Washington Policy Blog

Texas House passes bill to help small businesses

May 6, 2009 in Blog

There aren't too many states with a gross receipts tax system like Washington's Business and Occupation tax (B&O). But Texas has what is called a "margins tax" that functions somewhat similarly. The Texas margins tax is not an exact apples-to-apples comparison with the B&O tax but it levies a tax on gross receipts that is based upon taxing the value added -- so in reality it is much more like a Value Added Tax (VAT). Unlike Washington, Texas companies can deduct the cost of goods purchased, as well as the cost of employee payroll and benefits. 

Similarly to Washington, there is an exemption level. Businesses in Texas with less than $300,000 in total revenue are exempt from paying the margins tax. In Washington state the exemption level is just $28,000.

Yesterday the Texas House of Representatives unanimously passed a !
temporary exemption that, if the Senate concurs, will raise the $300,000 exemption to $1 million during the 2010-2011 biennium. Businesses with under $1 million in total revenue won't have to pay the 1% margins tax (0.5% for retailers/wholesalers). This tax cut would cost the state of Texas $172 million during the next biennium but would not bind future legislatures since the provision sunsets. The tax break is estimated to save 39,000 small businesses on average over $4,300 each.

WPC has long advocated for raising the B&O exemption, particularly for new businesses (read our B&O recommendations). Responsible tax policy means a low tax rate spread across a large tax base, so I'm inclined to perhaps change the Texas proposal towards new businesses. Why? How do we extend the tax base? By encouraging investment and lowering the cost bar!
riers to enter the market. Let's make our state a great st!
ate for new and small businesses by keeping the tax/regulatory cost down for the first few years. It might be a small step but it would be the correct one.

Emphasize mobility on Sound Transit's Eastside approach

May 6, 2009 in Blog

Michael Ennis, Special to The Times
Emphasize mobility on Sound Transit's Eastside approach

WHEN voters approved extending Sound Transit's system last November,
most people probably thought the controversial battle over light rail
on the Eastside was over.

But the agency did not release its Draft Environmental Impact
Statement (DEIS) on the possible alignment options until after the
November election, so everyone was left to imagine for themselves the
details on where exactly the tracks would lie.

Now, as Sound Transit has released the information showing 19
possible alignment scenarios, businesses, policymakers and neighborhood
groups are lining up with different and competing views on where light
rail should come through Bellevue.

After living through the region's decades-long floundering on
replacing the Alaskan Way Viaduct and the Highway 520 floating bridge,
taxpayers have more than enough reason to doubt this project will be on
time and on budget.

Sound Transit's 19 alignment options are broken into five
service-area segments. Each segment presents its own set of challenges,
but none more than the segment across the Interstate 90 bridge.

Segment A replaces the center lanes across the I-90 bridge with
light rail. Sound Transit officials downplay the negative impact light
rail will have on traffic congestion and underestimate the potential
for significantly higher costs.

Light rail will increase vehicle delay on the bridge by a third during peak commute times.

Stray electrical currents are common with light-rail systems and
might cause damage to surrounding buildings, infrastructure and in this
case, the steel components of the bridge. Sound Transit would be on the
hook for these added costs.

There is also the question of whether Sound Transit (and taxpayers)
will have to pay for taking the center roadway for its own use. Some
estimate the cost could be $1 billion or more.

Making matters worse, Sound Transit wants only the taxpayers on the
Eastside to pay for the connection across Lake Washington, despite the
proportional benefits that light rail brings to Seattle.

Segment B contains five options that connect the line from I-90
through south Bellevue. It could include laying track along Bellevue
Way, an impossible option considering its negative impact on traffic,
or using the old Burlington Northern Santa Fe rail corridor that runs
parallel to I-405.

Segment C through downtown Bellevue could be the most expensive.
With each option reaching past $1 billion, three of the six proposed
routes are tunnels and would cost about twice as much as elevated
alternatives.

These added costs could threaten the link to Redmond (Segment E)
however, which Sound Transit officials already say they cannot fund,
despite promises made to voters and Microsoft during the election and
the 0.5-percent sales tax increase.

