Open Government

WPC's Center for Government Reform's mission is to partner with stakeholders and citizens to work toward a government focused on its core functions while improving its transparency, accountability, performance, and effectiveness for taxpayers.

What's New

Cigarette Taxes to Increase in 2010?

December 28, 2009 in Blog

As the legislature gears up for session in January and with the state facing a multi-billion dollar deficit (yet again), now is the time to pay close attention to trends the legislature may take. Perusing this pre-filed bill page can be useful.

One of the bills introduced today is House Bill 2493, an act "relating to the taxation of cigarettes and other tobacco products." Sponsored by Representative Cody, the bill, if passed, would raise cigarette taxes yet again. Currently, the state charges $2.025 per pack for cigarettes. 

Reading through the bill, it looks like the taxes would amount to $1 per pack more if the legislature and the governor sign off on the bill. That's about a 50% tax increa!
se for smokers. 

If the goal is to eradicate smoking, then the tax should be hiked even more. If the goal is to raise money for education programs, health care centers, water quality, and programs to stop youth violence, then a 50% increase in taxes will most likely move people towards purchasing tobacco from non-sanctioned sellers (aka the black market). The state says it already loses over $200 million in tax revenue per year to illegal sales of untaxed cigarettes. 

If policymakers are looking for a quick buck to help shore up the $2.6 billion budget deficit, this isn't the way. If, however, policymakers want more people to live up to what is sure to be their 2010 New Year's resolution, then raise the tax even more. My hope is that whatever our elected officials end up doing, they are honest about their motivations behind the tax hike.

State Auditor releases update on performance audit recommendations

December 22, 2009 in Blog

State Auditor Brian Sonntag this morning issued a report highlighting the status of performance audit recommendations made to date. According to the report:

"From February 2007 through June 30, 2009, performance audits identified nearly $3.6 billion in cost savings, unnecessary expenditures and economic benefits.

Some recommendations have a financial impact, such as past costs that were questionable or avoidable, those with future cost savings and recommendations with future revenue opportunities. The figure below is focused on recommendations with future revenue opportunities or future cost savings that can be realized when the recommendations are implemented.

We made 214 recommendations with future cost savings or revenue opportunities; 67 percent of those recommendations have been fully or part!
ially implemented or are in progress, as shown below.

Most state agencies do not track the cost of their products and services or any realized cost savings from performance audits. They are, however, encouraged to track the cost of participating in performance audits.

We followed up with the following governments to obtain their estimates of the net cost savings they were able to achieve by implementing our recommendations."

Click this link to see the full report.

State Auditor: "Opportunities for Washington"

December 17, 2009 in Blog

The State Auditor's Office this morning released a report titled "Opportunities for Washington." In a letter to citizens State Auditor Brian Sonntag wrote (in-part):

I am pleased to present to you "Opportunities for Washington," our performance review of state government operations. For such a time as this, state government has an opportunity and a need to significantly change how it does business. As Governor Gregoire and the Legislature deal with the state's difficult financial challenges, this review reflects our first such effort to help.

It contains ideas and recommendations to save money, to streamline government programs and functions and to provide better service to citizens. The review also identifies areas in which we can direct performance audits in the near future. Thos!
e audits are intended to identify actionable efficiencies.

Here are some of the report's conclusions:

  • Washington likely could increase revenue by several million dollars and bring unregistered businesses into the state tax system by conducting an amnesty program to collect delinquent debts.
  • The state could increase its collection of delinquent debts by more than $5 million in the first year by participating in a U.S. Treasury program in which government vendor payments are garnished to satisfy overdue tax obligations before the payments are made.
  • The Department of Social and Health Services could increase the amount of Medicaid pharmacy overpayments it recovers by expanding its small but effective audit program that consistently recovers more funds than it spends for audits.
  • State agencies could reduce printing costs and improve service by changing the Department of Printing business model to better respond to agency needs and to reflect 21st century advances in technology.
  • Washington could increase revenue from liquor sales and distribution by up to $350 million over five years beginning in fiscal year 2012 if it sold the state distribution center and auctioned licenses to sell liquor to private-sector businesses.

The report also makes several recommendations to improve and streamline the delivery of state Information Technology (IT) and lease management services.

Throughout the report, however, is this warning:

Many of the state employees whose jobs would be affected by the adoption of these options are represented by unions and covered by existing collective bargaining agreements. Management would be required to fulfill any bargaining obligations or contractual requirements if any of the options were adopted. The extent of the bargaining obligation would depend on the provisions of the option adopted. Also, the competitive contracting provisions of state law (RCW 41.06.142) could apply to any option under which the agency contracted out work that had been performed by state employees.

As we highlighted last week, the state's competitive contracting law must be simplified to facilitate many of the reforms necessary to streamline delivery of state services.

The State Auditor's Office asked these questions in developing the recommendations (questions that should guide future performance audits):

  • Is the program or service a core function of government? If not, could it be scaled back, made more efficient or eliminated?
  • Could costs be reduced or state revenue increased?
  • Could program effectiveness be improved?
  • Has the idea produced positive results elsewhere?
  • Are there opportunities to consolidate or streamline programs?
  • Could some programs be transferred to the private sector?
  • Would the reform benefit the broad public interest rather than narrow special interests?

