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

Basic education funding task force releases final report to the Legislature

Ed system overhaul would include changes to teacher pay, additional class time

 

For immediate release – January 14, 2009

The task force that spent nearly two years reviewing Washington’s definition of “basic education” and the funding structure to support it has released its final recommendations for an overhaul of the state’s K-12 funding system.

 

The task force’s proposals start with a new definition of “basic education,” a definition that encompasses the state’s legal and constitutional obligation to fund kindergarten through 12th grade. The new definition takes a “start with the end goal in mind” approach that links graduation requirements with the program of education necessary for children to have a viable opportunity to meet those requirements, and gain an education that helps them be college or work ready.

 

“The new definition of basic education ties our expectations for our children to expectations for funding,” commented Rep. Ross Hunter, D-Medina, one of the legislators serving on the task force. “This is probably the most significant change and will affect school funding decisions for decades.”

 

The report goes on to recommend that the Legislature move from a finance system based on funding levels to one based on service levels. In other words, instead of deciding to send a district $1 million for class size reduction (a number that doesn’t say much about how many students-per-class that translates to), legislators would decide to fund 25 students per teacher.

 

The task force recommends that the Legislature:

·         Eliminate increases in teacher pay for obtaining degrees and instead reward teachers for earning certification and demonstrate competence through a new peer evaluation system;

·         Create a comprehensive mentoring program for new teachers;

·         Provide bonuses to schools that demonstrate growth in academic achievement;

·         Address district inequities by eliminating grandfathered salary differences and various levy lids;

·         Address the persistent achievement gap by providing resources so disadvantaged children will receive significantly more instructional time to help them catch up;

·         Increase accountability by requiring districts to use common accounting and student information systems to be provided by the state; and

·         Include early learning for at-risk students in the definition of basic education.

 

“This report is an extremely important step in finally creating a clear direction for education funding in our state,” said Rep. Skip Priest, R-Federal Way, who served on the two-year task force. “For too long the Legislature has failed to fund the fundamentals of education – special education, transportation costs, equitable salaries and books. This report focuses on funding our schools to match the reality of today’s classrooms, special needs in each district and preparing students for the competitive global marketplace. I am also incredibly proud that our task force recommended enhanced early learning opportunities for low-income students. This will help ensure all students have an equal shot at success, regardless of their backgrounds or the career paths they choose.”

 

Rep. Pat Sullivan, D-Covington, says it’s now up to the Legislature to take action. “The charge of this task force was enormous – redefine basic education and rewrite the way we fund it to guarantee we fulfill our promise to every child in this state. We delivered. Our proposal will make substantive improvements in our schools, in our classrooms, for our children. Now it’s up to the Legislature to turn these recommendations into reality.”

 

The full report can be found online here. Legislators have also prepared a summary that can be found online here. The Legislature will ultimately have to approve any of the recommended changes.

 

The 2009 legislative session began January 12 and is scheduled to run 105 consecutive days.

 

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Contacts:                   Rep. Ross Hunter – (360) 786-7936 or hunter.ross@leg.wa.gov

                                    Rep. Skip Priest – (360) 786-7830 or priest.skip@leg.wa.gov

                                    Rep. Pat Sullivan – (360) 786-7858 or sullivan.pat@leg.wa.gov

                                    Rep. Glenn Anderson – (360) 786-7876 or anderson.glenn@leg.wa.gov

Media Staff:               Jaime Smith for Democratic members – (360) 786-7631 or smith.jaime@leg.wa.gov

                                    Bobbi Cussins for Republican members – (360) 786-7252 or cussins.bobbi@leg.wa.gov

 

Viaduct Proposal – Deep Bored Tunnel

Governor Gregoire announced a proposed solution to the viaduct problem today, and I think she’s got the best of a bad bunch. Click here for her press release. She proposes building a “deep-bored” tunnel under Seattle. I’ve tried to stay out of Seattle’s design decisions because that keeps their members from messing around in Eastside design decisions. The viaduct decision affects us in a number of ways:

1. Consumption of money. There is only so much money available, and if more of it is consumed building a tunnel under Seattle then less is available for the SR-520 project or I-405. I am not fond of this approach unless it is funded with tolls in the tunnel, and most likely tolls on the viaduct during construction. I will vote to toll this project.

