WashACE Blog

A Quick Roundup

I've not had as much time at the keyboard as I'd like the last couple of days. So here's a quick link to some important announcements and observations from AWB's Olympia Business Watch blog:

• Key legislative support for retaining the manufacturing tax incentive. 
• The Department of Revenue agrees: the incentive does what it was meant to do.
• Expanded paid family leave legislation, inexplicably, receives consideration by lawmakers who think a payroll tax is a fine thing.

More tomorrow.

Catching Up (a bit) with the Budget Gap and Stimulus Plans

Big money is coming to the states. How much and for what remains a bit cloudy, but things are moving along now. Joe Turner yesterday reported that Dick Thompson, the governor's stimulus chief, a $4 billion injection of stimulus dollars. On this interactive map by the Center for American Progress, the number is quite a bit higher: $10.39 billion, but I'm guessing we're comparing apples with oranges. It just goes to show how hard it is to nail anything down right now.

Regardless, Stateline.org says there's not enough federal money to erase state deficits.

And, even as the Congress moves the plan along, some economists are asking how much good it will do. Harvard economist Greg Mankiw points out:

... only 8 percent of this spending occurs in budget year 2009, and only 41 percent occurs in first two years. Note that spending on transfer payments and tax relief occurs much faster than this...

Mankiw also provides a "mature perspective" on the effectiveness of infrastructure spending by Keynes himself. (h/t Instapundit)

UC San Diego economist James Hamilton, blogging at Econbrowser, shows how to cut a 647-page bill to two paragraphs.

Meanwhile, Rasmussen reports that 57 percent of voters nationwide think tax cuts would be helpful. And Belmont business professor Jeff Cornwall sees lost opportunities to boost small businesses.

And, to pop the bubble of euphoria, Chris Edwards, director of tax policy studies at the Cato Institute, offers 10 problems with the stimulus plans.

I've not sorted this out. What do you think?

Balance the Budget Without Kicking a Tax Plan to the Voters

That's the theme of my column this morning (also here).

Meanwhile, legislators continue to wrestle with the "early savings action plan" (don't call it a supplemental budget - I don't know why). There's an important hearing this afternoon in the House Ways and Means Committee.

What happens in the House today will help us get a handle on what they mean by early, by savings, and by action.

UPDATE Schmudget, the blog for the Washington Budget and Policy Center, posted a commentary on my column, arguing for keeping "revenue options" in the mix. We disagree. Read Schudget for the other side, effectively presented.

WASL Gone?

At a press conference recently, new Superintendent of Public Instruction Randy Dorn announced his plans for replacing the WASL. Dorn asserts that he has the authority to change the test without legislative approval.

Dorn consulted with legislators and Gov. Chris Gregoire before making his announcement, but emphasized that he did not need their approval to make the changes. Under state law, the superintendent can, in consultation with the state Board of Education, develop and revise a statewide system to test proficiency in reading, writing, math and science.

Some disagree.

Senate Minority Leader Mike Hewitt, R-Walla Walla, called Dorn "pretty arrogant" for speaking about what he could and couldn't do without the Legislature.

"It's as if he's never served in the Legislature before," Hewitt said of Dorn, who was chairman of the House Education Committee. "Well, we're still controlling the budget, and we still make the laws in this state."

WashACE has strongly supported rigorous accountability requirements for the schools. Steve Mullin of the Washington Roundtable appeared with the superintendent at yesterday's press conference. His comments in this Spokesman-Review story effectively capture our conerns.

Mullin said that his group would oppose any changes that might make the WASL?less rigorous,�� even if it meant saving time or money.

At Wednesday?s news conference, Mullin spoke cautiously, saying the Roundtable appreciated being consulted on the matter, and that there?s plenty of common ground? in requiring a test for graduation, for instance.

But as far as other specifics, Mullin would say only that?I think there are potentially some parts of what he?s proposed that we may have continuing concerns about.��

We'll be watching closely. Meanwhile, watch the press conference.

Asking the Right Question about the State Budget and Stimulus Plans

At TVW's new and useful public affairs blog, Niki Sullivan aptly frames the budget debate: Is it a recession? Or is the economy "resetting?"

