Olympia Business Watch

Plenty of Budget Stories and First Hint at Tax Hikes

Today's AP story by Curt Woodward hints at a tax hike to pay for the budget's overspending.

Washington's powerful House speaker has acknowledged the possibility of tax increases to balance next year's state budget, but adds that Democrats want to avoid such a step if possible.

Thursday's comments from Speaker Frank Chopp, D-Seattle, are the strongest signal yet that Democratic leaders think higher taxes could be needed to balance the 2009-2011 budget, which will be written by next year's Legislature.                     

Chopp's statements also seemed to confirm months of Republican warnings about the need for tax hikes or spending cuts ...

Finally, someone's taking the deficit projections seriously.

Brad Shannon in the Olympian explains where it goes from here.

Passage of the operating budget on a 31-17 vote — with only Democratic Sen. Tim Sheldon of Potlatch crossing party lines to vote against it — sets up negotiations between the House and Senate. Both set aside at least $750 million, but they have different priorities. Gov. Chris Gregoire also is expected to weigh in; she favors a bigger reserve.

Building the reserve to the $1 billion the governor has said she wanted will be tough - especially if the teachers' union gets its way.

Here's David Ammons AP story, with a more on taxes.

Next stop: negotiations with the House, with Gov. Christine Gregoire keeping a close watch. Meanwhile, Republican critics, including gubernatorial challenger Dino Rossi, are heading to the campaign trail, complaining of overspending and warning of higher taxes ahead.

House Speaker Frank Chopp, D-Seattle, declined to take taxes off the table, but told reporters that wouldn't be the Democrats' preference when they deal with next year's budget difficulties.

"We'd obviously rather not do that," he said. "But we've done that in the past when we've had good justification for it and when we've needed to make investments."

Makes that I-960 ruling look even more interesting.

Tanker Contract Goes to Airbus-Northrup

In a blow to Boeing and the state economy, Northrop Grumman and the maker of Airbus planes landed a coveted $35 billion contract to build military refueling planes, according to the Associated Press. Last August, AWB president Don Brunell wrote an op-ed for the Seattle Times supporting Boeing. Brunell said:

A Boeing tanker contract would support 44,000 jobs — 9,000 in Washington state alone. In addition, Boeing's bid will lead to the hiring of hundreds of subcontractors, spreading the work nationwide.

Noting the subsidies the Airbus group received, Brunell made this point:

If the U.S. government and the Air Force award contracts to companies that receive illegal subsidies and distort the market, then they are turning their backs on the global economy as well as local businesses and punishing those who play by the rules.

Brunell, in a press release today, concludes:

“We are especially disappointed because securing the contract meant jobs in  Washington and the United States. Now, Airbus and Northrop-Grumman will share the work between other states and Europe. In our judgment, those jobs belonged in the Puget Sound area, not in other states or overseas." 

Right.

I-960 Supermajority Requirement Upheld ... For Now

Another kind of budget showdown took place today in the state Senate when Sen. Tim Sheldon asked for a ruling on whether a liquor tax increase required supermajority approval under I-960. Sen. Sheldon thought it did. Senate Majority Leader Lisa Brown contended I-960 imposed an unconstitutional restraint on the prerogatives of the legislature.

Lt. Governor Brad Owen made the only logical ruling: of course it requires a supermajority.

Joe Turner has the details in the Political Buzz blog of The News Tribune. The link includes the entirety of the lieutenant governor's ruling. Here's the critical portion (the lieutenant governor is president of the Senate):

The Constitution is the preeminent law of our state, and all other laws and rules applicable to this body are unquestionably subordinate to the Constitution. Nonetheless, the President has taken an oath to uphold all of the laws of our state and nation, including both Constitutional and statutory law. Whatever the merits of Senator Brown’s legal argument—and the President is inclined to agree with her arguments—it is not for him to decide legal matters. Under our Constitutional framework of separation of powers, the authority for determining a legal conflict between the Constitution and a statute is clearly vested with the courts.

For these reasons, the President believes he lacks any discretion to make such a ruling, and he explicitly rejects making any determination as to the Constitutionality of I-960 and instead is compelled to give its provisions the full force and effect he would give any other law.

So the tax hike, falling short of the supermajority, failed.

This won't be the end of it. As I wrote here,  I-960 will face tough sledding in the Supreme Court. And a challenge is likely, though perhaps not this year.

