Olympia Business Watch

House Passes Budget; Senate Takes Up Reins

After extended debate resonating along party lines and rehearsing campaign themes, the House passed its supplemental budget. Here's the Columbian's story on the budget debate. And here's the AP story.

As supplemental budgets go, it's hard to say that this one's overly lavish. It's problems stem from the fact that it's been built on an unsustainable base.

This AP story from a couple of days ago describes the tension pretty well.

The budget wars will dominate the final days of the legislative session that wraps up in about three weeks. Democrats are visibly nervous, with Gregoire facing a potentially close re-election bid and both houses trying to defend supermajorities. Republicans, deeply into I-told-you-so mode, are viewing the Democrats' stewardship as prime fodder for the campaign trail.

Senate Democrats held their budget press conference at noon, pledging to hold $750 million in reserves. The Ways and Means Committee is holding its hearings now. Naturally, no one expects much in the way of changes, but hearings there must be.

Although budget writers make much of the $750 million reserve, not enough attention has been paid to what that represents. Total reserves amount to about 2.5 percent of biennial revenues. More important, the unrestricted reserve represents just 1 percent of revenues. While that's a little higher than we've seen in this decade, it's quite a bit lower than the more than 4 percent total reserves we saw in 1998 and 2000. And it's a little strange hearing Senate budget writers downplay the deficit warnings of their nonpartisan budget staff.

Child Care and Labor Unions

On February 15, the House passed HB 2449, setting up collective bargaining for child care center directors and workers. Both major Seattle papers took a recent look at the legislation, raising good questions.

Here's the Seattle Times asking, "Does bill benefit union over kids?"

Under House Bill 2449, centers that care for at least one state-subsidized child could be eligible to join collective-bargaining units and negotiate with the governor over state payments, training requirements and access to health care and other benefits.

...Should the bill pass, eligible child-care workers in each of the six regions of the state would take a vote. If a majority approves, then all the centers of that region would become part of a bargaining unit.

Opponents argue that a simple majority is easy to obtain and thus the bill becomes a mandate for unionization. Many child-care center owners have said they would stop accepting state-subsidized children so their workers would not be subject to the bill.

The Seattle PI story brings out the budget impact and suggests how the cash would flow.

Under the contract negotiated last year for home day care workers, the state pays roughly $3 million a year into union bank accounts for dues taken directly from provider reimbursements, according to Department of Early Learning documents.

The arrangement with day care centers would likely be similar.

And the budget pressure would be similarly intense.

Two years ago 10,000 home day care centers won collective bargaining rights and in turn negotiated a $45 million increase in reimbursement rates.

It's part of the wave of union-backed legislation that's incrementally moved forward over the past two years. The costs mount.

Who Owns Big Oil?

We are beginning to hear a drumbeat against "Big Oil" as prices for fuels rise again.  There are more discussions about "windfall profits" taxes.   So who really are politicians trying to get at through their campaign rhetoric?  Company Executives? 

Robert J. Shapiro, undersecretary of commerce for economic affairs under President Bill Clinton, just completed a study of the ownership of oil companies.  Shapiro's data show that ownership of industry shares is broadly middle class, with the majority of industry shares held by institutional investors, often on behalf of millions of Americans through mutual funds, pension funds and individual retirement accounts and oil company executives own 1.5 percent of the stock.

Forty-three percent of the stock is owned by mutual funds and asset management companies.  Mutual funds manage accounts for 55 million Americans with a median income of $68,700---hardly the rich.  Another 2,600 pension funds run by federal, state and local governments held $64 billion in hsares of U.S. oil and gas companies in 2004.

It is interesting reading, and for a complete copy of the study, click here.  As Paul Harvey would say: "Now, the rest of the story!"

Don C. Brunell, AWB President

House Votes on Operating Budget Today

After passing the capital and transportation budgets, House Democrats plan to run their operating budget at 1:00 today.

The News Tribune says it needs work.

A very brief AP story points out the political implications.

TNT on the Legislature's Post-dated Checks

Editorial writer Kim Bradford makes a good point in The News Tribune's editorial page blog:

Watching the action in Olympia this year, I have the sense that lawmakers aren’t just writing checks state government can’t cash, they are post-dating them too.

She cites paid family leave, all day kindergarten, unfunded and ill-advised tax rebates,  and such. I've called this kind of thing "long fuse politics."

Bradford thinks it's different this year.

