Washington Policy Blog

Workers' Comp Reform and Straw Man Arguments

January 15, 2010 in Blog

Despite the fact that the budget woes and looming tax increases continue to dominate discussion about the legislative session, there are other topics on the table as well. As previously mentioned in this blog (several times), the business community is focused on some cost-containment measures in workers' compensation and unemployment insurance. 

Yesterday we reported that policymakers introduced HB 2879, a bill to privatize the workers' comp system, the "nuclear option" as at least one media outlet describes. 

How does Speaker Frank Chopp feel about these cost containment measures, especially privatizing the system? He equated the potential move to letting AIG run the system. No joke, see this TVW clip from Inside Olympia:

This is one of those straw man arguments that is brought out for scare tactics and little else. Is there any evidence to support the supposedly scary proposition that a private sector insurance company may participate in providing competition in a government-run monopoly? It's easy to pick on insurance companies because, let's face it, they're easy targets just like cell phone companies, cable companies, utility providers, retail stores, etc. Everyone has had a bad experience with one of those kinds of companies. And you know what? Everyone has had a bad experience with government entities such as the DMV, or IRS, or DOR, or L&I, or city hall. 

Simply stating that you don't want to open up a system to competition because there have been bad actors (even though Chopp states no evidence of bad actors in industrial insurance, just other insurance companies) is an insult to the good actors; those who have been responsib!
le stewards of their policy holders. 

In other words, it's easier to knock down a straw man such as AIG then it is to refute the position that responsible companies can bring real reform that lowers costs, increases customer satisfaction and brings choice to the marketplace while still protecting injured workers. 

Details from liquor privatization hearing

January 15, 2010 in Blog

Yesterday the Senate Labor, Commerce & Consumer Protection Committee heard public testimony on SB 6204 - Privatizing the sale of liquor. Prime sponsor Sen. Tim Sheldon (D-35) said this was the first time one of his proposals to break up the state's liquor monopoly has received a public hearing.

Here is the audio of Sen. Sheldon's testimony:

The Governor's office was skeptical of the proposal and expressed concern about the consequences of increased liquor sales (audio below).

The state Liquor Control Board shared the Governor's concerns (audio below).

The Governor has previously authorized increased liquor sales on multiple occasions since taking office. Here are some examples:

2009-11 state budget
Liquor Control Board Enhancement – $9.1 Million Near General Fund-State Increase
Several revenue-enhancing measures were i!
mplemented in the budget including opening five new state stores and te!
n new contract stores. Additionally, appropriations are provided for new retail strategies, including opening nine state stores on Sunday, opening state liquor stores on seven holidays, and opening six mall locations during the holiday season. Also, included in the total are other minor policy level changes impacting revenues.

2007-09 state budget
Sunday Sales – $3.9 Million General Fund-State Increase
Funds are provided to the Liquor Control Board to open 29 additional stores on Sundays. The Board shall report back to the Legislature in January 2009 on the effect these additional store openings have made on sales. In addition, these activities increase revenues for the Health Services Account and the Violence Reduction and Drug Enforcement (VRDE) Account.

(2005) HB 1379:
Requiring the liquor control board to implement a retail business plan to improve efficiency and increase revenue
The Board is required to expand store operations to include the Sunday opening of at least 20 state-operated liquor stores by September 1, 2005. The Board must select stores expected to gross the most revenues on Sunday. The stores must be open a minimum of five hours on Sundays. Contract liquor stores are permitted, but not required to open on Sunday . . .

The Board must implement an in-store liquor merchandising plan, including point-of-sale advertising and promotional displays. The Board is also directed to implement a plan for instore merchandising of brands, which may not include provisions for selling liquor-related items not previously authorized.

Washington is not alone in looking at privatizing state liquor monopolies. According to Stateline.org: !

Eyeing the potential for saving money, officials in North Carolina, Virginia and Washington are considering eliminating state-run liquor stores, turning over the sale of booze to the private sector. Nineteen states control their liquor sales.

Republican Robert McDonnell, who will be sworn in as Virginia’s governor on Saturday (Jan. 16), made privatization of the state’s 300 liquor stores a central theme of his winning campaign last fall. He said it would raise about $500 million in one-time money for transportation, but critics say it will never pass the General Assembly because the state would have to give up about $100 million a year in revenue that helps pay for public schools, human services, prisons and other services.

