WashACE Blog

Why Spending Reforms Stalled in 2010

As legislatures across the country grappled with budget shortfalls, Stateline.org reports many of them looked to liquor privatization as a strategy.

But barely a few weeks later, many of those proposals have died quietly. In Virginia and Mississippi, they were withdrawn by their sponsors. In Washington and Vermont, they are bottled up in committee.

Stateline.org notes that the reasons vary among the states. Here's their explanation for Washington.

In Washington, supporters blamed labor unions for driving opposition to the proposals. Employees at state-run liquor stores there are state employees, as are the workers in the Seattle warehouse that distributes alcohol to stores throughout the state.

That sounds accurate. And it came at a cost.

In a January report, Washington State Auditor Brian Sonntag found that the state could raise up to $350 million more over five years if it auctioned off retail store licenses and privatized the distribution center.

Meanwhile, in New Jersey, the recently elected governor is pressing a privatization agenda.

Governor Christie Thursday will create a commission to privatize as many as 2,000 state jobs beginning next January, officials said Wednesday night.

As he grapples with an $11 billion deficit in the budget he will present on Tuesday, Christie is also considering invoking the Disaster Control Act to suspend Civil Service rules to make it easier for him to lay off higher paid workers, according to two administration officials.

We'll not have a sustainable budget without structural spending reform. When the easy stuff can't get done - and liquor privatization should have been easy - it's hard to have much confidence that things will improve soon.

More on Excessive Public Employee Benefits from National Governors Association

Given the recent discussion of public employee compensation, I thought this excerpt from "The Big Reset," a report issued the National Governors Association Center for Best Practices, was worth sharing.

For many years, state and local governments have been increasing the benefit portion of employee compensation at a greater rate than the wage portion.  Much of the reasoning behind this was the belief that state government salaries could not compete with the private sector.  As a result, benefits for state employees gradually became more generous than those in the private sector while state salaries lagged.  Today, the average compensation for state and local employees exceeds that of private workers.  And, by using benefits as a compensation equalizer, states have placed long-term liabilities on their balance sheets.  States would be in much better financial shape now had they adopted competitive salaries years ago and provided a benefit package much closer in value to the private sector. (Emphasis added.)

Right.

Reopening Public Employee Collective Bargaining Agreements ... in Idaho

Good post by Austin Jenkins on the differences between Washington and Idaho in handling state collective bargaining agreements.

Stumbling Toward Unpopular Tax Increases

Yesterday the House Finance Committee passed the tax legislation introduced Monday. HB 3191 contains a host of tax hikes that appear to be as unpopular with lawmakers as with the public. The difference is that the public won't get a chance to vote on it.

In the Seattle Times, Jim Brunner writes that nearly every member of the committee objected to one or more aspects of the bill.

It was no surprise that Republicans opposed the tax plan. But Democrats aggressively sniped at it too.

...Nevertheless, Democrats said they felt compelled to pass the bill on to the House floor, where it can be tweaked as it moves forward.

Some argued the bill didn't go far enough. Others said it went too far and gave too much power to the revenue department. 

The News Tribune and KOMO news have good reports on the hearing, which can be viewed on TVW.

Putting People Back To Work Must Be Top Priority

A couple of recent articles underscore the serious employment crisis we continue to face, even as economists tell us things are slowly beginning to improve.

At Power Line, Scott discusses an important Forbes magazine column by Thomas F. Cooley and Peter Rupert. Scott captures the essence of our problem:

The trend in private employment appears particularly intractable. Indeed, as Thomas Cooley and Peter Rupert put it, the labor market presents a dismal view by comparison with other indicators of economic activity, and not just because employment is a lagging indicator of recovery.

Of particular concern is the pattern in private employment shown by Cooley and Rupert. After noting improvements in consumption and investment, they write.

So is this a recovery--is the recession over as the pundits proclaim? Unfortunately the labor market presents a more dismal view. The next two figures show total employment and the fraction of the population over 16 years of age who are employed.

Although job losses slowed in December, there is no evidence of recovery in employment. This will be a continuing drag on the economy and on the fiscal condition of both state and federal governments.

Study those graphs carefully. There's a lot to digest. The columnists do an excellent job of making  complicated stuff clear, so I urge you to read the whole thing. 

Another valuable perspective comes through this issue brief by Josh Barro at the Manhattan Institute. He notes that government and private sector workers have experienced very different recessions.

Workers in the public sector have experienced a very different recession from those in the private sector.

While private-sector employment fell sharply in the last two years, the public-sector, civilian workforce continued growing until mid-2008. It has since remained essentially flat. As a result, while private-employment rolls are nearly 7 percent smaller than they were three years ago, public-employment rolls have grown by nearly 2 percent.[1] (Approximately 17 percent of U.S. civilian employment is in the public sector.)

Not only have they been better insulated from job losses, public employees have continued to enjoy relatively generous pay packages.

