Governor Gregoire will be releasing her recommendations to close the state's projected $2.6 billion budget deficit the week of December 7. Giving some insight into her thought process, the Governor and the Director of the state's budget office (Victor Moore) have teamed up to create a short video about the budget situation. Here is a link to that video (Hat tip Niki Reading of TVW).
While no new ground was broken in the video, it is disappointing that two words were never mentioned: Government Reform.
This is in contrast to the Governor's message last session that government must change the!
way it operates versus trying to find new revenues to continue the status quo. Here is what the Governor said in her state of the state address this past January:
. . one thing we have to do together is reform state government to
bring it into the 21st century, and soon. At very basic levels,
businesses are struggling to reform, to change the way they do business
because they simply must to survive. And our business leaders tell me
that American companies, large and small, will emerge from this
recession forever changed.
We have to do the same. And that’s government reform.
This is our chance to reform state government to make it a more nimble and relevant partner in a new state economy.
Ladies and gentlemen, we need to reboot!
the decades, state government has evolved — layer upon layer upon
layer. But too much of what served the people well in 1940 or 1960 or
1990 does not serve the people well in the 21st century. We need to
make sure we have a government for the 21st century so our workers and
businesses can compete with anyone in the world."
While the failure to mention the need for reforms in the budget video may have been unintentional, the solution to the state's structural budget problem has not changed. We need "to reform state government to make it a more nimble and relevant partner in a new state economy."
Two of the questions I get asked most is, "I often hear that small businesses create most of the jobs. Is this true and if so, why aren't policymakers doing more to help small businesses?"
The first question is pretty easy to answer. Yes, small businesses do tend to create most of the new jobs, particularly during economic recessions. But one of the points from the Kauffman foundation paper is that we (the media, policymakers, think tanks) sometimes may be too focused on small businesses and not focused enough on new businesses.
Since 1980, nearly all net new jobs created were in firms less than 5 years old. In fact, the businesses most likely to create new jobs are those aged 1-5 and then the older, established and large businesses!
. In fact, an interesting chart on page 8 of the report shows that over the last 30 years, "excluding the jobs from new firms, the U.S. net employment growth rate is negative on average." Take away the jobs created by startups and the country will most likely have negative growth in jobs. That is pretty substantial.
However, that is not all bad as the Kauffman Foundation paper points out,
"When we talk about young firms, then, we're talking about an ever-changing assortment of dynamic firms -- entering and exiting; c!
reating and destroying jobs. Such messiness is not cause for d!
ismay or alarm; it is the provenance of net job creation. If we want to chart a rapid employment recovery, we need to foster such messy dynamism."
This echoes Schumpeter's theory of creative destruction. So then, what does it mean for jobs in our state during this recession? After all, our unemployment rate is a stubborn 9.3%, even while the nation's continues to rise at a fast clip; it's up to 10.2% now. And, as you may recall, unemployment numbers are a lagging economic indicator -- meaning that rate will only begin to decline after the economic recovery is well underway (which is still a ways off).
The authors of the Kauffman paper have this to say,
"The slow recovery of employment may also work to spur even higher rates of firm formation: instead of waiting around for new jobs, people may take their future into their own hands.!
So what can policymakers do in the short term to help these new, and therefore mostly small, businesses -- therefore answering the second part of the question I get asked most? The authors make two suggestions. One, government can help unfreeze the credit markets, because those are the lifeblood of many businesses. But a much bolder approach, they advocate, would be "to grant a payroll tax holiday for new and young companies, thus fostering job creation."
Certainly, granting a tax or licensing fee holiday for new companies has some difficulties, particularly since both Washington state and Washington, D.C. are stuck with huge budget deficits (mostly of their own doing) but such bold action would back up policymakers' talk of jobs, jobs, jobs.
A state panel has finally selected a preferred option on replacing the floating 520 bridge.
The panel voted 10 to 2 in favor of replacing the existing bridge from
Interstate 5 to Medina with a new six-lane bridge, which would include
one HOV lane in each direction. It would feature a new Montlake
interchange, similar to the current interchange, with a new bascule
bridge across the cut. It also would add some improvement to transit
connections, as well as a reversible HOV lane connecting to Interstate
The cost will be about $4.6 billion but it will not increase general-purpose lane capacity.
According to this 2008 article in Wired Magazine, the first bridge cost $21 million in 1963, or about $154 million in 2008 dollars. This means officials could build 30 of the existing structures for the same amount they want to spend on its replacement.
While elected officials at the state and federal level debate the need for tax increases and "fiscal stimulus spending," a recent economic study suggests instead taxes and spending should be cut to spur economic growth and reduce deficits.