Microsoft, {CEO Steve Ballmer] said, is making cuts because they don?t see the economic downturn as a recession, they think the economy is resetting to a lower level of consumer spending.

It?s not just semantics: The difference is at the heart of the public budget-related disagreements between Republicans and Democrats here.

Go to the blog and listen to the distinctly different takes on the budget offered by Sen. Joe Zarelli and Rep. Kelli Linville. Zarelli points out that the state and embarked on an unsustainable budget path well before the recession. Linville contends that the deficit stems primarily from the economic downturn and defends spending decisions made in recent years as restoring cuts made during the previous downturn.

If you believe that the recession is just a cyclical dip, you might be inclined to use stimulus funds to maintain spending until the eventual recovery. If you buy the "resetting" argument, then you'll want to use this time to rightsize spending to a lower and sustainable level.

This opinion piece in Friday's Wall Street Journal by Peter Schiff makes a strong case for those who believe we're seeing a fundamental, long-term resetting.

The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall.

Welcome to the new normal. Even during the upcycle, state government was spending more than it collected in tax revenues. The recession sharply accelerated the inevitable budget collapse. Pulling back now won't be easy, but it's necessary. And we're beginning to see small steps in the right direction. Getting an earlier fix on revenues also seems like a good idea. 

Another encouraging move to increase budget sustainability is Zarelli's proposed constitutional amendment to increase deposits in the state rainy day fund.

After surveying the global economic picture and the "debt bubble," Schiff concludes:

Taking on more debt to maintain spending is neither sacrificial nor beneficial.

What's true of debt is also true of the use of one-time stimulus dollars to prop up a spending plan that cannot be sustained under normal economic conditions. Entrepreneur.com offers good advice to business owners, advice that applies equally to state budget writers.  (h/t eff Cornwall at The Entrepreneurial Mind)

The economy tanks. You have two options: hole up in a bunker and hope it ends before you run out of tinned peas, or innovate and emerge stronger than when the economy took the hit.

There can be no return to spending-as-usual. But we can use this time to build a better, sustainable budget that protects essential services while increasing economic opportunity.

More on Using the Unemployment Insurance Trust Fund for Stimulus

In a Senate Labor, Commerce, and Consumer Protection Committee hearing, lawmakers heard public testimony on SB 5319, which taps the unemployment insurance trust fund to support "economic stimulus." It's part of the governor's stimulus package. Among business groups testifying against the proposal were AWB and the Washington Roundtable, founding WashACE members.

Continuing themes raised in this Olympia Business Watch post, AWB president Don Brunell wrote the governor yesterday urging her to keep the UI Trust Fund intact. The News Tribune's Joe Turner has the press release.

The $4 billion in the reserve account is held in trust to insure workers receive their benefits when they lose their jobs through no fault of their own.?We need to learn from history. In 1982, our state?s unemployment rate rose to more than 12 percent, depleting the unemployment fund. If lawmakers divert funds from the UI trust account, the money may not be there when people need it,�� warned Brunell.

?Proposals may be well-intentioned, but we continue to worry about the long-term consequences if our economy continues to erode,�� Brunell said.?We need to be cautious because we just don?t know how many jobs will be lost this year.��

Also in The News Tribune's editorial page blog, Patrick O'Callahan makes a solid argument for not rushing to spend UI Trust Fund dollars to other purposes. Acknowledging that there's not nearly enough in the fund to jump-start the economy, he writes that the proposal may still do some good. More important:

Before approving [the legislation], lawmakers should give a hearing to the employers who?ve been on the hook to finance the trust fund.

...Its size is an argument for drawing it down some. But it?s also an argument for listening to employers who feel the state has been levying excessively high payroll taxes all along. They deserve a say before the Legislature changes the rules on how the money is spent.

And, as the business leaders said yesterday, the major Unemployment Insurance issue before the Legislature this year is getting back into compliance with federal policy.

MORE Rich Roesler has more the business response and a link to Brunell's letter.

A new tax for an expanded paid family leave program?

