WashACE Blog

Happy New Year? Budget Issues Linger for 2010

This morning, my column looks at how difficult issues will roll into the new year. Here's the conclusion.

So, like something foul sticking to our shoe, the conflicts of 2009 trail into the coming year. That’s typical. What’s unusual is the consequential nature of the issues we currently confront.

Most often, public policy evolves incrementally. Our system of checks and balances is designed to frustrate fundamental restructuring. Yet, from state budgets to global climate change, decisions made in the coming months will have far-reaching consequences.

That’s not all bad. Defining debates let people know where their representatives stand and remind us that politics should never just be a spectator sport. For the new year, resolve to be a player.

You can't win if you don't play.

Economic Recovery is Best Budget Fix

That's the headline the Puget Sound Business Journal put over this column of mine. It ran Friday.

A sample:

If they look ahead, lawmakers will concentrate on controlling spending and stimulating private sector job creation. That doesn’t require new public spending. Maintain proven tax incentives, avoid regulatory overreach, and resist new taxes. Remember, employers already face a 7.6 percent increase in workers’ compensation costs and higher unemployment insurance taxes next year.

Now, back to stepping away from the blog for a bit.

Extremely Light Blogging Ahead

Enjoy the holidays.

Environmental and Labor Agendas Reported This Morning

Unsurprisingly, they both think higher taxes are necessary.

In The News Tribune, John Dodge writes of a modest environmental agenda that doesn't look all that modest to me.

Once again, the state environmental coalition of 25 nonprofit groups will push a bill to impose a fee on petroleum products that contribute to stormwater pollution, which is the number one urban pollution problem in Puget Sound, said Dave Peeler, director of programs for People for Puget Sound.

That's a huge cost passed on to consumers and diverting gas tax dollars - calling it a "fee on petroleum products" doesn't change it's character - from highway construction. A bad idea in good times, it's a terrible idea now.

And the Washington State Labor Council released its 2010 agenda, not bothering to pretend that the WSLC ambitions are at all modest. While claiming to be "focused on jobs, jobs, jobs," it's mostly old wine in old bottles.

Some snippets drawn from the agenda, which I urge you to read in full. (BTW, they also like the "petroleum fee.")

    •    Opposing the deregulation of public services, including state liquor stores.
    •    Extending collective bargaining rights to teachers, musicians, interpreters, and child care workers, allowing them a voice in decisions in the workplace.
    •    Codifying rest and meal breaks, protecting the health and safety of workers.
    •    Filling the Washington’s state budget gap by closing tax loopholes and raising revenue, thus protecting critical services and institutions as well as 23,000 state employee jobs and an additional 14,000 private sector jobs.
    •    Repealing I-960 to allow legislators the opportunity to do the jobs they were elected to do: making decisions on how we finance state services and employment.
    •    Paying prevailing wages on all public-private partnership projects and federally funded projects, ensuring our tax dollars create quality jobs that create quality results.
    •    Requiring all corporations that receive state tax breaks to pledge that they are committed to creating jobs and economic prosperity in Washington state.
    •    Capturing $98 million in federal Unemployment Insurance modernization funds by extending unemployment eligibility to part-time workers and to workers facing undue hardship; extending 2009 U.I. stimulus package through 2010 ($45 weekly benefits and higher minimum benefits).
    •    Protecting vulnerable injured workers against unfounded attacks on the workers’ compensation system. 


Labor's "jobs agenda," then, focuses on making it easier to increase taxes, expanding UI benefits, opposing contracting out, battling workers' compensation reforms, pushing for more collective bargaining and workplace regulation, preserving the status quo for state workers and boosting employer costs.

How would an agenda focused on job destruction differ?

