A proposal to amend I-900 was not considered by the full Senate yesterday effectively killing the bill for this session (though no bill is truly dead until session ends). Among the provisions of the I-900 performance audit authority for the State Auditor is a dedicated revenue stream with which to conduct the audits. SB 6450 would have change this dedicated revenue stream to redirect some of the money from the State Auditor to reimburse school districts and educational service districts for the costs these entities incur during any performance audit of their activities.
The State Auditor was opposed to the proposed change and on February 15 sent the following letter to all state Senators:
I write to state my strong opposition to Senate Bill 6450, which would require the State Auditor to reimburse school districts and educational service districts for the cost of providing information used for performance audits.
When the citizens of Washington overwhelmingly approved Initiative 900 in 2005, granting our office performance audit authority, they were seeking greater accountability and transparency in state and local government. We are proud that our first nine performance audits have made 434 specific recommendations and identified more than $3.2 billion in potential cost savings, unnecessary costs and economic benefits. Clearly, these audits have shown their value.
In particular, our performance audit of the state’s educational service districts contained 215 recommendations and identified potential savings of $23.5 million over five years that could be saved by better coordinating services and avoiding duplication.
I am certain that SB6450 is not about costs. The fiscal note estimated the total cost to the nine ESDs of providing information for the audit was $11,529. It also is important to note during this audit, and every other audit, we make every attempt to minimize the effect on the audit client. In nearly every case, those we audit find these efforts, and our audits, beneficial and worthwhile.
My greatest concern is that this bill could open the door to other governments. I believe that citizens, when they passed the initiative, contemplated the funding it created would be used by the Auditor’s Office to perform audits, not to reimburse entities for providing information and records they already should have on hand.
Finally, I ask you to consider whether the administrative costs to districts that would be caused by this legislation would be greater than any reimbursement it might provide.
I urge you to reject SB 6450 and enable us to fully carry out our audit responsibility that citizen’s demand, expect and deserve. Thank you for permitting me to share my views on this bill. If you have any questions please contact me.
The House will release its supplemental budget proposal tomorrow. In case lawmakers needed any extra incentive to exercise fiscal restraint, the Senate Ways and Means Committee has updated its 6-yr budget outlook to reflect last week's revenue forecast (hat tip: Richard Davis).
The verdict: a projected $2.4 billion deficit in 2009-11 and $5.1 billion deficit in 2011-13. Assuming the state spends all of its reserves those projections improve to deficits of $1.7 billion (09-11) and $4.0 billion (11-13).
It will be interesting to see what House budget writers decide to do: reduce spending or leave the deficit for someone else to solve.
An "old saw" is a hackneyed or tired bit of wisdom that seems true but is really quite useless. One such old saw is the claim that we are destroying "old-growth forests" as a justification for policies of one sort or another.
Last week the green-building coordinator at the Department of Ecology, Rachael Jamison, used this justification to argue for using Forest Stewardship Council certified timber in green buildings. FSC was created by environmental activists to encourage companies to use more restrictive standards when harvesting. She says green buildings that use FSC can "stimulate the growth of a new market within Washington's timber industry."
Chief among the reasons to use FSC certified wood is, in her words, that harvests following its rules "Do not contribute to the destruction of old-growth forests." Whenever I see this claim, it is very clear to me that the person making the claim knows very little about forestry in Washington.
The understandable reason people express concern about old growth is that there is very little left. The creatures that rely on old growth forests have difficulty adapting to other types of forest habitat.
But applying the simple rules of supply and demand also says that when something is scarce, like old growth timber, it is also very expensive. A builder looking to use old growth for construction would be needlessly increasing their costs with little, if any, benefit in quality. In fact, there isn't a single major mill in Washington state that can even handle the large logs that come from such forests anymore.
I wanted to demonstrate how expensive it would be to use old growth as compared to standard timber. Currently, timber is selling at about $250 per thousand board feet. When I went to find out how much it would cost to use old growth, however, I hit a wall. I called two people who routinely sell timber in Washington state and neither of them even knew where I could get such information. We simply don't harvest old growth in Washington under FSC rules or any other set of rules.
This isn't the first time we've taken Rachael Jamison to task for inaccurate claims. Relying on tired, old saws about old growth harvesting to justify policies demonstrates that they don't know much about the area they are looking to regulate and policies justified on that basis are likely to be costly and ineffective.
By January 1, 2009, the LEAP Committee is directed to make publicly available a state expenditure information web site that contains for the prior fiscal year: (1) state expenditures by fund or account; (2) expenditures by agency, program, and subprogram; (3) state revenues by source; (4) state expenditures by budget object and subobject; and (5) state agency workloads, caseloads, and performance measurements. OFM and the PDC must establish a public database that links campaign contribution data with data on state agency purchasing contracts.