Washington lawmakers held a hearing Thursday (Jan. 14) on a bipartisan bill privatizing liquor sales. Scrapping the current system would cost the state $322 million a year, !
but the money would be recouped through taxes collected from the privately-run liquor stores. “Is it a core function of the state to be selling alcohol? I don’t think so,” Washington state auditor Brian Sonntag told KING 5 news. Sonntag issued a report in December saying Washington could increase revenue from liquor sales by up to $350 million over five years with a privately operated system.

In North Carolina, privatization is as much a matter of accountability as it is a fiscal issue. Gov. Beverly Perdue (D) named a budget reform panel to examine the state-run liquor system after ordering North Carolina’s 163 local Alcoholic Beverage Control boards to go along with a ban on gifts and other ethics rules she imposed on other state agencies, according to the Charlotte Observer. Of the 19 states that control their liquor sales, North Carolina is the only one with local boards instead of a single state board.

Pennsylvania lawmakers considered priv!
atizing the 619 state-owned liquor stores in 2008, but the legislation !
never came up for a vote.

"Link after link we broke those chains," says Schwarzenegger, as California allows parents to escape and reform failing public schools

January 15, 2010 in Blog

Under the leadership of Governor Schwarzenegger, the California Legislature just propelled itself to the front of the Race to the Top competition.  The Governor and the Legislature have been working since last summer.  They just passed SB 4, which gains significant freedoms for parents stuck in underperforming schools.  As the Governor said, until now, the exit doors of underperforming schools have been blocked by chains.  Now, as a result of SB 4, and the Race to the Top competition, parents with students in underperforming schools will be able to:

1) take their student out and send them to another school and even to another district;

2) dismiss ineffective low-performing school principals;

3) turn their schools into charter schools;

4) close the doors of an underperforming school.

The California Legislature also passed SB 1, which breaks down the data firewall barrier which prevented the linking of student performance to the evaluation of a teacher.

The Governor celebrated the many legislators, who, he said, despite being pushed by many, many special interest groups pushing their own adult agenda, focused and stayed focused on doing what is right for kids.  "Link after link we broke those chains," said the Governor. 

Next week, Governor Gregoire's Race to the Top bill will be filed with the Legislature.  All indications are that the bill will break not one link in the chain that binds 70,500 students to their chronically underperforming schools in Washington, or give parents any power to remove ineffective principals or create charter schools. 

The culture of the Washington education establishment badly needs to change.  It is smug and self-satisfied, seriously "progress-resistant" (thanks to David Brooks for this term and his insights).  We need a new culture for education here:   one that is constantly striving for improvement, which is highly demanding and highly intensive, a culture which demands and celebrates hard work and achievement. 

Part and parcel of a new culture for education would hold individual principals and teachers responsible for educating children, and reject the plethora of excuses for failure so common to the discussion.  We need a new education culture in Washington State: a culture like the culture created by Geoffrey Canada in Harlem Children's Zone, like the one in KIPP charter schools, like the one in No-Excuses schools, and like the new one that has formed under the leadership of the Terminator, Schwarzenegger in Sacramento, California. 

Governor: "40,000 new jobs"

January 15, 2010 in Blog

In her state of the state address and subsequent address to the Annual Economic Forecast Conference, Governor Christine Gregoire laid out her plans to create 40,000 new jobs. The main strategy? She wants to stimulate $2 billion capital investment in the fields of biotech, software development, health care, clean tech, renewable energy and aerospace. She also proposed a new employee small business tax credit; in essence small businesses would enjoy a tax break for every new hire. The tax credit program would be capped at $100 million. The Governor also wants to implement the Rural County Tax Credit Program

In her address the Governor also hinted at r!
egulatory reform through a new "One Front Door" program, aimed at improving customer service and streamlining the permit process, saying she will "expand our multi-agency permitting teams to help businesses break through the red tape and to quickly move from planning to job-producing construction." Whether this means expanding the Office of Regulatory Assistance and moving it to the Department of Commerce, or if she has another track in mind, remains to be seen. We have seen regulatory reform attempted before. Here's hoping that regulatory reduction is a part of the plan, not just reform. 