Agencies were also asked to answer these questions:

  • How does the agency use performance data to support decision-making?
  • Are there gaps in service within agency programs or unnecessary overlaps with programs in other agencies?
  • Are opportunities being identified to transfer programs or services to the private sector or to use private-sector techniques to improve efficiency?
  • How are discretionary cost-saving opportunities identified?
  • How is technology being used to streamline agency operations, improve customer service or produce other benefits?
  • How frequently does the agency update its information technology security systems?
  • How does the agency manage its administrative functions?
  • How are best practices identified and put into practice?

Here is a link to the full report "Opportunities for Washington." 

Competitive Contracting is Part of the Budget Solution

December 17, 2009 in Publications

Washington lawmakers again face a multi-billion dollar budget deficit, meaning they will either increase the amount of money they collect from citizens each year, or re-evaluate the way they deliver services to the public. Increasing taxes during a recession would add economic hardship, while changing the way services are delivered offers part of the solution to closing the deficit without raising taxes.

Newspapers comment on Governor’s budget proposal

December 14, 2009 in Blog

Reactions to Governor Gregoire's proposed supplemental budget have been decidedly mixed. Beneficiaries of the programs identified for elimination have warned taxes should be raised instead of making the cuts. The majority of the state's newspaper editorial boards, however, warn that tax increases should be the last resort and state spending must be reformed first.

Here are the editorials to date:

Pointing to one of the spending reforms needed, these editorials reference our competitive contracting study:

Unemployment Insurance Taxes to Increase 54% in 2010

December 11, 2009 in Blog

No sooner has the dust settled from the Governor's announcement that she intends to seek tax increases in 2010 to help shore up the $2.6 billion budget deficit than the Employment Security Department today announced that Unemployment Insurance taxes for the state's employers are going up in 2010.

In a release from ESD, Commissioner Karen Lee outlined the plan that will see the average total tax rate to increase from 1.55 percent in 2009 to an estimated 2.38 percent in 2010 -- a 54% increase, even if the 2010 rate is less than the previous recession-recovery years of 2004-05.

The Department also said,

"Many employers will pay higher taxes in 2010 due to their own layoffs and the effec!
t those layoffs have on their experience rate. Employers that had no layoffs in the past four years will pay no experience tax in 2010. However, they will pay the minimum social-cost tax, which is increasing from 0.35 percent in 2009 to 0.95 percent in 2010...

The social-cost tax will increase sharply because benefit payouts far exceeded taxes collected in 2009 -- e.g., nearly $2 billion paid out and about $1 billion in taxes collected..."

No one could realistically forecasted just how bad the economy would get and its effect on state finances. However, the recession is also wreaking havoc on our state's business community. Couple this with the 7.6% workers' comp increase and the talk of $700 million in taxes for 2010, and this is a recipe for prolonging the economic hurt in this state, particularly for small businesses. 

this year the state legislature authorized a permanent increa!
se in UI benefits, along with a temporary increase through the end of 2009. We had concerns that bumping up the benefits, and adding a temporary "economic stimulus benefit" on top of that would draw down the state's substantial reserves too quickly, which would force the state to raise UI taxes in the future. 

In fact, I wrote in a Legislative Memo earlier this year that, 

"Unemployment Insurance was created to aid workers with insurance benefits against the risk of losing a job. It cannot be suddenly passed off as a way to grow the economy, because it does not. Real growth in the economy is the only way out of a deep recession. Raising UI benefits may be a laudable goal for helping those who lost jobs through no fault of their own, but passing higher UI benefits off as something that stimulates the e!
conomy is disingenuous...

As long as policymakers avoid drawing down the UI trust fund too much, they will avoid the problems that accompany “stimulus” spending – that of prohibitive transaction, opportunity and debt service costs.

But a major worry with the state increasing UI benefits through drawing down the reserve is what happens if the reserve is drawn down too far? The coffer would have to be repaid through higher UI taxes, thus raising the cost of business in Washington and negating the benefits of any multiplying effect."

Well, that future is almost upon us. 

Governor's budget proposal results in $2.8 billion deficit for 2011-13

December 9, 2009 in Blog

Governor Gregoire today released her proposal to close a projected $2.6 billion deficit in the current budget. While she is to be commended for starting the conversation on the type of changes needed to reset state spending, she failed to identify the changes necessary for a truly balanced and sustainable budget.

The Governor acknowledged that the state is facing at a minimum a three-year problem. In fact, assuming her budget is adopted, a $2.8 billion deficit is projected for the 2011-13 biennium. Here is the 4 year budget outlook provided by the Office of Financial Management.

It is important to remember that prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate. Last session the legislature made a small step toward correcting this past unsust!
ainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.

By continuing to focus on the short-term problem, the Governor missed an opportunity to start the debate on the full budget problem. This may have consequences on the state's credit rating. 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.

The Governor's proposal fails each of these tests.

