The House and Senate Ways and Means committees met today to discuss the state budget. Among the many interesting presentations was the Senate update on the state budget outlook and the House comparison of state budget processes. Below are some of the details of note.
Minimum time the legislature must review a budget before a vote - About 13 states have some sort of minimum review period for budget bills (that is different than policy bills). Most requirements focus on the budget bill being available for a certain amount of time before floor debate or final passage. (For instance, Florida is 72 hours, Georgia is 24 hours in the House, Hawaii is 48 hours, Michigan is 5 days in the House, New Hampshire is 2 days in the House and 24 hours in the Senate, Rhode Island is 10 days in the House, South Carolina is 3 days in the House, and Texas is 48 hours in the Senate. Utah requires appropriation bills be provided to legislators by the 43rd day of session.)
Original budget submittal must be balanced - Nearly all states require the original budget proposal to be balanced. In Washington, the Governor is statutorily required to submit a balanced budget proposal.
Legislature must pass a balanced budget - At least three-quarters of the states require that the legislature enact a balance budget. Washington is not one of these; however, if the Governor determines that a deficit will occur because enacted appropriations will exceed projected revenues and the beginning fund balance, the Governor is required to order across the board reductions to bring the budget in balance.
A deficit cannot cross fiscal years or biennia - Three-quarters of states, including Washington, prohibit deficits from carrying over into future budget periods.
Washington Policy Center is rolling out a four-part series on the effectiveness of vanpools in the Puget Sound region. To highlight the key findings, WPC will also be releasing a fact-of-the-day through the month of October.
Here is the first vanpool fact-of-the-day:
The largest public vanpool program in Washington and in the United
States is King County’s, serving more than two million annual trips
with 826 vans in operation.
You can find more information on our vanpool study at congestionrelief.org. You can also become a Facebook fan to have these facts and other transportation-related data delivered right to you.
The reason behind the move isn't a policy decision or politics, it's economic. The Consumer Price Index actually fell 1.9 percent during the 12-month period that ended in August. The Department said that the previous wage hike, $0.48 for 2009 wages, was because of a 5.9 percent increase in the CPI during the 12-month period that ended in August 2008. That!
is a very substantial change, due to many factors, but the price of oil probably being the largest ($147 a barrel in the summer of 2008 vs. $70 this summer).
Colorado experienced a similar fate when voters linked their state's minimum wage to the cost of living (CPI) but with the stipulation that the wage could actually decrease if the cost of living did as well. No one really thought it would, so Colorado policymakers where caught a little off-guard (even if their wage rate will only decrease $0.04 per hour). Washington's Initiative makes no provision for a reduction in rates, so the 2009 wage will remain unchanged for 2010, as opposed to decreasing, even though the CPI dropped.
Undoubtedly, there will be outcry from organizations that advocate for the working poor -- that no increase in the worki!
ng poor's hourly wages will keep more workers struggling t!
o pay their bills. But I would ask them to reevaluate their stance that the CPI should maintain control over how much a worker makes. What incentive is there for someone to do more or less in their job if their wage is determined by economic conditions, and not merit?
If someone supported Initiative 688 in 1998 because they thought it was only fair to couple cost-of-living increases to determine the minimum wage, then that same person cannot turn around 11 years later and say it is not fair when that same economic indicator does not produce statistics they don't like.
When it comes to establishing a competitive environment for businesses to compete, the state has to be careful to avoid picking winners and losers among private companies; using taxes or regulation!
s to create carve-outs or otherwise prop up businesses. This creates a distortion effect that makes some businesses, whether private or quasi-private, appear better off than they should be. It also socializes the cost of a business model that the market deems inadequate, which is antithetical to free enterprise.
In 2003, Boeing asked for, and received (implemented over a few years) a 40% cut in its B&O tax until 2024. This tax cut applies to companies that manufacture and sell commercial aircraft and components. To be fair, there are over 250 aerospace companies in Washington state and they account for over $36 billion in economic value and employ over 80,000 workers. So, obviously, aerospace is a BIG deal to the Evergreen state. But tax and regulatory cuts to one specific industry alienate the hundreds of thousands of other businesses that do not qualify for these benefits.
What happens then? The other industry sectors and businesses start asking for spec!
ial tax rates and incentives. And why not? The aerospace secto!
r makes up 15% of the state economy, so why shouldn't the other 85% of businesses get similar benefits?
When policymakers go to bat for the business community, they should make sure that incentives are broad-based, that the tax system does not favor one industry over another, and that the regulatory structure applies a light and transparent hand on all businesses.
