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.

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Summary of 2008 tax legislation

May 23, 2008 in Blog

The Department of Revenue has released a report summarizing all the 2008 legislation impacting tax collections. From DOR's website:

"The Department of Revenue has posted online a summary of tax-related legislation enacted during the 2008 and late 2007 legislative sessions. It also has published an annual update of tax exemptions with expiration dates and reporting requirements.

The Department generates the tax summaries annually to help make businesses aware of changes to the state tax system. See the 2008 summary, which covers 38 bills that will reduce state revenues by $2.2 million in Fiscal Year 2009, and see the summary of the two property tax measures enacted during the 2007 special session.

See the summary of tax exemptions with expiration dates and reporting requirements."

Washington State tax burden ranking

May 21, 2008 in Blog

The Washington Research Council released a policy brief yesterday highlighting Washington's tax burden ranking. According to the Research Council:

Washington’s $3,948 per capita in state and local taxes for FY 2005–06 ranked 18th highest among the 50 states. New York had the highest per capita tax burden, $6,413; Alabama had the lowest, $2,782. The nation-wide average was $4,001. Washington’s per capita ranking has not changed much over the last three years. For FY 2004–05 Washington ranked 21st; for FY 2003–04 it ranked 18th.

For FY 2005–06 Washington’s $111.99 in state and local taxes per $1,000 in personal income ranked 28th highest among the states. Wyoming collected the most state and local tax revenue per $1,000 of personal income; South Dakota collected the least, $91.03. T!
he nation-wide average was $116.22.

With a self-inflicted $2.5 billion budget deficit and the Senate Majority Leader's lawsuit against taxpayers to throw out the 2/3 vote requirement for lawmakers to raise taxes, the state's tax burden is poised to worsen unless spending restraint returns to Olympia next year.

Ready for a 150% income tax increase?

May 20, 2008 in Blog

We've been sounding the alarm (along with others) about the serious spending problems facing the nation and the lack of attention our elected officials are paying to this growing fiscal disaster. Now come projections out of the Congressional Budget Office (CBO) on what further delay means to taxpayers and the economy. The following is from a CBO letter dated yesterday to Rep. Paul Ryan (R-WI):

"Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy. If tax revenues as a share of gross domestic product (GDP) remain at current levels, that additional spending will eventually cause future budget deficits to become unsustainable. To prevent those deficits from growing to levels that could impose substantial costs o!
n the economy, the choices are limited: Revenues must rise as a share of GDP, projected spending must fall, or both."

Let's assume that tax increases are the preferred solution for the powers that be to resolve this self-inflicted spending problem. How large of a tax increase are we talking about? 

"With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent. Such ta!
x rates would significantly reduce economic activity and would!
create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would probably not be economically feasible . . .

The United States faces serious long-run budgetary challenges. If action is not taken to curb the projected growth of budget deficits in coming decades, the economy will eventually suffer serious damage. The issue facing policymakers is not whether to address rising deficits, but when and how to address them. At some point, policymakers will have to increase taxes, reduce spending, or both. Much of the pressure on the budget stems from the fast growth of federal costs on health care. So constraining that growth seems a key component of reducing deficits over the next several decades. A variety of evidence suggests that opportunities exist to constrain health care costs both in the public programs and in the health care system overall without adverse health consequences, although capturing those opportunities involves many challenges."

So what do the current presidential candidates plan to do about this? As noted by former U.S. Comptroller!
General David M. Walker, they aren't saying. Voters should demand an answer before it is too late. 

Public records performance audit released

May 19, 2008 in Blog

The State Auditor today officially released a performance audit on government compliance with the Public Records Act. So what does public records compliance have to do with government spending and efficiency? Consider some of the recent taxpayer payouts for government violations of the law:

"In recent years, court cases in which state agencies and local governments have been assessed fines and penalties have been specifically related to the entities’ improperly withholding public records and/or delaying release of the records. We did not identify litigation that was based on entities’ practices other than improper denials or excessive delays. In addition to penalties, attorneys’ fees, and costs awarded by the court, the entity also bears it own legal costs of the litigation. Accordingly, minor court awards can be expensive if the legal costs associated with the !
litigation are considered as well. Examples of recent lawsuits include:

• The Department of Corrections settled a lawsuit for $65,000 in late 2007. A Tacoma man made public records requests at 10 government agencies for information about employee health insurance coverage. The Department said it could not electronically redact the requested records and offered to provide paper copies at a cost of $8,900. A Thurston County judge ruled in this case that the Public Records Act does not require agencies to provide records in an electronic format. However, the agency ultimately provided the records electronically to the requestor.

