Olympia Business Watch

Olympia Business Review - Episode Seven: Post Session and Election

In episode seven of the Olympia Business Review, Richard Davis and Gary Chandler join us to discuss the aftermath of the 2008 session and AWB efforts as the 2008 election draws near.

Issues covered:  The economy, budget, taxes, property taxes, family leave, health care, captive audience, climate change, 2008 elections, endorsement process. 

For more information about this, check out our website at www.awb.org.

To download: Click Here

 

Loss of Math & Science Money Decried in the Columbian

By now you know about the lost $13.2 million in grant money to improve math and science education. In his column in tomorrow's Columbian (online today), Don Brunell takes a critical look at what happened.

The NMSI sponsors wanted to pay teachers directly, but Washington’s collective-bargaining laws require that teacher pay be negotiated between the teachers union and school districts.

Since that didn’t work, NMSI pulled the plug, and our teachers and kids got shot in the foot.

Washington Education Association leaders traditionally oppose differential and bonus pay. Instead, WEA continues to pour big bucks into expensive media campaigns to tell voters they just need to pony up more taxes for schools.

Read the whole thing. And if you think that's tough, here's the Columbian's editorial view on it (scroll down to the second item "jeers."

In our state, though, the union wins while students and teachers lose. For sheer accuracy, someone, please, take the “E” out of the WEA.

Yikes.

More on Washington's High Business Taxes

The Washington Alliance for a Competitive Economy - a partnership among AWB, the Washington Research Council and the Washington Roundtable - takes a closer look at the recent COST study of business taxes. (Don Brunell noted the COST study here.) In a report released today, WashACE finds that taxes on business have increased since 2002.

... the effective tax rate on Washington businesses was 5.8 percent in FY 2007, up from 5.6 percent in FY 2002. Over this 5-year span, however, the average effective state and local tax rate across the country grew from 4.5 to 5.0 percent. As a result, Washington’s ranking
actually improved from 11th highest in FY 2002 to 14th highest FY 2007.

The business share of all state and local taxes remains high here.

businesses paid 51.0 percent of Washington’s total state and local taxes and ranked 13th highest among the states for business’s tax share. The nationwide average business state and local tax share was 44.1 percent....In FY 2002 Washington’s business tax share was 53.2 percent, which ranked 9th highest; the nationwide average was 43.4 percent that year.

The volatility of the corporate income tax explains some of what's happening nationally.

The greater business tax revenue growth in other states vis-à-vis Washington is largely the result of income taxes. Nationally, state and local revenue from the economically sensitive income taxes on business income nearly doubled from FY 2002 to FY 2007, as the economy moved from the trough of the business cycle to the peak. Washington, of course, has neither a corporate nor a personal income tax. Nationally, business taxes other than income taxes increased 37.5 percent over the five-year period, nearly the same increase Washington experienced in business taxes overall.

As the WashACE report notes, we've not changed tax policy to become more competitive. The change in our ranking largely reflect the business cycle.

As the economy cools, corporate income tax receipts are now falling in a number of states. ...When COST calculates business tax burdens for FY 2008, Washington is likely to move back up in the rankings.

May Revenue Report is Up and Revenues are Down

Today's report on state revenue collections showed a weakening in tax payments for the April 11 - May 10 collection period. The Economic and Revenue Forecast Council monthly collections reports provide a good real-time indicator of the state economy and how it's affecting state revenues. Based on this, the likelihood of an upturn in the June forecast seems even more remote than it did a month ago.

Excluding special factors (this month’s accounting adjustment and last month’s unclaimed property transfer), collections are $43.7 million (-3.7 percent) below the forecast for the month and are cumulatively $13.6 million (0.5 percent) less than expected for the three months since the February 2008 forecast.

This is interesting.

Only two retailing sectors reported good gains: drug and health stores were up 8.3 percent and payments from gas stations & convenience stores increased 7.5 percent.

And this is troubling.

The Washington economy lost 3,200 payroll jobs in March 2008. Despite the drop, March wage and salary jobs are still 1.5 percent above the year-ago level. The state’s seasonally adjusted unemployment rate, however, jumped from 4.5 percent in February to 4.9 percent in March.

That $2.5 billion hole may be deepening.