"We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to!
reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis."
The study concludes (in-part):
"As we argued in the introduction it is unlikely that these deficits and debt will disappear simply because growth will resume at very rapid pace very soon. Primary suppresses would be needed since interest rates cannot go other than up from the close to zero actual levels. The analysis of the present paper suggests that primary spending needs to be kept under tight control otherwise increasing taxes running after ever increasing spending will not work."
Speaking of economists and the current budget debate in Olympia, earlier this year more than 30 economists warne!
d state officials
that raising taxes "during a recessionary period is contrary to
responsible economic policy and instead will thwart the state’s
In other industries, the bottom line forces managers to keep supply commiserate with demand. But in the public sector, there ultimately is no bottom line, so performance and accountability succumb to political agendas. Lindblom even highlights this concept in his article:
This summer, County Executive Kurt Triplett proposed an
across-the-board service cut to all 225 routes. That proved unpopular
with several County Council members, who would have faced heat from
riders in their districts.
In transportation policy, performance should drive spending decisions.
Incidentally, vanpool ridership continues to grow (8.12%), despite the recession.
Gabriel Roth, A noted transportation economist and Research Fellow at the Independent Institute, has a great tale about the government's efforts to reduce how much people drive:
On November 17 I attended a National Journal meeting addressed by Polly Trottenberg, Assistant Secretary for Transportation Policy. She told us how important it was to reduce VMT (vehicle miles of travel). After the meeting, as she was entering a chauffeured government car, I asked her why she did not take a bus. She said something about being in a hurry.
Can it possibly be that reducing VMT is not a thing for important people?
You might recall that our state implemented VMT reduction targets a couple years back. The first phase calls for an 18 percent reduction by 2020.
As Niles highlights, notice ridership has been falling since it peaked in October. Niles estimates average ridership in October was 16,129 trips per day.
But remember, trips are not riders. Trips can count the same rider multiple times in a single day. Also remember that Sound Transit estimates!
two-thirds of its light rail riders come from the existing bus system. So taking these factors into account, at its peak, light rail is only carrying about 2,688 new transit riders per day.
With Washington already behind the eight ball in the quest for the federal "race to the top funds," the last thing we need is for the state's executive branch to be sending conflicting signals about our commitment to accountability. Unfortunately that is exactly what is happening.
Yesterday State Superintendent of Public Instruction Randy Dorn announced his plan to delay the state's math and science graduation requirements. According to his press release:
Citing major concerns with the passing rates on the high school math and science exams, State Superintendent Randy Dorn has proposed significant changes to th!
e math and science graduation requirements. Dorn unveiled his proposal today at the annual conference of the Washington State School Directors Association.
Dorn said students and schools will need more time with new math and science learning standards that are now being implemented around the state. The new standards won’t be assessed until 2011 for math and 2012 for science. That doesn’t provide ample opportunity for the class of 2013, current ninth graders and the first class required to pass four state exams, to learn the standards, or teachers and schools to align curriculum and materials to them, he added.
“It doesn’t take a mathematician to see that we have a big problem in our state. Less than 50 percent of our 10th graders are passing the math and science exams,” said Dorn, who noted 10th graders’ passing rate on the reading and writing exams is more than 80 percent. “We need to be fair to our students and give them time to learn!
the new standards. It’s simply a matter of doing what’s r!
"I oppose the proposal. As our state and global economies become more technically driven, we need to ensure that our students leave high school highly-trained in math and science so they can qualify for Washington state jobs or entry into training and higher education programs of their choosing.
“Our students are capable of mastering our state's standards in math and science. They have shown us their capacity to meet our expectations in the past. Schools I visited recently give me every indication that when students know the work is important they dig in and make the most of it.
“We can't lower our standards in math, nor can w!
e communicate that science is not important. We must prepare our students for their future. There is every reason to focus attention on the math and science learning needs of our students so they can succeed after high school. The Superintendent is concerned about the graduation rate. I am concerned about the bigger picture - preparing kids for life. I think parents share that concern.”
Education policy is complicated enough without having two members of the executive branch pursuing conflicting strategies and sending mixed signals to the Legislature and citizens. This latest development is just another example of why the Office of Superintendent of Public Instruction (OSPI) should not be an independently elected office but instead should be an appointed office under the Governor's control via her cabinet. This would follow the model used !
