Schmudget Blog


Commentary: Keep Revenue Options On the Table

Posted by jeffc at Jan 30, 2009 09:45 AM |
Filed under: State Budget, State Revenue

We’ve offered one approach to state budget decision-making in our Progress Index report - identifying a long-term vision for the state and then using high-quality research to determine how to get there. But of course there are other approaches.

Richard Davis’ thoughtful column from Wednesday’s News-Tribune and The Herald presents two alternatives - "Priorities of Government" and the "Washington Monument Strategy" - and argues for the first.

He extols the "Priorities of Government" approach. This is a process developed by the Locke Administration in order to help them solve the last big budget crisis. A key aspect of this process is that it starts the budget-making process with the limitation that nothing can be changed about revenue. Davis argues for this approach and the Governor agrees. Her budget release states:

"In constructing the budget for 2009–11, Governor Gregoire began with one basic premise: Now is not the time to raise taxes on our residents and businesses."

As a "basic premise," this places a false limitation on our priority-setting process. A more productive budgeting process during these tough times would allow revenue increases and tax exemptions to be considered alongside spending cuts so that we can decide on our priorities from among a full range of options.

Unfortunately, the Legislature is bound from considering the full range of options because of a series of limitations put on them by ballot initiatives. In order for the Legislature to raise revenue, they are, practically speaking, required to put it on the ballot.

I agree with Davis; budgeting on the ballot is not ideal. I share his dislike of what he calls the "Washington Monument Strategy," (referring to the National Park Service using the threat of closing the monument to stave off budget cuts). It’s the budget equivalent of "If you don’t buy this magazine, we’ll kill this dog." It’s not a strategy that moves us toward a long-term vision.

But while Davis makes a well-reasoned argument against the Washington Monument Strategy in terms of spending, he makes a blanket statement about business taxes: "Any increase in the cost of doing business delays the recovery and places jobs and investment at risk." Hmmm. "If you raise this tax, we’ll shoot this recovery?"

The fact is that a budget that cuts billions of dollars from public investment does pose threats to the progress we have been making as a state on education, health, community vitality, and economic security. And while tax increases are not ideal, economic theory and experience shows that they are less harmful than deep cuts in state spending.

It’s time for a reasoned public discussion about the state budget that allows all options to be on the table.

Climate Change: Governor’s new proposal protects consumers with lower incomes

Posted by Aiko Schaefer at Jan 29, 2009 11:00 AM |
Filed under: Climate Change

Clean air and energy independence are central to advancing the well-being of families and communities, as well as improving the economic security and social opportunity of all Washingtonians.

Today Governor Gregoire announced climate change legislation (HB 1819 and SB 5735) that would implement a "cap-and-invest" system to reduce global warming pollution. The proposal would also invest in the creation of green jobs and worker retraining for those who have been affected by the economic downturn.

An innovation of the proposal is that it prioritizes the use of cap-and-trade auction revenue, with the top priority being to protect consumers with lower and moderate incomes from increased energy costs. Revenue would be generated when pollution permits are auctioned off to polluting companies, who will pass costs on to consumers. Using some of the revenue to offset these higher costs for people with lower incomes assures that the impacts of climate change are not regressive.

We have been working in close collaboration with Climate Solutions, Washington Environmental Council, and Sightline Institute on shaping the state’s climate change policies. There is still work to be done. We will continue our work to shape this discussion as it progresses at the state and national levels.

You can learn more about this in a joint letter to Governor Gregoire signed by the Budget & Policy Center along with environmental groups, the faith community, low income advocates, and organizations representing communities of color.

House Proposal Makes Deep Cuts; Comparison With Governor's Proposal Difficult

Posted by jeffc at Jan 27, 2009 07:45 AM |
Filed under: State Budget

The House Ways and Means Committee will hear the House Democrats' supplemental budget proposal (PSHB 1694) this afternoon.

Three important things to note:

  • The House proposal does not assume any maintenance level changes, making comparisons with the Governor's proposal potentially misleading.
  • The House proposal reduces the current budget by $172 million more than the Governor’s supplemental budget.
  • Both budgets assume the same level of federal stimulus money (assumptions that may be too low given recent developments in D.C.); the House proposal assumes less total federal contribution.

The table below summarizes the key big-picture components of the House Democrats' proposal and the Governor’s proposal. Details follow.

tableone012709.jpg

The House proposal does not assume any maintenance level changes

Caution should be exercised when comparing the House proposal with the Governor’s supplemental proposal. Here’s why: the Governor’s budget follows the standard maintenance level approach to supplemental budgets while the House proposal does not.

