Olympia Business Watch

Tort Kings Dethroned

Liability reform enthusiasts and followers should note with interest today's editorial feature on the Wall Street Journal's online opinion page, "The Trial Bar on Trial."  It chronicles the John Grisham-esque goings on in some of the nation's elite tort and class action factories, including:

Bill Lerach, the king of class actions, stands disgraced as an admitted felon. His former partners at Milberg Weiss face trial for being part of the same kickback scheme as Lerach. Federal prosecutors continue to pursue a criminal probe into asbestos and silicosis litigation fraud. And now comes the indictment of Mississippi tort legend Richard "Dickie" Scruggs, who is trying to soak insurance companies the way he once did Big Tobacco.

What are the stakes?

If convicted, [Scruggs and his partners/associates] could each face up to 75 years in prison. Keep in mind that these aren't street toughs but officers of the court, men who are supposed to uphold the law and who daily claim to be agents of justice against fraudulent business. If guilty, they are the pin-striped version of crooked cops--traitors to the public.

Certainly a challenge to the easy narrative that tort struggles are heroic dramas involving the selfless defender of the little guy taking down the robber baron corporation and its avaricious insurer.

Record Donations for Kids Tree

Over 100 Association of Washington Business members and friends contributed over $25,000 this year for the Capitol Holiday Kids' Tree Project.  Each year, AWB sponsors the annual project which started in 1989 as simply providing a Christmas Tree for the Rotunda of the State Capitol in Olympia.

In 18 years, AWB raised over a quarter-million dollars to not only fund the tree, but to provide rural western Washington fire fighters with funds to buy food and Christmas presents for needy families in small communities.  "Often the Christmas gift programs and pantry baskets focus on cities and urban areas,"  Brunell said.  "We found that people in rural areas need help as well and rural fire departments are the best conduit to help them."

This year, Rayonier from Sequim will provide the 30-foot Noble fir for the Rotunda.  It will arrive at the state capitol on Monday, Dec. 3 at 9:00 a.m. and be decorated by the Capitol Campus Volunteers next week.

The tree lighting ceremony with Gov. Chris Gregoire and AWB Board Chair Brad Carlson, owner of Evergreen Memorial Gardens, Vancouver, will be Friday, Dec. 7 at 6 p.m.  It is open to the public and free of charge.

Charles Henry Thomas, Freelance Writer, Washington Business Magazine

They came. They capped. They deferred.

Yesterday's special session followed the script.

Lawmakers restored the 1 percent property tax cap that the state Supreme Court lifted when it tossed Initiative 747. Tim Eyman and many Republicans objected that lawmakers should also have repealed all "banked capacity," not just the excess capacity created under the court ruling. But the majority plausibly countered that the session was about undoing the damage inflicted by the Court decision.

Well, not exactly, because they also passed a property tax deferral program of dubious benefit. One of the better dissections of the deferral concept is in this story by Rich Roesler in the Spokesman-Review.

People trying to save their home from foreclosure will do anything they can, said Dean Marshall, a Spokane accountant.

But if the situation's less dire, he said, avoid deferring taxes.

Here's why:

•For many homeowners, the savings are small. In Spokane last month, the median sales price for a home was $186,000. Spokane property tax – city, county, schools, emergency services, everything – totals $13.08 per thousand dollars of assessed value. For that median-price home, that's $2,433 a year.

The maximum reduction for such a home under the program Gregoire is proposing would be $608 a year, or about $50 a month.

"It's overly complicated for a trivial benefit," said Whitworth University economics professor Richard Schatz. "People are not losing their houses because they can't pay a quarter of their property taxes. They're losing their homes because their mortgage payment went from $900 to $1,300."

•Property taxes are deductible from federal taxes for people who itemize, Marshall points out. If the taxes are postponed, so is that federal tax savings.

•Interest under this program – unlike mortgage and home-equity interest – likely wouldn't be tax-deductible.

While there was plenty of justification for acting quickly on the tax cap, lawmakers needn't have hurried to introduce a new, unvetted tax plan likely to be used by some 5,500-6,000 homeowners - perhaps to their detriment.

No session, even one that's not about Tim Eyman, would be complete without a sideshow featuring Eyman. This one made the front page of the PI. Here's audio from Postman.

Plenty of coverage in the Olympian, AP in the Bellingham Herald, the Columbian, and the Seattle Times.

Research Council Provides Perspective on 747 and Special Session

The Washington Research Council released a policy brief, dated yesterday, that provides some context and perspective on the 1 percent cap and the issues lawmakers are addressing in today's special session. The WRC rehearses concerns they raised a few years ago.

First, by adopting a limit below the rate of inflation, the initiative may lead local officials to pursue other revenue options (impact fees, B&O taxes) that will negatively impact the business climate. The arbitrary limit on property tax collections would have differential
impacts on local government, affecting those communities without a diversified revenue base most directly...