Secretary of Social and Health Services
Director of Ecology
Director of Labor and Industries
Director of Agriculture
Director of Financial Management
Secretary of Transportation
Director of Licensing
Director of General Administration
Director of Commerce
Director of Veterans Affairs
Director of Revenue
Secretary of Corrections
Secretary of Health
Director of Financial Institutions
Chief of the State Patrol
This type of change would address the diffused accountability under the current system. If problems arise with public education voters would know that the solution lies with the Governor. If the Governor fails to use her appointment powers to improve the management and policies of OSPI, voters could take that failure into account at election time.
"I will produce a budget balance!
d to this revenue projection because I am required to by law. We all know a budget reflects the values of our state. All options must be on the table to produce a budget that works."
Tax increases are not the answer and should be removed from the table as an
option to help remove any distractions from making the necessary budget
Illustrating this point, earlier this year more than 30 economists warned state officials that raising taxes "during a recessionary period is contrary to responsible economic policy and instead will thwart the state’s economic recovery."
Several state newspapers have also called on state officials to avoid tax increases:
Though lawmakers and the Governor will be tempted to address the state's $2.6 billion budget deficit with one-time fixes, doing so is a recipe for future budget pain and the potential for the state's credit rating to be downgraded. According to Moody's October 9 report on Washington's credit outlook, the following could result in a reduction to the state's credit rating:
Protracted structural budget imbalance.
Increased reliance on one-time budget solutions.
Failure to adopt plan to cover expenditures once federal fiscal stimulus monies are no longer available.
Instead state officials should make fundamental changes by "re-booting" state government as called for by the Governor in her state of the state address last January:
“. . . one thing we have to do together is reform state government to bring it into the 21st century, and soon. At very basic levels, businesses are struggling to reform, to change the way they do business because they simply must to survive. And our business leaders tell me that American companies, large and small, will emerge from this recession forever changed.
We have to do the same. And that’s government reform.
This is our chance to reform state government to make it a more nimble and relevant partner in a new state economy.
Ladies and gentlemen, we need to reboot!
Over the decades, state government has evolved — layer upon layer upon layer. But too much of what served the peo!
ple well in 1940 or 1960 or 1990 does not serve the people well in the 21st century. We need to make sure we have a government for the 21st century so our workers and businesses can compete with anyone in the world."
Today's Seattle Times contains two sobering reports about education.
One article reports that Superintendent of Public Instruction Randy Dorn is taking steps to further loosen academic requirements. He proposes to further delay the requirement that students pass the state math and science tests in order to earn a high school diploma. He would delay the math requirement from 2013 to 2015 and the science requirement to 2017. Reducing standards is the logical response of a school system run by officials focused on embarrassing high school graduation rates: fully one-third of high schools students drop out. Increasing the math and science knowledge of individual students must play second fiddle to increasing graduation rates.
A second article reports that the Seattle School District has returned to a neighborhood assignment plan for schools. Parent choice has now been eliminated, reversing the open enrollment policy instituted by Superintendent John Stanford in the late 1990's. Until now, this open enrollment policy allowed thousands of parents to make the choice they felt was best for their student, with the result that many schools in the north end of the city became overenrolled and many in the south end became underenrolled.
The proper response of the district to this evidence of broad disaffection with certain schools should have been to close these schools, or replace their underperforming staff.
Instead, underperforming schools will remain open and fully enrolled, and all will be neat and tidy from the point of view of administrators in the district. But this bodes ill for students and families. Parents will be unable to remove their students from underperforming neighborhood schools. The district responds to these concerns by claiming that all schools in all neighborhoods will be excellent, some day in the future. But how can excellence in all schools be achieved now, when a critical factor in driving improvements, the power of parent choice, has been eliminated?
What a sad state of affairs for parents and students in Washington state and in Seattle.
Attendees at this morning's GMAP session were witness to a visibly disappointed Governor expressing her displeasure with an agency's lack of performance. The focus of the meeting was the state's use of the federal stimulus funds. One of the activities highlighted was Commerce's weatherization program.
Commerce Director Rogers Weed opened his presentation by asking the Governor to lower the target for the number of housing units to be weatherized since it would be unlikely for Commerce to meet the current goal. Weed indicated the problem was caused by questions concerning prevailing wage requirements and how much workers should be paid for the weatherization projects.
The original goal for the 2nd quarter was to weatherize 935 units. Commerce's actual production was 107 units.
Responding to this the Governor said she was absolutely disappointed with how many fingers wer!
e being pointed and the bureaucracy getting clogged up. She also stressed that she didn't understand why the problem surrounding the prevailing wage confusion wasn't identified sooner to allow for corrective action. She concluded her criticism by saying "this is not acceptable" and reminded those who work for government that they are the guardian of taxpayer dollars.