2. Diversion of traffic. I believe this proposal provides enough throughput that we won’t see significant diversion to I-5 and I-405. The street-level proposal is terrible – it would shift a lot of vehicles to the Eastside. This position is not held by everyone; some believe that the cars and trucks that travel north-south would largely vanish. I don’t believe this to be true in a large sense.

3. Screwing up Seattle. Many of the projects cause significant disruption in downtown Seattle. The business community there is concerned that large-scale construction on the waterfront would effectively shut down large portions of downtown Seattle for 4-5 years. They are probably right.

On balance, I like this proposal, as long as it’s tolled, and as long as we are guaranteed that the tunnel will be built, and we don’t just stop after doing the street level work. The plan, as I understand it today, is to leave the Viaduct up until the tunnel is done, which should work for us on the Eastside.

Seattle Times Article

Seattle PI Article

Worth Reading

Michael Lewis (Liar’s Poker…) has a great op-ed in the New York Times this week about the total lack of adult supervision in the other Washington and the culture that makes getting along with Wall Street more important than actually regulating them. It’s awful to think that this kind of behavior is what has caused the budget disaster we face in Washington, and the impact it will have on kids, seniors, and our entire safety net.

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html

2009 Legislative Agenda

This year will be particularly difficult due to the national economic disaster. Unlike the federal government, Washington is required to have a balanced budget. Our budget situation is dire, and will require dramatic measures.

I try to be organized about how I approach a legislative session, particularly one as difficult as this is likely to be. It’s easy to lose track of where you are and what you want to get done. While there are lots of small items I’m working on, these five rise to the level of weekly review.

First, we have to deal with the budget problem. This is both a tactical problem of responding to the national economic disaster and a strategic opportunity to re-focus state government on what it’s good at and get it out of the business of things it’s not good at. This budget will be incredibly painful, and will hurt a lot of the people I came to Olympia to champion, but we will do what we have to do to have a sound financial footing for the state. We will come out with a leaner government focused very carefully on our priorities. We’ll prioritize the parts of the budget that are investments in the future like education, and we’ll try our best to preserve the safety net for the most vulnerable: seniors, at-risk kids, and those who are displaced by the crazy national economy through no fault of their own.

Second, we have to deal with one of the strategic priorities for the state: education funding. Our constitution is very clear that education is our paramount duty. I’ve been working with a bipartisan group of legislators for the last 18 months to pull together a plan that changes our current system from an opaque, confusing, overly complex and inadequate set of formulas to one that is much more transparent and simple — a system that clearly delineates what we need to fund and how we should do it. This will be my major policy effort this year.

Third, it’s not often that you get a chance to play an important role in one of the pivotal moments in American History. This year is one of those — America has the opportunity to shift our economy to be much less dependent on foreign oil and at the same time shift to an economy that doesn’t contribute to the global warming problem. States have a responsibility to be part of the solution. Washington will have an opportunity this year to be part of the Western Climate Initiative, a joint effort of the major states in the west and big chunks of Canada. Doing a “Cap and Trade” system right is an opportunity for major changes in energy use and climate change, but is also an opportunity for one of the biggest transfers of wealth from consumers to polluters in history if done wrong. Getting the details right on this is crucial, and I’ll be following it closely.

Fourth, we are in the middle of a set of transportation decisions that are crucial for our district: the 520 bridge plan, how tolling will work, the viaduct, and keeping the focus on 405 work. We have to make sure that decisions on the Seattle side don’t push up the costs (and thus the tolls) beyond what we can afford, and we need to get it done. Now that Sound Transit Phase 2 has been approved we need to make sure it makes sense for the Eastside. I’ll be pushing for them to start over here with the section from Bellevue to Redmond. This enables us to link up with the BNSF line north through Redmond, avoiding the difficult Kirkland route, and will help drive the redevelopment of the Bel-Red corridor. More on this in the next update.

