Washington Policy Blog

State income tax: deja vu all over again

April 1, 2009 in Blog

State Senator Jeanne Kohl-Welles (D-Seattle) would like to create what she calls a "millionaire's tax" on high-income people living in Washington. This is exactly what happened in 1913 when the federal government created the income tax. The first income tax started at 1% and it applied only to the wealthiest people. Back then supporters of the tax said that most people would never have to pay it. As we know, within a short time paying the federal income tax became an all too common experience for Americans.  Even if Sen. Kohl-Welles' "millionaire's tax" at first applied only to Bill Gates, you can be sure that in no time we would all be paying it.

State Auditor fights performance audit cuts

March 31, 2009 in Blog

State Auditor Brian Sonntag testified today against the Senate's proposed raid of dedicated I-900 performance audit funds. The House budget also raids I-900 funds. From the House budget summary:

Performance Audit Account Program Funding (-$13.5 million General Fund-State; $13.5 million Performance Audits of Government-State)

Funding for JLARC, GMAP, WSIPP, K-12 budget driver audits and conservation district audits is provided from the Performance Audits of Government Account for the 2009-11 biennium rather than with General Fund-State.

Here is a copy of the State Auditor's testimony:

Brian Sonntag
Testimony on Proposed 2009-2011 Budget
Senate Ways and Means Committee
March 31, 2009

Thank you for giving me an opportunity t!
o explain the consequences of this proposed budget on the Office of State Auditor.

Certainly, this budget period is extraordinarily difficult. I respect and value the responsibilities you have and the tough decisions you must make.

I recognize that our Office along with every other state agency must share in the pain of those decisions.     

But the budget you have proposed goes beyond funding reductions or a one-time sweep of our cash balance. To take more than half of the revenue that voters permanently designated for performance audits and use it to fund other programs undercuts the performance audit authority that citizens directly gave to their independent State Auditor.

That change contained in Section 927 of the budget and the precedent it sets is absolutely unacceptable.    

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 accoun!
table and transparent. They recognize this Office is uniquely positioned to be part of the reform the governance change that everybody talks about and wants.      

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.

We will settle for nothing less than true, meaningful reform.

The time for thinking outside the box is over. There is no box.

I’m disappointed in another respect. This budget does not recognize the value our performance audits have produced so far.

To date, we have completed 15 performance audits of state and local governments that have produced a ratio of 10 dollars saved to one dollar spent. That’s a wise investment.

For state government alone, our audits have recommended nearly $500 million in potential savings.

One audit concluded that four of the largest state agencies could collect $320 million in del!
inquent debt owed to the state simply by following industry best practi!
ces. That’s an additional $320 million that should be in the state’s pocket. 

Our audit of Department of Health transformed how the state licenses and disciplines health care professionals keeping vulnerable patients safe from predatory practitioners. While it did not identify a nickel of specific cost savings, it certainly minimized the risk of potentially costly tort claims against the state.
 
Let’s be clear, our audits have proven their worth. They have real value, and they are meeting the expectations of citizens. 

We worked diligently and constructively with the Governor to reduce our budget – both in our state financial audit work and in performance audits. The budget proposed by the Governor reflects a reduction of 20 percent in our state appropriation.

I view the diversion of revenue designated for performance audits as nothing short of an assault on what citizens expect the state to do when t!
hey gave us that authority and the funding stream to carry it out.

We need accountability now more than ever and citizens demand and deserve it. We’ve seen the consequences of no oversight and no accountability in our free-falling economy.  State government accountability is what’s at stake and it’s absent in your budget proposal.

Thank you very much.

The Senate Ways and Means Committee members had no questions for the Auditor after his testimony.

Senate budget proposes increases to Basic Education spending and decreases to Non Basic Ed spending

March 31, 2009 in Blog

Since 2004, the state has increased spending on K-12 education by 30%. Now that revenues are not growing at double-digit rates, the Legislature has to reduce its rate of spending on education. 

Under yesterday's proposed Senate Budget, state spending on Basic Education would increase, and spending on Non-Basic Education programs would be reduced, with an overall reduction to state spending on K-12 education of 3.5%.  This budget describes federal "stabilization funding" totaling $1.42 billion for education. You can read an overview of the Senate budget here.

 

Here is a quick summary of this budget: 

In 2007-9, the total budget for public schools approximately $18 billion from all state, local and federal sources.  

 

Of the $15.1 billion provided by the state in the last biennium, about $11 billion is for Basic Education programs.  The balance of about $2.6 billion is spent on Non-basic education programs, which include  I-732 (teacher pay increases) and I-728 spending (class size reduction and other efforts), and a miscellany of education reform and other programs. 