Beyond the Commerce fireworks there was other news of note from today's GMAP meeting:
The Governor commented that the accountability states are being held to for the stimulus funds is "mind boggling" and only 1/10 of what the big banks were required to do under TARP.
The Governor mentioned a phone call she recently had with the Vice President about the cliff states will fall off if the federal funds for social services (Medicaid, etc) are not extended for use next year and that she is actively lobbying for more federal funds.
The Governor stressed the need for agencies to focus on whether results were actually being achieved for expenditures not simply whether the money can be accounted for.
Also discussed was an overview of the state's stimulus funds:
$2 billion for program grants - 30,000 jobs (24,000 of which are in education)
$2 billion for federal direct expenditures - 2,900 jobs
$1 billion for local governments and non-profits - 3,000 jobs
$1 billion for assistance to individuals (Medicaid, etc)
The state was not required to keep track of how many of those jobs are new. Last month The News Tribune questioned the 24,000 education jobs reported. From the article:
New numbers released by the federal government Friday estimate that the federal stimulus package has helped create or save 34,500 total jobs in Washington, making it the state with the third-largest reported number of stimulus jobs behind California and New York.
But there’s a caveat on those job creation numbers: 24,000 of them probably weren’t in danger in the first place.
State officials used a chunk of stimulus money to cover paychecks for 24,000 teachers who were already contracted to finish out the school year. That money came from a pot of stimulus funds given to the state to hel!
p offset budget cuts.
Without that funding, the money to pay the teachers would have come out of the state general fund, said Jill Satran, Gov. Chris Gregoire’s main adviser on stimulus projects.
That would have meant cuts elsewhere, Satran said, but the job losses that would have resulted from such cuts is difficult to quantify. Few, if any, of the 24,000 teacher jobs would have been among them, Satran said.
I've noticed WSDOT crews installing metal sign columns along a busy stretch of I-5 between Boeing Field and I-90. They are about every 300 feet and appear on both sides of the freeway. I took some pictures on a recent trip.
According to the WSDOT, these columns will be used to install variable speed limit signs.
The signs will display speed limits from 40 to 60 mph, depending on traffic
levels. The result will be fewer traffic collisions and less
WSDOT estimates the speed limits will become variable beginning Summer 2010. Active Traffic Management systems are a sure fire way to increase vehicle throughput along a particular corridor (and they are relatively inexpensive). Reducing the speed limit may seem counter intuitive to some, but as former WSDOT Secretary Doug MacDonald demonstrates in this video, it makes sense:
As we have noted many times before, there is no formal policy to reduce traffic congestion in Washington State. So its refreshing to see a project with a direct relationship between spending transportation taxes and maximizing vehicle throughput. Seattle and Sound Transit officials have taken the opposite position by implementing policies and programs that don't reduce congestion or deliberately make it worse.
The Archives of Surgery recently a published a peer reviewed paper concluding that people without health insurance were more likely to die after major trauma than people with health insurance. The study looked at trauma deaths as recorded in the national trauma registry from 2002 through 2006 and included a total of almost 700,000 patients.
Overall mortality in the insured group was 4.7% with a breakdown of 3.3% for commercial insurance, 2.9% for managed care, 3.7% for Medicaid and as expected in the higher age range, 6.7% for Medicare. The uninsured had a 5.7% overall mortality rate.
The study was very well controlled for matching age, race, severity of trauma, and type of trauma (blunt vs penetrating). The authors concluded that having health insurance determines the likelihood of survival after major trauma.
The one glaring difference between the insured and uninsured groups was the incidence of penetrating injuries. The commercially insured and managed care groups had a 6% and 9% rate respectively with seniors in Medicare at 4%. The uninsured had a 24% rate. Most penetrating injuries are gun shot wounds and it can be argued that the chance of surviving a gun shot injury is much less than surviving blunt trauma which is usually in the form of an auto accident or a fall.
The implication of the paper is that providers treat patients in an emergency setting differently based on their insurance status. This is disingenuous and is absolutely insulting to the medical profession.
The Working Group implementing school finance reform under last session's reform bill, HB 2261, faces a serious new challenge. Last week, in the Federal Way School District case, the Supreme Court found that the legislature's school funding allocations do not violate the constitutional clauses requiring ample provision and a general and uniform system of schools. Legislators can no longer rely on the judicial system to fix the public school finance in Washington State. And the projected budget shortfall of over $2 billion increases the pressure for finding better solutions.
The current system of school finance (and the prototype school system embraced by HB 2261) allows legislatures and school districts to decide how to staff schools, which is so inefficient that less than 59 cents of every dollar actually reaches the classroom.