It's good to see that tax breaks for small and rural businesses are on the agenda this year. Last year, everyone seemed to be caught up in >"economic stimulus" that really didn't stimulat!
e anything
(except higher deficits).  

But it's not just about tax breaks for the little guys. Over at AWB's blog, President Don Brunell correctly points out that the plan is a decent start, but other reforms are also needed, 

"Even though her plan is just a proposal right now, it is a good starting point and deserves our support. Combine that with much needed workers comp reforms, reduced unemployment taxes, holding the line on taxes and fees, regulatory streamlining, and reducing the costs of compliance with state mandates.....and, Washington will be ahead of the rest of the country as we all struggle to recover trom this deep recession."

State government closures proposed

January 15, 2010 in Blog

The Chair of the Senate Ways and Means Committee, Sen. Margarita Prentice (D-11), has introduced a bill to close state government for 16 days over the next two years. Here are details from SB 6503 - Closing state agencies on specified dates:

From the effective date of this section until June 30, 2011, state agencies of the legislative, executive, and judicial branches shall be closed on the following dates in addition to the legal holidays specified in RCW 1.16.050:
(a) Friday, March 12, 2010;
(b) Friday, April 9, 2010;
(c) Friday, May 28, 2010;
(d) Monday, June 14, 2010;
(e) Friday, July 2, 2010;
(f) Friday, August 6, 2010;
(g) Friday, September 3, 2010;
(h) Monday, October 11, 2010;
(i) Friday, November 12, 2010;
(j) Monday, December 27, 2010;
(k) Friday, January 14, 2011;
(l) Friday, February 18, 2011;
(m) Friday, March 11, 2011;
(n) Friday, April 15, 2011;
(o) Friday, May 27, 2011; and
(p) Friday, June 10, 2011.

(2) If the closure of an office of an agency of the state under this section prevents the performance of any action, the action shall be considered timely if performed on the next business day . . .

(4) The closure of an office of a state agency under this section shall result in the temporary layoff of the employees of the agency. The compensation of the employees shall be reduced proportionately to the duration of the temporary layoff. Temporary layoffs under this section shall not affect the employees' vacation leave accrual, seniority, or sick leave credits. For the purposes of chapter 430, Laws of 2009, the compensation reductions under this section are deemed to be an integral part of an employer's exp!
enditure reduction efforts.

Section 3 of the bil!
l lists the exemptions to the ordered closures.

An unplanned revolution is happening in L.A. public schools, as parents choose charter school freedom

January 15, 2010 in Blog

Washington does not allow parents to escape failing public schools by choosing a charter school for their children.  70,500 students in Washington are trapped in failing public schools, yet the public school establishment coldly refuses to offer parents better choices for their kids, or even to close down these failing schools.

In Los Angeles, this monopoly model for public schools is being overthrown, brick by brick.  Parents are demanding and choosing charters because overall, charters outperform traditional schools. Charter school enrollment in L.A is soaring, up 19% over last year.  This mirrors what is happening across the nation in the 40 states which permit charter schools.  So many parents want charters that all over the country long waiting lists of hopeful parents form every year. The U.S. Department of Education and the Obama Administration so strongly favor increasing the number of charter schools that its Race to the Top rules require states to lift their caps on the number of charters permitted.    

Below is an authorized reprint of a Los Angeles times front page article from Sunday, January 10th.  Consider the headline, the article, and the photo of the beautiful English teacher and her earnest 13 year old uniformed students at a charter high school in L.A..  These are all developments worth noting:  a front page news article from a prominent national newspaper, parents rising up in protest of what traditional schools have to offer, and school districts responding to parent demand.  Read the full article here and here. (These are big files.)

No longer can opponents claim that charter schools, or innovation schools, are not needed in Washington State.  Parents want them. They should have them. 


Los Angeles Times, Copyright © 2010. Reprinted with Permission.

Bipartisan 72-hour budget review bill introduced

January 14, 2010 in Blog

Past efforts to improve the transparency of the state's budget process are gaining bipartisan support. Today Representatives Gary Alexander (R-20), Larry Seaquist (D-26), Barbara Bailey (R-10), Mark Ericks (D-1), Bruce Dammeier (R-25), and Joe Schmick (R-9) introduced HB 2872: Establishing a period of public and legislative review of appropriations legislation.

