Washington Policy Blog

Papers chime in on Workers' Comp Rate Hike

September 25, 2009 in Blog

Some excerpts from the media regarding the Department of L&I's announcement that 2010 Workers' Comp rates will go up an average of 7.6%:

Yakima Herald Republic: "Let's review L&I operations before allowing tax increase."

"When economic times get tough, the moment to reform business
operations becomes the most opportune. It's a time to question past
assumptions and arrive at a more rigorously disciplined enterprise.

Somehow the state's Department of Labor & Industries doesn't
believe in that philosophy. The guiding principle there seems to be to
keep adding revenues and charge ahead, no matter what the cost is to
others."

Wenatchee World: "We pay more to keep working."

"In a state that just saw its unemployment rate bubble up to 9.2
percent, where jobs are easily lost, where economic recovery is
excruciatingly slow, you would think it would not be a good time for
the state to increase its tax on employment...

...The debate goes on, among Olympia’s hardy perennials. Someday it may
change, but for workers it will be as it is with all creeping payroll
taxes — close your eyes and pretend you’re not the one who pays."

Spokane's Spokesman-Review: "Lawmakers must reform workplace insurance."

"When the Washington Department of Labor and Industries proposed a 7.6
percent increase in industrial insurance premiums this week, several
business organizations told the agency something its officials already
knew. This is a rotten time to heap another $117 million burden on the
state’s struggling employers."

Now Forbes Weighs in Again on Best States for Business

September 25, 2009 in Blog

Champaign

This has been the week of business-related rankings. On Thursday, Forbes released its latest "Best States for Business" rankings. Washington moved up two spots to occupy the silver medal position, behind only Virginia.

The Forbes ranking has created a stir in our state for a number of years. One thing for certain is that Washington has consistently moved up the ranking rung, ending up now as the second best place for business. That's the good news. The other side of the coin, and Forbes points this out, is that many other of the states that previously ranked high, took a nose-dive largely because of the turmoil in the housing and financial markets. No state was untouched by the Great Recession, but some were hit disproportionately hard (here's looking at you Nevada, Florida and Arizona). 

It is also important to note that !
many of theses states, which were hit hard by housing downturns, and therefore depleted state coffers, saw setbacks in their rankings because the state government turned around by raising taxes on businesses and citizens, thereby reducing their overall score.

Washington fared a lot better than other states during this last downturn, but how much of it had to do with government intervention versus the adaptability of our producers? States like NV, FL, and AZ saw massive hits to the housing industry, in large part because the housing bubble burst. Michigan saw the implosion of the Big Three Detroit auto-makers. California's tax and regulatory climate broke its economic back. People are literally fleeing New Jersey for greener pastures (read the third-to-last paragraph in the Forbes story).

By contrast, Washington is enjoying higher-than-ever exports per capita. We recently topped $10K per person exports per capita -- the first time that has ever happened in !
the nation. The cheap dollar certainly helped. We have very in!
expensive energy rates -- for the time being -- thanks largely to hydropower. Our citizenry and workforce are highly educated. And many of our high-growth industries through the last several years have been in white-collar, high-wage, innovation fields such as software engineering.

As Dr. Arun Raha, the state's chief economist, said at AWB's Policy Summit earlier this week, we are seeing an unprecedented global recovery, even though our own economy remains fragile, and export industries will help Washington recover much faster than otherwise would have happened. 

So, there is a lot to be hopeful about, but for as many industries that may see growth in the near term, there are an equal number that may very well fall back into recessionary mode. All is not well quite yet and it is important that policymakers focus on areas where smart and responsible decisions will have !
a beneficial impact on the economy and our businesses.

For instance, even though we rank 2nd best in the nation in the overall ranking, we ranked a below-average 27th in the "Business Costs Index." Let's lower the cost of doing business in our state and make Washington #1.

Tax Foundation Ranks Washington the 9th Best Business Tax Climate

September 24, 2009 in Blog

Earlier this week the Tax Foundation issued its 2010 State Business Tax Climate Index. Washington moved up a few spots, from 12th to 9th best. However, our overall score actually declined. The reason for this? Other states hurt their ranking by making bad moves more than Washington took steps in improving its system. Good news in a relative sense I suppose.