The proposal is based on WPC's recommendation for the state to follow the lead of the federal government and other states by adopting a searchable budget website.
Next up for the bill is consideration by the House.
Updated (2/19 at 9am)
The version of the bill that passed the Senate Ways and Means Committee which required linking of contracts to the PDC contributions was not considered by the full Senate. Today's Olympian has the details:
Hopes are rising for legislation that would create a Web site to give taxpayers a clearer window into state budget decisions and where the money goes.
The Senate voted 48-0 on Saturday to approve a slimmed-down approach to setting up the online "searchable database" — something states such as Texas and Missouri have done with some acclaim.
But in doing so, the majority Democrats stripped out Republican Sen. Joseph Zarelli's proposal to include personal services contracts and links to state Public Disclosure Commission data. Zarelli's approach carried roughly a $250,000 price tag to bring the contracts database more easily into the public's hands.
Despite a projected $423 million drop in revenue, the state is still in a good position to save $1 billion if lawmakers can exercise restraint in the 2008 supplemental budget and offset any new spending with reductions in lower priorities (Priorities of Government budgeting 101).
As we previously noted, the state is not facing a revenue problem but a spending problem.
We further increase spending at our own risk. Today's revenue forecast projects $31,918 million in revenue for 2009-11 while the January 2008 budget outlook estimates $34,134 million in spending: a $2.2 billion structural deficit.
I know that sometimes groups like WPC must come off sounding like a broken record when we talk about the "Law of Unintended Consequences." Safe to say, we're a little obsessed with applying the filter of unintended consequence when analyzing state and national public policy. Does it mean that we oppose all ideas that govern our commerce, our schools, our transportation, etc.? No. But it does mean that we try to look behind the curtain to see what other consequences lurk unannounced.
A great primer on the "Law of Unintended Consequences" comes from Freakonomics authors Stephen D. Levitt and Stephen J. Dubner. Dubner, you may recall, spoke at our 2007 Statewide Small Business Conference and talked briefly about LoUC. In this short, and easy-to-read article, they talk about some of the unintended consequences from popular laws such as the American's With Disabilities Act and the Endangered Species Act. They don't argue that these laws should be repealed, but they do point out unintended deficiencies in this type of feel-good lawmaking (paid family leave, I'm looking in your direction).
The LoUC entry jumped into my mind after reading an article in CFO Magazine from last October entitled, "Cap Gains Vote Could Spark Small Biz Selloff." The news article points out a new analysis from CMF Associates that shows that if the capital gains rate rose to 25% in 2009, a business owner would have to generate 24% more value in his company over the next two years to match the after-tax value of the company if it was sold today under the 15% rate.
The point is that when Congress convenes with a new president next January, one of the priorities for the new Congress will be debating the merits of the "Bush Tax Cuts," which dropped the cap gains rate from 20% to 15% (among other tax rate reductions). Some in Congress want to reset that number to 20 or even 25 percent. If that happens, expect to see an increase in small businesses being sold off to larger competitors. Volumes have been written about the behavioral impact that tax laws have on those with assets. There's little doubt, as the CMF analysis points out, that small business owners who are already thinking about selling their business will step up efforts to unload their major assets.
One of the unintended consequences of raising the cap gains rate? Fewer smaller businesses and the potential for lost jobs and fewer job opportunities. Think about that.
When the state's revenue forecast is released this evening the headlines will likely be about the budget deficit the state is facing over the next few years. If state officials hadn't ignored the voter approved I-601 spending limit adopted in 1993, the headlines tomorrow instead would be about the record surpluses available to build the emergency reserve account, provide tax relief and the sustainable nature of the budget.
Prior to the adoption of the 2005-07 budget, the average increase in spending under I-601 was just under 8 percent. This means that had I-601 not been gamed by state officials in 2005, the current budget would represent a 16 percent increase in spending since 2003-05. Actual spending has been almost double that and is directly responsible for the current financial mess the state finds itself in. The problem is not about inadequate revenue but unsustainable spending.