Second, cities and counties generally spend most of their budgets on infrastructure and public safety – streets, roads, sewers, police and fire services, courts and jails. As budgets tighten, the shortfall in infrastructure finance may well be exacerbated as constrained resources are channeled to important public safety functions.

Third, the initiative again raises the issue of the degree to which voters should give explicit approval to all tax increases. The tight I-747 cap would most likely result in more budget decisions being referred to the voters...

There's also hint of resignation.

Six years ago, after the courts initially declared I-722 unconstitutional, there might have been an opportunity for the legislature to craft a better limit on property taxes. But, politically, that moment has past. Today, anything short of one percent would be too little, too late.

As I watch the proceedings on TVW, it's pretty clear that the session will follow the script, although many of the actors show little enthusiasm for the roles they've agreed to play. This debate won't end when the one-day session concludes.

Massachusetts Reforms May Lead to Budget Shortfall

Another reason to approach the recent Massachusetts health care reforms with great caution. The Boston Globe reports:

Enrollment in the state's new subsidized health plan is growing so quickly that the state could face a funding gap as large as $147 million by the end of the fiscal year, according to a state projection....

Financial pressures will grow for fiscal 2009, which begins July 1, [2008,] since insurers who participate in the subsidized program are expected to ask for significantly higher payments from the state. In addition, there is uncertainty about how much the federal government will contribute toward the total cost....

The state budgeted $472 million this fiscal year for the subsidized program, based on enrollment estimates made last winter. The program, called Commonwealth Care, provides comprehensive insurance to people without access to work-based coverage who earn less than 300 percent of the federal poverty level, or about $31,000 for an individual. The state money pays the full premium for the lowest-income residents and subsidizes the rest. Members are responsible for small copayments.

The connector began enrolling people in October 2006 and set a goal of 136,000 by June 30, 2008....

Also driving up the cost was a decision by the connector last winter to eliminate premiums for thousands more people than originally planned, in an effort to make insurance more affordable....

More than once, we've stressed that the Massachusetts health care reforms need to be carefully watched and considered, not prematurely imitated by other states, like Washington. It is no accident that former Massachusetts Gov. Mitt Romney is not emphasizing these reforms in his presidential campaign. If they were an unqualified success, you can bet that Romney would be trumpeting from the rooftops that the Massachusetts program is the solution to all of America's health care woes. Instead, Romney takes great care to emphasize that he would not attempt to force the Massachusetts plan on other states. Romney is smart enough to understand that the Massachusetts program is no panacea. Instead, it is a work-in-progress - an interesting work-in-progress, at that, but still a program with a lot of glitches.

Everyone Has an Opinion on the 747 Session - Even Me

Like a crack in the dike, the special session has released a flood of opinion on property taxes and politics.

This morning, The News Tribune calls for a temporary I-747 fix. And in the TNT's editorial blog, Patrick O'Callahan wonders about the Eyman-Rossi axis.

Seattle PI columnist sees the session as evidence that Eyman's got state leaders on the run. The PI also carries  an op-ed by Juan Martinez of the Washington Tax Fairness Coalition. He thinks I-747 was a "disaster" and believes the Supreme Court decision trashing the initiative gives political leaders an opportunity to do property tax reform right.

Daniel Jack Chasan uses the I-747 session as a vehicle to reprise in Crosscut the old line that voters want services but don't want to pay for them.

Policy researchers have been busy, too.

The Budget and Policy Center offers a six-part series documenting its preferred (more liberal) alternatives to the 1-percent cap.

At the Washington Policy Center, Paul Guppy weighs in with an early analysis of "the second bill," the  less-discussed tax deferral proposal lawmakers will consider tomorrow.  He finds it wanting.  Earlier this month the WPC urged the Legisalture to reinstate the 1-percent cap, repeal banked taxing authority and phase out the state property tax.

The Evergreen Freedom Foundation also wants the 1-percent limit, a phased-out state property tax, and elimination of the banked taxing authority. It also doesn't think much of the tax deferral proposal.

John Burbank, of the Econoomic Opportunity Institute, thinks it's time to scrap the whole tax system.

In the Spokesman Review, I suggest that there's risk in a special session.

AWB Chairman Brad Carlson in The Columbian

This short article on Brad Carlson in the Columbian gives deserved recognition to this year's chairman of the board. Brad's always quick to point out the value of teamwork, as this quote demonstrates.

"It's amazing when you've got a voice there representing 6,500 business how effective they can be and how the Legislature and governor listen," Carlson said.

Carlson and the association want to make sure legislators hear the importance of keeping Washington competitive in today's global market. High on their list of things to watch is the crafting of a sustainable state budget, one that puts money away for the lean times. The membership also wants to see that infrastructure and education needs for the state are maintained.