From the bill:

Section 1 
The legislature finds that approval of the state budget is the most important act of the legislature in any year, having profoun!
d consequences for every resident of the state. The legislature further finds that the public is entitled to a reasonable opportunity to learn how public funds are proposed to be expended before bills making appropriations become law. The legislature further finds that public notice, dissemination of information, and informed analysis of proposed budgets is an essential requisite of transparent, accountable government.

The state Constitution charges the legislature, and only the legislature, with the responsibility to fund the operation of state government through the enactment of appropriations legislation. Yet the abbreviated time frame in which the legislature acts on omnibus operating appropriations legislation permits little opportunity for informed legislative deliberation or public review and discussion, which in turn impairs public trust in government. The legislature finds that many other states, in their Constitu!
tions, statutes, or legislative rules, require a reasonable op!
portunity for public and legislative review of budget legislation.

The legislature therefore finds that it is in the public interest to provide for an appropriate period of public and legislative review of all omnibus appropriations bills before they are acted on by the legislature and submitted to the governor for approval.

Section 2
(1) An omnibus operating, capital, or transportation appropriations bill, may not be voted on by the senate or the house of representatives unless seventy-two hours have elapsed since the bill was last subject to amendment.

(2) For the purposes of this section, "amendment" means any proposed change to a bill and includes executive action by a standing committee of the senate or house of representatives, adoption of a conference report, or vote to concur with!
an opposite house amendment.

Joining with the Evergreen Freedom Foundation, I sponsored model language for the American Legislative Exchange Council back in 2007 based on a proposal by Congressman Brian Baird (D-WA), to create a 72-hour budget review period.

Talking about his effort, Baird said: “This is a common-sense proposal about the fundamental principles of our democracy. Our votes have consequences. My congressional colleagues and I owe it to both our constituents and to this institution to know what it is we are voting for.”  

Bill drops to privatize state's workers' comp system

January 14, 2010 in Blog

For years the business community, representing both large and small businesses, has asked that the state-run workers' compensation system either be privatized or that the system should be amended to allow for private sector industrial insurance companies to compete with the state-run system. Washington is only one of four states that do not allow for competition in this area. And given the 7.6% 2010 average rate increase, businesses are looking for some relief. 

HB 2879 introduced today, looks to do just that. It aims to:

"Create an efficient and cost-effective industrial insurance system for the benefit of both employers and workers by introducing competition into the system through a choice of insurance carriers from whom employers may purchase industrial insurance;

Provide workers the benefits of safety systems developed by both private enterprise and by government;

Improve the state's economic climate by providing the private sector with the opportunity to engage in the industrial insurance business with appropriate standards and oversight; 

Eliminate a government monopoly with respect to industrial insurance choices for small employers and provide private sector insurance choices for all employers; and

By July 1, 2011, make Washington a state in which employers may self-insure or obtain private sector industrial insurance and eliminate Washington's state-run industrial insurance fund."

Over the past year there have been several examples of other states that have either privatized their state-run system or opened up their industrial insurance market to private competition

This news comes on the heels of the state auditor's report from last week that warned that one of the workers' comp funds has a decent chance of becoming insolventover the next two years.

 So, does this bill have a chance in this legislature? Perhaps that's not the goal, as Erik Smith over at Washington State Wire reports. This could just be a precursor to a statewide initiative this fall. 

Sound Transit: $10,000 for art on plywood construction wall

January 14, 2010 in Blog


Act as the lead artist in scoping and overseeing projects that will be created by a variety of artists for the plywood Construction Wall surrounding the site where the Capitol Hill light rail station is being built on Broadway between John and Denny streets in Seattle.

Make the fence surrounding a block of the Broadway neighborhood active, interesting and relevant during the multi-year construction period with art that engages the residents and visitors of the dense urban neighborhood.

Read the full request.