The Senate budget released yesterday would increase spending on Basic Education by 16% to $12.9 billion. 

 

The Senate Budget would reduce Non Basic Education spending by $1.87 billion.  These reductions would include elimination of I-732 costs ($396.3 million), reducing I-728 (by $728 million, though maintaining $300 million in I-728 spending through federal funding), saving $297 million on K-4 reductions in class size (possibly restored in part through increased staffing ratios under Basic Education general apportionment), and saving $410 million on eliminating local effort assistance, professional development, and other education reform programs.

 

It is unclear from this budget exactly how the $1.42 billion in federal funds and $360 million from a one-time state funding source will be allocated to offset these reductions. 

 

More on this as budget discussions continue.

 

Liv Finne, Director, Center for Education, Washington Policy Center

What's in the Senate budget?

March 31, 2009 in Blog

A lot of attention is being provided to what isn't in the Senate budget. Since those activities are already receiving scrutiny, what did the Senate decide to include in its spending plan? Here are some examples of those priorities that apparently are recession proof:

  • Asian-Pacific-American Affairs - $315 thousand

  • Commission on Hispanic Affairs - $371 thousand

  • African-American Affairs Commission - $343 thousand

  • Arts Commission - $6.7 million (all funds)

  • State Historical Society - $7.8 million (all funds)

  • East Wash State Historical Society - $6.4 million (all funds)

  • Liquor Control Board - $245 million (all funds)

  • Archaeology & Historic Preservation - $4.7 million (all funds)

  • Convention and Trade Center - $117 million (all funds)

  • Funding is provided to Star USA to assist hosting the U.S. Figure Skating Championships in Spokane, scheduled for Jan. 14-24, 2010 - $200 thousand

  • One-time funding is provided for a grant to KCTS Public Television to offer Spanish language programming. The programming will be offered through "V-me", a program service modeled on public television, with children's, arts, history, science, biography, nature, movies, pop culture, and public affairs genres - $40 thousand

  • Funding is provided to implement ESSB 6035 (rating plans). The legislation requires the department to make changes to the retrospective rating program requirements for how sponsoring entities or associations use retrospective rating refunds - $788 thousand (all funds)

  • Higher Education Coordinating Board - $551 million (all funds)

Slow going so far but hope to finish reviewing the Senate budget today and start on the House proposal next.

Economic Stimulus from All Sides

March 31, 2009 in Blog

Washington's Employment Security Department today released a statement announcing the formation of a grant program that would help at-risk youths receive job training and summer employment. The $23 million program is funded by federal stimulus dollars as a part of the American Recovery and Reinvestment Act passed by Congress in February. 

Governor Gregoire said, "It's especially hard to find a job right now if you are a teen or young adult who dropped out of school and has few work skills."

I couldn't agree more. This is a difficult environment for finding work, particularly if you do not have much work experience. But here's an idea:

Lower the minimum wage -- especially for young workers (15-18 year olds).

This would open up positions for the young and inexpe!
rienced workers that need jobs. Some employers simply cannot afford to pay the $8.55 per hour to someone who has absolutely no work experience, but they may be willing to pay a little less. This would bring opportunity to those who are priced out of jobs because they are young or inexperienced. 

Many supporters of a high minimum wage use scare tactics to try and drastically increase the minimum wage. Most often they use an anecdotal example of a person with a spouse and children trying to survive on $8.55 an hour. But those examples are the extreme, as backed up by BLS data. 

Cutting the minimum wage, particularly for entry-level youth workers, would help grow the economy and hopefully direct these youths toward lives of production and responsibility. That is a win-win stimulus plan.

Budget snapshot

March 30, 2009 in Blog

We'll have more to say about the Legislature's budget proposal after we've had time to read it line-by-line but for now here is a broad overview of the balance sheet.

Near General Fund Spending 2003-05 to 2009-11
*As proposed by Senate
(Dollars in Millions)

Biennium

Spending

% Increase

2003-05

$25,607.5

4.3%

2005-07

$30,171.2

17.8%

2007-09*

$32,581.0

 8.0%

2009-11*

 $31,270.0

 <4.0%>


Change in 2007-09 Near General Fund Spending
(Dollars in Millions)

Current

$33,655.0

Senate
Proposed

$32,581.0

Difference

<$1,074.0>

 Change in 2007-09 to 2009-11 Near General Fund Revenue Forecast
(Dollars in Millions)



 

2007-09

2009-11

February
2008

$31,558.8

$34,158.0

March
2009

$30,437.4

$30,503.4

Difference

<$1,121.4>

<$3,654.6>

Here is the Senate Ways and Means summary of the budget proposal.

