvious, while any successes are small and fleeting.

The Phily Mag article boils down the city's failure to a few key reasons:

• faulty numbers and unrealistic expectations (85,000 subscribers were expected to join the first year -- it topped out at under 6,000),
• the plan ignored the need and cost for technicians or service
• the frequency couldn't penetrate thick walls, or heights, or obstructions,
• there weren't adequate security considerations,
• there was nothing to protect the city should Earthlink, the company the city forged an unprecedented alliance with, abandon the plan,
• and, by the time the network was up and running, new, more powerful "WiMax" technology was rising.

I suppose one good thing that came from the Phily debacle was that, even as the price of installing the system tripled, Comcast and Verizon both reduced their prices to rates better than what Earthlink was offering for service that was a fraction of their speeds. Then again, since taxpayers were mostly on the hook for covering the ballooning cost of the project, maybe it was a wash in the end.

Speaking of WiMax, today the Seattle Times mentions the new Sprint/Clearwire laptop serice. Sure, it is not free like Philadelphia's ad-supported network. But then again, it actually works.