A few interesting finds from the 60-page study:

  • WA ranks 33rd (1st is best) in the Corporate Tax Index
  • WA ranks 1st in the Individual Income  Tax Index
  • WA ranks 50th in the Sales Tax Index
  • WA ranks 26th in the Unemployment Insurance Tax Index
  • WA ranks 21st in the Property Tax Index
  • There is a disturbing trend of states proposing or imposing a "millionaires tax" to cope with budget shortfalls
  • WA has the highest tax on spirits, Oregon is 2nd highest
  • WA has the highest taxable wage base for Unemployment Insurance

The methodology the Tax Foundation uses puts the most weight on the Individual Income Tax Index (30%), then the Sales Tax Index (24%), Corporate Tax (20%), Property Tax (15%), and finally Unemployment Insurance Tax (11%) -- see pages 33-34.

So, as in other tax rankings, Washington ranks the best in the category for which we contribute no data. That's not to say this ranking is bunk -- the Tax Foundation does great work. But readers should know that each Index is weighted differently and the index that carries the biggest impact is one Washington decided not to tax. The takeaway? Any move towards adding an individual income tax will surely knock us down quite a bit.

The other issue I am always asked about regarding business tax rankings is how these institutions (or media outlets) treat our much-maligned Business & Occupation tax. A simple reading of just about any of the numerous tax rankings out there will show little or no acknowledgment of our wha!
cky home-grown system and therefore either underweight or completely ignore it. Obviously, simply ignoring the B&O tax is a mistake, and the Tax Foundation does try and compensate for our gross receipts system. In fact, it has some not-so-nice things to say:

"Such economic imbalance from this (gross receipts tax) often leads lawmakers to enact separate rates for each industry, an inevitably unfair and inefficient process... Delaware, Ohio and Washington score the worst for gross receipts tax deductions because they do not offer full deductions for either cost of goods sold or employee compensation." (page 13)

There is a lot of data to play around with in this study. And the conversations that arise from debating our state's tax structure can play a role in determining policy priorities we want to see in Washington. The Tax Foundation hits the nail on the head when it says,

"The ideal tax system, !
whether at the local, state or federal level, is simple, trans!
parent, stable, neutral to business activity, and pro-growth. In such an ideal system, individuals and businesses would spend a minimum amount of resources to comply with the tax system, understand the true cost of the tax system, base their economic decisions solely on the merits of the transactions, without regard to tax implications, and not have the tax system impede their growth and prosperity."

Relying solely on ranking systems works only in a relative sense; what good is to be said of a tax system that ranks well to others if the model for our imitation is flawed? Let's use these established tax principles as a gauge as to whether or not our state is living up to these ideals, which have proven to lead to economic growth and prosperity.

Read more responses to the study at WashACE, the Everett Herald, Vancouver Columbian, and Puget Sound Business Journal.

Not Evil, Just Visiting the "Age of Stupid"

September 24, 2009 in Blog

Earlier this year we hosted a sneak preview of Not Evil, Just Wrong, a fantastic documentary by Phelim McAleer and Ann McElhinney. I've always felt they were at their best when they let environmentalists expose their own outlandish ideas in their own words.

Here, Phelim asks some uncomfortable questions at the premier of "The Age of Stupid," a film that claims humans will be extinct by 2055 due to climate change. The film is particularly critical of flying in airplanes. Watch what happens when Phelim asks the film's producer and supporters how they came to the premier.

On October 18, we are hosting the premier of Not Evil Just Wrong as part of their worldwide premier. Stay tuned for more details. To host a premier party in your own home, visit http://www.washingtonpolicy.org/noteviljustwrong/

Massachusetts' "emergency preamble" may hold up Kennedy replacement

September 23, 2009 in Blog

It looks like Massachusetts' version of our "emergency clause" may delay the appointment of Sen. Kennedy's replacement. Unlike in Washington, however, the Massachusetts "emergency preamble" requires a 2/3 vote of lawmakers to allow a bill to take effect immediately, rather than the standard 90 days.

