WashACE Blog

They're Back! Lawmakers Return to Olympia to Deal with Budget and Jobs

At noon on the ides of March, the special session began. The soothsayer's warning to Caesar should be heeded by taxpayers today and for as long as the session last. As legislative leaders scramble to line up the votes to pass a budget, struggling families and employers are at risk.

Austin Jenkins describes the process well at Crosscut, likening it to a business deal.

Once the size of the tax and spend boxes is established, the details of what to tax and what to buy have to be worked out. Some of the differences between the House and Senate are minor, but others are formidable. For instance, the Senate budget eliminates more than $100 million in K-4 class-size funding while the House mostly preserves it. On taxes, the Senate has approved a three-tenths-of-one-percent temporary sales tax hike while the House says the sales tax is a non-starter.

The trick for negotiators is bridging the budget and tax gap between the two chambers without jeopardizing too many votes in the process.

As Jenkins writes, the Senate budget and tax plans passed with the bare minimum 25 votes. We might expect that the no-margin majority gives the potential 25th vote on final passage considerable leverage. And we've seen how well that has worked in D.C., as health care trading led to the Cornhusker Kickback and a host of other unsavory deals. (You should also read Jenkins article for the rich treatment of the press conference at the close of the special session.)

The sales tax continues to divide Democrats. In The Daily News, Don Jenkins reports on Southwest Washington legislators favoring sales tax hikes. The group includes House Democrats who favor the Senate's sales tax increase.

Rep. Dean Takko, D-Longview, said Friday that a House-passed revenue package, which does not include a general sales tax increase, relies too much on "bits and pieces that hurt businesses."

"I think a small sales tax that's temporary spreads the burden out to more people and is fairer," Takko said.

And in the Kent Reporter, Reps. Dave Upthegrove and Tina Orwall write that the sales tax is not the answer.

Of all the possible ways the state could raise revenue, a hike in the sales tax is the worst possible choice. It is already regarded as a highly regressive tax that hits low and moderate income families harder, because they spend a larger proportion of their incomes simply buying the basics, such as clothing, shampoo, and school supplies for their kids. “Spreading the pain” should not mean balancing the budget in a way that hurts those on the lower end of the wage spectrum.

Hard to see a win-win, unless they do the right thing and scale back spending to minimize the tax hike.

Looking Ahead to Monday's Special Session

Expectations couldn't be lower for the special session if majority Democrats were a pick-up team of high school hoopsters facing the Kentucky Wildcats. For a good snapshot of the problems they face, read Sunday's Seattle Times profile of Sen. Rodney Tom.

Tom irritated many of his fellow Democratics — and diminished his power as a top budget negotiator — when he voted against his own caucus' budget and an $800 million tax package to pay for it.

Tom's dissent is just one example of the difficulty facing Democrats as they try to cobble together a menu of tax increases and cuts to close the state's $2.8 billion budget gap.

Democrats hold huge legislative majorities, outnumbering Republicans 61-37 in the House and 31-18 in the Senate. But that doesn't mean Democrats all agree on how to fix the budget. Some, like Tom, think they should cut more before raising taxes.

Read the whole piece. It captures well the internal conflicts in a fractious caucus.

The News Tribune's Sunday editorial calls this the legislature's last chance to show restraint, an accurate assessment though it comes with low probabilities of success. How low?

Biblical creation took seven days, including down time. Getting the Legislature to pass a responsible budget in the same time frame might take a miracle of similar proportions.

From the Creation narrative in the lede, the editorial writers show us a picture of a fiery finish.

The House’s outsized appetite for spending and the Senate’s willingness to tax could be a match made in taxpayer hell.

Democratic leaders still have time to listen to the moderates within their own party who want to see more reliance on cuts and less on tax increases.

But as the Times piece shows, moderates in the Senate may quickly be marginalized.

The Columbian editorial board, getting right to the point, comments on lawmakers tiring of smearing lipstick on their budget pigs. And then they get nasty:

But it now appears inevitable that lawmakers will decide on some kind of scheme for extracting more money from taxpayers at the worst of times: during the Great Recession.

