Washington Policy Blog

Maine, a non-charter school state, is drafting Innovation Schools legislation to win 40 points in Race to the Top competition

Right now the governor of the state of Maine, a non-charter school state, is drafting Innovation Schools legislation to allow schools there to have more autonomy over their budgets, curriculum, staff and scheduling than traditional public schools.  States with charter schools or autonomous innovation schools are given 40 points out of 500 in the scoring system for the Race to the Top competition.  Passing such legislation will significantly boost Maine's chances to win millions of dollars in the Race to the Top competition. 

Innovation Schools, in contrast to many charter schools, retain a unionized teaching workforce. Schools applying for Innovation status must obtain the agreement of 60% of the members of a collective bargaining unit employed in the school.

Washington Policy Center has just released a Policy Note describing how Innovation School status allows a principal "to design and implement innovative practices in a wide variety of areas to improve student outcomes, and to obtain waivers from those policies that would otherwise present obstacles to such innovations" (quote from Colorado Department of Education). 

Unfortunately, due to Washington's overly restrictive regulatory environment, principals in Washington State have almost no role in creating a high-quality program tailored to the needs of students.  Instead, they are reduced to acting as regulators and enforcers. 

Washington state's leaders should consider the Innovation School model to boost its chances in winning $250 million in Race to the Top funds. 

Federal Transportation Budget analysis

Even if you don't closely follow transportation policy, this new study by Dr. Ron Utt of the Heritage Foundation is worth a read:

The Surface Transportation Authorization Act (STAA), as currently written, would dramatically change federal transportation policy by shifting resources from cars to trolleys and buses; requiring a huge tax increase to fund these new commitments; centralizing transportation decisions in Washington; requiring a substantial increase in the numbers of state, local, and federal government employees; and discouraging the private sector from investing in surface transportation projects.

Chairman Oberstar's Transportation Plan: A Costly Exercise in Social Engineering

SBA may redefine "small business"

The U.S. Small Business Administration is considering revising the definition of "small business." Currently, the SBA defines a small business as a firm with fewer than 500 employees. 

The variations have changed a little in the 50+ years of the SBA, and the government agencies that predated the SBA. However, the 500 employee mark and $7 million or less in revenue hasn't changed since 1984.

The state of Washington loosely defines a small business as a firm with fewer than 20 employees or less than $3 million in annual gross revenue. 

I have often wondered at why the SBA continues to categorize businesses with up to 500 employees as a small business. I much prefer the state's definition. I realize that one of the original reasons for this was to ensure a more level playing field for smaller firms to compete with large businesses for government contracts. But how many businesses do you know that are truly small businesses with 499 employees? Probably not too many. 

But if you feel strongly that the SBA definition of a small business should change then make sure you chime in. They are accepting comments until December 21st. 

Newspapers comment on Governor’s budget proposal

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:

• Gov. Gregoire's state budget has merit - Seattle Times
• Gregoire's call for deep cuts in state programs merely politics - Walla Walla Union Bulletin
  
• Budget cuts hit most vulnerable the hardest - Olympian
• Tax hikes should be a last resort - Yakima Herald
• Some principles to follow - Everett Herald 
• State unions must be part of fair fiscal solution - Spokesman Review 
• Why the rush to hike our taxes? - Longview Daily News 
• Governor's proposed cuts are terrible but necessary - Bellingham Herald
• Gregoire’s budget: Poor, 0; state payroll, 10 - Tacoma News Tribune
  

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

• Washington state's finances require long-term solutions - Seattle Times
• It's the taxpayers' money that the governor ponders as budget woes worsen - Columbian

Put the principal in charge and make them all Geoffrey Canada clones

Geoffrey Canada's Promise Academy, a charter school which serves historically under-achieving children, has eliminated the 4th grade achievement gap in reading and math and substantially narrowed the 8th grade achievement gap. 

How?  First, he is free to control his budget and focus resources on achieving results.  He is allowed to take donations from the private sector.  He has created an Early Learning program for babies, toddlers and preschoolers which makes parents full partners in the education of their children, requiring intensive parent involvement and training.  He holds teachers accountable for teaching children (those who fail are removed).  He gives high school students $120 a month as a reward for good attendance and for doing their schoolwork.  Everyone works longer and harder.  They work Saturdays and take a shorter summer vacation.