 

Governors Are Right to Push for Electronic Medical Records

When the nation's governor met in Washington, D.C., earlier this week, they called upon Congress to expedite passage of legislation to establish a federal foundation for a nationwide electronic system supporting patients and health care professionals. The network would replace paper-based records with a secure system that could prevent as many as 98,000 deaths each year and virtually eliminate most medical errors.

AWB, along with its national counterparts the National Association of Manufacturers and the U.S. Chamber of Commerce, support electronic medical records and implementing new secure electronic advancements in medical record keeping and sharing.

According to West Virginia Gov. Joe Manchin (D), who spoke for a group of governors, the minimum estimated savings is $81 billion a year and $23 billion in Medicaid spending alone. 

Former Michigan Gov. John Engler, now NAM president, added Health IT would also create more convenient communication, and faster, more secure access to medical histories, test results and other critical information.

Representatives Anna Eshoo (D-Calif.) and Mike Rogers (R-Mich.), authors of HR 3800 to promote Health IT, are expected to release a letter urging the House Committee on Energy and Commerce to take up and approve their bill for consideration by the full House.

"Health Information Technology will help streamline medical recordkeeping and improve access to quality health care by reducing paperwork and making communication faster and more accurate," Rogers said. "Our goal is to save lives by giving doctors and specialists easier and quicker access to lab and test results, ensuring that patient diagnosis and treatment can be given sooner and with more accuracy."

In eastern Washington, medical provides have a sophisticated electronic medical link.  AWB President Don Brunell's column earlier this year addressed this topic and on May 22, Rich Umbdenstock, president of the American Hospital Association (AHA) will address AWB's spring meeting in Spokane on health care and Health IT.

Don Brunell, President, AWB

Senate Disregards Shortfall Concerns, Passes Budget

The state Senate just adopted the budget plan proposed earlier this week on a largely party-line vote (Sen. Tim Sheldon, D-Potlatch, voted no.) Supporters of the package talked about $750 million reserves, largely ignoring projections of a multi-billion shortfall in the next biennium.

The Everett Herald raised the right issues in this editorial.

Lower state revenue projections and higher costs in unavoidable areas have combined to erase more than $500 million from state coffers. The next budget, if all things stay the same, shows a projected shortfall of $2.4 billion. Like any employer, this is a time for the state to be more frugal, not to go back to "correct" past budget cuts.

... It would be wise in coming negotiations for Gregoire to hold out for $1 billion [in reserves], which would mean fewer painful cuts next year. Big new spending proposals, like one that would give child-care center owners and workers collective bargaining rights, potentially costing the state hundreds of millions of dollars, should be avoided.

Good idea. We'll see in the next few weeks.

Senate Slices I-900

Earlier today, the  state Senate approved SB 6450 to reimburse school districts and educational service districts for the cost of performance audits. The money would come from the designated account set up by Initiative 900, the measure giving the state auditor the responsibility and authority for performance audits.

The Washington Policy Center has posted a copy of the letter State Auditor Brian Sonntag sent members of the state Senate February 15. And the Evergreen Freedom Foundation shares its concerns here.

AWB Special Presentation: Representitive Cathy McMorris Rogers

Don Brunell (President of AWB) and Gary Chandler (Vice President of Governmental Affairs for AWB) sit down with U.S. Representitive Cathy McMorris Rogers (R-Washington.) They discuss several of the hot topics including education, climate change, and water.

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

To download: Click Here

Brunell Column Looks at Regulation and Housing Costs

In his column in The Columbian, AWB president Don Brunell considers the effects of regulation on housing prices, noting that proposed legislation which make a bad situation worse.

... Sen. Brian Weinstein, D-Mercer Island, is sponsoring legislation that imposes new burdens on contractors who build or remodel homes. Senate Bill 6385 greatly expands the legal liability for contractors, making it much easier for lawyers to sue them over construction defects.

If this measure passes, it will increase housing costs before the first lawsuit is filed. Insurance premiums will skyrocket at the mere prospect of a new class of liability lawsuits.

He praises an alternative.

One state lawmaker is taking a better approach. 

House Bill 3349, sponsored by Rep. Mark Ericks, D-Bothell, requires the State Department of Licensing (DOL) to work with representatives of consumer protection groups, legal authorities, contractors and consumers to examine licensing programs in other states, evaluate consumer complaints, and conduct public hearings to determine what the problem is. ...Ericks' "look before you leap" approach will help pinpoint what the real problems are and help fix problems without lawsuits.

Fortunately, many lawmakers agree. HB 3349 passed the full House, 93-1, on Feb. 15 and was referred to the state Senate. Let's hope the Senators make the right call on this one before the session ends on March 14.