“We had no other choice” might make some kind of sense if legislators had declared a fiscal emergency and renegotiated state union contracts as provided by law. But they did not. It might make sense if they had privatized the state liquor industry. But they did not. It might make sense if they had stopped granting steep increases in pay to state workers. But they did not. It might make sense if they had made state government smaller. But they did not, as evidenced by a Seattle Times headline: “Despite cuts, state spending actually on track to go up.”

Instead of austerity, the people got lots of lipstick, none of it pale pastels. Senate Democrats seem to favor the hideous hot pink of a sales-tax increase, apparently shunning the appalling purple of a state income tax. House Democrats prefer the putrid scarlet of a cigarette tax increase.

They close by citing other editorial criticism from around the state.

At AWB's Olympia Business Watch blog, Jason Hagey offers a good look at issues that may come back next week.

Nothing gets better for lawmakers as time passes, one reason I thought they'd somehow wrap up in 60 days. But, to quote the Columbian, they did not.

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Two Chamber Executives Call for Liquor Privatization

In The News Tribune today, Tom Pierson and Ken Oplinger, respectively heads of the Federal Way and Bellingham/Whatcom Chambers of Commerce, called for privatizing the state liquor system. 

Instead of increasing taxes to pay for record state spending levels that have not declined since the Great Depression, we believe the Legislature should allow the privatization of liquor stores.

...Getting Washington state out of the liquor sales business would ... likely result in more state revenues and create more jobs for Washingtonians as we have seen in other states that have converted to privatization of the liquor stores. A recent report by state Auditor Brian Sonntag found that “state revenue could increase by $130 million to $244 million over the return from the current operating structure, including one-time revenue.”

Efforts by Republicans and Democrats to privatize the system this year went nowhere in the regular session, blocked by union opposition. The Pierson-Oplinger call should be heeded.

Why the Last Hours of a Legislative Session Are Dangerous

The return of the Employer Gag Rule.

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.

State Worker Compensation Needs a Rightsizing

The Seattle Times reports today on state worker pay and how it compares with the private sector. The story won't settle many arguments. The most notable weakness is the reporters' inability to look at total compensation - pay and benefits - when drawing comparisons. They acknowledge the problem.

The Times did not compare state health-care plans and pensions to the private sector. Such benefits are a major part of total state employee compensation — about 30 percent, on average — but are difficult to put present-day dollar values on and even harder to compare across different employers and job categories.

I think the difficulty is overstated. As the Times story acknowledges up front,

State employees do receive benefits that are richer than those earned by many other workers.

Particularly when it comes to health care benefits, the data are clear. For example, a 2008 analysis by the Washington Roundtable found significant disparities between public and private sector benefits.

• Washington state employee health benefit  costs are higher than those of employees in  large, private firms.  Washington state employees covered by the Public Employees  Benefits Board (PEBB) had average total health  benefit costs in 2006 that were 5.8 percent  greater than per employee costs of other large  employers in Washington state. 

• Washington state employees contribute  considerably less to their health care  coverage than the average of state employees across the country. Nationwide, the average monthly contribution  of state employees for family health care 
coverage was nearly four times that of  the $49 monthly contribution made by 
Washington state employees in 2006.  

Direct job class comparisons can be difficult. But focusing on pay alone misleads. The Times offers a glance at state workers' benefits, but provides little in the way of direct comparison.

The Times editorial board continues to challenge the generous benefit packages offered state workers, urging the state

to reopen state employee labor contracts so that workers pay more than 12 percent of their medical premiums. Gov. Chris Gregoire says she wants to do this, and could reopen the contract but that she has no leverage over the unions. We believe she has plenty of leverage and is politically reluctant to use it.

The Daily News takes the same dim view of the status quo for state workers..

The contracts also give union employees more generous health benefits than most other state or private-sector workers enjoy. The state will cover 88 percent of the health costs, leaving just 12 percent of the costs for employees to pick up. An editorial in The Spokesman-Review of Spokane last week cited a study that found workers, on average, pick up about 24 percent of the costs of their employer-provided health coverage.

While the disparities exist, voters will be justifiably questioning the decision to raise taxes.

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.