Economic stimulus benefits come home to roost

January 14, 2010 in Blog

A year ago the term "economic stimulus" was used to justify almost any policy proposal in either Washington D.C. or Washington state. We warned state lawmakers that true economic stimulus should focus on cutting taxes and regulations on private sector industries, thereby allowing them to grow. Increasing costs, either through tax hikes or regulatory proliferation, would cause businesses to contract. Obviously, if an economy is in retraction that means more people are out of jobs and relying on government safety nets. And if the government expanded the scope of the safety nets then that would result in higher costs to taxpayers...You see where this downward spiral is going. 

Some new information from the state's Employment Security Department shows why we were concerned with state lawmakers' attempt at boosting unemployment insurance benefits in order to stimulate the economy. In fact, we wrote on this several months ago as well, but now there are updated numbers for the entirety of the stimulus program. 

Last year lawmakers passed ESHB 1906, which, among other things, provided an additional $45 per week benefit for UI recipients through the end of 2009. The UI trust fund was very healthy at that time and so drawing down the trust fund by $111 million (as forecasted) wouldn't make much of a dent. We understood that, but were wary that drawing down the trust fund too much could result in tax increases in 2010 and beyond and that no one in their right mind thought that the economy would have turned around enough by January 2010 in order to justify the increased costs to the system and therefore businesses.

Sure enough, the $45 economic stimulus UI benefit ended up costing the state not $111 million as originally forecast, but $247 million -- they missed the forecast by 123%. Obviously, no one could have known just how bad our economy was going to get, but the forecast predicted 7.5% unemployment, not the 9-9.3% Washington has had the last several months. 

And lo and behold, last month ESD announced that they would have to raise UI premiums an average of 54% for the business community in 2010. And yesterday, in a hearing before the House Commerce & Labor Committee (slide 13), department officials basically forecasted that UI rates would continue to increase through 2012 to rates more than double that of 2009. As one legislator asked at the hearing [and I'm paraphrasing], "Shouldn't UI taxes go up in good times and down in bad times?"

Obviously the $45 benefit is not the sole cause for the much higher tax rates that businesses will have to absorb the next several years, but the principle remains. When lawmak!
ers expand the scope and cost of government benefits, whether those benefits stimulate the economy or not, someone is going to have to pay for it. This idea was touted as economic stimulus and while the benefit surely helped those who received it, that money was never going to be able to grow the economy the way some policymakers claimed. A big reason is that this money has to be removed from businesses over the next few years in the form of higher taxes. That's not economic stimulus. That's more like a loan taken out on the back of the business community without the accompanying benefit.

Bills propose advertising on school buses and commercial business at rest stops

January 14, 2010 in Blog

It looks like lawmakers are starting to get serious about exploring opportunities to partner with the private sector to increase state revenues.

Here are details on two bipartisan bills introduced today.

SB 6465 - Authorizing certain commercial activity at state-owned safety rest areas:

"To the extent permitted under federal programs, rules, or law, the department may enter into a lease with private entities allowing them to operate food or beverage retailers, restaurants, grocery and convenience stores, service station businesses, or other private enterprises that are of benefit to the traveling public at state-owned safety rest areas." (Section 1, 1)

SB 6466 - Authorizing advertising on sch!
ool buses

"The rules of the state superintendent of public instruction under RCW 46.61.380 governing the marking of school buses shall allow school districts to place advertising and educational material on and in school buses if such advertising and education material is approved by the school district board of directors. The advertising and educational material shall not be placed on the front or rear of a school bus." (Section 1,1)

It is encouraging to see lawmakers putting these proposals up for public debate.

Study: Cigarette smuggling will grow with tax increase

January 14, 2010 in Blog

The Michigan-based Mackinac Center issued a warning yesterday that a $1.00 increase in Washington's cigarette tax would "ensure that half of all cigarettes smoked in Washington are smuggled in from other states."

From Mackinac's blog:

In December 2008 we published a study "Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review." The study reviewed the efforts of states trying to fight the growth of smuggling, documented the history of cigarette taxes in Michigan, New Jersey and California, and modeled the level of illicit tobacco use in states due to cigarette tax rates. We recently updated the model to include changes to the Federal Excise Tax, as well.

The 2008 study already found that Washington has the fourth highest smuggling rate. In applying the model to the proposed tax increases, we found that a $1.00 per pack increase in taxes would jump the state's smuggling rates from 39.3 percent to 51.5 percent.