It’s an election year, so perhaps politicians promising the moon are to be expected. But this year seems different. Legislators aren't just passing unsustainable programs, they are constructing placeholders doomed to disappear.

And she points out, Republicans have noticed.

House Democrats Budget Gets Mixed Reviews

Yesterday's release of the House Democrats budget plan got plenty of play in the papers today. Most noted that loss of an expected $425 million in revenues caused budgeteers to trim, but most of the trimming came out of reserves. Net spending increased.

Brad Shannon summarizes it in the Olympian.

House Democrats released a $287 million supplemental budget plan Wednesday that gives the state's K-12 teachers an extra 1 percent cost-of-living pay increase this year.

But to squeeze the budget and keep $750 million in savings for next year, Democrats propose to halt their expansion of all-day kindergarten programs in poorer schools until the economy gets better.

At today's AWB Lobby Lunch, the governor said she objected to the kindergarten delay.

Here's Joseph Turner's description of the budget tradeoff in The News Tribune.

Democrats in the state House want to cut funding for all-day kindergarten at struggling public schools so they can give teachers and other school workers a bigger pay raise next year.

The AP's Dave Ammons provides context.

Economists say the U.S. is now in a mild recession and the Senate budget panel says the state faces a deficit of $937 million in the upcoming two-year fiscal period.

Given the likely shortfall - and the numbers we've seen show the deficit to be considerably higher than the $937 million Ammons cites - delaying the launch of new programs isn't a winning strategy. It simply raises expectations and compounds problems in the next budget cycle. Ammons also implies the House budget may be trimmed.

Gov. Chris Gregoire and the Senate budget chairwoman, Margarita Prentice, D-Renton, quickly lobbied for a higher surplus figure.

"While the state's economy remains strong, it is not immune to slowing national economic trends," the governor said. "With that in mind, I think we must leave a healthier surplus to manage for the future than the House proposed."

The News Tribune called for more trims in an editorial earlier this week.

Tough budgeting now will save a world of hurt later.

Right.

MORE This afternoon, the members of the Coalition of Washington Business Organizations, including AWB, delivered a letter to Gov. Chris Gregoire and members of the Legislature urging them to maintain at least $1 billion in reserves.

Weird Workers' Comp Holding from State Supreme Court

This morning, the Washington Supreme Court released its decision in Ball-Foster Glass Container Co. v. Giovanni, a workers' compensation case testing the limits of the "traveling employee" doctrine when it comes to deciding whether or not an industrial injury occurred "during the course of employment" thereby triggering workers' comp benefits.  If an injury happens outside the course of employment, it is (theoretically) not covered by workers' compensation.

In this case, the worker was in Seattle from Pennsylvania working on a special construction project.  He was staying at a SeaTac hotel with other out-of-state workers.  On Sunday, a day off, he and a supervisor left the hotel to purchase cigarettes.  While out walking, they saw a poster on a utility pole advertising a musical show in a nearby park.  They decided to head toward the park and check it out.  While crossing busy International Boulevard in front of the hotel, the worker was struck by a car and injured. 

The workers' injuries were grave and sympathetic.  But was this really an injury that arose in the course of his employment, going out on a day off to buy cigarettes and then diverting to a park to see a concert?

A bare 5-justice majority said yes, led by Justice Charles Johnson:

In taking a Sunday stroll to the park on his single day off, Giovanelli did not "distinctly depart" from the course of employment on a "personal errand." Neither the nature of his activity nor the manner in which he engaged in it was unreasonable or unusual. The risk of getting injured while crossing the street in front of his hotel during a walk to the park was a risk of his employment. Accordingly, he is entitled to compensation.

Apparently, reasonable minds can differ.  Four justices dissented, led by Justice Jim Johnson:

Here, Giovanelli was clearly engaged in such a social or recreational activity when he decided to attend a concert on his day off. He met none of the exceptions in the statute; he was not "paid" monetary consideration by the employer or ordered or "directed" to go to the park. It was not during his scheduled work hours. Attending a concert or purchasing cigarettes on a day off does not fit into any of the three expressly limited categories of social and recreational activities that are covered within the statute as "course of employment"[.]

How significant an expansion of Washington workers' compensation liability this case represents depends upon the number of traveling employees in state at a given time, and the risks and hazards to which they are exposed or, in especially now in light of this case, expose themselves.  It may be a lot, it may be a little.