Vancouver Chamber Magazine on Competitiveness: Washington's Business Tax Burden Hampers Competitiveness

The Greater Vancouver Chamber of Commerce has developed a first-class chamber publication.  Give President Beth Quartarolo a lot of credit.  In this month's issue, the Chamber tackles the competitiveness issue.  It asks: Is Washington at the Tipping Point?

In his book Tipping Point, author Malcolm Gladwell points out:

"Tipping points are "the levels at which the momentum for change becomes unstoppable. Gladwell defines a tipping point as a sociological term, "the moment of critical mass, the threshold, the boiling point."

Vancouver and other border county businesses feel the differences between Washington's "gross" (based on income, not profits) vs. Oregon's "net" (based on profits) tax systems every day. Since Washington voters have rejected calls for an income tax to replace the state's B&O tax since the state's Supreme Court tossed out Washington's state income tax in 1936, the chances of changing our state's tax structure are pretty slim.  Therefore, Washington elected officials need to control the level of taxation and with lawmakers facing a $2.5 billion deficit in January, the question of "tipping points" becomes central for those job providers in the private sector.

Here is the Greater Vancouver Chamber's take on the tipping point from its May 2008 Chamber News (the cover feature of the magazine): 

"With Washington ranking 10th highest in the nation for business's share of state and local taxes, with business responsible for 52.9 percent of the total state and local tax burden compared to a national average of 44.9 percent......We need to recognize that some place along the line, taxpayers will reach a tipping point where they simply can't afford to stay in Washington."

Those statistics come from the Washington Alliance for a Competitive Economy (WashACE) 2008 Redbook comparing more than 50 competitiveness cost facts for states.

The Chamber hit the nail on the head.

Don C. Brunell, President (DonB@awb.org)

Electing vs. Appointing Judges: Another State's Take

A hot issue here in Washington and across the country is the selection of judges, especially for state Supreme Court.  Here in Washington, like several states, we elect our supreme court justices in non-partisan statewide elections.  The issue has become interesting enough that it has penetrated into pop culture, largely thanks to John Grisham's latest top-selling fictional foray, "The Appeal," which is about a tawdry effort to elect a state Supreme Court Justice to influence the outcome of an appeal.

Especially after years like 2004 and 2006, where we had a couple high-profile, expensive, and acerbic races, much ado is made about campaign money and special interests tainting the election of officers to what's supposed to be a politically independent branch of government. 

Hence a gravitational pull amongst some bar leaders toward ideas like public financing of judicial campaigns and "merit selection," a form of selecting judges that a number of other states employ.  It goes something like this: a citizen's commission interviews and endorses a slate of nominees to the Governor who makes an appointment to the bench.  The judge then runs, on an up or down retention basis, after a given term of service.  Last month's issue of the Washington State Bar News is devoted to a debate on the merits of merit selection, with the "majority report" of a Judicial Selection Task Force arguing decidedly for a merit selection approach to seating Washington judges.

Which is all a long introduction to a short piece in today's WSJ about Tennessee.  They've had merit selection in place for awhile.  And the results confirm the fears of those who favor elections rather than appointments:

Intended as a way to keep politics out of judicial selection, the method has instead given disproportionate influence to the state trial bar and tilted state courts leftward. . . .

Instead of diluting the influence of politics over the courts, the system has aggravated it so much that even Democratic Governor Phil Bredesen has had enough. The commission has sent him the same nominee repeatedly in an effort to shoehorn a favorite son onto the state's highest courts. Concerned that the best candidates weren't put forward, the Governor in 2006 said he was "taken aback by the game-playing" of a commission "trying to force people down my throat."

The Journal's view?

The Tennessee plan was conceived as superior to the political brawls of states that elect their judges directly. But special interests have ended up more empowered than ever in a system less transparent and accountable. Trial lawyers are running the selection process behind closed doors. Isolating courts completely from the reach of politics is a pipe dream, but keeping judges democratically accountable (through election, or nomination and confirmation) is the best way to keep the system honest and serve all citizens.

Despite the deliberations of bar leaders, Washington is likely to keep it's election system in place.  This year's judicial races do not appear likely to inflame the same passions of prior years.  Three incumbent justices are seeking re-election, and at this late stage, only one is opposed.  But presumably, the bar's task force will keep the issue alive, and so the evidence from other states on the merits of merit selection will remain instructive.

