WashACE Blog

Two Pathways to Spending Cuts

In his column this week Richard Davis discusses two primary ways to reduce public spending:

• Cut programs and employee compensation, but continue with the state worker monopoly; and
• Make it easier to tap into cost-reducing benefits of competition by promoting privatization and contracting out of government programs and services.

As Davis reflects, Wisconsin's Governor Scott Walker is following the first way by demanding major concessions from his government workers and their union representatives. John Fund's Wall St. Journal column provides a great review and analysis of Walker's strategy, including the following insightful bit:

Labor historian Fred Siegel offers further reasons why unions are manning the barricades. Mr. Walker would require that public-employee unions be recertified annually by a majority vote of all their members, not merely by a majority of those that choose to cast ballots. In addition, he would end the government's practice of automatically deducting union dues from employee paychecks. For Wisconsin teachers, union dues total between $700 and $1,000 a year. 

From across the pond, the second way is attracting support. London's Daily Telegraph's Christopher Hope comments on PM David Cameron's promise of a "public sector revolution."

Cameron announced last week a soon-to-be-published:

...White Paper setting out our approach to public service reform. It will put in place principles that will signal the decisive end of the old-fashioned, top-down, take-what-you're-given model of public services. And it is a vital part of our mission to dismantle Big Government and build the Big Society in its place...

And to give our principle of choice real bite, we will also create a new presumption that services should be delivered at the lowest possible level. Working from this presumption, we will devolve power even further. For example, we will give more people the right to take control of the budget for the service they receive. In this new world of decentralised, open public services it will be up to government to show why a public service cannot be delivered at a lower level than it is currently; to show why things should be centralised, not the other way round.

Either way or both ways, Gov. Walker's argument holds:  Public workers shouldn't be benefiting disproportionately at the expense of taxpayers.

Initial bipartisan support for governor's state of the state priorities....

Looks like the early reviews of the governor's speech range from 3-1/2 to 4 stars. Some of that may be early session caution - there's a lot of time to sort details - and some the natural inclination to maintain a "we're all in this together" tone in the first week. As we've said before, there are no easy options left.

In my column this morning, written before the state of the state, I commend the governor for seizing the mic and framing the debate last week. Over at Olympia Business Watch, AWB president Don Brunell says the governor has set the right tone for the next 100 days.

In the Seattle Times, Andrew Garber notes the contrast with Gregoire's previous state of the state addresses and has these reactions.

Gregoire used her speech Tuesday to review an aggressive agenda for the session that, among other things, would revamp oversight of public schools, reduce pension benefits to save money, cut unemployment-insurance rates, and make users pick up more of the cost of parks and other public services.

...Democrats said the speech was about what they expected, and that it set the right tone.

...Republicans, who have complained over the years that Gregoire increased state spending too quickly when the economy was humming, said they liked the broad outlines of what she's proposing.

For the Associated Press, Manuel Valdes highlights the session frame: There won't be new revenues.

“As they struggle, [citizens'] view of government is pretty clear,” Gregoire said. “They want government to stay focused on its core services, live within its means, and use every taxpayer’s dollar efficiently and effectively.”

And as Peter Callaghan notes in The News Tribune, this week's revenue collection report offers little promise of a swift uptick in tax collections.

Other good stories in the Spokesman-Review and Issaquah Reporter.

Governor proposes regional ferry district ...

In what has become Gregoire's reform week, the governor today rolled out ... make that floated ... the idea of a regional ferry district, along with a proposal for consolidating information services. Here's the ferry district crux:

The governor will introduce legislation to create a Puget Sound Regional Ferry District to operate the ferry system. The district would consist of all or a portion of the following counties: Clallam, Jefferson, Kitsap, Island, San Juan, Skagit, Snohomish, King and Pierce counties. The district’s funds would come from fares, a state subsidy to fund a core level of service, and regional taxing authority to ensure service levels are consistent with local and regional needs.

The IT plan:

Her proposal would create a new “charter” agency, Consolidated Technology Services (CTS), to begin to privatize and further standardize the basic technology that state agencies use. The new agency’s guiding principal will be to procure whatever services it can’t provide internally, much like what occurs in the private sector. In order to do this effectively, CTS will be provided more flexibility to hire staff and procure materials and services outside of state government.

Initial coverage in the Puget Sound Business Journaland SeattlePI.com. The latter reports stiff opposition from a key caucus:

Democrats in the state Senate sent out a statement slapping down Gregoire's idea. Democrats control the Legislature.

"Our ferries are part of our state highway system, just like roads, rail and transit," the statement said. "Isolating the needs in our ferry system and creating another layer of government to address them is not the solution. Users of ferries already pay into the highway system just like everybody else when they pay gas taxes, in addition to ferry fares.

Commenting on earlier proposals this week, Crosscut's David Brewster asks, Does our state suddenly have a "reform governor"?  It's probably too early to tell, but she's off to a good start.

Catching up on the lost, last week of the year ...

This year I got a cold for Christmas. From what I hear, a lot of folks have caught lingering somethings over the last few weeks. I trust we'll all be fit and ready for action come the new year ... hope so.

At any rate, I have been a bit behind in WashACE blogging and want to flag a few issues for the record.

Brad Shannon reports that interest groups are again touting the idea of closing tax exemptions to get more money for programs that will otherwise land on the budget chopping block. The persistence of the myth of magic money represents a triumph of hope over reality. In the 2004 gubernatorial campain, candidate Chris Gregoire frequently cited billions of dollars in loopholes that should be closed. After the election, she recognized what most policymakers know: When you take a close look at the exemptions, the vast majority of them are justified.

Gregoire this year has a better idea, outlined in her recent Seattle Times op-ed.

We are breaking the silos of state government, eliminating duplication of services and modernizing our delivery. In doing so we've taken on a field of sacred cows.

It's a spirited defense of the budget she released earlier in the month. In a column for the Puget Sound Business Journal, I say that lawmakers will ultimately adopt a budget that looks much like hers. The fiscal realities dictate the outcome.

AWB president Don Brunell makes a related point in this column.

The lesson here is clear: Our severe fiscal crisis is devastating, but it can also provide opportunities to take a fresh look at what we do and how we do it.

For more detail on the governor's budget, check out this Washington Research Council analysis.

Earlier, I posted on the state auditor's concern with some $24 billion in unfunded liabilities. Yesterday, in a column in The News Tribune, I wrote more about the issue. It's critical that lawmakers began now to tackle this problem, which left unaddressed will have severe long-term consequences for the state.

As a final note on unfunded liabilities, the auditor released his Worker's Compensation Program Audit 2010, for which he identifies a $12.4 billion unfunded liability. A key finding and recommendation:

Contrary to state law (RCW 51.16.035), the Department has not proposed a premium
rate necessary to maintain the actuarial solvency of the Accident Account in accordance
with recognized insurance principles.
 
We recommend the Department adopt a premium rate necessary to maintain the
actuarial solvency of the Accident Account in accordance with recognized insurance
principles. 

This confirms the employer community's concerns that higher workers' comp premiums are coming. Unfortunately, voters rejected a sensible private option last month. They should get another look at a better alternative soon.

Budget fixes begininng to take shape

Gov. Gregoire has produced the outlines of a solution to the state's short-term budget shortfall. And, she has sketched the dimensions of the 2011-13 deficit. In a letter to legislative leaders Gregoire proposes cuts necessary to close the current deficit. 

Attached is an outline of Washington’s fiscal position for the remainder of this biennium, in addition to a series of proposals, including across-the-board cuts already imposed, to solve our current deficit of $1.14 billion. Not included in the material is the reopening of the collective bargaining agreements now in place for the rest of the biennium.

She then solicits there support for speedy action. Stories in the Seattle Times, Everett Herald, SeattlePI.com, The PI summarizes:

Among the things Gregoire, who has already asked state workers to reopen current labor contracts to find more savings, suggested to lawmakers Tuesday:

Delay financial aid funding to 2012 for State Need college grants, saving $76 million.

Eliminate the Basic Health Program on Feb. 1, saving $33.7 million

Eliminate state funding for more resources for grades K-4 on Sept. 1, saving $81.5 million.

Reduce the levy equalization -- by which poorer school districts receive additional funds -- by 6.3 percent, saving $18 million.

Eliminate the state-only food assistance program on Feb. 1, saving $9.6 million.

Eliminate the highly capable student funds for next year, saving $7 million.

The Seattle Times editorial this morning is unsympathetic.

Dear Legislature: This is what you get for dodging and fudging the problems of the state budget, and being so slow to act. You get a palate of unpalatable choices.

Deal with it. Now.

Incoming chair of the Washington Roundtable, Jim Warjone, offers guidance in an op-ed in the Times.

We all have a stake in the coming legislative session. We have a responsibility to engage constructively. That's why we at the Washington Roundtable, working with the Washington Research Council, have sponsored Thrive Washington to broaden the public discussion about how to achieve economic vitality and sustain essential public services.

I like the way he frames the issue.

Roundtable members have experienced challenges similar to those confronting state government. The global recession has taken a toll on virtually every industry. Survivors adapt.

