Washington Policy Blog

Small businesses rank top policy priorities

Small business owners, legislators, and policymakers from all over Washington gathered in SeaTac this past Tuesday to discuss the state's business climate at WPC's 2009 Statewide Small Business Conference. During several interactive issue breakout sessions, business owners suggested and discussed solutions to improve the climate for small businesses in Washington. This was the fourth statewide small business conference hosted by WPC since 2003.

The result is a list of priority solutions, selected by small business owners, for solving the major problems with the state's business climate. The top recommendations from each breakout session are below.

Health Care
1) Reform medical malpractice laws
2) Allow individuals and businesses to purchase health insurance across state lines
3) Focus on increasing the patient's role in health care decisions

Workers' Compensation Reform
1) End the state monopoly: WA should join 90% of the country and open the system to private competition
2) Provide a compromise and release option
3) Enact better, more aggressive claims management

Technology
1) Adopt a market-based approach to dealing with the Net Neutrality issue
2) Solicit and incorporate more small business input on the Net Neutrality issue
3) Exempt small businesses from the digital goods tax legislation

Environmental Regulations
1) Don't add or expand federal regulations to existing or new state regulations
2) Encourage market-based solutions for stormwater and other regulations
3) Simplify environmental regulations, make more objective and apply cost/benefit analyses

Unemployment Insurance Reform
1) Eliminate the liberal construction of cases
2) Freeze the voluntary quit option
3) Keep UI benefits the same over the next calendar year

Regulatory Reform
1) Sunset rules after a certain number of years
2) Support better legislative oversight and accountability of major agency rule-making
3) Put apprenticeship programs in Technical and Community colleges

Competitiveness Issues
1) Reduce the overall tax burden on businesses
2) Adopt an hourly wage rate for low-skill, new workers
3) Do not enact an employer gag rule

Tax Issues
1) Level the playing field with respect to gaming, cigarettes, etc.
2) Do not increase taxes
3) Continue with thorough performance audits of government agencies

Washington Policy Center will publish a detailed analysis of the conference results in a report prior to the 2010 Legislative Session.

OFM releases 2009 report on state boards and commissions

The Office of Financial Management (OFM) has published its 2009 Boards and Commissions Report. According to OFM:

"The 2009 BOARDS AND COMMISSIONS REPORT provides basic information about boards, commissions, and committees in state government. State law requires the report to assist in promoting legislative and executive oversight of these organizations. This is the sixteenth biennial edition of the publication.

The information in this report covers the period from July 1, 2007, through June 30, 2009. During the 2009 Legislative Session a number of boards were eliminated or consolidated by executive order or legislation. A list of those boards is attached and, if the board submitted a report for this period, a note is also included on that report . . .

In 2009, 449 boards, commissions, councils, committees, and similar groups in state government provided information for this report."

Boards and Commissions were required to provide the following information for the report:

• Year created
• Number of members
• Number of meetings held
• Legal authorization
• Appointing authority
• Summary of primary responsibilities
• Compensation
• Operating costs
• Fund source

Here are the details for each state board and commission.

Agencies asked to determine which programs are mandatory

The Spokesman Review this morning highlighted an October 15 memo from the Office of Financial Management to state agencies asking agencies to identify which of their activities are mandatory. As reported by the Spokesman Review:

Washington state agencies have been ordered to compile a list of their tasks – and whether they’re required by federal law or the state constitution – in preparation for budget cuts next year.

An Oct. 15 memo from the state Office of Financial Management, the governor’s budget agency, tells all agency directors to describe the work their agency does, the number of employees the work takes and the amount it costs the state’s general fund.

Most agencies must submit their reports by today, although the Department of Social and Health Services, one of the state’s biggest agencies, has until next week.

Agencies must indicate whether mandated activities are required by a constitutional provision, federal statute or court decision or by a requirement of the federal Recovery Act, or are “essential for preventing loss of life, addressing imminent issues of public safety or avoiding immediate and catastrophic loss of state property.”

The agencies must report whether functions not covered by those requirements, and therefore “non-mandatory,” are required by state statute or a contract such as a labor agreement, necessary to secure federal matching funds, or work that generates money for the state.