According to Fox News:

Paul G. Kirk Jr., the former chairman of the Democratic National Committee, will replace the late Ted Kennedy in the Senate until a special election is held in January, sources told FOX News.

But a constitutional dispute is delaying final passage of a bill allowing Gov. Deval Patrick to name Kennedy's successor . . . Massachusetts lawmakers are expected Wednesday to give final approval to a change in the Senate succ!
ession law so the governor can temporarily fill Senate vacancies. The interim senator would serve until the seat is filled permanently through a special election on Jan. 19.

Patrick could announce his pick as early as Thursday.

But under the Massachusetts Constitution, laws enacted by the Legislature and signed by the governor become law after 90 days.

For laws to take effect immediately, lawmakers must attach a so-called "emergency preamble," which requires a two-thirds vote in each chamber.

Republicans, who oppose the bill, say they'll fight any attempt to have the law take effect without an emergency preamble. The bill won initial approval in both chambers, but fell far short of a two-thirds majority.

As explained by a Massachusetts government website:

A bill signed by the govern!
or, or passed by two-thirds of both branches over his veto, be!
comes a law. It is usually effective in ninety days. The day after the governor signs the bill is considered to be the first day, and each succeeding day, including Sundays and holidays is counted until the ninetieth.

Laws considered "emergency" in nature take effect immediately upon signing if the legislature has voted to attach an "emergency preamble" to the bill. Adoption of the preamble requires a two-thirds standing vote of the membership.

Lawmakers in Washington can also declare an emergency and allow a bill to take effect immediately but a 2/3 vote is not required. When an "emergency clause" is used the people are denied their right of referendum on that bill. To provide a check on the Legislature, the state constitution grants the people the power to veto unwanted legislation through the use of a referendum.  According to the Secretary of State, “The referendum allows citizens, through the petition proc!
ess, to refer acts of the Legislature to the ballot before they become law.” This power applies to any bill adopted by the Legislature except those that include an “emergency clause.”

An emergency clause states that a bill is exempt from repeal by referendum because the bill is, “necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions.” The use of the emergency clause allows bills to take effect immediately once signed by the Governor.

The purpose of the emergency clause is to allow state government to respond quickly to true public emergencies, like a large-scale natural disaster or wide-spread epidemic disease.

Yet over the years lawmakers have routinely abused the exemption by attaching emergency clauses to 813 bills since 1997, including 68 b!
ills during the 2009 legislative session.

As is the case in M!
assachusetts, the most effective way to end the Legislature’s abuse of the emergency clause is a constitutional amendment creating a supermajority vote requirement for its use.  The Legislature would then be prohibited from attaching an emergency clause unless the bill was approved by a 60 percent vote.  Budget bills, however, could be made exempt from the supermajority vote requirement, allowing them to pass with a simple majority and not be subject to referendum.

A constitutional amendment (HJR 4205) was introduced last session by Rep. Barbara Bailey, but it did not receive a hearing.

Federal transparency bill moves step closer to floor vote

September 23, 2009 in Blog

Earlier this year Washington Congressman Brian Baird (D) introduced a
resolution calling for a 72-hour review period on
legislation before a vote could be taken. Baird's House Resolution 554 is co-sponsored by Rep. John
Culberson of Texas (R). Since House leadership has not scheduled the bill for a vote, Baird has joined with other Representatives to try to force floor action on the transparency proposal. According to The Hill:

"Democratic Rep. Brian Baird (Wash) has signed on to a discharge petition intended to force a floor vote on transparency legislation backed by Republicans.

If the petition wins 218 signatures, it would pave the way for a vote on legislation that would change House rules to require that bills are posted online for 72 hours before the House votes on them.

It is rare for a lawmaker to sign on to a discharge petition intended to force the leaders of his party to hold a floor vote. It is also considered to be a slap in the face of leaders.

Rep. Greg Wal!
den (R-Ore.) on Wednesday announced that Baird had signed on to the petition in comments on the House floor.