Segment D contains four options to reach Overlake, but they each
displace businesses and have environmental concerns with wetland and
habitat impacts, which could lead to higher costs.

All of these issues have the potential to delay light rail to the
Eastside, but none more so than the link across Lake Washington.

Sound Transit may never overcome the technical or funding obstacles
to bring light rail across a floating bridge and as costs continue to
climb and tax revenues fall, other segments and more effective
alignment options are becoming unattainable.

Sound Transit might consider moving forward with the other segments
before crossing I-90. The I-90 corridor between Seattle and Bellevue
already effectively serves transit demand and running light rail over a
lake would bring no additional land-use benefits, population density or
economic development.

The segment to Redmond must also be completed as promised and Sound
Transit officials should choose an overall alignment scheme that has no
negative impact on traffic congestion.

The voters approved Sound Transit's plan to expand light rail in the
region but as Sound Transit officials move forward with choosing a
preferred alternative, they must do everything possible to help improve
the region's economic recovery by building a system that strengthens
personal mobility.

State Auditor asks Governor to veto performance audit changes

May 5, 2009 in Blog

The State Auditor's Office sent Governor Gregoire a letter yesterday
formally requesting that she veto changes in the budget to the
performance audit program. Here is the Auditor's letter in full:

Dear Governor Gregoire:

I am writing to respectfully request your veto of Section 124 (3) of the state operating
budget and to encourage you to work with state lawmakers to restore at least $14
million of the $29 million in performance audit funding being taken from the State
Auditor's budget over the next two years.

As passed, Section 124 (3) of this budget violates government auditing standards, as
explained in the attached letters. This section should be vetoed for that reason alone.
Additionally, enacting this budget into law could have far-reaching consequences, such
as affecting this state's ability to properly account for billions of dollars in American
Recovery and Reinvestment Act money that wil!
l be so important in getting the state's
families and economy back on their feet. Comprehensive oversight of these dollars is
absolutely critical.

Section 124 (3) also sets up a perverse relationship between our Office and state
agencies. Tying our performance audit dollars to actual cost-savings by agencies
deeply compromises agencies' perception of our objectivity and independence.
Regarding funding for performance audits, I wish to re-emphasize that taking away
nearly three-quarters of our budget for that work decimates a program Washington
citizens made very clear they wanted when they approved Initiative 900.

The size of the reduction also impedes efforts we agreed to undertake on a statewide
performance review that we hope will be another step in bringing about true, meaningful
reform of state government. With your advocacy and support, we have been putting
together a plan for this review !
and we remain committed to producing recommendations
to s!
ave money, to streamline operations and to eliminate duplication and outdated
programs.

The $15 million we agreed to have the Legislature sweep from our current performance
audit fund balance would have reduced that budget by about 50 percent, but it was
similar to fund balance sweeps at other agencies, As passed by the Legislature, the
budget reflected a 73 percent cut ($29 million) in our performance audit funds.

We also are disappointed at the Legislature's failure to recognize that our 15 completed
audits identified nearly $500 million in cost savings and unnecessary spending for state
government alone. Considering the cost to conduct those audits, we have achieved a
10-to-1 return on investment.

We remain committed to helping you provide oversight over the stimulus funding and
set state government on a leaner, more effective path for the future and again, request
a veto of Section 124 and!
restoration of at least $14 million to our performance audit
funding.

Sincerely,

BRIAN SONNTAG
STATE AUDITOR

Included as attachments were the following letters explaining how the performance audit proviso violates auditing standards:

Additional Information
Will veto restore performance audit funding? 

Port Study Says the Price is Right

May 4, 2009 in Blog

The Port of Seattle, calling itself "The Green Gateway," touts a recent study finding that shipping from Asia to the Midwest through Seattle produces the fewest carbon emissions. Shipping through Seattle, they argue, is the choice for environmentally conscious shippers.