National Health Care Reform Not a Done Deal

Although the U.S. Senate appears ready to pass its version of health care reform by the arbitrary Christmas deadline, there's still a long journey ahead. The Heritage Foundation's Foundry blog highlights the six key issues the House must cave on before the bill becomes law. Including differences in tax provisions, employer/individual mandates, Medicaid expansion, and abortion, the issues are not trivial. Nonetheless, Heritage notes:

For each option, choosing one version over the other will have huge consequences for the American people. But since Sens. Joe Lieberman (I-CT) and Ben Nelson (D-NE) have threatened to veto the bill if any significant changes are made by the House in conference, it is most likely the Senate will prevail on every issue. Speaker Nancy Pelosi (D-CA) might even just save herself and the leftist majority in the House the embarrassment and pass the Senate bill as is.

The New York Times also considers the differences, letting Sen. Joe Lieberman explain the power imbalance between the chambers in striking a balance.

Senator Joseph I. Lieberman, independent of Connecticut, said, “There is a natural tendency to split the difference between the Senate and the House.” But on major issues in the health bill, Mr. Lieberman said, “splitting the difference means you won’t have 60 votes in the Senate.”

The public continues to reject the reform, with the latest Quinnipiac Poll registering 53 percent disapproval. As Ted Van Dyk points out in a long year-end piece considering politics in 2010, 

The history of major domestic reforms is that they cannot be sustained unless passed on a bipartisan basis. The pending health-care package was a Democrats-only exercise that got the necessary 60 Senate votes only at the cost of outrageous payoffs extended to favored states and industries by Majority Leader Harry Reid.

Not only unpopular and partisan, the measure may also be - at least in part - unconstitutional. Stateline.org reports that seven Republican attorneys general. including Washington AG Rob McKenna, are investigating the Cornhusker provision - the deal Nebraska Sen. Ben Nelson secured for his crucial vote.

“The Nebraska compromise, which permanently exempts Nebraska from paying Medicaid costs that Texas and all other 49 states must pay, may violate the United States Constitution -- as well as other provisions of federal law,” Texas Attorney General Greg Abbott (R) said, according to The Dallas Morning News.

And in today's Wall Street Journal, constitutional scholar Richard Epstein argues that the regulatory structures established by the reform turn insurance into a public utility.

Taken together, these restrictions are likely to drive [insurance companies]  out of business and run afoul of the constitutional guarantee that all regulated industries have to a reasonable, risk-adjusted, rate of return on their invested capital.

The Heritage Foundation raises additional questions about the measure's constitutionality.

Although it is always difficult for the Supreme Court to thwart what is perceived to be the popular will, polling consistently shows that this legislation faces strong popular opposition. If that remains true after enactment, the majority of the Justices who are inclined to preserve the enumerated powers scheme and adhere to the original meaning of the text will have little inclination or incentive to stretch the Constitution to reach so decidedly unpopular and far-reaching a law as this one.

A pair of Tennessee lawmakers - likely to be joined by others across the country - contend that the reform's Medicaid expansion violates state sovereignty. 

And in our state, we have a mirroring of the come-apart between progressives and, what, pragmatic Democrats on the bill. Rep. Brendan Williams tears into the legislation, calling it a reform that does little more than force more Americans into a broken system.  State Democratic Chairman Dwight Pelz, on the other hand, labels the bill an historic victory for working families. 

The Seattle Times gets it right.

To us — and to the American people, if polls tell the true story — the top issue is the economy. We wish Congress would focus on that and, for the moment, set this expensive health-care package aside.

Yep.

Don't Look for Changes in State Worker Pay or Benefits

As Kim Bradford writes on The News Tribune's editorial page blog, Senate Majority Leader Lisa Brown is fed up with criticisms of the compensation package for state workers. On her blog, Brown writes

[State employees]  deserve our thanks, not our ire.

Bradford concludes,

Sounds a lot like state worker pay won't be part of any budget solution coming out of Olympia next year, at least not if Brown has her way.