• The Department of Corrections settled another public records lawsuit earlier in 2007 for $541,000. Prison Legal News, a watchdog newspaper, requested records in 2000 and disagreed with DOC regarding the documents withheld and the time it took to provide the records requested. The Thurston Co!
unty Superior Court order supported the position of the Depart!
ment and, on appeal, that decision was supported by the Washington Court of Appeals. After a favorable decision from the two lower courts, the Supreme Court reversed their decisions and ordered the documents to be released. DOC was ordered to pay statutory penalties, attorney fees and costs incurred over the 7 years it took for the case to pass through the appellate process. The case involved issues over exemptions in the Public Records Act.

• In 2006, the City of Spokane settled a case for $299,000 involving its refusal to release public records regarding financing of a parking garage. At the time, it was thought to be the largest public records-related settlement in the history of the 1972 Public Records Act.

• A state Court of Appeals judge in 2007 fined the King County Executive $123,000 for failing to comply with the state’s Public Disclosure Act. A Seattle businessman took a case to court in 2000 after the !
Executive’s office failed to respond to a 1997 public records request for documents regarding the public financing of Qwest Field. A King County Superior Court judge originally fined the Executive $5 per day for each day it failed to produce the requested records. The Act allows up to $100 per day. The case was still being resolved at the time of the audit.

In addition to the financial expense of being involved in a legal dispute involving public records, failing to respond properly to public records requests can erode the public’s overall trust and regard for the entity and government in general."

To view the full audit and recommendations for improvements, click here.

Privatizing King County’s Animal Shelters is Right Solution for Pets and Taxpayers

May 16, 2008 in Publications

It’s a sad day for pet lovers in King County. A scathing new report last month highlighted gross mismanagement at King County’s two public animal shelters. The report, produced by a veterinarian team from the University of California-Berkley, describes dire circumstances of inadequate housing, frightening living situations and understaffing. This report came after similar revelations made by consultant Nathan Winograd in his report to the King County Council last year.

Didn't we cancel that project?

May 12, 2008 in Blog

Adam Wilson of The Olympian wrote an interesting article this weekend about a state computer project that some legislators thought they eliminated this year. According to the article:

"The state Health Care Authority plans to spend an additional $9 million on a computer project that the Legislature tried to cancel this year.

State officials say the move will preserve work done so far and buy another chance at continuing the project. But a key lawmaker said it contradicts what the Legislature intended.

After $5 million had been spent on early development of the computer project, lawmakers approved spending $25 million more on the BAIAS system in 2007. The computer would replace the 30-year-old system that handles public employee health insurance.

The state spent $2 million last year on the project, but Democratic lawmakers, looking to save money, pulled $14 million from the project in March.

The cut effectively ended the effort to develop the system after $7 million in taxpayer money had been spent because there wasn't enough money left to finish it. But $9 million from the original budget was still available. The agency plans to spend that money on the system in the next year . . . A lawmaker on the board, Rep. Ross Hunter, D-Bellevue, warned against the proposal. He said he opposed canceling the project, but had no doubt that is what the Legislature wanted to do.

State spending is expected to outstrip revenue by $2.4 billion in the next two-year budget. Hunter said it's unlikely more funding will be given to the project next year, making spending more now questionable . . . As for concerns about reversing the decision of the Legislature, run by the Democratic majority, Swecker said it was fair play.

'My theory is if they were trying to terminate the project, they should have cut all the money,' he said."

So is the Health Care Authority an agency run amok blatantly disregarding the law and the intent of lawmakers?

Well, not exactly. Perhaps in their haste to rush through the $306 million 2008 supplemental budget increase, lawmakers left the original language in the budget concerning the project even though they reduced the funds:

"Sec. 214(7) $784,000 of the health services account--state appropriation for fiscal year 2008, $1,676,000 of the health service account—state appropriation for fiscal year 2009, $540,000 of the general fund--federal appropriation, and (($22,480,000)) $8,200,000 of the state health care authority administrative account--state appropriation are provided for the development of a new benefits administration and insurance accounting system"

We're all for reducing unnecessary spending and saving money, but lawmakers need to be more diligent in how they write the budget so they !
can clearly convey their intent. Perhaps if they had adopted a 72-hour budget review reform, this oversight would have been caught.

Stop the discriminatory tax exemption madness!

May 8, 2008 in Blog

Peter Callaghan of the Tacoma News Tribune has a great column today on the increasing strategy of businesses trying to carve out exemptions from the crushing burden of taxes they face. While I find no fault with these employers for trying to make doing business in Washington more palatable, the answer is not discriminatory tax relief, but instead universal tax relief for all employers and individuals in Washington.