Consider what the state's budget outlooks may have looked like had we maintained the 8 percent average I-601 growth in spending back in 2005 (all dollars in millions):
Adjusted November 2004 budget outlook
2005-07 revenue - $24,721; expenditures based on average I-601 increase of 8% - $25,566: <$845> deficit
2007-09 revenue - $27,260; expenditures based on average I-601 increase of 8% - $27,611: <$351> deficit
Adjusted December 2005 budget outlook
2007-09 revenue - $29,359; expenditures based on average I-601 increase of 8% - $27,611: $1,748 surplus
2009-11 revenue - $31,735; expenditures based on average I-601 increase of 8% - $29,820: $1,915 surplus
Adjusted December 2006 budget outlook
2007-09 revenue - $29,417; expenditures based on average I-601 increase of 8% - $27,611: $1,806 surplus
2009-11 revenue - $32,329; expenditures based on average I-601 increase of 8% - $29,820: $2,509 surplus
2011-13 revenue - $35,643; expenditures based on average I-601 increase of 8% - $32,206: $3,437 surplus
Adjusted January 2008 budget outlook
2007-09 revenue - $29,747; expenditures based on average I-601 increase of 8% - $27,611: $2,136 surplus
2009-11 revenue - $32,433; expenditures based on average I-601 increase of 8% - $29,820: $2,613 surplus
2011-13 revenue - $35,735; expenditures based on average I-601 increase of 8% - $32,206: $3,529 surplus
Instead of looking at a possible $3.5 billion surplus for 2011-13, the overspending of the past few years has flipped that into a projected $2.6 billion deficit (even before today's revenue forecast). Spending restraint matters.
Over the past decade the Office of Financial Management (OFM) has produced 6yr budget outlooks to show the health (or lack thereof) of the budget. This past year OFM decided to drop to a 4yr outlook though the Senate Ways and Means Committee created a 6yr outlook. Here are the past budget outlooks:
As the Governor previously noted, "For too long, state government has spent in the good times, and then made painful cuts when our economy has slowed. We are getting off that roller coaster."
Let's hope we actually do. State leaders' response to tomorrow's revenue forecast will be a good indication of their true intentions. Do we finally reduce unsustainable spending or do we continue to drain down our much needed reserves passing off the tough decisions to the future?
The Attorney General's Office (AGO) has produced a background memo on the proposal to tape local government executive sessions (HB 3292). From the AGO:
The Problem The Open Public Meetings Act (OPMA) allows elected officials to hold closed-door discussions regarding specific issues such as pending litigation, personnel matters and real estate transactions. However, the act requires that all votes be held in a public session.
According to the State Auditor, from Jan. 1, 2004 to Nov. 13, 2007, there were 460 instances where executive sessions were an issue. These issues have varied from illegal executive sessions to improper notice.
• The Seattle Times reported that Port of Seattle commissioners argued over whether some of them, in executive session, had promised their outgoing Port E!
xecutive a severance package upon retirement. According to the Times, there was a document, but they disagreed on exactly what it meant. Without a record, there is no way to know.
• A Dec. 31, 2007 audit of Lewis County reported the commissioners violated the OPMA on several occasions by holding executive sessions without indicating what exemption from the OPMA they were using to justify the executive session and by holding additional executive sessions in meetings where no minutes are kept at all. “…Without recorded minutes of these meetings, the topic or duration of these executive sessions cannot be determined.”
• A Dec. 21, 2007 audit of the Yelm Fire District found the district held several executive sessions without the adequate legal basis for holding an executive session.
Background According to the Open Public Meetings Act (OPMA), before convening in executive session, the presiding officer of a governing body shall publicly announce the purpose for excluding the public from the meeting place, and the time when the executive session will be concluded. The executive session may be extended to a stated later time by announcement of the presiding officer. RCW 42.30.110(2). There is no requirement to record the proceedings conducted in executive session.
• Oregon law allows reporters to sit in on executive sessions. “Representatives of the news media shall be allowed to attend executive sessions other than those held under subsection (2)(d) of this section relating to labor negotiations or executive session held pursuant to ORS 332.061 (2) but the governing body may require that specified information be undisclosed.” (ORS 192.660(4))
Requiring Audio Recording of Executive Sessions Under the OPMA (HB3292) The Attorney General will join State Auditor Brian Sonntag in introducing legislation that:
• Requires an audio recording of complete executive sessions to be retained for a period of two years.
• Makes the recording a public record, not subject to disclosure except by court order or by permission of the governing body.
• Provides that an individual alleging an improper executive session bears the burden of proof in providing credible evidence of a violation to the court at which time the court may review the audio recording to determine whether there was an improper executive session.
• Allows the court to disclose only those portions of the audio recording where it finds a violation of the executive session provisions.
• Allows any documents relied upon in an improper executive session to be subject to disclosure !
if not otherwise exempt.
Myths & Fact Myth: This bill insults the integrity of local government officials by assuming every executive session is improper.
