Olympia Business Watch

State revenue forecast mostly on target, but no cause for celebration

Washington's revenue outlook hasn't gotten any worse since the last forecast, Arun Raha, the chief economist, declared this morning.

But it certainly could.

The European debt crisis has the potential to become a banking crisis, and if that happened it could spread to U.S. banks, undermining the fragile recovery, Raha said.

"The risk scenario remains the same, heavily weighted to the downside," he said.

As it stands now, Washington has taken in $12 million less than expected since September, a drop that amounts to a half of one percent. The projected tax revenue over the next two years is $122 million less than previously forecast.

Boeing and software publishing both continue to do well, car and truck sales are improving and there are faint glimmers of hope in non-residential construction, Raha said.

Consumer spending is also "mildly encouraging," he said, but only because expectations were so low.

Consumer and business confidence remain weak, however, and unemployment is still a major problem. The nation's real GDP is finally back to pre-recession levels, but it's being produced with 6.6 million fewer jobs, he said.

 "We are in the aftermath of the Great Recession and nothing can be taken for granted," Raha said. "We've been here before in this recovery, only to be sucked back into the mire."

Brunell: Good news, bad news about cars

Today's cars are safer, more fuel-efficient and emit fewer greenhouse gases than ever before. That's the good news, AWB President Don Brunell writes in his weekly column.

The bad news is that the state's highway system has relied for decades on gas taxes to pay for construction and maintenance.

When cars got 10 or 12 miles per gallon, there was plenty of money to pay for projects, Brunell writes. But now that they're more efficient, they use less gas -- so there is less coming in to pay for highway projects.

And the problem will only grow as alternative fuel vehicles become more popular.

So what's the answer?

First, alternative fuel vehicles must pay their fair share. Tolls and special HOT (high occupancy tolls) lanes must also be part of the equation. Finally, transit schedules need to be adjusted so that buses and ferries no longer run at times when they are virtually empty.

"The good news is we have the technology," Brunell writes. "The bad news is we take too long to study, approve and build anything."

Gregoire lays out $2 billion in possible cuts, kicking off difficult budget debate

Gov. Chris Gregoire introduced a list of possible state budget cuts Thursday totaling a little more than $4 billion, including some $2 billion that she has tentatively chosen to include in her upcoming supplemental budget proposal.

They range from eliminating the Basic Health Plan and the Disability Lifeline medical program to cutting 15 percent from higher education and increasing class size by two students in Grades 4 through 12.

Gregoire made it clear she didn't like any of the options, but she also said lawmakers are running out of choices. The $2 billion in needed cuts must come from just $8.7 billion of the state's total $32 billion budget, Gregoire said, echoing what she told AWB members last month at our Policy Summit.

Critics attacked the governor's proposal, saying it should have included options for new taxes in addition to proposed cuts. Gregoire said she will turn her attention to revenue next, but she correctly noted that despite showing some signs of life, consumers and businesses both remain nervous about the economy.

"We need to restore consumer confidence in our state so people will spend," she said. "We need to restore business confidence so they will hire."

Brunell: Deadbeat Illinois serves as a warning

The budget crisis is so bad in Illinois that the state has simply stopped paying its bills, AWB President Don Brunell writes in his weekly column. And this is after lawmakers pushed through huge tax increases.

Why should we care what happens in Illinois? Because it's a warning to us all.

Illinois is by no means alone in its fiscal crisis. The recession revealed systemic weaknesses in cities and states across the nation -- weaknesses that were masked initially by a strong economy and later by federal stimulus money.

Still, the borrowing and spending continues. And it's largely our fault. "We all want cuts, but not to our program," Brunell writes. "We call for fiscal restraint from our elected leaders but howl when our ox gets gored."

The solution, he writes, is to once again audit tax incentives and eliminate the ones that aren't paying for themselves, attracting new investments or creating or preserving jobs. Next, lawmakers need to jettison non-essential services or turn them over to the private sector.

And most importantly, lawmakers must streamline Washington's costly, complex and overlapping regulations.

"Simply put," Brunell writes, "the cost of permits is out of whack in Washington state and it is killing employers in the private sector, non-profit groups -- even other essential services like first responders, hospitals and schools."

Gregoire: Now more than ever, we must work together

Gov. Chris Gregoire blasted Congress for "failing to do what needed to be done in August," and she called on Washingtonians to work together to solve the state's budget problems during her luncheon address Wednesday to AWB members.

"Now more than ever, we can only get through the challenges ahead if we work together," Gregoire said during AWB's annual Policy Summit.

Her comments came after last week's news that state revenue projection dropped another $1.4 billion, raising the estimated budget shortfall to nearly $2 billion.

The forecast brought immediate talk of a possible special session of the Legislature, but Gregoire said she doesn't intend to call lawmakers to Olympia before the next forecast in November. Later in the afternoon came confirmation that Gregoire will call lawmakers back to Olympia in November for a 30-day special session.

"It's not a small, supplemental budget where you tinker, it is a new budget," she said.

State revenue outlook nosedives again - down $1.4 billion

Washington's state budget picture took another turn for the worse Thursday when chief economist Arun Raha announced a new revenue projection $1.4 billion lower than the previous forecast.

The bad news, which comes despite strong aerospace, software and agriculture sectors, had been telegraphed well in advance. But that doesn't mean it will be any easier for lawmakers to address, either later this year in a special session or in January when they are scheduled to convene.

A special session seems likely. Marty Brown, the governor's budget director, said Gov. Chris Gregoire held conference calls with legislative leaders, adding that she was "very uncomfortable" waiting until January.

Whenever they meet, AWB President Don Brunell said lawmakers must put aside partisan differences and concentrate on actions that will spur small- and medium-sized employers to start hiring again.