From the first quarter of 2007 through the last quarter of 2009, the average value of hourly compensation (wages plus benefits) rose by 9.8 percent for employees of state and local governments, compared to 6.9 percent in the private sector.[2] After adjusting for inflation, public employees have seen a rise in real hourly income over this period, while private employees have not.

Over this period, public-employee compensation has risen nearly 50 percent faster than private-employee compensation. Governments are aggressively increasing public-employee compensation even though labor markets are loose and states face record budget deficits.

It's a theme we've written about before, in this post and this column. Barro, in this short analysis, provides compelling data and suggests a few things government should do to restore the balance. (I forget who sent me to the article, but thanks!).

Taken together, the analyses provide additional, powerful reasons for why state lawmakers should focus on putting people back to work. The key is not more public spending. Rather, they must concentrate on reducing employer costs to stimulate private sector hiring.

Inexplicably, from entertaining business tax hikes to increasing UI benefits to rejecting sensible workers' compensation reforms, they are moving in the opposite direction. Let them know it's time for them to change course.

Olympia Playbook Parallels Labor's National Agenda, Will Add to Job Losses

A must-read article in The Economist incisively examines organized labor's attempts to bend national policy to promote the union agenda. (H/T LaborPains.org) As you might expect, the efforts mirror what we're seeing in Olympia and other state capitals. AFL-CIO president Richard Trumka, the magazine reports, has a jobs plan.

It can be summarised in a single word, the same one that Samuel Gompers, one of Mr Trumka’s predecessors, used to describe what his members wanted: “More.”

Washington must spend more on unemployment benefits, on roads, on schools, on green energy projects and on aid to state and local governments.

The agenda sounds familiar. In an action alert released yesterday, we called foul on efforts in the legislature to increase unemployment benefits. assuring even more hikes in UI taxes on struggling firms. Washington's UI taxes are already second highest in the nation, reflecting correspondingly high benefits.  

Similarly, job creation proposals promoted by legislative Democrats tilt heavily toward green projects. We can endorse these measures, while also noting that such targeted efforts cannot replace an overall emphasis on controlling employer costs and putting people back to work.

The unions' appetite for massive injections of public spending comes with strings. like Project Labor Agreements requiring contractors to hire union workers.

Such agreements inflate costs by 12-18%, according to David Tuerck of Suffolk University, and were banned under Mr Bush. Even where PLAs are not in force, federal contractors are obliged to pay “prevailing” wages. That actually means something close to the union rates, which is nice for the workers in question but means that taxpayers get fewer roads and schools for their money.

Similarly, the influence of public employee unions has become a major driver in increasing government costs. (I wrote about this here.) This is how The Economist explains it.

Market forces place a natural check on unionisation at private firms. In the short term, collective bargaining can raise wages. But if unions demand above-market pay and impose cumbersome work rules, unionised firms will gradually lose market share to non-unionised competitors.

...Such checks do not apply in the public sector. The government cannot easily go bust. When a company pays over the odds for labour, the money comes straight out of its owners’ pockets. They usually object. But when a politician hikes public servants’ pay, he wins votes. If this year’s budget is tight, he can promise lavish pensions, secure in the knowledge that the bill will come due only in the distant future. Unfortunately, that distant future is now, which is why so many states are in a fiscal pickle. Per hour worked, state and local government workers enjoy 34% higher wages and 70% more benefits than their private-sector counterparts, calculates Chris Edwards of the Cato Institute, a libertarian think-tank.

Case in point: Washington's public employees aggressively oppose suggestions that they reopen their collective bargaining agreement to reduce costs. Even relatively benign furlough proposals are challenged.

Hard to argue with the conclusion.

... union bosses can sound jarringly out of touch.

And yet, they're driving the agenda in Olympia, adding to private sector job losses.

Key Senator Says No to Sensible Workers' Comp Reform

In the Seattle Weekly, Laura Onstot, whose comprehensive look at workers' comp we cited here, reports that yesterday's discussions of workers' comp reform did not go well for employers hoping to mainstream Washington's workers' comp system.

Sen. Jeanne Kohl-Welles (D-Seattle), whose committee oversees workers' comp, made it clear this morning that she will not support any bills related to changing the system because "we just cannot get legislation, policy-wise, through this 60-day short session."

Rep. Steve Conway (D-Tacoma), Kohl-Welles' counterpart in the House, has already said he will not hear any bills on the subject. That makes Kohl-Welles' statements today pretty much the final nail in the workers'-comp reform coffin for this legislative session.

The Weekly's headline: "Sen. Jean Kohl-Welles Kills Workers' Comp Bills

On the Senate Democrats' blog, Kohl-Welles spins it this way: Deliberative approach sought for workers' com.

Kohl-Welles has introduced Senate Bill 6775 which directs L&I to convene a task force to make recommendations on how to improve our Workers Compensation system so that it continues to serve injured workers and is fair to businesses.

Another task force, another year of rising claims, rising premiums, and avoiding essential reforms.

