Olympia Business Watch

State's budget woes are 40 percent self-inflected, lawmakers tell AWB

Minority Republicans in the Washington Legislature began warning three or four years ago that the state's budget was not sustainable, state Sen. Mike Hewitt told AWB at our weekly Lobby Lunch meeting.

"No one would listen," said Hewitt, R-Walla Walla. Some 40 percent of the current $2.6 billion budget shortfall is self-inflicted, he said. "It should not have happened."

Now that it has, majority Democrats are talking about raising taxes to plug the budget hole -- and Republicans don't have enough votes to stop them, he said.

Hewitt was joined by Sen. Linda Evans Parlette, R-Wenatchee, and Rep. Richard DeBolt, R-Chehalis, for a discussion that centered on the budget crisis, job-creation and taxes.

Washington has a spending problem, not a revenue problem, Parlette said. As evidence, she said Washington's state budget rose 33 percent, or more than $8 billion, during Gov. Chris Gregoire's first four-year term.

That's more than it rose during Gov. Gary Locke's eight years as governor, she said.

Even so, "We're going to see tax increases this year," DeBolt said.

AWB Legislative Day kicks off with budget & tax panel

General tax increases such as a hike in property taxes or talk of an income tax are off the table, Sen. Rodney Tom said Wednesday at AWB's annual Legislative Day in Olympia.

"Pretty much everything else is on the table, to be quite honest with you," said Tom, D-Bellevue, including a re-examination of tax incentives to make sure they're doing what they were designed to do.

His comments came during the first of four panel discussions planned throughout the day. Rep. Gary Alexander, R-Olympia, and Victor Moore, the state budget director, joined Tom on the panel.

None of the speakers offered much in the way of specifics, however, because they said lawmakers have not yet settled on a plan for closing the state's estimated $2.6 billion budget shortfall.

Tom compared the work of lawmakers to NBA players who don't begin playing in earnest until the fourth quarter.

The budget picture should become more clear next week when the latest revenue forecast data is released, Moore said.

Another variable is potential federal funding. When Gov. Chris Gregoire released her budget, the federal health care overhaul was moving forward and was expected to provide Washington state with funding, Moore said.

The federal health-care plan is now stalled, but Washington could still receive $435 million in Medicaid funding, he said. An additional $450 million in federal funding is possible.

Talk of jobs, innovation, streamlining government dominate Lobby Lunch

House and Senate Democrats told AWB members today they understand the fragile nature of Washington's economy. Finding solutions, though, is also a delicate process.

Speaking at today's Lobby Lunch, Sens. Derek Kilmer, D-Gig Harbor, Jim Kastama, D-Puyallup, and Rep. Lynn Kessler, D-Hoquiam, all underscored the importance of jobs, innovation and streamlining state government.

"I've been asked, particularly by a lot of my constituents, what I see the path forward is," said Kilmer, "and my comment has pretty much always been the same. One, I think we have to be conscious of the economic climate we are in and make sure that we're not doing things that are going to slow down our recovery. And two, the challenges that we face are not short term in nature.

"This is not a one-year budget challenge, and the way we're going to get out of this  mess over the long haul is one job at a time. I would much rather see us grow jobs than grow taxes over the long haul, and I think that's why a lot of the things that we're going to be talking about are important," he said.

Sixty-five percent of new job growth comes from small businesses, Kilmer added.

In his non-legislative time, Kilmer serves as vice president of the Economic Development Board for Tacoma-Pierce County. Today, he emphasized two small business B&O tax credit bills (the governor's request bill and last year's SB 5899) as examples of ways his caucus is trying to help smaller employers.

Jim Kastama echoed Kilmer's call for more jobs and pushed for innovation as the catalyst for broader economic development in our state. Kastama said his goal is to make Washington the most innovative state in the region by 2020 -- and that includes the public sector.

"Government also has to be innovative. Somehow, we have to start trying to get more out of government with the same money or less," he said. "Innovation has to be a key thing that we pay attention to if we want to be in the game in the future." 

UPDATE: Video of the speakers' remarks after the jump

Gregoire says federal money in doubt, calls on business to help with streamlining

Before Tuesday's Massachusetts Senate vote, it looked like Washington state could be in line for as much as $1 billion in federal funding, Gov. Chris Gregoire told AWB members today.

But the election of Republican Scott Brown puts that in jeopardy.

"We don't know now what we can look at," Gregoire said during the first Lobby Lunch meeting of the 2010 legislative session.

Gregoire repeated calls for streamlining state government as one way of addressing a $2.6 billion budget shortfall, and she called on the business community to help persuade lawmakers who she fears are "losing their stomach" for aggressive change.

After she proposed shutting down several state institutions, Gregoire said she began hearing from lawmakers who opposed closures of the ones near them. If lawmakers continue protecting programs in their own districts, "we'll never get things done," she said.

"There isn't a business today that' can't survive without rebooting," Gregoire said. "It should be no different for government."

The governor also:

• Emphasized the need to create new private-sector jobs, and shift more work from the public to private sector. "We can't do it anymore," Gregoire said.
• Offered support for a plan to attract new data centers -- a statement that came at the same time that Facebook received publicity for its new data center in Prineville, Ore.

UPDATE: Video of the governor's remarks after the jump

Workers' comp audit adds urgency to calls for reform

It's no secret that Washington's industrial insurance system is broken.

AWB has been in the forefront of business groups urging lawmakers to make some big changes to a system that will cost employers an average 7.6 percent more this year, just as businesses are struggling to emerge from a major recession.

But it turns out things are worse than we thought.

An actuarial firm contracted by the state Auditor's Office to study the system has concluded that the state accident fund -- one part of the system -- has a nearly 75 percent chance of becoming insolvent in the next two years.