Well said. Well done.

Stick to Restoring the 1 Percent Cap in Special Session

That's AWB's message to lawmakers.

Yesterday, AWB president Don Brunell sent a letter to the governor and legislative leaders urging a tightly focused session. This press release reinforces the message.

The Association of Washington Business supports the special session to reinstate the 1-percent property tax limit established by the voters through Initiative 747. After the state Supreme Court invalidated I-747, swift action by the Legislature to reinstate the protections provided by the initiative is appropriate and necessary.

In a letter to Gov. Chris Gregoire and legislative leaders delivered November 27, AWB president Don Brunell said, "AWB supports reinstating the Initiative 747 one percent cap and eliminating excess banked capacity created by the Court's decision. The limit has been in place for some time, has worked reasonably well, and has the support of the general public. It also meets the constitutional requirement for uniformity."

The one-day special session, however, should focus solely on restoring I-747. Any property tax proposals unrelated to the Court’s action should be introduced and considered during the regular legislation session, when there is time to evaluate them thoughtfully.

There's widespread agreement that the Court erred in overturning I-747 on the flimsiest of technical grounds. Returning to the way things were makes sense. Going beyond that simple act of restoration, however, goes beyond what's appropriate for a special session.

More Editorial Voices on Paid Family Leave

Another important editorial page has weighed in on the advisability of using the state's general fund to pay for our state's new paid family leave entitlement mandate.  That was the apparent recommendation at the last meeting of the joint legislative task force set up to figure out funding and administration of the program in advance of the 2008 session.

According to the News Tribune's Sunday editorial:

Using existing tax revenue is a bad idea for several reasons, primarily because the state cannot afford it. The state surplus — which dipped below $1.4 billion earlier this month because of a slowing housing market — has enough claims on its shrinking riches. And it won’t last forever.

Task force members suggest the Legislature look for another funding source after the family-leave program’s first four years. But chances are that once the program is in the general fund, that’s where it would stay, even after the surplus is long gone.

Over the long run, making family leave a general-fund entitlement would open the door to the costly expansion of benefits. It is far easier for legislators to slip extra money to programs buried in the $30 billion general-fund budget than it would be to raise a tax on workers’ paychecks.

Of course, you could look at the general fund as a persistent two-year sunset on the program.  Every two years, proponents have to come back to the budget writers and justify its existence and continued operation.   On that view, the general fund would make it harder to expand the program, especially in lean years.  But what's more likely, and more risky, is that once the general fund surplus dries up, the tax burden will be shifted -- perhaps -- untenably, uncompetitively -- to the employer community.

The News Tribune sees political risk as well, criticizing the don't-bother-me-with-the-details spirit in which the bill was originally passed:

Lawmakers may have backed themselves into a corner. Word is that Gov. Chris Gregoire is cool to the idea of paying family-leave benefits with general-fund dollars. If she proves an obstacle, the Legislature could be faced with either raising taxes in an election year or reneging on its promise of paid family leave.

Such is the danger when legislators skip past the details on their way to a political score.

On a lighter note, last Friday's Dilbert strip captured one of the key business concerns with paid family leave quite perfectly.

Remove the Buffet Line, Not the Dams

Over Thanksgiving Orca advocates told federal fisheries officials that four Snake River dams should be removed to boost production of salmon -- a food source for Puget Sound killer whales.Six Orca scientists make the recommendation in a letter to NOAA Fisheries, which manages Columbia-Snake River salmon.

According to last week's The Columbian, a group of scientists wants the National Marine Fisheries Service to remove the four lower Snake River dams to increase salmon runs to save the killer whale population.   Reporter Erik Robinson points out: 

Orcas aren't the only marine mammals that feast on salmon.  On the Columbia River, California sea lions in recent years have turned Bonneville Dam into a buffet line of imperiled salmon.

Perhaps, as Robinson suggests there may be a win-win solution here because killer whales also  devour other marine mammals, such as sea lions.

Removing the four lower Snake River dams in Washington would be costly.  A Washington Research Council report found that removing the four lower Snake River dams to preserve salmon runs would add $300 million to electricity bills, $40 million to transportation costs, eliminate 37,000 acres of prime irrigated cropland, wipe out a minimum of 2,300 jobs and reduce annual personal income by $278 million.

Last April, Bonneville Power Administration (BPA) pegged the costs at $413 to $565 million each year to replace the power from the four lower Snake River Dams....that is if enough wind and replacement power from other sources can be found.

All that begs the question of increasing our "carbon footprint" by  adding more trains and trucks to replace the barging of goods between Clarkston and Vancouver. 

Removing those dams never made sense in the past, and doesn't make sense today.  But to use saving the Orcas as the reason when we let the sea lions bloat themselves with the very salmon needed to perpetuate those runs defies logic.  Robinson got it right.