For a clear picture of what's happening, read Austin Jenkins Crosscut report, Labor tightens the screws on Democrats in the Legislature.

I asked [Rick Bender, president of the Washington State Labor Council] last week if organized labor “put its foot” on a workers’ compensation reform bill before it could even get a committee hearing. The bill’s sponsor is Speaker Pro Tem Jeff Morris, a top Democrat in the House. Several other Democrats have signed on as co-sponsors. Bender’s response: “We gave [Democratic leaders] a list of a number of bills that we don't think should be heard [in committee], those that should be heard, and we do that every session."

Bender also acknowledges that Democratic lawmakers can get “a black mark against them” for simply sponsoring or co-sponsoring a bill — like Morris’ workers’ comp bill — that labor opposes. In this case, Bender says the Morris bill is a “very bad bill for injured workers.”

Conway said earlier that business would have to find a compromise acceptable to labor before he'd give workers' comp reform a hearing. There are a lot of things you can say about the way legislative leaders have handled the issue this year. "Deliberative" is not the first word that comes to mind.

Time to Reset Public Employee Compensation

That's the theme of my column in the Puget Sound Business Journal.

Who'd have thought that New York Gov. David Paterson would agree with me?

TNT's Must-Read Editorial Supporting Workers' Compensation Reform

In this forceful and direct editorial, The News Tribune stands behind sensible reforms in our state's workers' comp system. Please read the whole thing.

A sample:

The state workers’ compensation system is simply unsustainable as is. All signs point to the need for reform – all signs, that is, except the signal coming from labor.

Another:

...the unions ... have people in powerful places in the Legislature. Rep. Steve Conway, a Tacoma Democrat who serves as secretary-treasurer for Local 81 of the United Food & Commercial Worker’s Union, is chairman of the House Commerce and Labor Committee that would handle workers’ compensation legislation.

Conway is refusing to hear any workers’ comp bills this year – not even the measure sponsored by his own speaker pro tem, Jeff Morris of Mt. Vernon. Conway says businesses will have to find a compromise that’s acceptable to labor before he’ll let it through.

As the editorial points out, the employer-supported legislation sponsored by Morris is mainstream.

Conway should let the bill be heard.

Getting the Jobs Agenda Right

At WashACE, we're pro-job. Not a bold stance, I recognize. With state unemployment at 9.5 percent, I reckon everyone is pro-job. Nationally, we've seen the conversation shift - I think 'pivot' is the term of art - from health care to jobs. Particularly middle-class jobs. Particularly if they're in small businesses.

I'm not sure if unemployed workers are that picky about where they're next job comes from a small business or a large one. And, of course, a lot of small businesses exist primarily as corporate suppliers or service businesses that depend on the customer base provided by major regional employers. But, quibbles aside, it's good to see jobs back at the top of the legislative agendas here and in D.C.

Last week, Wenatchee World editorial page editor Tracy Warner wrote a good column on government's role in job creation.

I wish government could create jobs at will. A vote, a law, the stroke of a pen, and there you have it — tens of thousands of people returned to gainful employment. If that is not the way it actually works, sometimes that’s what they want us to think. If only it could.

After noting the particularly tough employment conditions today, Warner notes:

If government could create productive jobs at will it would do a lot more of it. More often, the taxing-and-hiring schemes cost more jobs than they create. If these plans worked we could be happily employed filling in holes government hired people to dig. But, if government can’t create jobs itself, it can create the conditions and help supply the means for private business to create jobs, the kind of jobs that produce more wealth than they consume. It’s been done.

Surveying the landscape of current legislative proposals he identifies some good and not-so-good ideas.

Gov. Gregoire wants tax credits for small businesses hiring new employees. She wants tax incentives for private investment. She wants streamlined permitting and regulation. This will lower the government-added cost of hiring. Make hiring new employees less expensive and you increase the odds people will do it.

Senate Democrats today endorsed the governor's tax break. (Link is to Publicola; not yet up on Senate site.) UPDATE: LInk on Senate site here.

Warner's skeptical of some other ideas.

The “green jobs” gambit, the idea that government can create an entirely new industry by subsidizing uneconomical forms of energy production, has not worked elsewhere and won’t work here.

...Other plans have little more promise. Adding $860 million to the state’s debt load to pay people to insulate schools is unlikely to have as much positive impact as promoters contend. It will save $190 million a year in energy costs, they say, but with energy prices so low in this state, large returns are not easily found. And borrowing such sums is problematical.

I share his skepticism. And I'm a little less confident in the small business tax break. People hire when it makes sense to hire from a business perspective. But it might help. Of more help would be action to reform workers' compensation and mitigate the extraordinary unemployment insurance tax increases that just hit employers here.

Warner's conclusion sums it up well.

The old-fashioned, less photogenic means of government job creation still work. Build on our infrastructure — transportation, energy, education, basic research. Do all to remain fiscally sound and minimize risk. Keep taxes on employment low and predictable. Do that first.

Do that. And don't do this.