The best way to prove to Boeing that Washington is serious about attracting new businesses and encouraging businesses already here to expand would be to pass real reform in the workers' comp system, to take regulatory reform seriously, and tackle the health care cost issue. Some steps have been made in the past, but those pale in the face of what actually needs to be done (case in point the workers' comp rate and continued skyrocketing health care costs).
Maybe Washington state appears business-friendly to outside observers who don't have to live, work or own a busin!
ess here. Or perhaps Boeing's apparent desire to relocate tells us things we didn't want to hear about how friendly our business climate really is.
With the Initiative 1033 debate focusing on the impact of a similar law in Colorado, the Taxpayer Bill of Rights (TABOR), one of TABOR's biggest supporters is coming to the defense of I-1033. Dr. Barry Poulson, Professor of Economics at the University of Colorado at Boulder, wrote an article for the Bellingham Herald this week countering the attacks opponents of I-1033 have made against TABOR.
According to Dr. Poulson:
Opponents of Washington's Initiative 1033 are woefully uninformed about the Colorado's Taxpayer's Bill of Rights (TABOR) passed by voters in 1992. Critics of Washington's ballot measure say I-1033 !
is similar to our TABOR, which they claim is a disaster for our state. Nothing could be further from the truth . . .
The TABOR Amendment has worked much the way it was intended, allowing Colorado citizens to decide how much government they want and are willing to pay for. If any jurisdiction wants to spend surplus revenue, or increase taxes or debt, it must have voter approval.
Many statewide ballot measures have been presented to Colorado voters since TABOR was enacted. Two of the six ballot measures seeking approval to spend surplus revenue were passed, and four were defeated. Eight ballot measures proposing tax increases were introduced, but only one of these measures passed. Of the four property tax measures introduced, two providing property tax relief to specific groups passed; two measures proposing property tax increases were defeated.
At the local level, however, many more spending or tax increases have been approved, usually becau!
se they were tied to specific local government programs to whi!
ch the voters decided to give extra funds.
Critics often argue that TABOR forced the state to cut spending. The empirical record for state spending in Colorado refutes this claim. In contrast to California, state spending in Colorado has grown at roughly the rate in the private economy. From 1993 to 2007 real per capita state spending grew 28 percent, while per capita GDP grew 30 percent.
With an effective tax and spending limit in place Colorado has been able to lower tax burdens, creating one of the best business tax climates in the country. Colorado has attracted more business investment and jobs than most other states. Over the period since TABOR was passed Colorado has experienced one of the highest rates of economic growth in the nation, while California has experienced retardation in economic growth . . .
Polls reveal that Colorado citizens support the TABOR Amendment by a greater majority today than when it was enacted. Citizens supp!
ort each of the TABOR provisions by a large majority: the cap on the growth of revenue and spending; the requirement for voter approval to spend surplus revenue; and the requirement for voter approval to increase taxes and debt.
Despite this success, politicians and special interest groups routinely attack TABOR because it doesn't give them carte blanche authority to tax and spend. Washington residents would be lucky to have our TABOR amendment. It strengthens fiscal rules and policies conducive to economic growth and prosperity, and prevents the kind of fiscal debacle occurring in California.
Adding a new wrinkle to the tax and spending debate I-1033 is presenting voters is the announcement by Governor!
Gregoire that she is willing to consider tax increases next year. As r!
eported by The Olympian:
Gov. Chris Gregoire made clear in a meeting with reporters this morning that she is not as hostile to tax hikes as she was a year ago. And she will entertain proposals if lawmakers or interest groups bring them to her.
"I didn't want revenue last year because I couldn't figure out how you could do a revenue package that wouldn't hurt the economy, either individuals or businesses. We're still stuck in that rut but I've told the leadership, 'Come make your case. My door's open, you can make your case.' But I don't want to do anything that adversely impacts our economic recovery," Gregoire said.
It's a clear shift from last December when she discouraged tax proposals. At that time, she said it was the wrong time to put a burden on busi!
nesses and individuals in a recession. But Gregoire said last year's cuts were painful and she doesn't know how another $1 billion can be trimmed.
Residents have the right to a locally-based economy,
Residents have the right to affordable preventative health care,
Residents have the right to affordable and safe housing,
Residents have the right to affordable and renewable energy,
The natural environment has the right to exist and flourish,
Residents have the right to determine the future of their neighborhoods,
Workers have the right to be paid the prevailing wage, and the right to work as apprentices, on certain construction projects,
Workers have the right to employer neutrality when unionizing, and the right to constitutional protections within the workplace.