A better solution for school finance reform is available. This solution would allow schools to make better use of and provide greater transparency and clarity over the $9 billion Washington state's taxpayers currently provide to educate one million students.
This solution is described in a new report from the U.S. Chamber of Commerce and the American Enterprise Institute, Leaders and Laggards: A State-by-State Report Card on Educational Improvement. This report concluded: "The results were deeply troubling. From weak data capacity to anachronistic finance systems, schools just do not have the ability to respond to 21st century educational challenges." Among the report's key recommendations is a system of student-centered funding to minimize complexity, improve funding transparency, and help improve student achievement. Specifically, the report states:
"In light of these challenges, states could benefit from a system of student-based funding under which a student's school would receive a certain amount of dollars based on the student's particular needs, and could then spend those funds flexibly. This policy has a number of other names, including results-based budgeting and weighted student funding. ...Such a system would give local educators far greater autonomy and allow them to allocate resources in ways that would best serve students. ...when dollars follow a child directly to the classroom, the people closest to the student—school leaders and community members—are empowered to make decisions that affect that child, as opposed to central district offices that have little to no interaction with pupils. This system would, of course, also increase clarity and transparency!
, helping to create a funding model in which parents and policymakers can easily judge how effectively educators use resources."
See pp. 25-26 of this report for full discussion of this reform and other much-needed reforms.
Governor Gregoire will not call a special session of the Legislature despite a budget deficit likely to exceed $2 billion after Thursday's state revenue forecast. Sen. Joe Zarelli (R-18), ranking member on the Senate Ways and Means Committee, has been calling for a special session for months. Zarelli issued this statement in a press release last week:
“The Legislature doesn’t have to sit back and wait for the governor to bring out her budget proposal next month. We can call ourselves into special session in early December, when we’re already scheduled to be at the Capitol. The budget writers already know where they can reduce spending; the sooner we act, the more can be saved to preserve important programs which otherwise would be subject to slashing later.
The alternative to spending reductions is tax hikes. The majority party won’t come out and say it is planning to fill the budget gap t!
hrough higher taxes, but if the taxpayers don’t see quick action in Olympia to lower spending, they will see something else: the writing on the wall that tax increases are coming in 2010, even though people can’t afford higher taxes.”
According to The Olympian, the Governor has no plans to call a special session and instead will wait to take action next year:
Gov. Chris Gregoire rejected new Republican calls for a special legislative session in early December to deal with the growing budget shortfall, despite her prediction it might hit $2.5 billion after Thursday's revenue forecast . . .
“This is not something you do overnight. It’s something you do thoughtfully,” she said, rejecting Republican Sen. Joe Zarelli’s renewed calls for a special session in early December when lawmakers !
are in town. Gregoire contended special sessions would cost mo!
ney and that budget-writers in the Legislature that she’s talked to “haven’t gone in-depth” on the budget and don’t want to do anything piecemeal.
State law prohibits a cash deficit from occurring by requiring the Governor to take action. Here is what RCW 43.88.110(7) says:
If at any time during the fiscal period the governor projects a cash deficit in a particular fund or account as defined by RCW 43.88.050, the governor shall make across-the-board reductions in allotments for that particular fund or account so as to prevent a cash deficit, unless the legislature has directed the liquidation of the cash deficit over one or more fiscal periods . . .
Since the Governor has not ordered across-the-board reductions as required by law and will not call a special session to address the $2 billion plus de!
ficit, she should veto any bills passed by the Legislature until the budget deficit is resolved.
Delay only exacerbates the budget problem and makes the needed corrections more difficult. If there isn't the will to fix the problem now the Governor and lawmakers must commit to fix the problem at the beginning of the session versus waiting until the waning days.
Tax increases, however, should be removed from the table as an option to help remove any distractions from making the necessary budget reductions.
It appears that at least one Democrat member of the House Ways and Means Committee recognizes this. From The Everett Herald:
style="margin-left: 40px;">Rep. Mark Ericks, D-Bothell, who is vice chairman of the House Ways and Means Committee, said the Legislature tried to “spread the pain” last year by paring a little from everywhere. Now they must look at mothballing entire programs.
“From my perspective, that is what we have to do,” he said. “That won’t make some people happy but that is what is ahead for us.”
No one’s talked to Ericks about hiking taxes. Nor does he think it’s a panacea.
“Where’s that tax that people would raise that would temporarily increase our revenue to get us over the hump? I don’t see it,” he said. “The whole issue about the tax is a red herring.”