Finally, there are a number of wonky tax policy efforts I’ve been working on for a few years that will come to fruition this year. It’s not an optimal time to make changes in the tax code, but we should do these anyway. As more and more of the products we buy become digital, the tax code needs to grow and change to reflect this and to maintain fairness across different means of distribution. I’ve spent 18 months leading a joint effort with the business community to change the tax policy here and expect to pass a relatively non-controversial bill this year, even though it’s a pretty big change.

Global Warming – Cap and Trade?

Last year the legislature instructed the governor to negotiate our entry into the Western Climate Initiative (WCI) and come back with a plan we would have to approve. She has, and now we get to make some very big choices for Washington and the rest of the country. The WCI is a “cap and trade” system, a way of using market forces to control the amount of carbon we emit, and consequently the amount of global warming we create.

A cap and trade system puts a cap on the amount of carbon that can be emitted by creating a set of “allowances.” You can think about these as pollution permits. If you’re going to emit carbon you need a permit for the amount you generate. These permits can be bought and sold, and in a pure system we would auction them off, effectively setting a price for carbon emissions. The polluters who can most cheaply limit their emissions will do so, and will buy relatively few permits. For some companies it will be much more difficult. They’ll buy more permits.

Since half of the carbon emissions in WA come from transportation uses, this will affect all of us individuals too. The permits would have to be purchased by fuel importers, raising the price of gasoline and diesel.

Over time the number of permits would be reduced, causing the price to rise. We may not be able to completely eliminate emissions, but we can take a big whack out of them. The rub here is that the price may rise quite high. This would generate a LOT of revenue for the state, and create huge pressure to spend the revenue on all kinds of things tenuously connected to climate change. I propose sending the money back to taxpayers as a “climate dividend.” We would then be just changing the relative price of things to incorporate the actual costs carbon emmissions cause for the rest of us, but not extracting revenue from the economy.

There are a lot of technical details in designing a system that would actually work. I’m concerned that in trying to do the right thing here we may inadvertently create the biggest transfer of wealth from consumers to polluters in the history of mankind. I will be pushing for a very “pure”
system, and won’t vote for one that looks more like a pork barrel than a climate change proposal.

For more information on this I recommend the overview of cap and trade systems published by Sightline, one of the wonkier thinktanks in WA. I love the work these guys do, and can’t recommend them highly enough.

http://www.sightline.org

Unwinding the Stadiums

Lo these many years ago the Kingdome was created, and it was good… but only if you liked watching baseball in a concrete mausoleum. Since then we’ve built Safeco Field, Qwest, the remodel of Key Arena, and a convention center. The Kingdome was blown up, but the taxes that paid for its new roof are still going on. Sometime in the middle of this timeframe funds were carved out to support the arts in King County.

All these taxes end in the next 10-15 years and a large crowd of people who think they know exactly how to spend the money has formed. Some of the taxes expire, some continue, and some should expire, but don’t.

I co-chair a committee responsible for working our way through the swamp and making a proposal of what we should do. I don’t have consensus on the committee yet, but my personal preferences are pretty simple.

  • The state should not be funding special projects in King County with statewide taxes, unless the facilities are really of value to voters in the rest of the state.
  • The jurisdiction in which the taxes are collected should make decisions about the taxes — should they continue being collected and if so, what should they be spent on?
  • We should be good landlords for the buildings the public owns, making sure that enough money is dedicated to maintenance to avoid the problems we’re having with Key Arena.
  • Some of these taxes should end. Every decision we make here will sunset and require renewal by the legislature at some point in the future.

I’ll try to build some consensus in the committee before we get back to Olympia in January, but it’s a difficult project. I’m open to feedback — should we fund:

  • Husky Stadium remodel ($150 mil)
  • Community preservation in the international district ($3 mill/year)
  • Key Arena ($75 mil)
  • Federal Way Performing Arts Center ($25-30 mil)
  • Convention Center expansion (lots)
  • Continuing support for Arts in King County ($10 mil/year)

Initial Thoughts on the Budget

At the time I write this the national economy is in free-fall, with banks and other businesses failing right and left. The car companies may be next. So far the two biggest employers in WA — Boeing and Microsoft — are still in good shape, but there are concerns if the overall economy is in a funk.