The maintenance budget is intended to account for changes in the cost of doing what we’ve committed to doing in the current budget. The most significant maintenance budget changes are public school enrollment, enrollment in medical assistance programs, and corrections caseloads.

For example, the state now expects over 1,700 more students in the current school year then was expected when the current budget was passed. Because the House proposal does not account for the increased enrollment, it already starts with a reduction in services. The same money has to be spread between more students. So, for example, while neither budget explicitly proposes cuts in the general apportionment (the primary pot of state money for local school districts), the House proposal would actually spend $21 million less than the Governor’s proposal. In total, the House proposal would spend $44 million less on K-12 education than the Governor’s budget.

In medical assistance, the House Democrats propose $160.1 million in cuts, compared to $164.7 in the Governor’s budget. But that difference is misleading. Because of the lack of a maintenance level in the House proposal, it would spend $70 million less than the Governor’s proposal.

The House Democrats propose deeper cuts in total than the Governor's proposal

While there are important differences within certain programs, the 2007-09 state budget would be $172 million lower under the House proposal than under the Governor's budget. The bulk of the difference is in the three areas where the Governor responds to caseload increases and makes significant maintenance changes: medical assistance, public schools, and corrections. (see graph below).

pie012709.jpg

Both budgets assume federal stimulus; the House proposal assumes less total federal contribution

Both budgets assume that $205 million in state Medicaid spending will be replaced by federal funds made available in a federal stimulus package. Prospects for significant federal funding are good and funds may be much more than initially anticipated. We'll be posting more on that soon. See Joe Turner's post in the meantime.

Both budgets also assume that $133 million in federal contingency funding for TANF will be available to allow for an equal reduction in state spending.

While both budgets assume the same new Medicaid and TANF funding, the House proposal assumes $92 million less in total federal funding. This seems to be largely because lower health care spending in that proposal would result in lower federal contribution.

Data comes from the Washington Fiscal Information website. The title of this post has changed since first published.

Green Jobs and the Economy

Posted by staceys at Jan 26, 2009 05:55 AM |

Last year, the State Legislature passed, but did not fund, the Climate Action and Green Jobs law.

Investing in green jobs is an important part of a strategy to strengthen our economy. Coming out of the recession, we will need a trained and qualified workforce earning living wages and participating fully in the economy. Training those workers for growing targeted industries such as renewable energy is smart for the economy and good for the environment.

The green jobs initiative would include the creation of pilot green industry skills panels to ensure that trained workers will be able to meet the needs of local industry. It also calls for an increase in the opportunity grants program for green industry training to provide tuition assistance and support services for lower income students as well as funding for curriculum development in this sector.

Many of these initiatives would not be new programs. Community colleges across the state already have existing wind, solar, and biofuel programs that could be scaled up. Federal money is expected to help states embrace the green energy movement. State investments in this area could be used to leverage money from the federal stimulus package.

The need for investments in community colleges and training is especially great during a recession. The graph below shows what happened to enrollment in workforce training programs during the last recession - it rose sharply along with the state unemployment rate.

greenjobs012709.jpg

Funding the green jobs bill would not be enough to offset the deep cuts in community colleges in the Governor's 2009-11 budget proposal. These cuts would place limits on enrollment, raise tuition, reduce classes and services and diminish the ability of lower income workers to prepare for and find jobs in the new economy.

Five Facts About the Economy and Deficit Fact 5: The Deficit Is Already Here

Posted by jeffc at Jan 23, 2009 10:50 AM |
Filed under: State Budget, State Economy

Most of the focus around the budget deficit has been on the next biennium (the two-year budget cycle that will begin on July 1). It’s easy to overlook the fact that we have a deficit right now, estimated to be about half a billion dollars.

It's time to stop overlooking the current deficit. Despite the fact that the legislature has not yet passed a supplemental budget to deal with the current deficit, the Governor has already been ordering cuts in spending. And legislative leaders are weighing in. Yesterday, Senate Democrats proposed $105 million in cuts for the current biennium and House Democrats have signaled that they are working on $300 million in cuts.

When the Governor released her budget proposal in December, the documents outlining the supplemental budget were light on details, with most cuts being grouped into very large categories. For example, in the budget for the Department of Social and Health Services, there was a $55 million cut labeled only "Governor-Directed November Reduction."