Stay tuned for more details and analysis in the coming days.

North Korea Appreciation Day

March 27, 2009 in Blog

KoreaREU121006_548x700 Tomorrow is North Korea Appreciation Day, sponsored under a different name by environmental group WWF and endorsed by UN Secretary General Ban Ki Moon and many others. Remember to turn your lights out tomorrow in honor of the example set by that country.

Secretary Moon is from South Korea. Looks like his country has some work to do.

Opt-in or Opt-out for state parks?

March 27, 2009 in Blog

Back in 2007, a bill was introduced to require a mandatory $5 fee be added to vehicle registration fees to help support state parks. According to the bill summary for the original version of HB 2275:

The Department of Licensing (DOL) will collect five additional dollars at a motor vehicle's initial registration or renewal. The fee will be deposited into the State Parks Renewal and Stewardship Account to be used for the operation and maintenance of state parks.

When registering a vehicle, the owner may certify that he or she does not intend to use the vehicle to visit state parks. The DOL will not collect a $5 fee from vehicles not intended to be used to visit state parks.

Essentially this means that those paying their vehicle registrations fees would have been permitted to opt-out of paying the $5 park fee if they certif!
ied they didn't plan to visit a state park.

The substitute version of the bill ultimately adopted by the Legislature and signed by the Governor, however, changed the funding scheme to opt-in:

The Department of Licensing (DOL) will provide an opportunity to donate an additional $5 at a vehicle's initial registration or renewal. The fee will be deposited into the State Parks Renewal and Stewardship Account to be used for the operation and maintenance of state parks.

Despite this give and take by lawmakers in 2007 making the $5 park fee affirmative (you must opt-in), some lawmakers are now talking about changing the fee back to permissive (you must opt-out). According to The Olympian:

Flipping the rules on a $5 donation program could keep dozens of state parks open for use over the next two years, b!
ut critics say it's a sneaky way to essentially raise taxe!
s.

Currently, residents can check a box volunteering to pay the fee. A proposal that calls for charging the fee on vehicle tab renewals unless residents check a box allowing them to opt out has met stiff opposition in the Legislature.

But why stop at state parks? Why not opt-out of higher taxes and fees for education and health care?

The answer may rest in the fact that the higher the fees you are asking taxpayers to "opt-out" of the more likely they are to pay attention and do so.

The collective wisdom of the Legislature was correct in 2007 by focusing on an opt-in process after hearing arguments for opt-out and deciding not to pursue that scheme.

As for allowing those who want to send more of their money to Olympia, at least eight states currently have "Tax me More" funds where voluntary opt-in donations can be sent. It looks!
like Virginia's taxpayers have been lining up to take advantage of the opportunity to send the state more money:

The Commonwealth of Virginia wishes to recognize the following individuals and businesses who have made donations to the Commonwealth's General Fund.

    * Delegate Robert B Bell
    * Andrew K. Kohlhepp
    * John E. Meyers
    * D. Nick Rerras
    * George M. and Milena S. VanSant

A Smooth Transition

March 26, 2009 in Blog

With the closure of the P-I, a number of reporters are looking for jobs. Two environmental reporters have a new employer.

Seattle environmental think tank Sightline announed that the two will now be working there. They noted on their blog: "In addition, two veteran reporters from the Seattle Post-Intelligencer -- Jennifer Langston and Lisa Stiffler -- will be teaming up to edit our Sightline Daily news service."

The transition from environmental reporter to environmental advocate should be seamless.

In one of Stiffler's last blog entries at the P-I, she lamented having even reference those who disagree with her, noting "I hesitate to give even virtual ink to the more extreme climate change naysayers" when talking about a conference in New York of climate scientists who disagree with the projections of climate alarmists.

Two years ago, she and another P-I environmental reporter bragged about an award they received. They noted that "we were awarded the Warren G. Magnuson Puget Sound Legacy Award by the environmental activism and education group People for Puget Sound." They promised that they wouldn't "hang up our, uh, keyboards and declare victory." They didn't say what "victory" looked like for reporters. Interestingly, the blog entry was circulated at the Seattle Times to reinforce their rules against reporters accepting awards from groups they cover.

Langston covered a number of environmental issues, including this unintentionally humorous story about a couple who made a "zero-carbon" move.