Legal sales would decrease by at least 20 percent over 12 months. This is evidence not of people quitting smoking due to higher taxes, but of individuals and businesses finding ways to evade cigarette taxes. A 2004 study helps confirm this by finding that up to 85 percent of the sales tax decrease comes from tax avoidance rather than actual declines in smoking.

The bulk of the cigarette smuggling increase comes from commercial smuggling--of organizations that import cigarettes from lower tax areas or through counterfeiting with distribution systems in state. If the tax hike passes, it's expected that 3 out of 10 cigarettes in Washington will be through these me!

The House Committee on Finance heard public!
testimony this morning on HB 2493: Concerning the taxation of cigarettes and other tobacco products.

Among other things the bill would increase the state's cigarette tax by $1.00 per pack.

Federal transit funding criteria now to circumvent performance

January 14, 2010 in Blog

Dr. Sam Staley, a transportation policy expert at Reason Foundation, reports on USDOT Secretary Ray LaHood's address to the TRB conference happening this week in Washington D.C. Staley's observation is worth noting here:

In what can only be considered a bizarre turn in a presidential
administration committed to so-called "evidence based" public policy,
the U.S. Department of
Transportation has announced
it will approve public transit investments
based on political popularity and reduce the importance of cost-effectiveness
and performance in its approval criteria.

Sound crazy? Here is a excerpt from the official, formal
remarks U.S. Department of Transportation Secretary Ray LaHood

delivered at the keynote luncheon address at the 89th annual meeting of the Transportation Research Board, perhaps the
world's largest conference of transportation professionals:

"We’re going to free our flagship transit capital program from
long-standing requirements that have allowed us only to green-light projects
that meet very narrow cost and performance criteria.

"Instead, as we evaluate major transit projects going forward, we’ll
consider ALL the factors that help communities reduce their carbon footprint,
spur economic activity, and relieve congestion.

"To put it simply: We WILL take livability into account.

"This new approach will help us do a MUCH better job aligning our
priorities and values with our investments in transit projects that truly
strengthen communities.

"We’ll finally be able to make the case for investing in popular
streetcar projects and other transit systems that people want – and that our
old ways of doing business didn’t value enough."

The emphasis is in the original remarks.

Did his real remarks reflect the formal remarks? Yes. I was there.

CES/TPS Wrap up: The future is bright but uncertain

January 13, 2010 in Blog

This post is a few days late; the legislative session often has a way in bumping other projects. Now that the Consumer Electronics Show and Technology Policy Summit wrapped up this past weekend, the feel from both the show and the policy roundtables is that we are but at the cusp of something big. But at the same time, many of us wandering the immense halls of the Las Vegas Convention Center were nervous about where some of the talked-about government policies could take the communications industry.

Should government compete with the private sector?

January 13, 2010 in Blog

The Governor said yesterday in the State of State that "Jobs are the way out of this recession." Based on a bill introduced today, some lawmakers believe that one way to increase private sector jobs is to stop government from providing commercial type activities.

Here are some of the details from HB 2808 - Regarding commercial activities by state government:

Sec. 1. (1) The legislature finds that in the process of governing, the state of Washington should not engage in commercial activity in competition with its citizens. The legislature finds that the competitive enterprise system, characterized by individual freedom and initiative, is the nation's primary source of economic strength, and that the growth of pr!
ivate enterprise is essential to the health, welfare, and prosperity of the citizens of the state of Washington. The legislature further finds that the role of the private sector is to provide commercial products and services for which there is demand in the marketplace, while the role of state agencies is limited to performing functions that are in the public interest and inherently governmental in nature.

(2) The legislature therefore declares it to be the general policy of the state that state agencies are prohibited from providing to the marketplace for a fee those products or services that could be obtained from a private enterprise . . .

Sec. 2. (1) State agencies are prohibited from engaging in commercial activities for a fee, unless they are granted an exception by the office of financial management.

Continuing this theme, Sen. Joe Zarelli (R-18) issued a new "Budget Tidbit"!
today focusing on the need for the state to take advantage of the seldom used competitive contracting reform adopted in 2002. Zarelli recommends that the state enact a Competition Council to determine "the privatization potential of a program or activity and performing a cost-benefit analysis."

We highlighted how other states are utilizing Competition Councils in our recent competitive contracting study.