Word comes to us today from the Associated Press that the National Debt Clock in New York City has run out of numbers in which to display the nation's federal debt. The display was put up in 1989 by Seymour Durst in order to draw attention to the $2.7 trillion debt at that time.
Unfortunately, once the digits surpassed the $10 trillion mark, the poor clock just couldn't handle it anymore. Workers switched out the digital dollar display to a "1" in order to be the first digit now that we've crossed the $10+ trillion mark. Not a laudable goal.
Even worse, the $10+ trillion on the books now is dwarfed by the actual size of the federal deficit if you account for, what might be called, full "fiscal exposure." This means a full accounting of the federal expenditures at a later date. That number? Around $54 TRILLION. This includes unfunded promises for both Social Security and Medicare for current and future beneficiaries.
At this rate the two new numbers that will be attached to the clock next year will simply serve as a stop-gap solution for about a decade.
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.
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.
In addition to the savings in the current budget, the governor’s actions will save an additional $605 million in the 2009–11 budget. Together with the state’s current $850 million surplus, these steps will almost halve what is projected to be an approximate $3.2 billion shortfall in 2011.
Gregoire said she would consider dipping into the $450 million rainy day fund "as a last resort" to fund state operations. Such a move would either require two-thirds approval by the Legislature or other economic indicators. "I wouldn't run it dry under any circumstances," she said. "Bad as it (the economy) is today, how would I know it wouldn't be worse tomorrow."
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 Eastbound and Westbound general purpose lanes are over capacity during the peak commute periods. The center HOV lanes are not. So, restricting the two new lanes guarantees traffic congestion will continue in the mainlines.
As cross-lake congestion continues to increase and buildable space becomes limited, a better idea would be to open the two new lanes as General Purpose. This would increase capacity by 20% without any additional infrastructure, and significantly improve traffic across Lake Washington.
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.
The Office of Financial Management (OFM) today posted on its website an inventory of state agency fees. The 2008 Fee Inventory is in response to a budget proviso passed by lawmakers in the 2008 supplemental budget. According to OFM:
Chapter 329, Section 127(15), Laws of 2008 requires that the Office of Financial Management “conduct a review and analysis of all fees for which the legislature has delegated to state agencies and institutions of higher education the ability to establish and determine the amount, either upon initial establishment or subsequent increases.”
The 2008 Fee Inventory includes only charges that meet the definition of a fee; it does not include charges such as penalties that are not fees for purposes of Chapter 43.135.055 Revised Code of Washington. Both fees set in statute and those set administratively by agencies are included.
The inventory also includes information about programs that these fees support. “Program” was defined by each agency in the most meaningful way for their information. Program may equate to activities used for budgeting purposes, as defined in the Activity Inventory; or, it may tie to program structure. Activity expenditures over the past five years are estimates since accounting for actual expenditures is only by program structure.
One of the features of the OFM Fee Inventory is a description for each fee of who benefits from the program supported. Having reviewed each agency's report, my favorite response to this question is for several fees under the control of the Department of Ecology.
Ecology's answers ranged from: "All Washington Citizens" to "Public" to "Breathing Public."
It sounds like members of the King County Council are on the verge of taking the County out of the animal shelter business and turning these duties over to The Humane Society. According to articles today in the Seattle PI and Seattle Times:
"Today we are faced with the disturbing reality that progress has not been achieved," said Council Chairwoman Julia Patterson. "Enough is enough. We are recommending that King County get out of the business of operating an animal shelter." - Seattle Times
Council Chairwoman Julia Patterson and Vice Chairmen Dow Constantine and Reagan Dunn called a news conference inside the King County Courthouse to promote a plan that would reduce the county's role in animal services by partnering with a private agency to handle shelter services. "It would mean not being in the sheltering business any more," Constantine said. - Seattle PI
"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.
The nation's highest minimum wage will get a little higher in 2009. The increase, from $8.07 to $8.55 represents an almost 6% raise for those workers receiving minimum wage. That's a sizeable jump compared to the 2008 increase which was a little over 1% at only $0.14.