Additional information is becoming available. Not surprisingly, the details are important. Hiding in the "November Reductions" are numerous cuts like the elimination of funding for Adult Day Health and an increase in child care co-pays for lower income working parents.

A good place to find the details on the Governor's supplemental proposal is on my new favorite website: Washington Fiscal Information. It's not for the faint of heart (and doesn't seem to work well in Firefox), but you can create spreadsheets with detailed budget comparisons by accounts, sources, and agencies. We'll keep putting up more information on the supplemental budget as it develops.

Well, that's the end of our first "special series." Let us know what you think and what you'd like to see next.

 

Five Facts About the Economy and Deficit Fact 4: The Economy Needs a Big Push

Posted by jeffc at Jan 22, 2009 12:40 PM |
Filed under: State Budget, State Economy

As everyone knows by now, our state economy is in a recession. People are feeling the pinch at home and so are retailers and manufacturers. The question we all want answered is, how do we get the economy moving again?

It helps to understand what exactly is meant by the term “recession.” The economist Jared Bernstein, who is my former boss and is now Vice President Biden’s Chief Economist, sums it up well:

Economies depend on robust demand. When folks stop buying, when investors leave the room, when governments stop building and improving public goods, growth grinds to a halt. And when that happens, the job machine stalls, unemployment rises, those with jobs work fewer hours, wages rise more slowly, and incomes decline, especially for the lowest earners and many minorities.

Lately there has been much talk of a federal stimulus plan to quickly get more money flowing in the economy. There are lots of ways to do that, but some of them are better than others. Mark Zandi from economy.com suggests the best route is to target dollars at lower and middle income households who need the cash and will quickly spend it.

In fact, he estimates the biggest “fiscal economic bank for the buck” (his phrase) comes from increasing unemployment benefits and food stamps. Spending on infrastructure would come next, followed closely by aid to state governments. By comparison, tax cuts seem like a waste of money in terms of stimulus.

When it comes to state government, economic recovery can be more difficult because most states need to balance their budgets. Basic economics says that both tax increases and spending cuts are harmful to the economy during a recession. Using our nascent Rainy Day Fund helps a little. Washington also expects federal aid for health care, economic security, and education, but there’s still a large gap.

So what do we do? Do we choose tax increases or spending cuts?

The Governor’s budget proposal comes down on one side of this question. During the election campaign last fall, she promised not to raise taxes and her budget plan for 2009-11 calls for deep spending cuts to the tune of $3.6 billion.

This is not a position backed up by economic research. Nobel Prize winner Joseph Stiglitz who is the new head of the federal Office of Management and Budget says, “Tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run.”

The Governor has also made some smart decisions to help get the economy moving. She has proposed using money from the Unemployment Insurance Trust Fund to temporarily increase benefits for unemployed workers. That plan does not require tax increases and puts money quickly into the economy. It also helps struggling workers. The Governor and legislative leaders have also proposed moving quickly on ready-to-go capital infrastructure improvements.

Five Facts About the Economy and Deficit Fact 3: People Are Losing Their Jobs

Posted by jeffc at Jan 20, 2009 06:00 PM |
Filed under: State Budget, State Economy

Washington State is facing a sustained period of high unemployment. The unemployment rate is projected to rise to 8% or higher (see graph below). That would mean that one of every twelve Washingtonian workers would not be employed despite their efforts to find work.

unemp012009.jpg

Additionally, the Economic and Revenue Forecast Council projects that the number of jobs in the state began to fall in the second quarter of 2008 and will continue to fall until the second quarter of 2009—five straight quarters of job loss. Employment will start to grow in the third quarter of 2009, but will not reach the previous level until the end of 2010 (see graph below). In the meantime, the size of the labor force will have grown and many more jobs will be needed to lower the unemployment rate.

jobs012009.jpg

Lasting spells of unemployment can be devastating. Families and individuals rely on employment to provide basic necessities including food and housing. When people lose their jobs, they often lose their access to affordable health insurance as well. The negative impact isn’t limited to the unemployed; it also drags down wages and economic activity more broadly.

Shoring up programs that provide economic security should be a top priority of the state budget in these tough times. As we’ve discussed, the Governor’s budget would do the opposite; it would harm the ability of the state to provide economic security.

A potential bright spot is the Governor’s proposal to provide a temporary increase in benefits for unemployed workers. More on that tomorrow in "Fact 4: The Economy Needs a Big Push."

Underlying data come from the Economic and Revenue Forecast Council.

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