Baird was a cosponsor of the transparency legislation with Rep. John Culberson (R-Texas). The two introduced their bill in June, arguing it was intended to ensure that members have enough time to read through complicated bills before they vote.

The bill has 98 cosponsors, including many Democrats."

This type of transparency reform is one of WPC priorities for Washington state. From our Policy Guide:

To
facilitate public involvement, the legislature should adopt a 72-hour
timeout period in the legislative process once a budget, tax or
spending bill is introduced or amended. This would allow lawmakers and
the public a three-day period to calmly consider the two-year budget,
new taxes or new spending before legislative hearings or final voting
occurs.

A bill was introduced in Olympia this past session by Rep. Alexander (HB 1654) to create a five day review period for appropriation bills. Although a work session was held, no public hearing or vote occurred.

In other federal transparency news, the Senate Finance Committee rejected an amendment to post legislative language and cost estimates for the health care reform bill on line for 72-hours before the committee votes on the bill. As reported by Politico:

"The Finance Committee voted against an am!
endment that would have required legislative language and a cost estimate be posted on the Internet three-day before the committee votes on the bill. The change, offered by Republican Sen. Jim Bunning, failed 11-12, with Democratic Sen. Blanche Lincoln crossing party lines and voting with Republicans.

The committee did pass a Baucus amendment that requires a cost estimate and a plain-English explanation of the bill to be posted online before voting. The amendment passed on a party line vote.

The committee spent more than two hours debating the issue, not a good sign for those who want to make it home for dinner. There are dozens more amendments still to be debated."

Audit Shows "Green Bonds" Proposal Falls Short

September 22, 2009 in Blog

Earlier this year, House Capital Committee Chairman Hans Dunshee proposed spending $3 billion on energy and other upgrades for state and school buildings. He argued that some of the cost of the program would be paid back from energy savings due to the upgrades.

A similar, but much smaller, program already exists in the state and the federal government has spent billions on its own program. A new audit of the federal program raises some red flags about the promises made by proponents of these expenditures.

One highlight of the program is that contractors help pay for the up-front costs of the project, receiving a portion of the projected energy savings as part of their payment for years to come. The report in the Washington Post yesterday highlights several problems, including:

...the auditors found, some contractors appeared to use inflated energy cost estimates in their savings calculations, increasing their fees.

Similarly, when talking with the state, we found that General Administration didn't actually go back and audit energy savings, they simply assume that projections were accurate. There is actually a good reason for this. Many things affect how energy is used and attempting to isolate the impact of particular upgrades on energy usage is a fool's errand. That's one reason the GA program has been small and extremely targeted. The more you expand the program, the more difficult it becomes to isolate savings accurately, which invites the kinds of problem the federal government is seeing in their program.

The House Capital Budget Committee is scheduled to review the performance of these programs here in Washington next month, probably with an eye to re-considering the legislation next year.

Given the performance of the federal program, a more thorough audit of the performance of Washington's buildings is probably appropriate.

Workers' Comp Costs Go up 7.6% for 2010

September 21, 2009 in Blog

The Department of Labor and Industries today proposed a 7.6% increase in workers' comp premiums for 2010. It would be the largest premium increase since 2004 if adopted. Preliminary rate increase speculation from the Department earlier this summer had hinted towards a 15-20% possible rate increase. 

Since 2001 workers' comp rates have increased or (decreased):

2001: (2.2%)
2002: 1.8%
2003: 29.2%
2004: 9.8%
2005: 3.7%
2006: (0.3%)
2007: (2%)
2008: 3.2%
2009: 3%
2010: 7.6%

State law requires employers to carry industrial insurance
and only a small portion of the state’s thousands of employers are allowed to
self-insure. All others are required to use the state’s system. Currently the
state program covers over 2.5 million workers and over 170,000 employers and collects over $1.6 billion in annual premiums.