Here are additional details from the OFM memo (in part):

On September 23, I sent instructions for 2010 supplemental budget submittals that communicated the need for information regarding “mandatory” General Fund-State activities.

I have attached a spreadsheet that shows a list of activities for your agency that have been identified (via the Activity Inventory) as being supported all, or in part, by General Fund appropriations. We are now asking that you distinguish which, if any, activities are mandatory. For this purpose, “mandatory” is defined as an activity that meets one or more of the following criteria:

1. required by constitutional mandates, court decisions, or federal law;

2. required by Maintenance of Effort provisions under the federal American Recovery and Reinvestment Act of 2009;

3. essential for preventing loss of life, addressing imminent issues of public safety, or avoiding immediate and catastrophic loss of state property; or

4. necessary for the governance of mandatory activities.

OFM will use this information as part of consideration of the Governor’s 2010 supplemental budget proposal. We may ask for additional data or decision packages as necessary to expand on policy outcomes and other implications. A designation of “mandatory” or “non-mandatory” does not automatically translate into any particular budget decision. We know that many agencies will not have any activities that are considered mandatory under this narrow definition. This information is being requested because it is clear the state will need to focus on the most essential services as the budget is further adjusted to new revenue projections.

52% opted to donate to state parks in September

Earlier this month the Washington State Parks and Recreation Commission announced motorists had contributed $1.4 million to state parks by opting to donate $5 on their vehicle license renewals. As explained by State Parks:

In the new donation program, vehicle owners’ license tab renewal notices have an automatic $5 donation added to the total due. Those who do not wish to make the donation simply subtract it from the total due, as outlined on state Department of Licensing renewal notices and payment coupons.

The Legislature projected that State Parks would need $28 million in donations over the two-year budget period starting July 1, to make its budget and keep state parks open. The program started with September renewals, leaving only 22 collection months instead of 24. Because of this, the agency needs to collect an average of $1.25 million each month over two years to meet its budget. The September 30 total includes donations that were made in July and August – from people who paid their September renewals early and from some who made donations under the preceding donation program.

Thanks to the number crunchers at the Department of Licensing we now can see the raw numbers of those contributing through their vehicle renewals to state parks (link shows County numbers by month).

Parks Fee Donations - State Total

Month 2009	Number of donations	Pool of eligible vehicles	Percent opting to donate
January	8,134	406,466	2.0%
February	7,219	379,520	1.9%
March	11,667	481,693	2.4%
April	14,174	467,157	3.0%
May	16,427	489,211	3.4%
June	18,649	551,772	3.4%
July	16,040	488,398	3.3%
August	92,900	428,940	21.7%
September	213,905	408,703	52.3%
Total	399,115	4,101,860	9.7%

Despite the dramatic increase in the number of motorists contributing to state parks, the new opt-out provision has not been without controversy.

In fact, whether opt-in or opt-out, it is difficult to see the nexus between motor vehicles and fees for state parks. Perhaps some of these proposals for park funding should be considered instead: Securing the Future of Washington's State Parks

DOR publishes report comparing Washington's state and local tax ranking

The Department of Revenue (DOR) today published an updated comparison of state and local tax rankings. According to DOR's press release:

Washington ranks 26th highest nationally in state and local taxes as a percentage of personal income, and 32nd highest in property taxes, according to newly released federal data covering Fiscal Year 2007.

Washingtonians paid $109.25 in state and local taxes per $1,000 of personal income, compared to a national average of $113.32. Of that, $29.25 went to property taxes, compared to a national average of $34.04.

Washington ranked 15th in state and local taxes per capita at $4,269, $35 more than the national average of $4,234. Washington ranked 27th per capita in property taxes at $1,143, $129 less than the national average of $1,272.

The FY 2007 figures do not reflect the current downturn in the economy, which largely won’t show up until the Fiscal Year 2009 information is available for all states.

The Department’s annual report, Comparative State/Local Taxes, is based on data published by the Census Bureau and Bureau of Economic Analysis. The full report is available here. 