Their web page talks about their work they've done to make this so. They note that:

The Ports have worked hand-in-hand with the transportation industry, regulatory agencies, community organizations, labor and environmental advocates. That cooperative approach has helped us move farther, faster without adding fees for port users.

So why is it that Seattle is so green? They explain:

Seattle and Tacoma are closer to Asia than any other U.S. port, resulting in shorter ocean transit times and lower fuel consumption on the ocean leg of the journey.

Apparently all of these groups got together and decided to move Seattle closer to Asia. The report also notes that rail lines from Seattle to the Midwest use less fuel per ton of freight.

So, after working with all of these groups and commissioning this study they found something that every person working in a free market should know: prices aggregate a tremendous amount of information and send a clear and accurate signal about the efficient use of resources. Prices are the best aggregators of the many costs, including energy costs, at all stages of the production of a product. If the Port wanted to know which route was the greenest, they needed only look at the price of shipping from Asia through various ports. (This might not be true if there is a monopoly or other regulatory distortions, but that is not the case here.)

When their study was done they found that the route that burned the least fuel, costing shippers the least in fuel costs, was also the greenest. That shouldn't surprise anybody.

If we want sustainability, the market is more likely to give us a clear path than all the various interest groups, each seeking a cut of the pie, combined.

Laying off classroom teachers is not necessary

May 4, 2009 in Blog

Two articles appeared today decrying teacher layoffs:  one in the Seattle Times and another in the Tacoma News Tribune .  School districts can avoid laying off classroom teachers, and should. 

Here are the numbers for school personnel hired statewide in School Year 2007-2008:

Administrators:  4038.Classroom Elementary Teachers: 26,494; Classroom Secondary Teachers: 22,237; Other teachers: 5183. Other certificated staff, extracurricular:  267; Education Staff Associates (other support, library media specialists, counselors, occupational therapists, social workers, communications, psychologists, nurses, physical therapists, reading resource): 7347; Classified Personnel (aides, crafts/trades, laborers, office/clerical, operators, professional, service workers, technical, director/supervisor): 38,604.  Total:  104,174.

School districts are well able to avoid cutting classroom teachers, as these numbers reveal.

    

    

Increased traffic congestion on I-90

May 4, 2009 in Blog

Today's closure of the I-90 express lanes is a good example of what will happen when Sound Transit replaces the same lanes with light rail: increased traffic congestion.

During the peak drive times and in the peak direction, there are 5 lanes of traffic - 3 general purpose lanes and 2 express lanes. Removing the center lanes limits motorists to only the GP lanes. And the result is obvious:

I90 cam I90 map

To mitigate this negative impact on traffic, the WSDOT and Sound Transit are adding an additional HOV lane in each direction on the outer roadways. But during the peak commute times, morning-westbound and afternoon-eastbound lane capacity will still be reduced from 5 lanes to 4. And again, the result will be obvious: increased traffic congestion.

You can read more about the negative impact light rail will have on I-90 traffic congestion here:
Part IV: Light Rail and Interstate 90
Sound Transit's proposal to place light rail across I-90 will increase traffic congestion

Smart growth and sustainability...not so much.

May 1, 2009 in Blog

The city of Petaluma, California is largely recognized as the first US city to impose artificial limits on growth, which eventually led to today's smart growth movement. In 1972, the city capped building permits at 500 per year. Fast forward to 2009, the city recently dissolved its planning department because there was no longer enough activity to pay for it.

Planners put themselves out of business
Petaluma Scraps Planning Department

Greens v. Science: Nicholas Stern Edition

April 29, 2009 in Blog

Tonight, the Pacific Science Center will welcome Nicholas Stern, whose alarmist economic analysis is embraced by those advocating for radical and costly measures to address climate change. His work, however, is outside of both the scientific and economic consensus.

First, climate alarmists often point to the scientific consensus forged by the UN's Intergovernmental Panel on Climate Change (IPCC). Stern, however, often uses science that lies outside of the IPCC's projections. For instance, he estimates the potential of a 7 meter (24 foot) sea level rise due to the melting of the Greenland ice sheet beginning at just 2 degrees C increase. Elsewhere, Stern highlights the danger of a 1 meter (39 inches) sea level rise. The median estimate for sea level rise from the IPCC, on the other hand, is about 350 mm (14 inches).