Fact: As has been pointed out, hundreds of city, county and other local elected officials hold hundreds of meetings every year. At most of these meetings, officials comply with the OPMA. This bill helps improve accountability by ensuring the rest of the meetings comply.
Myths: Recording executive sessions and storing the recordings is cumbersome and expensive with no benefit to local governments.
Fact: HB 3292 assists new council people in getting up to speed on important issues of the council.
Fact: Taping of executive sessions could help governments recall actions taken should disputes arise such as in the Seattle Port District situation.
Fact: The Sony ICDB500 Digital Voice Recorder is available at Office Max for $39.99 and includes 256MB of built-in memory—enough to record 150 hours of audio—or roughly three hours of executive session per week for an entire year. It is approximately 1” by 4” big, making it easy to lock in a secure place for safekeeping.
Fact: Local government are only required to keep the recordings for two years.
Myth: This bill will chill debate due to the threat the tape could be disclosed.
Fact: HB 3292 ensures that business done behind closed doors is protected unless there is serious question about actions taken. The person seeking review of the audio recording bears the burden of proving a violation may have occurred and providing credible evidence to support the claim.
Fact: Conversations that are currently exempt from disclosure and advice given by attorneys during executive session will still be protected. The recording is no different than a memo.
Fact: HB 3292 permits the court to disclose only those portions of the recording where it finds a violation of the executive session provisions. The rest of the recording will remain exempt.
Fact: Public officials conducting public business are accountable to the public even when discussin!
g topics that are exempt from public disclosure. If the discussions are truly exempt, they will remain exempt.
Myths: The tape could be leaked or unauthorized personnel could access the recordings.
Fact: The tape recorder and/or storage devices can easily be locked up – just like other important confidential documents—to prevent unauthorized access.
Fact: Local government officials and staff participating in executive sessions can just as easily leak information now as they could if there was a recording.
Sponsors • House Majority Leader - Lynn Kessler, D-Hoquiam • House Minority Leader - Richard DeBolt, R-Chehalis • Rep. Mark Miloscia, D-Federal Way • Rep. Dave Upthegrove, D-Des Moines • Rep. Troy Kelley, D-University Place • Rep. Christopher Hurst, D-Greenwater
Local Government Support • The Pierce County Council and the Seattle City Council have both approved ordinances supporting HB3292.
>• The University Place City Council, Fircrest City Council, Sumner City Council, Port of Tacoma, Port of Seattle, Tacoma School District, and King County Public Hospital District #1 have expressed plans to do the same.
Editorial Support • The Seattle Times (2/7/08) • The Columbian (2/10/08) • Tri-City Herald (2/11/08) • Yakima Herald-Republic (2/8/08) • Everett Herald (2/7/08) • The News Tribune (2/7/08) • The Olympian (2/7/08)
The National Federation of Independent Business' "Small Business Economic Trends" was recently released and highlighted some worrisome trends among small business owners on a national scale. The report is based on a survey of small and independent business owners.
Small Business Optimism fell to the lowest reading since January, 1991. Fewer business are planning to expand and fewer firms reported higher sales than in months past. Also taking a hit were the categories "firms planning to hire" and "firms raising selling prices."
Though not an official economic indicator, the biggest piece of bad news came in the "Expecting economy to improve." Safe to say many of the respondents have lost confidence in the economy and are not looking forward to the future with much hope. As I said though, this category is not an official economic indicator, even if Wall Street and the Fed pay very close attention to consumer confidence (not the same thing as small business owner confidence, but in the same ballpark).
On the flip side, some good news for workers: there are lots of job openings. But if firms are not planning on expanding or hiring, maybe it's not such good news after all.
It's unfortunate that the recently-signed economic stimulus package does little to actually stimulate those firms and businesses that produce wealth for both workers, their families and business owners.