Though making hard choices and proposing real spending reductions, the Governor still plans to issue a tax increase proposal prior to session and has not ruled out a sales tax increase. She was very clear that she wants the legislature to raise any taxes and not put them out for voter approval.

Including the need to replace the billions in one-time federal stimulus funds, tax increases would need to be in the billions, devastating any prospect for the state’s economic recovery and costing the state tens of thousands of jobs.

As noted by these economists, we will not be able to tax our way out of the “great recession.” Instead state spending expectations must be reset to the new economic reality.

The Governor has started the discussion about the reductions needed but the budget&!
#39;s long term sustainability must be addressed, not just the current deficit.

WPC Experts Offer Non-Partisan Analysis of Governor’s Budget Proposal

in Press releases

Seattle – This morning Washington Governor Christine Gregoire will release her supplemental budget proposal for the upcoming legislative session. That budget will most likely propose tax increases to close a $2.6 billion deficit for the 2009-11 biennium. This deficit, and the measures policymakers will consider to close it, have statewide implications.

Bill introduced to end state liquor monopoly

December 8, 2009 in Blog

Senators Tim Sheldon (D-35) and Curtis King (R-14) have introduced a bill to end the state's archaic liquor monopoly. From SB 6204 - Privatizing the sale of liquor:

"(1) The legislature intends for privatization of retail and distribution of liquor to result in a system that is more efficient than public sector retail and distribution. The legislature finds that the present system of state control includes a markup amount at distribution that generates revenue for the state and local governments, and that this markup will be eliminated when liquor sales and distribution are privatized. The legislature further intends that the privatization of liquor sales and distribution not result in revenue losses to state or local governments as compared to projected revenues assumed under state control, not including any sep!
arate licenses or franchises.

(2) Therefore, the legislature directs the liquor control board and the department of revenue, with assistance from legislative staff and the office of financial management, to present a report to the legislature no later than December 1, 2010, on a recommended method and rates of liquor taxation that would generate the same future projected revenue for the state and local jurisdictions as under the current state control system. The report may also include recommendations on tax enforcement and simplification to the current system of liquor taxation and distribution of revenues." (Sec 101)

"By July 1, 2012, the board must close all state liquor stores and state liquor distribution facilities, and must sell at auction all assets pertaining to the state sale and distribution of liquor. Funds received from these auctions shall be deposited in the state general fund." (Sec 215)

Though this reform h!
as been a perennial discussion each session, the current budge!
t climate may give it added relevance and opportunity for success.

Budget prologue

December 8, 2009 in Blog

Governor Gregoire will release her proposed fix to the state's $2.6 billion budget deficit tomorrow at 9 a.m. As required by law, it should be balanced within existing revenue though the Governor has clearly stated she plans to release a tax increase proposal prior to session. The Everett Herald has posted a list prepared by the Department of Revenue of potential tax increases (click here for list).

While everyone will be focusing on the short term $2.6 billion problem for the current budget, solutions debated this coming session must address the long term structural problem and what to do about replacing the billions in one-time fixes being used (such as the federal stimulus funds). If only the current deficit is addressed, elected officials will have this debate to look forward to again in 2011.

For those tuning in tomorrow to watch the Governor's press confere!
nce, keep these points in mind:

  • Prior to the “great recession” state spending was unsustainable and overextended. This structural problem was exacerbated by the current economic climate.
  • Last session the legislature made a small step toward correcting this past unsustainable spending but it relied too heavily on one-time solutions; this imbalance was compounded by the current reduced revenue collections.
  • Assuming the Governor used the Priorities of Government (POG) budget process, her proposal reflects what she believes to be the highest priorities that can be purchased with existing revenue meaning by definition that spending identified for reductions was determined to be the lowest priority. As noted by Gregoire, POG "looks at the most essential services provided by state agencies, and asks the question 'What do taxpayers want for their tax dollars?' It isn’t business as usual, but business driven by proven results."
  • Including the need to replace the billions in one-time federal stimulus funds, tax increases necessary to continue the current level of spending would need to be in the billions, devastating any prospect for the state’s economic recovery.
  • As noted by these economists, we will not be able to tax our way out of the “great recession,” instead state spending expectations must be reset to the new economic reality.

Though perhaps the greatest challenge our current elected officials have faced, a real balanced budget can be achieved. Here are WPC budget principles: 

  1. Budgets should fund only core functions of government;
  2. be truly balanced long term; and
  3. not result in a projected deficit in the next budget – i.e. the level of state spending should be sustainable within existing revenue.

Here are the types of questions that should be asked by elected officials before any activity receives taxpayer money:

  • Is the activity a core function of government or commercial in nature?
  • If it is a core function, can the service be provided more efficiently and effectively through competitive contracting?
  • Does it provide a broad public benefit or only serve a special interest?
  • Does it duplicate the activities of non-profits or other private initiatives?
  • Does it duplicate the efforts of other state agencies or programs?
  • Does the activity demonstrate quantifiable performance?

Tomorrow will set the next chapter of the budget debate. Let's hope it is titled "A new way" versus "Tax and spending to the next deficit."