But part of the problem is it is largely uncertain.  If the industrial insurance system, as insurance, is liable for every attenuated personal venture an employee may choose to undertake, on a day off, not in furtherance of his or her employment, it becomes difficult to appropriately price the risk. 

It's unlikely this is the result the Legislature intended when passing the "course of employment" test for the awarding of workers' compensation benefits. 

More on House Democrats' Budget Plan

The Budget and Policy Center, a liberal think tank, just released a brief analysis of the House Democrats budget plan. They like most of it, but wish there'd been more spending on things like, for example, the working family tax credit the Center has been promoting.

Then there's this:

While the House budget leaves a considerable reserve of $750 million, this savings will not be enough to cover the expected costs in the following two-year budget. Much of this reserve ($429 million) is in the rainy day fun which is difficult to access.

Even the folks who want to see more spending concede that current spending is unsustainable. Of course, they blame the revenue system.

Interesting Piece on Workplace Bullying

Although this year's House Bill 2142, addressing workplace bullying, is dead for the session (and even in its short pre-cutoff enervation was amended to  exclude application to the private sector), the issue has proven to be perennial.  So this article from this month's ABA Journal is of interest, discussing the latest trends in workplace bullying legislation and litigation.  I noted two things:

First, although it's been no secret this nationwide legislative push has been the work of Bellingham's Workplace Bullying Institute, the article notes that the true author of the model bill is Suffolk University Law School professor David Yamada.  Reading HB 2142 and its previous iterations certainly leads one to believe that it was written by a plaintiff's lawyer.  To learn the proposal's densely packed plethora of legalese came from academia now makes a lot of sense to me.  Take, for example, the basic harm the bill seeks to prevent:

"Abusive conduct' is conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer's legitimate business interests.  In considering whether abusive conduct is present, a trier of fact should weigh the severity, nature, and frequency of the conduct.  Abusive conduct may include, but is not limited to, repeated infliction of verbal abuse such as the use of derogatory remarks, insults, and epithets; verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating; or the gratuitous sabotage or undermining of a person's work performance.  A single act normally will not constitute abusive conduct, unless especially severe and egregious.

Whew.  That definition in turn relies upon further statutory definitions of "employer," "employee," "conduct," "malice," and so on, not to mention the deployment of various terms of art such as the "trier of fact," and the "reasonable person" standard.  But I digress.

Second, the parting shot from one of the employment lawyers quoted in the article, should a bill like this become law, makes a lot of sense:  “You’re talking about a lifetime annuity of work for employment lawyers.”

House Democrats Release Supplemental Budget with $750 MM Reserve

The House Democrats' supplemental budget leaves a $750 million reserve. What's on the web site is pretty skimpy: two pages of highlights and a spreadsheet showing reserves. Speaking at the press conference on the operating budget, Majority Leader Lynn Kessler, Appropriations chair Helen Sommers, and vice-chair Hans Dunshee said the $750 million reserve was better than they've dealt with in most years. And, even with the recent cuts, it's more than lawmakers expected when they left Olympia a year ago after passing the biennial budget.

Of the $750 million in reserves, $429 million are in the hard-to-tap budget stabilization account. The unrestricted balance is a pretty skimp $321 million.

Asked about projections of a deficit in the coming biennium, they dismissed concerns, saying that such projections are often unreliable. In this Seattle Times story by Andrew Garber, OFM director Victor Moore also challenges the estimates.

Victor Moore, the governor's chief budget writer, said he's not convinced the Ways and Means estimate is accurate. "I'm not giving any credence to that number," he said, noting he has concerns about the methodology.

Moore said his office will come out with its own projection later.

As we've noted here before, it's tough to forecast the future. Besides which, when something cannot happen - a $2.5 billion state deficit, for example - people act to assure that it does not. But there's certainly utility in running the numbers to see what continuation of current trends would do to your plans. While the House budget writers are right to point out that small changes in the economy can have sizable consequences for state revenues, it's clear that the inevitable fluctuations will all be positive.

The "revenue review notebook" published with the February forecast assigned a 30 percent probability to the pessimistic alternative forecast. That pessimistic view (numbered page 5 here) is $800 million below the baseline forecast - more than enough to wipe out the $750 MM house reserve. (h/t to Kriss)

It will be helpful to see how OFM's look at the coming of the biennium differs from the nonpartisan Ways and Means projections.

Given the size of the projected deficit, it's hard to see how we get to the black.