With word that Friday's revenue forecast could bring the state bad economic news, elected officials in Olympia are starting to back off their commitment to save at least $1 billion when adopting an INCREASE in spending with the 2008 supplemental budget:
"Gregoire indicated she's willing to back off her request for a $1.2 billion [reserve], and possibly even below the $1 billion mark, depending on how bad the new forecast is. That was the first time she has said $1 billion isn't an absolute bare minimum reserve she would accept." (Olympian, February 12, 2008)
If anything, a downturn in the revenue forecast illustrates the need for the state to save MORE than $1 billion, not LESS. Here are the comments previously made about the need to save $1 billion:
"For too long, state government has spent in the good times, and then made painful cuts when our economy has slowed. We are getting off that roller coaster." - Governor Gregoire (Seattle Times, January 16, 2008)
"Saving money now is vital to ensure that we have money in the future. This is a historically high total of $1.2 billion in savings; it will take us a long way to ensuring the security of Washington's economy." - Governor Gregoire (Seattle PI, December 18, 2007)
"I agree with the governor. We have to continue living within our means. There will be pressure from all our members, who have their own issues," said Senate Ways and Means Committee Chairwoman Margarita Prentice, D-Renton, who declined to say how close to Gregoire's $1.2 billion in reserves the Legislature would hit. "We're going to hang on to a lot of it." (Olympian, December 19, 2007)
"We were already planning to leave a big ending fund balance of over $1 billion but we know that there are some places we'd like to do more this year -- the storm victims and potentially in education -- so we are looking for ways to balance that out by cutting in other areas." - Senate Majority Leader Lisa Brown (Seattle PI, January 28, 2008)
“[Victor] Moore said Gregoire's goal of keeping $1 billion unspent to protect against a bigger downturn in the future could mean programs getting cut instead of spending down the surplus.” (Seattle PI, January 28, 2008)
"[Democratic] party leaders say they want to set aside at least $1 billion of a tax surplus in the state budget to act as a buffer against a looming recession.” (Seattle Times, January 13, 2008)
“Gov. Christine Gregoire wants to set aside $1.2 billion in case the state goes into recession . . . Gregoire has positioned herself as the defender of the surplus, saying she's being pressured by interest groups and legislative leaders to spend more.” (Seattle Times, January 13, 2008)
“House Speaker Frank Chopp, D-Seattle, and Senate Majority Leader Lisa Brown, D-Spokane, told the forum that lawmakers concur with the governor and predicted the Legislature will save at least $1 billion to balance future budgets when the state economy inevitably slows down.” (Tacoma News Tribune, January 9, 2008)
We'll soon know if our elected leaders are really committed to fiscal discipline when news is bad or if their "restraint" only applies when good revenue forecasts make saving money easy.
Despite the efforts of local government lobbyists to derail a bipartisan proposal to require executive sessions be taped, HB 3292 has survived the initial round of legislative cutoff. The bill is jointly requested by Attorney General Rob McKenna and State Auditor Brian Sonntag and was introduced by House Majority Leader Lynn Kessler and Minority Leader Richard DeBolt. The media support of this open government proposal has been overwhelming:
The Senate Ways and Means Committee held a hearing today on two bipartisan proposals to create a Washington state searchable budget website for taxpayers (SB 6387 and SB 6818). Either proposal would be a step in the right direction. Among those testifying in favor was State Auditor Brian Sonntag.
“Sometimes common sense and public policy do meet and this is one of those times . . . We’re talking about the public’s business and the public’s information and those things being subject to the public light of day. This is fundamental to good government and government accountability and I am proud to support this idea, this concept and lend my voice to it. It’s never wrong to open the doors and let people in and see what their government is doing.”
Along with the State Auditor, supporters of this reform include the Governor, Attorney General and many newspapers. With the bipartisan nature of the proposals and the number of heavy hitters in support, the prospects for a searchable budget website being enacted this session are looking good. The next step will be to see if the proposals survive cutoff for fiscal committees on Feb!
Click here to listen to today's testimony on the bills (first bills heard).
The Senate Early Learning & K-12 Education Committee heard a bill today (SB 6450) that would amend the voter approved I-900 performance audit law. Among the provisions of the I-900 performance audit authority for the State Auditor is a dedicated revenue stream with which to conduct the audits. SB 6450 would change this dedicated revenue stream to redirect some of the money from the State Auditor to reimburse school districts and educational service districts for the costs these entities incur during any performance audit of their activities.
This change would be troubling for several reasons:
If adopted, there is no rationale not to include this reimbursement for all audited entities. This would diminish the amount of revenue available for the State Auditor to conduct performance audits.
Providing audited entities a blank check for their audit costs would remove any incentive to keep their audit costs down and could lead to stonewalling of the State Auditor's efforts.
According to the State Auditor, there is no precedent in the country for reimbursing public entities for the cost of producing information necessary for performance audits.
State Auditor Brian Sonntag testified against the bill saying, "SB 6450 is a bad bill and poorly thought." He went on to say this bill would encourage delays and pointed to the experience with the Port of Seattle whose delays increased the cost of their audit by a third.
This debate is not happening in a vacuum. On September 18, 2007, the State Auditor issued a performance audit of the state's educational service districts. The audit made 215 recommendations and identified the potential for $25.3 million in savings.
Here are the details on the performance audit program to date: