Category: Budget

Changes to Sales Tax Resale Certificates (SB 6173)

The Senate budget assumed a change in how sales tax resale certificates worked. As the bill implementing this idea came over from the Senate it made substantial changes to how resale certificates work for retailers and wholesalers (which was fine) but also made a change I found punitive to how resale certificates worked for contractors and builders. The final bill is described below and is a much better process. I believe it will result in significantly less sales tax avoidance without significant negative impacts on our beleaguered building industry.

We estimate that the bill will fix at least $100,000,000 (one hundred million dollars) of illegal tax avoidance.

I worked with my Republican counterparts Rep. Ed Orcutt and Rep. Cary Condotta, the Associated General Contractors, the Master Builders, the Building Industry Association of Washington, the Association of Washington Business, the Independent Businesses Association, the National Federation of Independent Businesses and a host of others in reviewing the results. These associations, while not wildly excited by the bill, do not oppose the final product as it passed the House. The vote was 86-9, with a substantial bi-partisan majority.

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Tuition Increases?

The Seattle Times wrote an interesting article in this morning’s paper about the budget question facing us about higher education. Both House and Senate proposals do terrible things to the higher education system in Washington. It’s worth the read. We have to decide if we want to allow the universities to raise tuition, or just continue to reduce the state’s investment in higher ed – something that will have devastating long-term consequences for economic competitiveness of the state if we do so.

http://seattletimes.nwsource.com/html/education/2009063657_tuition16m.html

HB 2343 – National Board Certification Bonus

HB 2343 does a number of ugly things to the K12 system as part of the terrible, devastating budget cuts to education and everything else the state does. One of the proposed changes is to permanently eliminate the inflation adjustment to the bonus we pay to teachers who have achieved National Board Certification. I do not support this change. I will attempt to amend the provision out of the bill. While we are not able to provide the cost of living adjustment in this year’s budget, we should re-start our commitment next year. The bill is permanent. My amendment makes it temporary for this budget only.

The National Board system is the one performance-based element of our compensation system. There is reasonably strong experimental evidence that students who have a National Board certified teacher learn 7-14% more material in a given year than students who have a similarly situated teacher who is not certified. I worked for 5 years to get this element into the law and will work equally hard to keep in play. We cannot expect teachers to make the investment in the training and the extensive application process if we are going to frequently change the availability of the funds for the bonus.

For more information on the bill click here.

Misc. Budget Notes

I’ve answered a lot of mail on the budget so far. Some items come up over and over again – Adult family homes, family planning funding, Children’s Hospital, and the State Auditor and his I-900 audits. Here are some notes on these things.

Family Planning

There has been about $10 million in the state budget for family planning services. Since the state pays for 57% of all births in the state, increases in the ability of couples to plan for when they will have a child can save us a lot of money – this is a reasonable investment, and with a short return timeframe (9 months.) The $10 million has been in the budget to backfill a federal cut during the Bush administration. We’re expecting the feds to restore this cut in the 2011 budget. Our money is in the first year of the biennium, with the expectation that we’ll come back next year and put the money back in if the feds don’t come through.

Children’s Hospital

The original budgets had a provision that had a disproportionate effect on Children’s Hospital and the Seattle Cancer Care Alliance (theOutpatient Prospective Payment System.) These facilities interact differently with Medicaid than “regular” hospitals do, and one of the cuts seemed to have an overly large cuts to children’s and SCCA. We’re still working on fixing this. Something was done to help Children’s in a different way which somewhat mitigates the problem, but that is not to say that the budget doesn’t affect Children’s and SCCA – we make devastating cuts to our healthcare safety net in order to deal with the most dramatic economic downturn since the great depression.

Adult Family Homes (AFHs)

AFHs are part of the network of businesses that provide long-term care for our seniors and those who are disabled enough to not be able to care for themselves. Our support ranges from paying for individual providers of home care services, adult family homes, nursing homes, skilled nursing facilities, etc. We have a Medicaid responsibility to provide this care in nursing homes, which are very expensive. Most folks would prefer to have care at home, in a small facility, or somewhere in their community rather than go to a nursing home, so we apply for several federal waivers to allow us to provide care that’s lower cost and more popular with the recipient. We provide about half of the money and the federal government provides half.

We try our best to be balanced and cut all of these providers about 5% in their reimbursement rate. The federal stimulus plan provided some additional short-term funds which we apply to this part of the system. Before we used this money it was 14%.

I-900 Audits

The auditor started up his performance audit program after the passage of I-900, an initiative I supported. It took some time for him to expand the program to the level provided for in the initiative, a reasonable measured approach. He didn’t use all the money the initiative provided in the early years of this program, and we use some of that to rebalance the current budget shortfall. We fund his entire current workplan, but are trying to share the overall budget cuts fairly across the entire government operation.

Hobbesian Choices

The chairs of the House and of the Senate budget committees both introduced their budget proposals this week. The committees will vote on them soon, though none of us can say exactly when at this point. Typically the bills are introduced and passed in about 3 days. The minority party always whines that they don’t have enough time to even read the bill before it passes. Not this year. It’s not clear to me that we have the votes to pass the budget in the House Ways and Means committee, nor is it clear in the Senate.

Both budgets make deeper cuts than we’ve seen since the early 80s, and would be like we saw in the depression if it were not for the federal stimulus plan. Our revenue projection would be almost a billion dollars lower if not for the plan’s predicted effect on the economy, and there is about $3 billion in direct aid to the states. It all comes with stringent rules for its use (“strings”) and is hard to track in the budgets.

For the first time in modern history, this budget is less than the previous 2-year budget, by about $1 billion. This is despite significant inflation in the costs we face and increases in population. For example, there are more students in public school, and not just because of population increases. When the economy tanks, people transfer from private schools to public ones, increasing the caseload even more. This happens in other areas too – our Medicaid caseloads are up, as are many other costs of providing the same services we did last year.

What this means is that we won’t provide the same service we did last year. Current budgets include:

  • Raising class sizes and laying off the teachers. We’ll lay off 3-5 thousand teachers from the 728 program. The senate budget cuts it more.
  • Eliminating support for 10,000 “slots” in higher education. This is 10,000 fewer students in Washington that will be able to get a college education.
  • Cutting much the Basic Health Plan, a program that provides health care to low-income working adults.
  • Reducing the rates we pay to nursing homes that take care of our low-income elderly on Medicaid. We squeeze these pretty hard, and they’ll get squeezed harder by this. It will be harder to find a nursing home or other long-term care facility near your home, particularly if you are in our district where the real-estate prices are high.
  • Laying off thousands more workers in other parts of state government.

I can go on. You can find the budgets online if you want, or you can read the news stories about what we’re cutting in the papers, should we still have any next week.

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Updates to Basic Ed Financing

The Senate released their budget yesterday. The House releases its today. I’ll opine later on the differences. Both are mostly no-new-revenue budgets. The Senate packages up closing some tax loopholes. The House comes out later this morning so I can’t comment on it now.

Both bodies have passed a version of the Basic Education Finance Task Force bill. The House bill was the stronger of the two. HB 2261. You can get details here:  http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2261&year=2009

Our staff has written an analysis of the two that may prove helpful.

summary-of-sen-striker-to-2261 is a short summary of changes made to the senate bill in committee.

comparison-house-senate-as-passed-comm-2 is a longer summary of the differences between the original House bill and the bill as it passed out of the Senate Education committee yesterday.

We still need to decide what form the bill will take in the end game and how we convince the Governor to sign it. There is much resistance to a bill that creates serious stakes in the ground for education.

Possible Budget Choices – Criminal Justice Costs

For the past 15 years we’ve been on a trend of increasing the number of incarcerated people. We now lead the world in the percentage of people in jail. It costs the state an average of about $30,000 per year to put someone in prison, plus all the costs of the courts and police/sheriff. Sometimes this makes a lot of sense, and sometimes it does not. The 2003 Washington State Legislature directed the Washington State Institute for Public Policy (WSIPP) to determine if there are changes to Washington’s sentencing structure that could reduce costs without endangering public safety. WSIPP is a non-partisan research agency that does this kind of scientific analysis of policy questions for us.

Here’s their conclusion: (full study here)

We find that some evidence-based programs can reduce crime, but others cannot. Per dollar of spending, several of the successful programs produce favorable returns in investment. Public policies incorporating these options can yield positive outcomes for Washington. We project the long-run effects of three example portfolios of  evidence-based options: a “current level” option as well as “moderate” and “aggressive” implementation portfolios.

We find that if Washington successfully implements a moderate-to-aggressive portfolio of evidence-based options, a significant level of future prison construction can be avoided, taxpayers can save about two billion dollars, and crime rates can be reduced.

This is necessarily a political activity. Competing editorial voices will weigh in. For example, John Carlson has an op-ed that ran in a variety of places decrying a bill that would “gut” the 3-strikes law. (Link here to Bellevue Reporter version.) Neal Pierce, a reasonably moderate voice, calls out for smarter thinking on community corrections as a way to save money. (Full article here.) Washington’s incarceration rate is significantly lower than the rest of the nation, but we should still look carefully at this. The Seattle Times weighs in in opposition to Carlson, but did print his op-ed. (Times Editorial here.) Full disclosure: Carlson was the prime force behind the 1993 initiative that put 3-strikes in place.

There will be a lot of noise about this, and I will get many letters on both sides of the issue. Getting to the right place, where we balance public safety with the costs of incarceration is too important to leave to pure political noise. Not wasting money is not being “soft on crime.” Letting too many people out because we’re not willing to pay the costs of the criminal justice system is equally silly. We should also make sure that when we consider the larger issues that affect the state we also consider the effects our decisions have on counties and their costs. We change the burden on them, but don’t give them the revenue options to deal with the costs we impose.

The world is a complicated place. It’s important that we not view it as just black and white. It’s not.

 

February Revenue Collections Report

We got more bad news on the economy last week – another $63 million decline in the collections data. This was the month of Dec 10 – Jan 10, a very important period in our retail sales data.  Our total decline for the 2nd quarter of fiscal year 2009 (Oct, Nov and Dec 2008) is almost $200 million. This is on top of the decline in the November forecast. As you can expect, we’re very concerned about the implications here, both for the current fiscal year and for the 2009-2011 budget that we start working on next.

You can read the collections report here: http://www.erfc.wa.gov/pubs/feb09.pdf.

About 2 weeks ago I provided guidance to our budget team to use the pessimistic prediction from our November forecast as the baseline from which to start the budget effort. This means that we assume that the economy will produce $1.9 billion less in tax revenues in the 09-11 biennium, and another $300 million in the current fiscal year. The $200 we’re already down, with 6 months to go leaves me concerned that this may not have been pessimistic enough.

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The News Tribune covers Basic Ed plan

Peter Callaghan wrote about our tremendous hearing in the House yesterday. We had 120 people testify, of whom only 13 were opposed. The most amusing juxtaposition was when a panel of 4 superintendents delivered a letter from all 35 school district superintendents in the Puget Sound region endorsing the bill was followed by the director of the WA Association of School Administrators opposing it. The 35 districts in Puget Sound have about 40% of the students in the state. 🙂

We have a lot of work to do on the bill still and will report on it as we go, but Peter Callaghan’s piece is nice coverage.

http://www.thenewstribune.com/news/columnists/callaghan/story/609854.html

Taxable Retail Sales

Taxable Retail Sales Decline
Taxable Retail Sales Decline

Cindi Holmstrom, the Director of the Department of Revenue, sent me this chart and the associated comments last week. It’s a sobering indicator of economic conditions.

Taxable retail sales provide a strong indication of the economic conditions in the state of Washington. The chart below illustrates the decline in retail sales tax collection over the past 3 years. Also included for the same period are auto sales and construction activity which make up a significant portion of our taxable revenue base in Washington.

All three categories are showing a year over year decline starting in late 2007