Here are a couple of tables of note from the report:

• Washington Taxes Per $1,000 Personal Income
• Washington Taxes Per Capita
• Historical Summary of Washington Taxes

State Auditor reviews Commerce's fee use

The Joint Legislative Audit and Review Committee (JLARC) held a public hearing this morning to discuss the State Auditor's performance audit of the Department of Commerce's use of fees. The performance audit found:

• Commerce does not follow best practices to identify programs that could charge fees, which could provide the state with additional revenue.

• Some user fees are not established in accordance with state law and others are not accounted for or used in accordance with state law.

• Commerce could reduce general fund spending by between $2.2 million and $2.4 million or more over five years if fees were charged for four programs.

Among the audit recommendations was the need for Commerce to use best practices identified by the U.S. Government Accountability Office to determine which government activities should be funded with user fees. Those best practices are:

• Ensure programs benefit identifiable users

• It is administratively practical to charge a fee

• The users have the ability to pay

• The program is not based on need or merit

• No other program considerations cause fees to be inappropriate

As noted by the State Auditor, all of these best practices can be used by other agencies.

Here is the video of Commerce's testimony today responding to the audit:



The new fee policy Commerce is developing in response to the performance audit could serve as a good model for other agencies. Especially against the backdrop of the current budget situation, the state should have a fee policy based on best practices in place to help determine which services can be switched from general fund support to a direct user-fee model.

In other news, the State Auditor's Office announced last week its performance audit program has passed its first peer review. Here are the details:

"The State Auditor's Office performance audit program passed its first peer review since the program, authorized by Initiative 900 in November 2005, began.

The performance audit program received the highest level of assurance that an external review team can give on a system of audit quality control.

The review was conducted under the auspices of the National State Auditors Association (NSAA) in conjunction with the National Association of State Auditors, Comptrollers and Treasurers (NASACT).

The letter from the peer review team is available here."

GAO: Nation's long-term fiscal outlook remains unsustainable

The U.S. Government Accountability Office today released its Fall update on The Federal Government's Long-Term Fiscal Outlook. The prognosis is grim unless our elected officials in D.C. take action soon. From the report:

Weaknesses in the economy and financial markets—and the government’s response to them—have contributed to near-term increases in federal deficits, which reached a record level in fiscal year 2009. While a lot of attention has been given to the recent fiscal deterioration, the federal government faces even larger fiscal challenges that will persist long after the return of financial stability and economic growth. GAO’s simulations continue to show escalating levels of debt that illustrate that the long-term fiscal outlook remains unsustainable. In little over 10 years, debt held by the public as a percent of GDP under our Alternative simulation is projected to exceed the historical high reached in the aftermath of World War II and grow at a steady rate thereafter . . .

Another way to measure the long-term fiscal challenge is the fiscal gap. The fiscal gap is the size of action needed—in terms of tax increases, spending reductions, or some combination of the two—for debt as a share of GDP to equal today’s ratio at the end of a certain period, such as 75 years. For example, under our Alternative simulation, the fiscal gap is 8.5 percent of GDP (or more than $62 trillion in present value dollars). This means that revenue would have to increase by about 47 percent or noninterest spending would have to be reduced by 33 percent on average over the next 75 years to keep debt at the end of the period from exceeding its level at the beginning of 2009 (40.8 percent of GDP).

Policymakers could phase in the policy changes so that the tax increases or spending cuts would grow over time and allow people to adjust. However, the longer action to deal with the nation’s long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Under our Alternative simulation, waiting even 10 years would require a revenue increase of about 58 percent, a noninterest spending cut of about 39 percent, or some combination of the two.

Perhaps it is time to bring back consideration of a federal balanced budget amendment to the Constitution.

Washington Policy Center Responds to Constantine Campaign's Misrepresentations

The statement released on October 8th by Dow Constantine criticizing Washington Policy Center’s book Policy Guide for Washington State contains several factual errors:

Error 1. “The Policy Guide for Washington State...attacks light rail as ‘socialistic’...”

Error 2. “WPC’s call to ‘adopt a constitutional amendment to limit the growth of spending to inflation and population growth...goes far beyond Eyman’s proposal.”