But other states have, or are looking at introducing
private-sector competition in the area of industrial insurance. Last year, West
Virginia privatized their workers comp insurance system and at the one-year
mark the results were dramatic:

  • Overall premiums have dropped 30 percent, or more than $150 million
  • 198 different workers' compensation insurance companies have filed rates and forms
  • There are 120 policies in the residual market representing premiums of about $1.9 million
  • More than 90 percent of all claims are ruled upon within the first 30 days
  • Claim protest fell 68 percent
  • The overall appeals process was streamlined resulting in claim disputes being resolved in a shorter period of time

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DOR releases annual property tax report

September 21, 2009 in Blog

The Department of Revenue (DOR) today released its annual property tax report. DOR's "Property Tax Statistics 2009" provides details on property tax collections, assessments, legislation, history of significant changes and tax levies. According to DOR's press release:

Property tax revenue increased 5.4 percent to $8.6 billion in 2009, with nearly 70 percent of the increase stemming from new construction added to the tax rolls and higher voter-approved levies, the Washington State Department of Revenue reported today. 

About 1.6 percent -- $128 million of the $439 million in additional taxes over 2008 -- was due to regular tax increases on existing properties. The rest resulted from taxes on new construction and vote!
r-approved tax increases for schools and other taxing districts.

Revenues for schools, through local school levies and the state school levy, increased 5.7 percent to $4.7 billion, while county levies increased 3.6 percent to $1.4 billion, city levies rose 6.3 percent to $1.2 billion and junior taxing districts went up 5.3 percent to $1.4 billion.

Local voter-approved school levies and the state school levy accounted for 54 percent of property taxes, while counties received 16.6 percent and cities got 13.4 percent. Junior taxing districts, such as fire districts, hospitals, emergency medical services, ports and libraries, shared the remaining 15.9 percent.

The percentage share of taxes going to junior taxing districts has increased 51 percent over the past five years, from $915 million to $1.4 billion, due mainly to vot!
er-approval of higher taxes for fire districts, and the creati!
on of new taxing districts such as the King County ferry and flood districts.

McGinn's Viaduct plan would increase traffic congestion

September 21, 2009 in Blog

Last week, Seattle Mayoral candidate Mike McGinn suggested that expanding light rail to West Seattle could help serve travelers displaced from his ultimate plan to remove the Viaduct.

For this to work, McGinn assumes half of the passenger vehicles that currently use the Viaduct would shift to public transit. This is the same assumption Viaduct planners used during their analysis, which concluded a 50% increase in transit trips in Seattle over the next seven years.

But according to the American Public Transportation Association's (APTA) annual ridership reports, transit trips for King County have only!
risen 13% over the last seven years. This means the growth rate for transit trips in the Seattle region would have to increase by nearly 400 percent for McGinn to be right!

The more likely result is these displaced cars would not disappear but rather shift to surface arterials and I-5, both of which are already congested today. Consider this: if the Viaduct were not replaced, Seattle would have only two continuous North and South freeway lanes to serve all private and commercial traffic coming into and leaving downtown!

FCC Proposes "Net Neutrality" Rules for Wired and Wireless

September 21, 2009 in Blog

FCC Chairman Julius Genachowski, in a speech to the Brookings Institution today, proposed the FCC adopt six rules governing "Net Neutrality." This is the result of the Obama Administration wanting more regulations governing Internet Service Providers (ISPs) -- one of his campaign platforms.

Widespread teacher layoffs do not materialize

September 21, 2009 in Blog

Last spring, story after story appeared in newspapers around the state, reporting that school leaders anticipated layoffs of 3000-5000 teachers due to reductions in the education spending.  As reported in page one of today's Seattle Times, "districts retained more teachers' jobs than they thought they could."

Cuts to I-728 spending have required school districts to think more carefully how to spend their ample resources, in 2008-9 at $10,274 per pupil.  But districts have weathered this minor squall to spending quite well, as the state received nearly one billion dollars from the federal government.  This allowed the state to increase overall education spending by 2.8%.  Basic ed spending increased by 16%.   

The Seattle Times also reports that districts are reassigning certificated teachers on staff to the classroom.  And librarians are being reassigned to the classroom.  Reallocating resources to the classroom should be the highest priority of district officials, but a better system would allow school principals and their building leadership team the power to make these critical decisions.