From Peter's column:

"If cities like Tacoma and states like Washington are willing to offer tax breaks and other public funding to keep big employers, DaVita would be silly – even financially irresponsible – not to grab them.

DaVita didn’t create the atmosphere that allows companies to set up bidding wars. That was begun years ago, ironically by a business that has been deemed by federal courts to be a nonbusiness, exempt from antitrust laws. That would be Major League Baseball, which wrote the textbook on getting ladles of tax dollars.

All sports franchises had to do was threaten to move a beloved team elsewhere (and persuade the people who run those elsewheres to play along). In nearly every case, it worked.

But while pro sports leagues created the technique, The Boeing Co. brought it into the private sector and perfected it, at least around here.

First, the aerospace company won $60 million in tax breaks from Chicago and the State of Illinois to move a few hundred corporate office folks.

It then launched a second round of civic bidding with its competition to site the assembly plant for the 787. Washington won – or perhaps bought – that race. The Legislature gave up $3.2 billion in future tax collections to keep the plant in the state. The state also paid for road improvements, a $30 million dock that turned out to be unnecessary, and a training center.

That worked out so well for Boeing that it has begun to set the stage for a third contest – this one to host the plant for the jetliner that will eventually replace the mid-sized 737.

Russell Investments must have learned from the Boeing example. Not just that there is money to be had but that seeking it can lead to bad feelings among taxpayers. Boeing looked greedy by asking, so Russell escaped that by not really asking. It continues to act as though it doesn’t even realize that cities and developers are drooling for a chance to host the company.

Altogether, Tacoma, the state and the feds have developed a package worth $140 million. But Russell has declined to comment throughout the competition, so no one knows if it will be enough.

Now comes DaVita. Russell employs 1,100 people downtown with promises of hundreds more if it stays. DaVita employs 850 and also predicts expansion. Russell jobs pay more, while DaVita is a solid employer of workers in its billing, accounting, information technology and government reporting sections.

DaVita has the city’s interest. But who’s next?"

It’s past time for elected officials to address the business climate (tax relief) on a universal basis and stop using the tax code to reward those employers deemed worthy of relief by the government. No more exemptions and subsidies, instead one flat universally low tax rate. Same goes for individual taxes. No more sin taxes or special exemptions (except for maybe food and medicine). If government wants to raise taxes, they raise taxes on everyone and if the tax rate is too high (which it is) they lower taxes for everyone. No more tax code winners and losers determined by the power and force of government influenced by he with the strongest lobbyist.

Learning from the Past and Creating our Future

May 6, 2008 in Blog

On April 15, 2008, former Comptroller General of the U.S., David M. Walker, provided the keynote address at our Government Reform Conference. The title of his presentation was "Learning from the Past and Creating our Future." Here are excerpts from Walker's speech:

". . . I am here to tell you, our Republic is at risk. Washington is out of touch and out of control. I’ve had the good fortune of going to 26 states and 40 cities as part of the 'Fiscal Wake-Up Tour' during the last two years. I’ve been to a number of other states, and many more cities in my capacity of the role as Comptroller General of the United States, and now in my capacity as President and Chief Executive Officer of the Peter G. Peterson Foundation . . .

Frankly, I’m not just concerned about the sustainability challenges we face. I’m concerned about how far this nation has strayed from the solid foundations that our Founding Fathers provided for us in 1789. And let me mention just a few examples.

First, the size of government. The Founding Fathers believed in limited government. In 1789 the federal government was 2% of the economy. Today it’s 20% and is scheduled to get a lot bigger.

Second, the composition of government. At the beginning of our republic, the federal government focused on things that realistically only the federal government could do. Responsibilities like national defense, foreign policy, treasury, postal service, Congress and the Executive Office of the President of the United States. Today, the 38% of the budget that is deemed to be 'discretionary spending' contains every major express and enumerated responsibility envisioned by the Founding Fathers for the federal government. Every single one. What happened to the provision written by the founders: that any role or function not expressly reserved for the Federal government belongs to the states and ultimately to the people? We have lost our way . . .

Let me touch briefly on a few sustainability challenges then wrap up and go to Q&A. Firstly, our federal fiscal challenge. It’s not our current deficits, and it’s not our current debt levels that are the problem. Yes, the deficits are larger than they should be. Yes, our debt levels can hardly be justified given the principles our founders established, and frankly, America’s history, up until the 1970s. When we incurred significant debt because of wars, whether it was the Revolutionary War, whether it was the Civil War, whether it was World War I, or World War II, our nation had a tradition of paying down that debt as quickly as possible so we did not encumber future generations with burdens that they should not be expected to bear. But since the 1970s, that tradition has gone by the wayside, and it’s time that we think about bringing it back over time.