States React to Budget Woes

Last month, the National Conference of State Legislatures released its state budget update. Today's story in the Olympian by Adam Wilson gets past the statistics. Wilson has a quick rundown of state budget cuts across the country. It's a bleak picture.

Down near Nashville, the governor plans to lay off 2,011 state employees, equivalent to 5 percent of the state workforce. 

He quotes the AP story.

,,, More than half the states are experiencing budget shortfalls.

Ohio Gov. Ted Strickland has announced spending cuts that could lead to about 2,700 of the state's 60,000-plus workers to lose their jobs. Rhode Island Gov. Don Carcieri last week signed a revised spending plan that includes a provision to make state employees who retire after Sept. 1 pay more for their health insurance — a change that state officials say could prompt about 2,500 state workers to leave before the deadline.

In New Jersey, Gov. Jon S. Corzine is proposing to cut 3,000 state jobs through early retirement incentives and layoffs. The state's commerce and personnel departments would be eliminated.

With a $2.5 billion shortfall predicted here, could this be the agenda for January '09?

Georgia Passes Consumer-Driven Health Care Reform

The State Policy Network carries a brief story on Georgia's new health care reform. Early reviews from market-oriented groups are favorable.

Other states have attempted broader reforms that have failed (California and Illinois) or are struggling (Massachusetts). But John Goodman, president and CE0 of the National Center for Policy Analysis described Georgia’s as “very significant reforms.”

“Georgia is now the second state in the union to allow employers to help their employees obtain personal and portable health insurance – the type of insurance that employees own and can take with them when they move from job to job,” Goodman said.

Here's a link to the Atlanta Journal-Constitution story on the bill signing. Gotta say it's nice to see a health care reform story with a headline that reads: "Health plan options expand."

Spokane Housing Market Slows Noticeably--Values and Sales Slip Along With Real Estates Excise Tax Revenues

Over the last few years, state tax revenues from sales of homes (Real Estate Excise Tax) and on construction and building materials largely have been responsible for much of the surplus tax revenues.  The unprecedented boom in home sales and building appears to be slowing significantly further adding problems for state lawmakers and elected officials who are now faced with at least a $2.5 billion revenue shortfall next year when they put together the 2009-2011 budget.

The Spokesman-Review reported that Spokane, where home buyers found reasonable priced houses and where builders experienced a bonanza since 2004, is finding itself with declining housing sales, sliding house prices and corresponding dropping sales tax revenues from construction materials and the Real Estate Excise Taxes assessed on the sale of homes. 

According to the Spokane Association of Realtors, the numbers are showing big changes.  Since 2004, April building permits averaged more than 1,900 in that month.  In 2008, they fell to just above 1,300, the number from April 2000 when Washington and the nation headed into its economic slump.

Here are some other facts published by The Spokesman-Review  about the slowdown which showed up in April's housing numbers:

• There were 3,218 homes on the market at the beginning of May - 673 more listings than at the same time last year.
• The year-to-date average sales prices was $201,286, down 3 percent over the same time last year.
• Spokane County home sales total $264 million so far this year, down from $440.65 million for the first four months of 2007.

"It's been a long time since we've had a really significant down cycle in real estate markets," Glenn Crellin, director of Washington State University's Washington Center for Real Estate Research, told the Spokesman-Review. "Here in the state of Washington, while there is a softness in the marketplace, and that certainly not to be denied, this is not a market that one should panic in."

While there is no reason to panic, those running for election this year ought to keep a sharp eye on this economic trend and tell voters how they plan to deal with the shortfall when they are in Olympia and Washington, D.C., starting next January.

Don C. Brunell, President (DonB@AWB.org)

Job Protection Trumping Environmental Protection

A recent survey by Moore Information shows that a cooling economy has led to a shift in voter opinion regarding jobs and environmental protection.

Specifically, voters today are more likely to say they are concerned with protecting jobs (51%) than protecting the environment (39%). The remaining 10% have no opinion. … this sentiment has reversed from a year ago.

Here’s the question:

On issues involving jobs and the environment, are you more concerned about protecting jobs, or more concerned about protecting the environment?

In 2007, environmental protection won out, 49-40.

As they say, read the whole thing. It’s short, just two pages with some interesting subgroup tables.