He also shades his estimates toward the catastrophic, even when admitting that his estimates are based on little evidence. For example, he says that at 2 degrees C of increase there is risk of "15 – 40% of species facing extinction (according to one estimate)." One estimate. Supporters cannot simultaneously rely on the scientific "consensus" and then violate it when convenient.

Second, his economics also lie far afield of the consensus. Stern has been widely criticized for using extremely low discount rates to estimate future costs. A discount rate is an estimate of the time value of money. Discount rates tell us whether it is better to spend or save today. An extremely low discount rate means that avoiding small future impacts is worth huge investments today. Stern's discount rates are far below what virtually every other economist would consider reasonable and this has some very strange results.

Yale professor William Nordhaus, who has studied the potential economic impacts of climate change for decades, explains how silly Stern's estimates are. In his excellent book A Question of Balance, Nordhaus writes,

The Stern Review would justify reducing per capita consumption for one year today from $6,600 to $2,900 in order to prevent a reduction of consumption from $87,000 to $86,900 starting two centuries hence and continuing at that rate forever after. This bizarre result arises because the value of the future consumption stream is so high with near-zero time discounting that we should sacrifice a large fraction of today’s income in order to increase a far-future income stream by a very tiny fraction.

That's one reason why the vast majority of economists do not take Stern's projections seriously. By way of contrast, the Copenhagen Consensus, which brought together many economists, including a number of Nobel Prize winners, ranked climate change dead last in its priority list of the top challenges facing humanity.

Those who are concerned about climate change need to decide: do they support the scientific and economic "consensus," or do they support Nicholas Stern? So far, they are choosing Stern.

WashingtonVotes.org 2009 Missed Votes Report

April 29, 2009 in Blog

WashingtonVotes.org has released its annual Missed Votes Report, detailing missed roll call votes on bills and amendments for every legislator during the 2009 Legislative Session.

WashingtonVotes.org is the state's premier legislative information website that provides concise, plain-English, objective descriptions of every bill, amendment and vote of the Washington legislature.

2009 Session Quick Facts:
- Number of Roll Call votes in the House: 887
- Number of Bills Introduced in the Legislature: 2,584
- Number of Roll Call votes in the Senate: 847
- Number of Bills Passed by the Legislature: 599
- Number of legislators who didn't miss any of these votes: 47
- Number of legislators who missed more than 100 votes: 6

WashingtonVotes.org Director Brandon Houskeeper says the missed votes tool enables Washingtonians to track the actions of their elected officials in Olympia. "Obtaining this information from the state would require a person to read and record information from thousands of pages of legislative documents," he said, "but the WashigtonVotes.org Missed Votes Report puts that same information in front of Washingtonians with just one or two clicks."

There are many legitimate reasons why legislators miss votes during a session. "Legislators are often meeting with constituents, other lawmakers or dealing with unexpected emergencies, that is the value of the Missed Votes Report."  Houskeeper noted, "Washingtonians can use WashingtonVotes.org as an informational resource and tool."

WashingtonVotes.org contacted the legislators from each chamber who missed the most votes and gave them an opportunity to explain why they missed the votes.  Click here to view or download the 2009 Missed Votes Report and legislator responses. (pdf)

Will veto restore performance audit funding?

April 29, 2009 in Blog

Despite the State Auditor’s willingness to share in the budget pain, lawmakers went a step further and raided $29 million from the dedicated performance audit account (a 74% reduction in available funds). This is the account voters created in 2005 when 57% approved independent performance audit authority for the State Auditor. This will leave approximately $10 million in the performance audit account. By contrast, the State Auditor spent $16 million from this account during the current biennium.