Error 3. “Washington Policy Center...continues to produce research that specifically praises Eyman’s i-1033 [sic] Initiative.”

Error 4. The Policy Guide “...questions whether there is a scientific consensus around climate change...”

Misleading statement 1. “The Guide...claims that scientific work by the Puget Sound Action Team and the University of Washington’s Climate Impacts Group on the impacts of climate change in Washington State is exaggerated and riddled with errors...”

Misleading statement 2. WPC “...attacks the work of the state’s Washington Climate Advisory Team [CAT] as ‘a patchwork of wishful thinking’...”

Misleading statement 3. WPC “...attacks efforts to create clean energy green jobs...”

Misleading statement 4. Washington Policy Center “...calls for the complete elimination of green building codes for public buildings...”

Washington Policy Center’s response is available online here.

Real Cost of Baucus Bill - $2 Trillion

The Congressional Budget Office (CBO) scored the Senate Financial Committee health care reform bill this week. Never mind the fact the bill is only a summary and is not in legislative language, which made the CBO disclaim the cost of an actual final bill.

Total cost is reported at $829 billion with $81 billion in savings over the first ten years. Unfortunately, as published in a Micheal Cannon report for CATO, the cost would be closer to $2 trillion over the first ten years. So why the difference?

First, the CBO omitted $75 billion in new federal spending and $33 billion in unfunded mandates on state governments. Second, the nonpartisan CBO assumed Congress would allow the "sustainable growth rate" cuts in Medicare provider reimbursement starting in 2012. Congress has never let this happen. And finally, the CBO omitted the cost of the individual and employer mandates which represent 60% of the cost of Massachusetts' health care reform.

Therefore, to do the math: $829b + $75b + $33b = $937 billion (which is 40% of some number).

40% x N = $937 billion    N = $937 billion divided by 0.4 = $2.34 trillion.

So the Baucus bill is not budget neutral, let alone a deficit reducer. Instead, it is a colossal budget breaker that has the potential of bankrupting this country in just the first decade of application.

Treasurer worries about state's credit rating

Earlier this year State Treasurer James McIntire highlighted the state's strong credit ratings. Now, however, he is worried the state may have to pay millions more to borrow money. According to the Seattle PI:

Tim Eyman's initiative that would limit government spending could hurt Washington's credit rating, which would cost the state tens of millions of dollars, state Treasurer James McIntire says . . . McIntire said credit ratings consider numerous factors, including initiatives like Eyman's.

"They want to know how your economy is doing, they want to how your revenues are doing, they want to know what your balance sheet looks like...and they ask about things like initiatives," he said in an interview. "Anything that restricts taxes or spending, that's going to have a long-term structural impact to come to resolution about financial management, is something that they worry about."

Credit raters like Moody's say "Voter initiative activity adds element of fiscal uncertainty,” and is a challenge for the state, but the adoption of a tax or spending restriction did not make Moody's list of things that would reduce the state's credit rating. According to Moody's July 10 report on Washington's credit outlook:

What would change the rating - UP

• Sustained trend of structural budget balance, plus restoration and maintenance of strong reserve levels.

• Economic expansion and improved industry diversification.

• Reduction of debt ratios to levels closer to Moody's 50-state medians.

What could change the rating - DOWN

• Deeper and longer recession that restrains consumer confidence, leading to prolonged revenue weakness and employment erosion.

• Protracted structural budget imbalance.

• Increased reliance on one-time budget solutions.

• Cash flow narrowing, leading to strained liquidity.

• Failure to adopt plan to cover expenditures once federal fiscal stimulus monies are no longer available.

Perhaps the reason adoption of a tax or spending restriction didn't make the list is the fact Washington already has both. In fact, the state's credit rating didn't drop after passage of I-601 (tax and spending restriction) in 1993 or I-960 (tax restriction) in 2007.

Based on the criteria described by Moody's, it looks like the biggest devil for the state’s credit rating will be whether or not the state lays out a plan for balancing the budget once the federal bailout funds are gone and stops resorting to one-time fixes. 

Additional Information
Summary of state's credit history (provided by Office of State Treasurer)