Why the First Lady Will Never be Mayor of Seattle

September 18, 2009 in Blog

Earlier this week we noted that the 43rd District Democrats declined to endorse mayoral candidate Joe Mallahan in part due to his admission that he drives his Prius six blocks to work. They felt he should have walked or biked.

Today there is evidence that the First Lady could never meet the standard set by those looking for force lifestyle changes in an effort to reduce carbon emissions. The Washington Post reports:

Let's say you're preparing dinner and you realize with dismay that you don't have any certified organic Tuscan kale. What to do?

Here's how Michelle Obama handled this very predicament Thursday afternoon:

The Secret Service and the D.C. police brought in three dozen vehicles and shut down H Street, Vermont Avenue, two lanes of I Street and an entrance to the McPherson Square Metro station. They swept the area, in front of the Department of Veterans Affairs, with bomb-sniffing dogs and installed magnetometers in the middle of the street, put up barricades to keep pedestrians out, and took positions with binoculars atop trucks. Though the produce stand was only a block or so from the White House, the first lady hopped into her armored limousine and pulled into the market amid the wail of sirens.

Perhaps traveling one block for organic food is allowed but traveling six blocks to work, in a hybrid, is not. It certainly doesn't reduce carbon emissions, however.

Nobody said changing lifestyles would be easy.

Costs are sinking a new Columbia River Bridge

September 18, 2009 in Blog

According to this article in the Oregonian, costs are forcing officials to look for cuts in replacing the I-5 bridge across the Columbia River.

The preferred option costs around $4 billion and includes light rail. The light rail piece has a cost estimate of over $1 billion. So light rail represents about 25 percent of the total costs.

According to the Regional Transportation Council, the
bridge carries about 3,300 transit trips per day, so only 2.4
percent of all trips that cross the bridge are on public transit.
This means local officials want to spend over $1 billion more to serve 2.4 percent of total bridge crossings.

But
officials estimate transit demand
across the bridge would increase with light rail, because riders will
not experience congestion like bus riders do today. As a result, CRC
projects light rail would boost transit crossings to about 20,000 trips
per day by 2030.

Generally, the Federal
Transit Administration presumes there is no modal preference for trains
over buses when travel time, comfort level, and other factors are the
same. So there is likely some validity to the CRC logic that congestion
is somehow suppressing transit demand across the bridge. However, a 500
percent increase in transit demand is an unrealistic estimate of light
rail’s influence on attracting new passengers.

Nevertheless,
assuming their ridership estimate is correct and accounting for population and growth in
bridge crossings over the next 20 years, light rail’s mode share would
still only rise to about 9.8 percent of daily crossings.

Despite
what light-rail advocates claim, deliberately increasing costs by 25
percent to serve between 2.4 percent and 9.8 percent of all bridge
crossings establishes a very large gap between public costs and public
benefits.

Washington transportation taxes should be used more efficiently and tied to congestion relief rather than to appease Portland politicians.

$100 car tab increase to pay for light rail

September 17, 2009 in Blog

According to this article in today's Seattle Times, Seattle mayoral candidate, Mike McGinn proposes to expand light rail in the city. He does not have any cost estimates but suggests a Transportation Benefit District (TBD) could be implemented to pay for it.

Under state law, at TBD could implement up to a $100 car tab fee on every vehicle registered in the district, subject to voter approval.

According to the Department of Licensing, there are about 454,000 vehicles eligible for a car tab fee in Seattle. If voters approved the full $100 per registered vehicle, the estimated annual revenue would be about $45 million per year.

Without knowing any specifics on how or where the system would be placed, its virtually impossible to know whethe!
r a TBD could fund such a project. Sound Transit's system is roughly about $350 million per mile, making it one the more expensive systems in the country.

Hypothetically, if the project were to cost $1 billion, it would take an annual revenue stream of $45 million about 22 years to pay.

While feasible, convincing voters, even in Seattle, to triple their car tabs would be difficult; given it would be within three years of Sound Transit's 1/2 cent sales tax increase, King County's sales tax hike for buses, and the city's street repair property-tax increase. Not to mention the negative impact removing the Viaduct and replacing existing streets with rail would have on mobility, congestion and productivity.