The raiding of the performance audit program brought the following rebuke from the State Auditor who sent this letter on April 24 to House Speaker Frank Chopp (in-part):

“The section that sweeps away most of our performance audit funding is ridiculous and offensive both to us and to citizens. The cuts are unacceptab!
le and will severely undercut our ability to do independent performance audits . . . I am deeply disappointed in the way the budget process has worked this year. The lack of clear, on-going communication with your members regarding our budget has led to confusion and, now, this unacceptable budget proposal.”

This wasn’t the first time the State Auditor expressed outrage at the legislative attacks on performance audit funding.

On March 31, the Auditor testified before the Senate Ways and Means Committee saying (in-part):

“It is unacceptable to me. It is unacceptable to citizens who in such a time as this look to us more than ever to ensure that government is accountable and transparent. They recognize this Office is uniquely positioned to be part of the refor!
m the governance change that everybody talks about and wants.&!
#0160;    

What particularly disappoints me is that the effects of this budget come at a time when our Office is looked upon to be part of the solution. Every discussion we’ve had with legislative leadership and the Governor centered on how we can help bring about meaningful, cost-saving government reform.

We’ve already got several performance audits underway with the intent to identify immediate cost savings as well as long-term efficiencies.

We also have launched a statewide performance review, which we were called upon to do by the Governor. It will focus exclusively on state government, its governance structure and back-office functions such as information technology and leasing office space. Many in the Legislature recognize its potential.

Just like successful performance reviews in other states and nationally, we’re going into it with the full intention of finding and recommending significant !
spending reductions and proposed ways to reshape and recreate what state government does and how state government does it.”

Ultimately the State Auditor’s pleas fell on deaf legislative ears. But there is still one more chance for performance audits and their potential to help the state down the path of government reform -- the Governor’s veto pen should she choose to wield it to restore the performance audit funding.

Why lay off classroom teachers?

April 29, 2009 in Blog

The Seattle Times reports today that between 3000-6000 new teachers may lose their jobs due to a $800 million reduction to planned public school spending increases.  Why would school districts lay off classroom teachers?  

Public schools in Washington State employ 104,174 people.  Only 48,731 are elementary or secondary classroom teachers, and another 5183 are "other classroom teachers," so about half of public school employees work outside the classroom.  Shouldn't administrators be looking outside the classroom to reduce costs?

State law lets public schools hire any qualified teacher, but they don't

April 28, 2009 in Blog

Last week, Peter Callahan of the Tacoma News Tribune pointed out to me---thanks Peter--that the provision in the new basic education bill, HB 2261, allowing public school administrators to hire teachers of "unusual competence" without certification already exists in law:  RCW 28A.150. 260.  

It's great this provision exists on paper, but it doesn't seem to have much effect in the real world.  I wonder why.  I'll have to research this a little more. 

Forcing you to work and live where the government wants

April 28, 2009 in Blog

Here is an excellent study from Dr. Ron Utt, a senior fellow at Heritage Foundation, called President Obama's New Plan to Decide Where Americans Live and How They Travel. You might remember that Dr. Utt was our featured speaker at last years transportation event, where he spoke about performance-based transportation policy and traffic congestion relief.

President Barack Obama's early
comments on his opposition to suburban sprawl and his intention to
alter the way Americans live and travel took a step closer to reality
when he created an interdepartmental initiative on housing and
transportation costs. A March press release issued by the U.S. Department of Transportation
(DOT) and the U.S. Department of Housing and Urban Development (HUD)
announced a new interagency partnership to create "affordable,
sustainable communities." Included among its many goals are projects to:

  • Develop
    a new cost index that combines housing and transportation costs into a
    single measure to better illuminate the true costs by "redefining
    affordability and making it transparent,"
  • Encourage "transportation choice," and
  • Require
    even more planning by the many federally funded regional planning
    entities that are already attempting to guide Americans toward a
    suppos­edly better life.

Rich in the sort of progressive
euphemisms used to mask real intentions, the press release heralds a
process that could likely lead to an unprecedented federal effort to
force Americans into an antiquated lifestyle that was common to the
early years of the previous century. More specifically, these
initiatives reflect an escalation in what is shaping up as Presi­dent
Obama's apparent intent to re-energize and lead the Left's longstanding
war against America's suburbs.