The federal government does not seem to have even the faintest connection between tax receipts and expenditures. They are spending a trillion here, a trillion there, everywhere a trillion. My calculator doesn’t go this high. With a trillion dollars you could give every high school student in America a full-ride four year scholarship, or you could pave the entire interstate highway system with gold. Someone actually figured this out.

Like both my family and yours, Washington state does not have this freedom. We have to balance our budget. The decline in consumer confidence has devastated our sales tax receipts, and the housing meltdown has had a huge impact on our real estate excise tax receipts.

The current forecast predicts a $5.1 billion difference between expected revenue and “planned” expenditures. What is included in the “planned” expenditures trend is open to lots of interpretation, so you will hear lots of different numbers around this. All of them are probably reasonable interpretations, and ALL show that we have a horrendous problem. We could have dealt with the $2-3 billion shortfall we expected with relatively little pain, but this much larger shortfall will require major surgery.

Washington does a 2-year budget, so the biennial numbers tend to mask important things. The budget in the second year of a biennium is usually larger than the first year. The forecast for the first year of the next biennium (fiscal year 2010) actually declines about 4.5% from the last year of the current biennium. This is not a common occurrence, and is significantly worse than the short recession we faced in 2001-2003.

Governor Gregoire’s budget proposes pretty drastic cuts in many key services. Overall I like her prioritization choices, though I’m unhappy about the level of cuts in some areas I care about a lot. (This is not unique to me – everyone hates their stuff to be cut and wants everyone else to take all the pain.) My biggest concern is that I fear she has understated the problem pretty significantly.

First, her budget assumes $1.1 billion in federal largess. I hope the federal governemnt realizes that the states can be part of the solution for the economic stimulus, but I worry about depending on a particular level of funding. If we get none, or if we don’t know how much we get we will have to cut another $1.1 billion. Second, there is an assumption of a change in the pension actuarial system that “discovers” $400 million in money we don’t need to contribute to the pension system. I was opposed to this change in 2003 and am opposed to it now. I think it adds significant risk in the out years that I don’t want us to take. Lastly, I think we need at least $1 billion in an “ending fund balance,” the money we leave in the bottom of our checking account if things don’t turn out how we plan. This is a judgement call, and I am very concerned on the downside.

We’ll look at all of this as we write our version of the budget, and we’ll benefit from knowing more about the federal intentions.

We will come out of this with a significantly leaner government. I hope that it will be one that tries to do fewer things well, rather than one that insists on doing many things poorly. I will work on this.

Seat Belts in School Buses

I reacted the same way many of you did when I heard from my son about the Bellevue High School football team bus rolling over – I was horrified. We followed the news all afternoon via phone from the Tacoma dome where he was waiting to photograph the game. (Check out his pictures at www.jackhunterphoto.com. I don’t do many commercial plugs in my newsletters or blogs, but hey, it’s my kid!) The players all had their pads on and thankfully nobody was seriously hurt except for superfan Gary, who’s still recovering. Two coaches were thrown from the bus.

Continue reading “Seat Belts in School Buses”

Basic Education Funding Task Force

I’m a member of the Basic Education Financing Task Force (BEFTF,) a group appointed by the legislature and the governor to try to re-write how K-12 education is funded in Washington. This is the reason I originally ran for the legislature in 2002, and has been a very long term project for me. The current system is dysfunctional – it’s so complex that very few legislators actually understand it, increases in teacher salaries from Olympia cause huge financial problems for local districts, and the many small buckets of money require districts to spend a lot of time doing the accounting work to track where it goes. We are also dependent on local communities paying for large parts of what anyone would call a “basic education” instead of the state, who has the constitutional responsibility for this.

Continue reading “Basic Education Funding Task Force”