The Policy Note points out:
The Community Bill of Rights will expand government entitlement programs, not individual rights,
Taxpayers could be on the hook to pay for proposed programs that have no funding mechanism in place,
The broad policy agenda is not affordable under the city's current budget,
The measure will likely face scrutiny in courts under the state's "single subject law."
The Policy Note also highlights potential costs associated with some of the measure's mandates, such as mandating affordable, renewable energy and the potential cost of insuring affordable, preventative care for Spokane citizens.
Finally, we also point out that many of the rights enumerated in the Community Bill of Rights proposal contradict each other, such as heightened environmental regulations increasing the cost of affordable housing, which would also be required for the city to provide. The Community Bill of Rights would also strip businesses from possessing any legal rights if a citizen were to file claim against a business in violation of the rights laid out in this proposal.
Jennifer Huntley masterfully lays out the background for the big education reform act passed last session, HB 2261. She describes how funding formulas developed by school reformers in the late 1970's continue to bedevil the state and attract legal challenges. She captures the frustration of school superintendents required to spend money on unfunded mandates from Olympia. She describes the goals of HB 2261 and the challenges facing the state in financing that reform. She interviews superintendents, administrators and union officials who sing the same old song that more money will fix our schools, even though education spending has increased by over 30% since 2004, and taxpayers are generously providing schools with over $10 billion (see http://fiscal.wa.gov/FRViewer.aspx?Rpt=K12WSFSW) a year from all state, federal and local sources. She reveals the heartache, frustration and anguish of mothers whose children are being ill-served by a mediocre system of pu!
blic education which strongly resists change. She also reveals constructive ideas offered by Washington Policy Center and others to improve public schools. Here is Part II of the "Quest for Quality":
"When economic times get tough, the moment to reform business
operations becomes the most opportune. It's a time to question past
assumptions and arrive at a more rigorously disciplined enterprise.
Somehow the state's Department of Labor & Industries doesn't
believe in that philosophy. The guiding principle there seems to be to
keep adding revenues and charge ahead, no matter what the cost is to
"In a state that just saw its unemployment rate bubble up to 9.2
percent, where jobs are easily lost, where economic recovery is
excruciatingly slow, you would think it would not be a good time for
the state to increase its tax on employment...
...The debate goes on, among Olympia’s hardy perennials. Someday it may
change, but for workers it will be as it is with all creeping payroll
taxes — close your eyes and pretend you’re not the one who pays."
"When the Washington Department of Labor and Industries proposed a 7.6
percent increase in industrial insurance premiums this week, several
business organizations told the agency something its officials already
knew. This is a rotten time to heap another $117 million burden on the
state’s struggling employers."
The Forbes ranking has created a stir in our state for a number of years. One thing for certain is that Washington has consistently moved up the ranking rung, ending up now as the second best place for business. That's the good news. The other side of the coin, and Forbes points this out, is that many other of the states that previously ranked high, took a nose-dive largely because of the turmoil in the housing and financial markets. No state was untouched by the Great Recession, but some were hit disproportionately hard (here's looking at you Nevada, Florida and Arizona).
It is also important to note that !
many of theses states, which were hit hard by housing downturns, and therefore depleted state coffers, saw setbacks in their rankings because the state government turned around by raising taxes on businesses and citizens, thereby reducing their overall score.
Washington fared a lot better than other states during this last downturn, but how much of it had to do with government intervention versus the adaptability of our producers? States like NV, FL, and AZ saw massive hits to the housing industry, in large part because the housing bubble burst. Michigan saw the implosion of the Big Three Detroit auto-makers. California's tax and regulatory climate broke its economic back. People are literally fleeing New Jersey for greener pastures (read the third-to-last paragraph in the Forbes story).
By contrast, Washington is enjoying higher-than-ever exports per capita. We recently topped $10K per person exports per capita -- the first time that has ever happened in !
the nation. The cheap dollar certainly helped. We have very in!
expensive energy rates -- for the time being -- thanks largely to hydropower. Our citizenry and workforce are highly educated. And many of our high-growth industries through the last several years have been in white-collar, high-wage, innovation fields such as software engineering.
So, there is a lot to be hopeful about, but for as many industries that may see growth in the near term, there are an equal number that may very well fall back into recessionary mode. All is not well quite yet and it is important that policymakers focus on areas where smart and responsible decisions will have !
a beneficial impact on the economy and our businesses.