Adaptation, however, requires a simultaneous commitment to reduce costs and maintain investment in the elements of business that determine ultimate market success. We've sharpened focus on core activities, outsourced operations that can be more productively handled by others, made difficult but necessary changes in employee compensation, abandoned lines of business, and trimmed head count.

A singular principle guides business leaders: What must we do to succeed in a competitive marketplace?

He outlines some steps recommended in the WRT/WRC Thrive Washington budget analysis. It's a good read.

The Stranger gets I-1100 right

Ordinarily we read the endorsements in the Stranger for the same reason we check in with the labor council, to be sure we vote the other way. At least most of the time. But the decidedly liberal alternative Seattle weekly has done a great job of dissecting the arguments surrounding the two liquor privatization initiatives, recommending a vote for 1100 and a no vote on 1105. (Note: following the link will take you to language and ads we do not usually expose our readers to.)

Here's the editorial conclusion:

Why should you vote for I-1100? It gets the state out of a business it does poorly and shouldn't have been in to begin with. The state frequently runs out of products, the stores are scarce and austere, they're closed more often than they're open, the selection is terrible, the state charges a 51 percent markup for a bloated system, and it's been this way since Prohibition.

The state legislature has considered reform for the past 13 years—each time capitulating to an employees union that told them to keep the same broken system (a union that makes money from that broken system). Granted, I-1100 isn't perfect; state and local governments could lose some money in the short term (tiny fractions of their overall budgets). But if you ever want liquor laws to change, don't wait for the beer lobby or a spineless legislature—because that will never happen. Vote yes on I-1100.

Clear enough.

An emerging editorial consensus supports I-1100's approach to liquor privatization

A weekend hat trick plus one for backers of I-1100.

They scored editorial endorsements in the Herald of Everett, The News Tribune, the Yakima Herald-Republic, and the Wenatchee World. It's somewhat arbitrary - all of the editorials are compelling - but let's give the World the last word.

There will be no alcohol-induced apocalypse if private industry, not government, profits from liquor sales. There will be greater choice and perhaps lower prices for consumers, and a state government with clean hands and a clean conscience. Overall, discarding the 1930s machinery will be a moral and economic improvement we should welcome with a yes vote on Initiative 1100.

Yes.

Initiative endorsements

For most businesses and business groups, the initiative rundown looks like this: Support I-1053, Oppose I-1098, Support I-1107, Support I-1100, Oppose I-1105, Support I-1082, and Oppose Ref. 52.

Some good arguments behind these positions have been advanced regularly in the editorial pages.

Here are a couple of the more recent editorials and commentaries.

The Seattle Times editorial board makes the case against Ref. 52.

The News Tribune endorses the private option in workers compensation insurance, supporting I-1082.

Also in TNT, business owners Toby Murray explains why I-1053's supermajority requirement is necessary.

The Seattle Times looks at who's funding I-1098, following the money to public employee unions investing in big government that pads their payrolls and pays union dues. 

The public gets it. The Seattle PI reports voters are likely to axe the soda taxes and reinstate the supermajority. Good.

Vote on I-1082 workers' comp poll

A majority of pundits voting in WashBucket's Pundits Poll say that it's time for Washington to be more competitive; that employers need more choices. With 42 votes in favor of privatizing Washington workers' compensation system, more than 76 percent of those voting support passage of Initiative 1082.

Liquor Privatization Moving Forward?

Washington Newswire's and Sherlock Holmes buff, Erik Smith, notices what isn't there in his column today in the Washington State Wire. In Silver Blaze the dog didn't bark. But, according to Smith,

...something just as singular happened over the weekend at all the Costco stores across the state. The signature-gathering tables for Initiative 1100 vanished.

Initiative 1100 would privatize liquor sales in Washington, something that Costco has supported for many years, according to MarketWatch. It quotes Costco CEO, Jim Sinegal,

"We serve our members in many states and around the world by selling them spirits, beer and wine at competitive prices," said Jim Sinegal, chief executive officer of Costco. "We should be able to do so in Washington State too, and other retailers should be able to similarly serve their customers. We are excited that Washington voters will be able to have a direct voice in determining these important policies."

I-1100 is one of two initiatives that challenges the state liquor sales monopoly. Initiative 1105, backed by liquor distributors, is also actively gathering signatures. "The main difference," says Smith, "is that 1105 would require retailers to buy from distributors, while 1100 would allow retailers to go around the middleman and strike deals directly with manufacturers."

Modernize Washington, campaigning for I-1100, says initiative changes will help the Liquor Control Board to be more effective in educating the public and combating alcohol abuse, collecting tax revenue and enforcing state liquor laws and end its "Prohibition-era monopoly" on selling liquor.