Different Budget Priorities In Similarly Unsustainable Budgets

Today's news stories highlight differences in the budget proposed by Senate Democrats and that passed by the House.

For example, Kathie Durbin writes for the Columbian that we're heading for a showdown.

The Senate rolled out a 2008-09 supplemental budget Tuesday that sets up a showdown with the House over funding teacher cost-of-living raises, all-day kindergarten and transportation mega-projects.

The $33.7 billion Senate operating budget includes a net $319 million in new spending. It would leave about $755 million unspent — slightly more than the House budget passed Monday — but it would get there by a different route.

And the AP's David Ammons gets a defining quote suggesting the coming battle.

"I hope they're not picking a fight with us," said House Majority Leader Lynn Kessler, D-Hoquiam, after Senate budget leaders objected to some of the House's signature budget proposals.

Probably not. The differences are relatively trivial , the kind of things that lead to the "compromising up" way budget differences are resolved. Both sides give a little, get more, and the reserves drop further.

Brad Shannon of the Olympian says as much.

The move not to offer extra teacher pay sets up one of many looming fights about how much to spend and where to spend it — especially because the two chambers spend more in different areas, both want similar reserves, and it is traditional to resolve House-Senate differences by spending more, not less.

And he quotes the House budget chair on the likely effect of the compromise.

House Appropriations Chairwoman Helen Sommers, D-Seattle, said of the House-Senate differences: "This is traditional. The budgets tend to be very different." But she conceded it will be difficult to keep $750 million in reserve while splitting the differences.

For more discussion of the differences, see stories in The News Tribune and Seattle PI.

Both budgets spend too much and save too little, a point nicely made in this Seattle Times editorial.

Spending is delightful, but the revenue and spending numbers have to put the state in a comfortable place.

They don't. The current forecast shows the state's pockets with a negative $2.48 billion in June 2011 and negative $5.1 billion in June 2013. These numbers are not possible, because the state is not allowed to live on credit...

The state needs to aim for at least $1 billion in the bank.

Agreed. Putting this all into perspective is a recent Washington Roundtable report that graded the state's fiscal management. The benchmarks: sustainability, competitiveness, contingency, and clarity. The review assessed historical performance, current situation , and the long-term outlook for the future. Although the Roundtable avoided letter grades, this is not a report card lawmakers would want to bring home to their voters.

Dueling Budgets on Paid Family Leave

Last week the news on our state's novel paid family leave program is that it would be implemented through the budget, rising, by virtue of a roughly $6.2 million appropriation, like a phoenix out of the ashes of the failed implementation bills, HB 3305 and SB 6280. 

This week the news has to be the dueling budgets between the House and the Senate in this regard.  By virtue of an Appropriations Committee amendment, the House budget essentially defunded the paid leave program by placing its initial startup under the jurisdiction of the state's Information Services Board, with no new money.  The effect of the amendment was basically to hold administration of the project in abeyance, leading to some heated floor debate across the aisle. 

The Senate budget, released today, proposes to restore the $6.2 million appropriation from the general fund to the Employment Security Department. 

The matter will be resolved in conference.  Meanwhile, head-scratching is justified.  Hard to disagree with the TNT's recent assessment of the situation.

MORE

A reader with more budget savvy than me points out my characterizations above may have been a tad unnuanced:

The Senate doesn't "restore" it.  It's just a different position from the House's.  The change in each budget proposal is from the enacted budget, not from the other chamber's proposal.

The Appropriations amendment was by Rep. Ericks of the 42nd.  He insists it is not "defunded," but that the same work will go forward through the IT pool.  And indeed, so long as that proviso language is there, the item is not "essentially defunded." . . . Rep. Alexander offered an amendment to remove the proviso . . .  It failed 38-57.

Fair correction concerning the effect of each chamber's striking amendments.  Two different proposals, two different positions on the paid family leave program.

Certainly had Rep. Alexander's floor amendment passed, the program would have been unequivocally "defunded."  I do think, though, that reasonable minds may differ about the practical consequence of the Ericks proviso.  It locates potential funding within the 2007 appropriation to the state IT pool, but provides no new funding.  It subjects disbursement of that funding to the approval of the Information Services Board.  In effect, ESD must vie with other technology needs for priority within a limited pool of resources.  They may or may not obtain some or all of their $6.2 million funding in this manner but it places a substantial bureaucratic obstacle in their path.

Not quite a strict "defund" but not the "easy" path program proponents expected either.