Earlier this week the Tax Foundation issued its 2010 State Business Tax Climate Index. Washington moved up a few spots, from 12th to 9th best. However, our overall score actually declined. The reason for this? Other states hurt their ranking by making bad moves more than Washington took steps in improving its system. Good news in a relative sense I suppose.
A few interesting finds from the 60-page study:
WA ranks 33rd (1st is best) in the Corporate Tax Index
WA ranks 1st in the Individual Income Tax Index
WA ranks 50th in the Sales Tax Index
WA ranks 26th in the Unemployment Insurance Tax Index
WA ranks 21st in the Property Tax Index
There is a disturbing trend of states proposing or imposing a "millionaires tax" to cope with budget shortfalls
WA has the highest tax on spirits, Oregon is 2nd highest
WA has the highest taxable wage base for Unemployment Insurance
The methodology the Tax Foundation uses puts the most weight on the Individual Income Tax Index (30%), then the Sales Tax Index (24%), Corporate Tax (20%), Property Tax (15%), and finally Unemployment Insurance Tax (11%) -- see pages 33-34.
So, as in other tax rankings, Washington ranks the best in the category for which we contribute no data. That's not to say this ranking is bunk -- the Tax Foundation does great work. But readers should know that each Index is weighted differently and the index that carries the biggest impact is one Washington decided not to tax. The takeaway? Any move towards adding an individual income tax will surely knock us down quite a bit.
The other issue I am always asked about regarding business tax rankings is how these institutions (or media outlets) treat our much-maligned Business & Occupation tax. A simple reading of just about any of the numerous tax rankings out there will show little or no acknowledgment of our wha!
cky home-grown system and therefore either underweight or completely ignore it. Obviously, simply ignoring the B&O tax is a mistake, and the Tax Foundation does try and compensate for our gross receipts system. In fact, it has some not-so-nice things to say:
"Such economic imbalance from this (gross receipts tax) often leads lawmakers to enact separate rates for each industry, an inevitably unfair and inefficient process... Delaware, Ohio and Washington score the worst for gross receipts tax deductions because they do not offer full deductions for either cost of goods sold or employee compensation." (page 13)
There is a lot of data to play around with in this study. And the conversations that arise from debating our state's tax structure can play a role in determining policy priorities we want to see in Washington. The Tax Foundation hits the nail on the head when it says,
"The ideal tax system, !
whether at the local, state or federal level, is simple, trans!
parent, stable, neutral to business activity, and pro-growth. In such an ideal system, individuals and businesses would spend a minimum amount of resources to comply with the tax system, understand the true cost of the tax system, base their economic decisions solely on the merits of the transactions, without regard to tax implications, and not have the tax system impede their growth and prosperity."
Relying solely on ranking systems works only in a relative sense; what good is to be said of a tax system that ranks well to others if the model for our imitation is flawed? Let's use these established tax principles as a gauge as to whether or not our state is living up to these ideals, which have proven to lead to economic growth and prosperity.
Earlier this year we hosted a sneak preview of Not Evil, Just Wrong, a fantastic documentary by Phelim McAleer and Ann McElhinney. I've always felt they were at their best when they let environmentalists expose their own outlandish ideas in their own words.
Here, Phelim asks some uncomfortable questions at the premier of "The Age of Stupid," a film that claims humans will be extinct by 2055 due to climate change. The film is particularly critical of flying in airplanes. Watch what happens when Phelim asks the film's producer and supporters how they came to the premier.
It looks like Massachusetts' version of our "emergency clause" may delay the appointment of Sen. Kennedy's replacement. Unlike in Washington, however, the Massachusetts "emergency preamble" requires a 2/3 vote of lawmakers to allow a bill to take effect immediately, rather than the standard 90 days.
Paul G. Kirk Jr., the former chairman of the Democratic National Committee, will replace the late Ted Kennedy in the Senate until a special election is held in January, sources told FOX News.
But a constitutional dispute is delaying final passage of a bill allowing Gov. Deval Patrick to name Kennedy's successor . . . Massachusetts lawmakers are expected Wednesday to give final approval to a change in the Senate succ!
ession law so the governor can temporarily fill Senate vacancies. The interim senator would serve until the seat is filled permanently through a special election on Jan. 19.
Patrick could announce his pick as early as Thursday.
But under the Massachusetts Constitution, laws enacted by the Legislature and signed by the governor become law after 90 days.
For laws to take effect immediately, lawmakers must attach a so-called "emergency preamble," which requires a two-thirds vote in each chamber.