Full study: President Obama's New Plan to Decide Where Americans Live and How They Travel
To learn more about the current trends in transportation policy and congestion relief, visit congestionrelief.org.

Governor's email to state employees on budget

April 28, 2009 in Blog

Here is the full email the Governor sent state employees yesterday (emphasis added):

Dear Fellow State Employee:

As you know, we just finished perhaps the toughest legislative session since the Great Depression.  There may be a special session to complete a handful of items, but the truly heavy lifting is done including passage of the operating budget.

I know the last months have been hard for you and your families too.  There is uncertainty about the future of programs to which you have dedicated your working life, as well as uncertainty about your own future.

Although overall budget uncertainty has ended, there is still a lot of hard work ahead as our agencies absorb and manage their way through budget cuts to balance a $9 billion shortfall.  It is up to us to make this budget work as best we can!

All of us, as a team, must carry out the work ahead with g!
reat sensitivity and care.  I know this is not just a budget document.  It’s about all of you, the families who depend on you, and the citizens we all came to serve.

In the weeks, months and years ahead, all Washingtonians will feel the impacts of the hard decisions the Legislature made – and we are now required to make along with nearly every other state – after the mortgage and financial markets set off the Great Recession we find ourselves in.

You are the men and women who will connect with Washingtonians at very important and personal levels – explaining, helping us set priorities, and serving wisely and compassionately.

This will be hard work, and your skills will be sorely tested.  For example, programs and services may need to be adjusted to accommodate significant reductions in “administrative” spending of about $255 million, which means fewer people to deliver services. 

Meanwhile, the!
budget calls for difficult personal adjustments.  For i!
nstance, we may be asking employees to take unpaid furloughs to save jobs and money.  The funding for our health-care benefits is not sufficient to cover health-care inflation, so we may pay higher co-pays.

Amid these difficult changes, I ask that we continue – and strengthen – the partnership we forged last year when you helped me implement vital budget reductions to better position ourselves for the challenges to come.  Imagine the budget we would have if we had failed to take early action to save money.

I continue to need your skill and creativity to reform and improve how we serve our citizens.  Reform of state government is not only the right thing to do – it’s now absolutely necessary.  We are going to have to reinvent what we do and how we do it, and you have the ideas that can work.

I want and need your ideas. You are the people on the ground, and I can’t do this without you.  !
Please respond to this e-mail, as you did last summer and fall, to share your input.

I’ll close with optimism.

I sense a change in this country that bodes well for us and for society as a whole.  After years of pursuing other, more financially “lucrative” careers, more college graduates are showing renewed interest in public service.  There is a new generation that wants to serve as much as we do.  There is a new respect building for the work we do – which is to serve the greater good.  What we do does matter.  What we do builds the future.

So let’s renew the commitments that brought us to state service in the first place – to serve for the good of our communities.  I’m counting on you, and so are the people of this great state.

Thank you, Chris

Meanwhile the Washington Federation of State Employees put out this summary for its members an!
d noted: ". . . your ongoing step increases remain. The Senate on Saturday night defeated an amendment proposed by Sen. Joseph Zarelli that would have blocked step increases. So if you're eligible for step increases, you will continue to get them."

Step increases are pay raises for individuals that move up the state salary grid; these are different than across the board pay raises.

Additional Information
Whatever happened to government reform?

$270 million in tax and fee increases estimated for 2009-11

April 24, 2009 in Blog

The Office of Financial Management just issued the I-960 tax and fee impact statement for the version of the budget that passed the Senate Ways and Means Committee.

2009-11 impact: Minimum of $270 million in tax and fee increases.

Not included are some higher education fees: "All other fees imposed by institutions of higher education are as of now indeterminate. SSB 5600 gives authority to institutions of higher education to set other fees, but any fee increases have yet to be determined and approved by governing boards of public baccalaureate institutions."

Details here.