When addressing environmental issues, many wonder whether the news they read is being presented in thoughtful and complete manner. When reporters transition so quickly and easily to the payrolls of groups they previously were "objectively" covering, it adds to these doubts.

The National Council on Teacher Quality gives Washington State a C- for retaining effective teachers

March 25, 2009 in Blog

The National Council on Teacher Quality has issued its 2008 State Teacher Policy Yearbook, which  evaluates all 51 states (including the District of Columbia) for creating policies aimed at the retention of effective teachers.  Its report on Washington State gives Washington an overall C-, an average of the following grades:

    1) a D- for policies which identify effective teachers;

    2) a C- for policies which retain effective teachers;

    3) a B- for policies which exit ineffective teachers. 

These grades are for policies which exist on paper for achieving these goals, and do not evaluate Washington's actual success or failure on these measures. 

I found one of the findings about tenure--which gives teachers job security for life-- to be particularly telling:

Washington does not require any process to ensure that tenure decisions are meaningful. Washington has a two-year probationary period for new teachers, but there is no indication that at the conclusion of this period any additional process evaluating cumulative evidence of teacher effectiveness is required for tenure.  The awarding of tenure appears to be virtually automatic. See page 13.

Clearly, this needs to change.  The entire concept of tenure for K-12 teachers should be re-evaluated. Why do we permit K-12 teachers lifetime job security when they are arguably performing one of society's most important functions---the preparation of our youth for tomorrow?

How the Digital Age Brings Real Tax Policy Headaches

March 25, 2009 in Blog

Headache
One of the troubles with how government legislates is that legislatures are often constrained to reacting to the changing technological landscape. It's very difficult, and unwise, for government to try and be proactive when it comes to the taxation and regulation of innovation. 

Case in point: e-commerce. The Internet has changed the way folks do business and with whom they conduct business. For the last ten or so years it has become increasingly common for someone to walk into the corner shop to physically examine a product, then go home and purchase that same product from an out-of-state seller for much less. Part of the comparative disadvantage facing the corner store is that the local seller has to conform to the local taxing jurisdictions, while the online, out-of-state seller often does not.

This is actually becoming increasingly less frequent as more states sign on to the Streamlined Sales and Use Tax Agreement. Washington did in 2007. This means that online sellers in states that signed the SSUTA will charge sales tax commensurate to where the purchaser resides. This is why, when you buy music from iTunes (which is based in California), you still pay your local sales tax on the downloaded content. But the terms of the SSUTA stipulate that 2010, Washington may not continue to impose retail sales tax on the sale of certain digital property. So, policymakers need to come up with a policy to tax digital goods. 

This is a long way of introducing the latest twist to this issue; how do we tax those digital goods? These are intangible products such as digital audio, digital books (think Kindle), and digital movies. But legislators are looking at what else could potentially fall into this same tax jurisdiction. 

The bill legislators have been looking at for some time, a href="http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2075!
&year=2009" target="_blank">HB 2075, took the recommendations from the Task Force established in 2007 to study the issue. The report and recommendations from the Task Force provide for a good backgrounder reader on the issue.

However, a new bill, HB 2320, was introduced earlier this week. The new version, however, lacks some of the exemptions that the earlier bill carried. Namely, there is no exemption for audio/video programming provided by a radio or television broadcaster. There is also no exemption for digital automated services or programming obtained by the end user free of charge. 

Now, these are very tricky and technical pieces of legislation. This is also not a "colossal tax grab." E-mails will not be taxed, nor will most functions a business or person would use on the Internet. But my question comes !
in about services that you have already paid for but whose services you can also use for free. I know, sounds complicated. But when you pay to rent Netflix or Blockbuster mail DVDs, you pay sales taxes for the service on the tangible property (the actual discs). But now both companies offer streaming video content as part of the service package. Do I need to now pay more taxes when I stream a movie over my computer, without coming into contact with any physical property like a DVD?

As the proliferation of these streaming sites skyrockets (see Hulu.com, Fancast.com, AppleTV, NBC.com, etc.) the question then becomes, "can the state tax my usage of a semi-free product?" We already pay our internet service provider a monthly fee to access the web. Do we need to pay the state to access the free content? And what happens if the state decides that its default position should be to tax all content? This could get very messy. 

It does !
seem fair to pay the sales tax on the new U2 album if downloaded from Amazon or iTunes, likewise if I want to download Outliers for a Kindle or other e-reader. It also seems fair to pay sales tax if I want to download Quantum of Solace instead of buying it on DVD. But if I already pay a monthly fee to Netflix for its DVD service, should I also have to pay another tax for the right to access their streamed content? Or pay a tax on watching The Office on Hulu.com for free?