Republicans, who oppose the bill, say they'll fight any attempt to have the law take effect without an emergency preamble. The bill won initial approval in both chambers, but fell far short of a two-thirds majority.
A bill signed by the govern!
or, or passed by two-thirds of both branches over his veto, be!
comes a law. It is usually effective in ninety days. The day after the governor signs the bill is considered to be the first day, and each succeeding day, including Sundays and holidays is counted until the ninetieth.
Laws considered "emergency" in nature take effect immediately upon signing if the legislature has voted to attach an "emergency preamble" to the bill. Adoption of the preamble requires a two-thirds standing vote of the membership.
Lawmakers in Washington can also declare an emergency and allow a bill to take effect immediately but a 2/3 vote is not required. When an "emergency clause" is used the people are denied their right of referendum on that bill. To provide a check on the Legislature, the state constitution grants the people the power to veto unwanted legislation through the use of a referendum. According to the Secretary of State, “The referendum allows citizens, through the petition proc!
ess, to refer acts of the Legislature to the ballot before they become law.” This power applies to any bill adopted by the Legislature except those that include an “emergency clause.”
An emergency clause states that a bill is exempt from repeal by referendum because the bill is, “necessary for the immediate preservation of the public peace, health or safety, support of the state government and its existing public institutions.” The use of the emergency clause allows bills to take effect immediately once signed by the Governor.
The purpose of the emergency clause is to allow state government to respond quickly to true public emergencies, like a large-scale natural disaster or wide-spread epidemic disease.
As is the case in M!
assachusetts, the most effective way to end the Legislature’s abuse of the emergency clause is a constitutional amendment creating a supermajority vote requirement for its use. The Legislature would then be prohibited from attaching an emergency clause unless the bill was approved by a 60 percent vote. Budget bills, however, could be made exempt from the supermajority vote requirement, allowing them to pass with a simple majority and not be subject to referendum.
A constitutional amendment (HJR 4205) was introduced last session by Rep. Barbara Bailey, but it did not receive a hearing.
Earlier this year Washington Congressman Brian Baird (D) introduced a
resolution calling for a 72-hour review period on
legislation before a vote could be taken. Baird's House Resolution 554 is co-sponsored by Rep. John
Culberson of Texas (R). Since House leadership has not scheduled the bill for a vote, Baird has joined with other Representatives to try to force floor action on the transparency proposal. According to The Hill:
"Democratic Rep. Brian Baird (Wash) has signed on to a discharge petition intended to force a floor vote on transparency legislation backed by Republicans.
If the petition wins 218 signatures, it would pave the way for a vote on legislation that would change House rules to require that bills are posted online for 72 hours before the House votes on them.
It is rare for a lawmaker to sign on to a discharge petition intended to force the leaders of his party to hold a floor vote. It is also considered to be a slap in the face of leaders.
Rep. Greg Wal!
den (R-Ore.) on Wednesday announced that Baird had signed on to the petition in comments on the House floor.
Baird was a cosponsor of the transparency legislation with Rep. John Culberson (R-Texas). The two introduced their bill in June, arguing it was intended to ensure that members have enough time to read through complicated bills before they vote.
The bill has 98 cosponsors, including many Democrats."
This type of transparency reform is one of WPC priorities for Washington state. From our Policy Guide:
facilitate public involvement, the legislature should adopt a 72-hour
timeout period in the legislative process once a budget, tax or
spending bill is introduced or amended. This would allow lawmakers and
the public a three-day period to calmly consider the two-year budget,
new taxes or new spending before legislative hearings or final voting
A bill was introduced in Olympia this past session by Rep. Alexander (HB 1654) to create a five day review period for appropriation bills. Although a work session was held, no public hearing or vote occurred.
In other federal transparency news, the Senate Finance Committee rejected an amendment to post legislative language and cost estimates for the health care reform bill on line for 72-hours before the committee votes on the bill. As reported by Politico:
"The Finance Committee voted against an am!
endment that would have required legislative language and a cost estimate be posted on the Internet three-day before the committee votes on the bill. The change, offered by Republican Sen. Jim Bunning, failed 11-12, with Democratic Sen. Blanche Lincoln crossing party lines and voting with Republicans.
The committee did pass a Baucus amendment that requires a cost estimate and a plain-English explanation of the bill to be posted online before voting. The amendment passed on a party line vote.
The committee spent more than two hours debating the issue, not a good sign for those who want to make it home for dinner. There are dozens more amendments still to be debated."