And this is after the rate hike. Without the increase, the odds would have been more than 82 percent, according to the report by Towers Perrin.

And even those odds are generous. At the last quarterly meeting of the state's Workers' Compensation Advisory Committee in December, department officials states the accident fund will go insolvent for an unknown period of time later this year. The fund's reserves were at a mere $63 million at the end of the last quarter, down almost three-quarters of a billion from $776 million at the end of 2008.

In order to remain solvent, the accident fund would need a 33 percent rate increase, Towers Perrin estimated. That compares to the 4.5 percent increase it will actually receive as part of the 2010 rate hike.

UPDATE: State Auditor Brian Sonntag spoke about the workers' comp audit Wednesday on KUOW's The Conversation. Sonntag told host Guy Nelson: "It's really an issue for the Legislature to tackle, along with L&I, to set rates and make sure that it's sustainable and the fun can carry on."

To listen to the interview, click here.

State lowers revenue forecast $760 million, raising budget woes

The latest revenue forecast for Washington's 2009-11 biennium has fallen by $760 million since September, Arun Raha, Washington's chief economist announced today.

Officials now expect to collect $28.8 billion, an estimate driven down largely by a "crisis of confidence" that has consumers continuing to pay down debt and save money rather than spend it, Raha said.

The news, which was expected but nevertheless sobering, means that lawmakers must now find a way to fill a $2.6 billion shortfall when the 2010 Legislature convenes -- up from a previously estimated $2 billion shortfall.

"It's getting to be kind of numbing to us, the size of the mountain we need to climb," said Victor Moore, director of the state Office of Financial Management.

In his September forecast, Raha said Great Recession was over, but the recovery would be slow and weak.

On Thursday, Raha reiterated that the recession has ended -- that's the good news -- but the bad news is that the state economy is experiencing a "revenue-less recovery."

Brunell: It's time to raise revenue, not taxes

With the failure of Initiative 1033, the talk in Olympia has turned to raising taxes.

But raising taxes now, just as the economy is in the early stages of a fragile recovery, would be the wrong thing to do, AWB President Don Brunell writes in his weekly column.

As evidence, Brunell looks back at two previous economic recessions -- and the hard lessons Washington leaders learned when they raised taxes then.

"Simply put, the tax and fee increases drained fuel from our economic engine, delaying our recovery," Brunell writes.

Tacoma paper looks at Washington's liquor, workers' comp monopolies

The Business Examiner has published an interesting article (subscription required) examining the state's monopoly approach to liquor control and the selling of workers' compensation insurance.

Washington is among the few states that hold business monopolies on those areas, reporters Breanne Coats and Hilary Reeves write in the introduction.

Many business advocates, they write, wonder whether it's best to open up these two services to the private market.

The article quotes Mark Johnson of the Washington Retail Association making the case that state-run liquor stores should be privatized, but the examination of workers' comp is more nuanced.

AWB member Larry Treleven, owner of Tacoma-based Sprague Pest Solutions, notes that "a monopoly in anything is not good," while Kris Tefft, AWB general counsel and government affairs director, finds some good to say about the state's current system as he continues calling needed reforms.

"Our state fund does a good job of fraud prevention and rooting out premiums that ought to be paid in by employers who aren't currently," Tefft says. "On the other side of the ledger, there are some problems with the management of claims."

Tefft notes, for example, that the number of complex claims that remain in the system for years at a time is rising, and he points out the huge disparity between pensions paid out annually in Washington -- 1,800 -- versus Oregon -- nine.

For readers of this blog, the arguments will sound familiar. Last month, Tefft called on state officials during a hearing to fix problems with the workers' comp systems, and he's published several items on the subject in recent months, including this and this.

AWB calls for fixes to workers' comp system

AWB called on state officials Wednesday to think carefully before going ahead with a proposed 7.6 percent average workers' compensation rate hike.

"You have heard how the day-to-day operations of real jobs providers in this state are affected by any increase in cost, but especially an increase in cost that is this significant at this time," said Kris Tefft, AWB general counsel and government affairs director, during a public hearing in Tumwater.

Tefft's testimony came during the middle of one of six public hearings held by the state Department of Labor & Industries on the proposed rate hike.

Many business owners also testified at the Tumwater meeting, giving first-hand accounts of their frustrations with the workers' comp system, and the damage that will come from a rate hike.

Approximately 65 people turned out for a hearing Thursday in Bellingham, and many of them echoed similar concerns, according to this report in the Bellingham Herald.

It's true that the bad economy partly explains the state's need for a rate hike, Tefft told officials.

News of Great Recovery tempered by jobs data

Today's announcement by the Bureau of Labor Statistics that job losses in this recession are now at or near record levels surely tempers news of the Great Recovery.

According to today's report, 5.2 percent of jobs have been lost in the U.S. since the start of the recession (December 2007). Here in Washington state, we've lost 4.3 percent of total jobs, putting us in about the middle of the pack (28th), comparatively speaking. You can view the full rankings here.

Arizona showed the greatest decline, becoming the first state to have lost 10 percent of its total jobs to the recession -- a feat that has only occurred once in the past four recessions according to the Economic Policy Institute. And Michigan, reeling from the loss of manufacturing jobs, is ranked second, having lost 9.8 percent of its jobs, followed by Nevada, also affected by the downturn in construction, having lost 8.5 percent. 

Around the West, Oregon lost 7.7 percent, Idaho is down 6.6 percent and California is off by 6.5 percent, ranking them sixth, seventh and eighth respectively. Unemployment rates were still on the rise in 24 states last month and 15 states (seven in the South), had double-digit rates of joblessness.

Only Alaska (+0.6 percent), Washington, D.C. (+0.6 percent) and North Dakota (+1.4 percent) showed job growth.