A sticky situation indeed. 

In case the Sunshine Committee is rained out

March 25, 2009 in Blog

With bills moving through the Legislature to eliminate the state Sunshine Committee, one citizen member is proposing a resolution to help continue the committee's work just in case:

RESOLUTION TO BE SUBMITTED AT MAY 12, 2009 MEETING OF THE PUBLIC RECORDS EXEMPTIONS ACCOUNTABILITY COMMITTEE
 
Be it Resolved that it is the sense of this committee that all exemptions to the Public Records Act and any statutory basis to withhold information or records be eliminated after two years unless specifically reauthorized by the Legislature with the exception of those ten included in the original legislation; and that the Legislature examine all of the eliminated exemptions individually, and Further, that all future exemptions be limited to a term of two years and be examined by the Legislature upon their expiration on a case by case basis to determine if they merit !
reauthorization or should be eliminated or revised.
 
Submitted by: Patience Rogge

Here is what Rogge told me about her resolution:

The reason I'm introducing this resolution is: when I learned of Sen. Fairley's bill proposing to eliminate the Sunshine Committee and the other bill that would eliminate or suspend boards, commissions, and committees, I realized that there would be no mechanism in place to review the ever increasing number of exemptions. The public's access to government information would continue to shrink unchecked.
   
I believe that if there are valid reasons for exemptions, they should be retained; however, some exemptions may no longer be valid but would remain in the RCWs forever unless someone challenged them in court.
/>Florida has a provision in their law that exemptions to the!
ir public records law have to be re-examined by the legislature after a certain period of time. It is then decided either to retain, eliminate, or sunset each exemption. That seems to me to be a good model.

Here are additional details on the Florida process: 119.15  Legislative review of exemptions from public meeting and public records requirements

Assuming the legislative members of the Sunshine Committee participate at the May meeting, the motion to remove the legislative exemption from the public records act may also be considered.

Double or Nothing on 2020?

March 24, 2009 in Blog

Noted environmental doomsayer Paul Ehrlich said in 1969 that "I would take even money that England will not exist in the year 2000." Turns out that this, like all of his other claims, was incorrect.

However, a member of British Prime Minister Gordon Brown's team is looking to come to Mr. Ehrlich's rescue.

Jonathon Porritt, an environmental advisor to Brown will argue this weekend that Britain's population must be cut in half to remain sustainable. Says Mr. Porritt, "Each person in Britain has far more impact on the environment than those in developing countries so cutting our population is one way to reduce that impact."

I've always thought the British were extremely hospitable. No matter how crazy the idea or how much time has passed, Brits will attempt to accommodate the ravings of foreign gadflies. In this case, however, we wouldn't mind if they ignored Mr. Ehrlich. After all, it's what we do.

Allow school districts to declare fiscal emergencies and modify teacher contracts

March 24, 2009 in Blog

Idaho is considering legislation which would allow teacher contracts to expire at the end of each fiscal year and let districts modify the contracts any time the state has declared a fiscal emergency.  Teachers are given a voice in the process by which school districts are granted the flexibility they need to make budget decisions that are best for both students and teachers.  The bill under consideration in Idaho specifies when a district can declare an emergency.  It would allow contracts to be modified if the district’s tax revenue is 5 percent less than the year before or if the district has less than 5.5% of general funds left in its budget for the school year.  Before contracts could be changed, school boards would have to follow a process involving the local teachers union.See Idaho Statesman, "Bill Allows Pay Change," by Sarah D. Wire, AP, March 20, 2009.

Much of the financial pressure on school districts comes from contracts negotiated with employees in more prosperous times.

Liv Finne, Director of the Center for Education, Washington Policy Center

Lawmakers want to be able to campaign for tax increases

March 24, 2009 in Blog

At least that's my interpretation of a bill introduced today to change state ethics laws.

Consider HB 2322 - Clarifying that it is "normal and regular conduct" under ethics laws for legislators to discuss ballot measures placed on the ballot by the legislature:

. . . "Normal and regular conduct" for a legislator includes discussing a ballot proposition placed on the ballot by the legislature. Legislators are permitted to discuss such a ballot measure, including its merits and demerits. Legislators may state their position on such a ballot measure, including advocacy expressions of support or opposition. Such discussions are permitted in all manner of communications, whether initiated by the legislator or in response to an inquiry, and including newsletters, letters, press releases, and public meetings undertaken in the conduct!
of the official's office . . .