Despite strong employment growth at Boeing, which has more than seven years of commercial orders on its books, and a rebound in software publishing employment, Thursday's report showed that Washington's job market added just 8,300 jobs in June, rather than 13,600 that had been forecast.

Nationwide, there are still more than 6 million fewer jobs than at the start of the Great Recession, Raha said.

Piotr Grodzki--the man behind Business Week in Poland

Seattle and Gdynia/Gdansk are 5,043 miles and nine time zones apart.  The flight is over 11 hours so you can imagine the logistical problems of moving all of the materials, adult advisers and student interns needed to run a week-long business boot camp.  Now, multiply by three because this year, Janice and Allen Jaworski, Seattle residents, are back in Poland for the third straight time to run the Polish version of Washington Business Week.

Being that far away, you need some inside help.  That help comes from Piotr Grodzki, a young Polish internet entrepreneur who is president of Speednet. 

Grodzki is from Gdansk and his goal is to inspire students to become entrepenuers.  He wants to create a larger talent pool  of educated and trained workers to bring jobs and economic opportunity to Poland. Part of that strategy is Poland Business Week.

Speednet is one of those recognizable Polish companies which takes advantage of the new trends in the IT industry. It specializes in outsourcing of IT specialists and dedicated software development. 

Grodzki took the risk and started his own business and he is encouraging young Polish high school students to do the same.  He is positive and believes problems are opportunities.  Grodzki is fascinated by the innovation of people like Walt Disney who dared to dream and follow their dreams. He believes that teams which work together and solve problems create solutions and develop new products and services.  You have to be willing to  look at things differently and take a chance.

To him, the old Soviet Bloc command and control approach doesn't work.  He and his family lived in a Poland once controlled by the central government and Communist dictators.  Grodzki invests his money and time in making Business Week successful in Poland because he sees the magic of entreprenuership blossom in students in just one week. 

Janice Jaworski, who coordinates the Poland program for Washington Business Week, has help in Seattle from her husband Allen, who is president of the Seattle-Gdynia Sister City organization.  They've become close friend with Grodzki whose volunteer leadership and work in Poland makes Poland Business Week possible.  Ask anyone in Gdynia, Gdansk or Seattle, without Piotr Grodzki working on the ground for Business Week in Poland, it would have never crossed the Atlantic.

Don C. Brunell, President

Note:  Business Week started at the Association of Washington Business in 1975 and has spread to 26 states and Australia as well as Poland.  More than 50,000 students have graduated from the Washington Business Week program over the last 36 years.

I-1053 legal challenge could make voters ask 'What's the use in voting?'

Voters could not have been more clear last fall on Initiative 1053, The Columbian editorial board wrote yesterday in response to the legal challenge brought this week against the measure.

In Clark County, home of Rep. Jim Moeller -- one of the dozen Democratic lawmakers who signed on as plaintiffs -- the initiative passed with a 71.3 percent approval, the paper writes.

The Columbian brings up the statistic after noting that Moeller's Web page includes this statement: "A big part of my job -- by the far most important part -- is listening to what Vancouver and othe Clark County folks have to say regarding the issues before us."

On I-1053, the people have spoken. Loud and clear. And with respect to a supermajority vote of legislators to raise taxes, they have spoken several times.

Is Moeller listening selectively, the paper asks?

Every time lawmakers overturn the will of the people, they risk alienating them -- possibly to the point that voters give up.

The paper concludes with this warning: "Legislators who disagree certainly have their right to pursue a legal remedy, but that doesn't make them right. And they do so at their own peril, as voters justifiably ask: 'What's the use in voting, if our voice will just be ignored?'"

 

Brunell: Broken promises carry unwelcome consequences

Raiding dedicated accounts is nothing new in Olympia, AWB President Don Brunell writes in his weekly column.

It's what lawmakers do when they get desperate.

In 2009, they were desperate to close a $9 billion budget gap, so they agreed to an innovative deal proposed by the Washington State Hospital Association in which hospitals volunteered to tax themselves. The state could use the tax collections to qualify for federal matching funds, keep some of the money for the state's general fund and return the rest to the hospitals in the form of higher Medicaid payments.

But just a year later, state officials passed a law that diverts more of the federal funds into the state coffers, prompting the hospitals to sue the state.

It's similar to what happened to Crown Zellerbach in the 1980s. The company was halfway through with construction on a modernization of its old Camas pulp and papermaking facility when state lawmakers wiped out an account that the company was relying on for the project.

The project was eventually grandfathered, but it cost an extra $25 million.

Now the hospitals are in for a bruising court battle that will cost money that would otherwise be going to patient care, Brunell writes. And there are important principles at stake -- "namely that elected officials should follow the law and keep their promises."

Brunell: Taxpayers should cut up Uncle Sam's credit cards

Candidates for political office generally have to pay vendors up front for campaign material. No cash, no campaign ad.

It's too bad the same principle doesn't apply once they're elected, AWB President Don Brunell writes in his weekly column.

Once they're in Congress or the Oval Office, the allure of Uncle Sam's credit card -- and the pressure to "bring home the bacon" to constituents -- leads to a debt binge.

National debt isn't new, Brunell notes. But what is new is that we're not repaying our public debts; we're simply getting new credit cards to pay off the old ones.

Elected officials will have no choice but to drastically cut spending even if they do raise taxes. With an election looming next year, that's likely to result in the least productive Congress since President Truman's "do-nothing Congress" of 1948.

Living with a balanced budget means making tought choices, Brunell writes. But it's better in the long run because U.S. citizens -- and their children and grandchildren -- won't be saddled with a mountain of crushing debt.