If you have a problem with this increase, don't blame the Department of Labor and Industries. The voter-passed initiative 688, approved in 1998, links the state's minimum wage to the CPI-W. Although various proposals have been around that would decouple this CPI/minimum wage formula if the state's unemployment rate got too high during economic recessions, the proposal has fallen on deaf ears in Olympia.
Some people -- particularly during election season -- are apt to fly off the handle over any proposal that would reduce the minimum wage, or at least slow the increase in the minimum wage because they believe that there are thousands upon thousands of workers that are trying to provide for their families on $8.07 per hour. That is simply not true.
While I do not doubt that these economic times are tough on everyone, and that I'm sure there are at least a few household providers only making minimum wage (without tips), the data from the Bureau of Labor Statistics proves otherwise. Take a look for yourself.
I'll sum it up by saying if you are young, live at home and never married, the chances of you making minimum wage is much higher than not. And, let's not forget that other data out there shows that 63% of minimum wage workers are employed at higher-than-minimum wage jobs 1 year later. Again, the chances of someone who is older, married and not living at home while making minimum wage is minute. And smaller still is the chance that the same full-time worker would be earning minimum wage after 1 year of gainful employment.
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.
The State Auditor's Office today released a performance audit of the state's 10 largest school districts' administrative practices. According to SAO:
"If our recommendations for improved economy and efficiency are followed, school districts could achieve cost savings exceeding $54 million over five years. Of the 13 audit areas we identified, not all affect each district; in fact certain districts are commended for their work in some areas."
One of the areas reviewed was district financial management and cost analysis:
"For school districts to achieve the objectives of accountability and comparability, financial information must be both relevant and reliable for reasonably informed users. Financial reports must satisfy numerous and diverse needs or objectives, including short-term financial position and liquidity, budgetary and legal compliance, and issues that hav!
e a long-term focus such as capital budgeting and maintenance. Additionally, differences exist in the amount of detail that various users need . . .
Currently, Washington school districts do not have a complete and accurate financial picture of their programs or functions. This does not mean that costs associated with each program are not reviewed and carefully monitored throughout the year. Additionally, each district can point to aggressive steps they are taking to cut budgets and reduce costs in all areas. However, without accurate cost accounting for each project, it becomes increasingly difficult to assess and compare programs or departments and determine any areas that can afford budget cuts . . .
One of the important uses of accurate financial data is for comparability purposes. There are an infinite number of ways that financial data can be analyzed using historical data, industry data and 'what-if' scenarios. All cost analysis can be valuable, but in the government sector, especially in entities such as school districts that are subject to rigorous cost scrutiny, the ability to respond to the public and other groups as to why they operate under certain conditions or models is critical to public acceptance, which in Washington State is critical to funding approvals and other school district actions."
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.
There are days when it feels like history is unfolding before your very eyes. Sometimes, as today exhibits, it's not always the history you wanted to see. The largest point drop in the Dow Jones' history is something to behold. It should also get people thinking, "how did we end up here?" There's nothing like a catastrophe to get people to take a step back to learn from mistakes.
Just about any news aggregate site (such as Real Clear Markets) has myriad opinions, theories and more about the history of the credit market fiasco and the shortsightedness of mortgage lenders (WaMu included) who gambled on what turned out to be poor choices of borrowers.
But this article from the New York Times from almost exactly 9 years ago might help shed light on some of the misguided policy proposals that provided a catalyst for lenders towards the downward spiral that is affecting us all today.
The news article begins,
"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.The action...will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans."
Hmm, wasn't lending to unqualified folks one of the more substantive problems that hurt the banking industry?
It goes on:
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits."
There's no problem with wanting higher homeowner rates, but the devil is in the details of how you accomplish such a goal.
And the kicker:
"In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulty during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to hat of the savings and loan industry in the 1980's."
It's almost as if some policymakers (and industry lenders) thought that the good economic times would last forever. But I suppose as long as the taxpayer is there to bail everyone out (again) we shouldn't worry.