Brown's post was prompted by editorial criticism of the pay and benefits packages enjoyed by state workers, which has apparently been placed off limits by the governor and legislative leaders. The News Tribune had a particularly sharp and well-founded editorial. But as we've noted previously, they were hardly alone in challenging lawmakers to call for changes in the compensation package. In this column, I also suggested that the solution to the budget shortfall had to include changes in employee compensaiton.

State Cuts Mileage Reimbursement

Brad Shannon reports that the state is shaving a nickel off employee mileage reimbursements.

"We did this because the IRS reduced their mileage rate and the law (RCW 43.03.060) says that the state can't pay more than the IRS allows," OFM spokesman Glenn Kuper said by e-mail.

He estimated the savings at $698,000 in the general fund and $1.2 million from all other funds...

It all adds up. And this didn't require reopening the collective bargaining contract.

Too bad there's not a similar limitation on pension and health care benefits, requiring that they not be more generous than those provided the average private sector employee.

Reducing Labor Costs Boosts Job Creation

With unemployment insurance taxes rising substantially in our state this year (one employer told me her UI taxes were tripling) and workers' comp premiums climbing 7.6 percent, the cost of adding workers is going up. Our state's highest-in-the-nation minimum wage also squeezes the job market for entry-level workers, as employers perform their routine cost-benefit analysis before hiring.

So I found this brief blog post provocative. Economist Bryan Caplan suggests that wage cuts can be good for the economy by increasing demand for labor.

1. Cutting wages increases the quantity of labor demanded.  If labor demand is elastic, total labor income rises as a result of wage cuts. 

2. Even if labor demand is inelastic, moreover, wage cuts reduce labor income by raising employers' income.  So unless employers are unusually likely to put cash under their matresses, wage cuts still boost aggregate demand.

As I said, provocative stuff and part of a larger discussion than I'm prepared to go into here, though some of you might enjoy following Caplan's argument with Paul Krugman.

For our purposes today, I'll suggest two different points, taking some liberties by pegging off Prof. Caplan.

1. Boosting compensation costs - including mandating a high minimum wage, UI and workers' comp - clearly reduces hiring.

2. And, raising taxes to keep state worker compensation high will assuredly depress private sector hiring.

Today's report of increased jobless claims continues to drive home the importance of a recovery led by private sector employment growth.

Public Employee Compensation and the State Budget Crunch

As we've written previously, news of pay hikes for state workers undercuts what little public support exists for tax hikes. Today, The News Tribune takes a hard editorial line, saying it's past time for the state to get tough with unions. The first three paragraphs are priceless.

A Seattle Democrat earned a heaping of derision earlier this year for suggesting that people would die if the state didn’t send a tax increase to the ballot.

We were among the eye-rollers, but there’s something to be said for speaking the language of those in power.

So, at the risk of indulging hyperbole, let us suggest an amendment to state Rep. Eric Pettigrew’s good little reproach: People will die if the state doesn’t take on its employee unions.

They conclude:

It is irresponsible to ask taxpayers who are juggling pay cuts, furloughs, reductions in working hours and staggering health care costs to help preserve the position of state workers. It is a far worse offense to foist such a burden on the poor and sick.

Read the whole thing.

The unions disagree. Responding to earlier criticism from Sen. Joe Zarelli and the Seattle Times editorial board, the state labor council defends the pay hikes and benefits. I didn't find it persuasive. But then, I didn't expect to.

Meanwhile, Tracy Warner at the Wenatchee World examines the taxing options.

Evidence of the fragile nature of this recovery can be found in the news that the state unemployment rate dropped from 9.3 percent to 9.2 percent.

According to the Employment Security Department, the state lost 4,800 jobs last month. That’s about the same number that were lost in October.

Keep the cork in the champagne bottle. We've a ways to go yet. And the state workers' unions can't be held harmless.

Privatize the Liquor Stores?

The Herald of Everett thinks it's time for the state to get out of the liquor business.

If reforming what government does, and how it does it, is to be a serious part of solving the state’s ongoing budget woes, we raise our glasses to the idea of getting the state out of the liquor business.

What do you think?