During the first week of the legislative session we noted the bill to repeal our state's unfunded, unimplemented paid family leave law, calling repeal the only responsible move for this troubled program in the midst of a recession.  At the same time we predicted the program's remaining legislative advocates would likely push a new payroll tax to try and revive the idea in advance of its improbable October 1, 2009 start date.

The Olympian's Adam Wilson has the story this morning:   

The paid-family-leave program that the governor suspended to save money could reappear, only bigger. It would be paid for with a 2-cents-an-hour payroll tax on most employees. Any such tax would have to be approved by voters, but the chairwoman of the state Senate Health Care Committee is confident that the pubic would approve it. . . .

[Senator Karen] Keiser said a new bill that will be introduced soon will not only revive the program, but expand benefits to those caring for sick parents or other family members. She also said President Barack Obama has been supportive of similar programs, and some federal money might be available to finish Washington's computer system.

We had this to say:

"There wasn't the political will to pay for it with a payroll tax even in good economic times, in 2007," said Kris Tefft of the Association of Washington Businesses. "Now is not the time to consider a payroll tax, whether its on employers or employees," he said. "The nature of the program is its ultimate costs won't be borne by the worker even if they're taxed for the insurance premium." Businesses still would be saddled with the administrative paperwork, even as they and their workers grapple with a recession, Tefft said.

Cross-posted at Olympia Business Watch.

Rome burns; will legislators fiddle?

That's the question surrounding today's reintroduction of House Bill 1528 and Senate Bill 5446, this year's version of the labor unions' notorious gag rule bill.   Although deceptively titled the "Worker Privacy Act" and cloaked in talking points about rights to conscience and privacy in political and religious matters, the bill is designed to prohibit employers from effective communication about labor unions during an organizing campaign.  It arms the employee with a new right to decide which meetings, communications, and valid job directives he or she will listen to, a right enforced by a new lawsuit against the employer with the threat of punitive damages.  

One problem: The bill would prohibit, with respect to unions, a constitutional free speech right that federal law explicitly protects.  It's pre-empted.  That's why no other state, despite intense national lobbying by the AFL-CIO, has passed this bill.  The only state that came close, California, had their similar 2004 attempt struck down last summer by the US Supreme Court on federal pre-emption grounds.  

Undeterred, advocates have rolled out this bill again with fanfare, exaggeration, and caricature.  But it's a needless diversion.  

In this challenging economy, with the state unemployment rate rising to 7.1 percent and the Legislature struggling with a projected $6+ billion deficit, lawmakers waste their time and the taxpayers' money considering a bill the core purpose of which has already been ruled beyond the authority of states to regulate.    

Cross-posted at Olympia Business Watch.

"More Bad Economic News, Joined by Another Bad Legislative Proposals"

Washington's unemployment rate jumped to 7.1 percent last month, up from 6.4 percent. Seattle area unemployment reached 6.2 percent. Microsoft is cutting 1,400 jobs today on the way a workforce reduction of 5,000.

Seems like a strange time to be talking about dipping into the unemployment insurance trust fund for other purposes. That money may already be spoken for.

Naturally, this would be the day that the Legislature takes up the euphemistically named "labor neutrality" bill, aka the employer gag rule. (For that matter, on the Washington State Labor Council site it also flies under the flags of "worker privacy" or "free speech in the workplace."

Here's the legislation: HB 1528 and companion SB 5446. Last year this stuff was shelved, as noted in this blog post by then-TNT editorial page editor David Seago.

Almost as if they want to give topspin to the rising unemployment rate.

Renewing Renewable Energy Incentives: New WashACE Competitiveness Brief

Our state's commitment to renewable energy generation enjoys substantial public support. In the last decade, the nascent industry has been nurtured and encouraged by a tax incentive exempting
producers from local and state sales and use taxes for the purchase and installation of machinery and equipment used in generating electricity from wind, solar, landfill gases and fuel cells.  The exemption is up for renewal this year.

This WashACE Competitiveness Brief, prepared for us by The Simeon Partnership, examines the role of renewable energy and the importance of maintaining the current tax exemptions. The bottom line:

Extending these tax exemptions will help Washington maintain its competitive advantage in energy pricing and, therefore, contribute to a competitive business climate.

It's hard to see how the state could meet the I-937 renewables targets without the exemptions in place.