We have large deficits and debt levels, but the real problems are off-balance-sheet obligations. As per the latest federal financial statements, we have over $44 trillion (there are 12 zeros to the right of that 44) in off-balance-sheet obligations, primarily in the form of unfunded Medicare and Social Security obligations. Adding this number to our nation’s current net liabilities means that our total federal fiscal hole was about $53 trillion as of September 30, 2007. That unfunded hole is getting bigger by $2-3 trillion a year by doing nothing. If you balance the budget tomorrow, which we’re a long way from doing, that hole would still grow by $2 trillion-plus a year. $2 trillion-plus a year!

Now, what is $53 trillion? It’s $455,000 per American household. What’s median household income in America? Less than $50,000 a year! Therefore, based on our present policies and programs, the typical American household has an implicit mortgage of over nine times their current annual income, but no house to back that mortgage. That’s the big sub-prime crisis . . ."

To read the speech in its entirety, click here.

Eliminate federal gas-tax

May 2, 2008 in Blog

Gasprices Presidential candidates John McCain (R) and Hillary Clinton (D) are proposing a federal gas-tax holiday to alleviate the pain Americans are feeling at the pump. Barack Obama (D), however, is correctly rejecting this unsound voter pandering but is instead unwisely proposing a "windfall profits" tax on companies that invest in oil production.

The Tax Foundation has a good write up on the folly of these proposals here.

As for the current debate on temporarily suspending the federal gas-tax, a better course of action would be to eliminate the federal gas-tax and return that taxing authority to the states to use. Rather than send our gas-tax dollars to Washington D.C. only to have to beg to maybe have them returned back to the state with numerous strings attached, we could keep all those gas-tax dollars here and use them on our priorities instead of having them earmarked for a bridge to nowhere or for an interchange no one asked for.

There is already a proposal in Congress to do this.

Called the STATE Act (Surface Transportation and Taxation Equity Act), H.R. 3497 would amend the Internal Revenue Code of 1986 to reduce the federal tax on fuels by the amount of any increase in the rate of tax on such fuel by a state, returning primary transportation program responsibility and taxing authority to the states.

This means that if we increased our state gas tax by say 15 cents, the federal gas-tax we pay would be reduced by 15 cents so the overall tax burden would not increase but those gas-tax dollars would stay in the state for our transportation priorities – no federal strings attached.

The goals of the STATE Act are:

  • Free state transportation dollars from federal micromanagement, earmarking, and budgetary pressures;
  • enable decisions regarding which infrastructure projects will be built, how they will be financed, and how they will be regulated to be made by persons best able to make those decisions;
  • eliminate the current system in which a federal gasoline tax is sent to Washington and through a cumbersome Department of Transportation bureaucracy;
  • prohibit the federal government from forcing unwanted mandates on states by threatening to withhold transportation money; and
  • achieve measurable congestion mitigation and infrastructure preservation and safety in a cost effective way subject to available resources.

It would be interesting to see what the presidential candidates think of the STATE Act and whether or not they support the goal of returning transportation taxing and decision making authority to the states.

More on the Baffling Economics of Transportation Policy in Washington State

May 2, 2008 in Blog

As I mentioned in an earlier post, the cost for China to build a 22 mile, 6 lane bridge was $1.7 billion. That translates to about $12.8 million per lane mile.

The cost per lane mile for the 6 lane, 6 mile 520 bridge replacement is about $122 million. That means China is able to build one lane mile of bridge for 950% less than Washington officials can.

Consider the following chart, which shows the cost differences (inflation adjusted) between three major projects. The green bars represent the cost of the original structure and the red bars represent the estimated cost of a new structure.

Bridges_3

 

There are generally two drivers of
costs in transportation projects: natural and non-natural. Natural cost drivers
occur as a result of basic economical principles. They include inflation,
material expenses, and higher costs for new technologies.

Unnatural costs are governmentally
created policies that artificially inflate costs on transportation projects.
These policies do not occur naturally and are implemented for reasons that are
not necessarily required to fund a project. These non-natural cost drivers include
prevailing wages, imposing government-to-government sales taxes, apprenticeship
requirements, inefficient permitting, onerous regulations, and setting aside
money for public art.

These policies are valuable and
serve important political interests. But as we have seen, they can significantly drive up
expenses.