Who is Geoffrey Canada?  He is a genuine leader who takes an "all hands on deck" approach.  He has been given the tools and freedom to succeed. Watch this Sixty Minutes special to see what could happen in Washington state if we put our principals, and our Geoffrey Canadas, in charge of their schools: 

Watch CBS News Videos Online

  

Businesses, Taxpayers and Environment; All Part of New Storm Reponse Policy

The Seattle Times is reporting that the City of Seattle has done a complete 180 regarding the City’s policies to use sand when ice forms on roads.  The City is now using salt as part of a proactive approach, keeping streets free and clear of ice.

Last year we noted that the City’s decision to avoid salt, based on environmental concerns, was not supported by the facts.

A point that the City’s new director of street maintenance, Monty Sedlak, seems to get.  He told the Seattle Times that, “his former employer, suburban Arapahoe County south of Denver, switched to salt in 2001… ironically, that was for environmental reasons — flying sand created brown clouds over the valley.”

But perhaps most noteworthy of Sedlak’s comments came in response to a question about the department overusing the salt during this past week when dryer weather has prevailed.  Sedlak replied:

“Frost did form on car windshields Thursday, a harbinger that pavement could freeze, too. The relatively low cost to spray brine is weighed against the enormous cost if the roads do ice, causing accidents and economic loss.”

The City’s new policy is not only good for the environment, but for businesses and taxpayers as well.

Public Option by Another Name

The latest "compromise" in the Senate debate on health care reform is the expansion of Medicare to anyone 55 - 64 years of age and the potential expansion of Medicaid to anyone who makes less than 150% of the federal poverty level (FPL). These measures would take the place of the "public option" passed in the House bill.

This is like something right out of Alice in Wonderland, where up is down and in is out.

Medicare is a public option, where everyone over the age of 64 is essentially required to join and where all participants are locked into a government run and controlled health care program. It is estimated that 3-5 million people would be eligible for the proposed Medicare buy-in. These new enrollees would be people without current health insurance and would be high utilizers of health care.

At present, Medicare has an unfunded liability of $89 trillion according to the CMS trustees. Adding millions more people to the program will not bend the cost curve of health care down unless significant rationing takes place. For the first three years there will be a buy-in for the 55 - 64 year olds to defray costs, yet after 2013 the federal government would simply wrap all participants into the standard Medicare plan.

Likewise, Medicaid is a government controlled health care program for the poor, where states share the cost with the federal government - in other words, tax payers from all over the country. Medicaid is also one of the largest budget items for virtually every state and is a main cause of the huge financial deficit states are facing.

Expanding Medicare and Medicaid is simply a bold move to place more of the American public in government controlled health insurance programs without calling it a "public option".

Unemployment Insurance Taxes to Increase 54% in 2010

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 effect 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. 

Earlier this year the state legislature authorized a permanent increase 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 economy 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. 

Do What I Want or the Economy Gets It!

Yesterday, we released a confidential briefing memo written by Governor Gregoire's current Chief of Staff Jay Manning on the likely impact of her Executive Order on climate change. The memo notes that a "benefit" of the order would be to "increase in the regulated community’s interest in getting a national program." In other words, the impacts of the order on businesses and families will be so significant that it will drive them into the arms of a federal cap-and-trade program.

This is at odds with the constant proclamations that Washington's "leadership" on climate regulation will help our economy. Internally, the Governor's Chief of Staff understands that this is not the case. That fact is not a side effect, however, it is part of the strategy. As we used to say in my computer programming days, "It's not a bug, it's a feature."

News reports today that the federal government is using a similar strategy. According to Fox News, an EPA official says that business better get on board the cap-and-trade program or the EPA will come up with rules that are far more costly and damaging to the economy. They report the unidentified official as saying:

If you don't pass this legislation, then ... the EPA is going to have to regulate in this area. And it is not going to be able to regulate on a market-based way, so it's going to have to regulate in a command-and-control way, which will probably generate even more uncertainty.

This would be a huge "deterrent to investment" for companies. The Administration understands the extremely high costs of this approach, but they see those costs as a benefit because they can be used to coerce the opposition into accepting legislation that kills jobs, but hopefully less than the alternative.

These comments demonstrate that despite the constant rhetoric claiming that the taxes and regulations associated with cap-and-trade and other climate policies will create jobs and help the economy, there is a recognition that this is not the case even among advocates of those programs. What advocates are saying, quite simply, is that they don't care if the economy is hurt because climate policy is more important. We can have that argument but it is clear that they don't really believe their own talking points about the economic benefits of more taxes and regulation.

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

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 unsustainable 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's long term sustainability must be addressed, not just the current deficit.