Schmudget Blog


We Need a Strong Recovery, Quick

Posted by jeffc at Feb 06, 2009 12:10 PM |

For workers with lower and moderate hourly wages, the current recession comes at a precarious time. The losses in income that workers are expected to incur now come on the heels of an insufficient recovery from the last recession in 2001.

The graph below shows the growth in average hourly wages for the lower-earning half of the Washington State workforce. Wages are adjusted for inflation.

wage020609.jpg

There are three very different time periods:

BOOM: Low unemployment and robust job growth translated to strong wage growth in the last half of the 1990s.

BUST: After adjusting for inflation, there was no wage growth among lower and moderate wage workers.

BUSTED BOOM: When job growth started to rebound after the 2001 recession, wage growth improved, but stayed very anemic.

We only have comparable wage data through 2008 at this point, but it’s a safe bet that wages are taking another hit. Looking ahead, not only can workers not afford this recession, they can’t afford another recovery like the last one.

* Data is based on analysis of CPS-ORG microdata, following the methodology used in State of Working America. Want more detail? Let me know.

Tax expenditures - spending by another name

Posted by remyt at Feb 05, 2009 04:10 PM |
Filed under: State Revenue

Last week the Joint Legislative Audit and Review Council (JLARC) presented their recommendations on current tax expenditures to a joint meeting of the House Finance Committee and the Senate Ways and Means Committee. Stick with me, this is important.

First, what are tax expenditures? They are tax breaks that reduce the funds available for other priorities. In total, we will forego $13 billion of tax revenue in the coming two year budget cycle because of tax exemptions ($1.6 billion from those passed since 1995 alone). Some of these tax expenditures make clear improvements to the tax system. Others need to be reviewed to determine whether they are meeting their stated purpose and whether they are a priority when considered alongside other proposals.

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In Washington State, tax expenditures are treated quite differently from other expenditures in the budget process. We regularly review our spending on education, health care, and transportation, but not how to fund tax breaks. 

While we don't do an official biennial review as part of the budget process, in 2006 the Legislature created a process for a long term review. JLARC will conduct intensive reviews of each tax expenditure based on predetermined calendar and make recommendations about continuing or altering most of them (some were excluded from consideration). A Citizen's Commission for Performance Measurement of Tax Preferences then reviews JLARC's report and makes independent recommendations to the Legislature.

OK, back to last week. JLARC's review included 27 tax expenditures ranging from private school tuition to the processing of horticultural products. And they pretty much said to "stay the course" on each of them, with some minor tweaks.

The Citizen's Commission disagreed in one area. They did not endorse the JLARC recommendation full endorsement the property tax exemption for intangible property (primarily financial assets like stocks and bonds). They had this to say:

Given the magnitude of revenue impact of the exemption ($11 billion in 2008), the dramatic growth of intangible property in the New Economy, and the impact of such a large exemption on the adequacy, efficiency and fairness of the tax system, the Commission recommends that the Legislature study the exemption and consider how to appropriately treat intangible property.*

Is it a good idea to tax intangibles? I don't know. But the Commission is right that it should be on the table. Further, why not give consideration to tax expenditures every year as part of the budget-making process?

* The Department of Revenue doesn't think that repealing this exemption would raise that much revenue, in part because it would lower the property tax on tangible property, like houses.

In Most States, GA-U Fills Gaps in Economic Security and Health Care Systems

Posted by staceys at Feb 03, 2009 06:45 AM |

We all hope that if we were ever to face disability, we would have the supports necessary to maintain our economic security. The General Assistance-Unemployable (GA-U) program is designed to help fill that need for thousands of people in our state. It is an essential component of Washington State’s efforts to ensure economic security (pdf) and access to health care (pdf) for all residents.

GA-U provides financial and medical assistance to adults who are unable to work due to disability and are ineligible for other programs. For these adults, GA-U fills gaps that would otherwise exist in our support systems:

  • Unemployment insurance and workers’ compensation benefits often expire well before longer-term disability benefits become available.
  • Eligibility for other assistance programs is very limited for adults who do not have children at home, even for adults who are unable to work.

For these Washingtonians, GA-U provides some protection from deep poverty and homelessness that would otherwise not be available.

Governor Gregoire has proposed (pdf) the complete elimination of GA-U, including both financial and medical assistance. Such a decision would have a detrimental impact on the Washingtonians who rely on the program. As shown by a number of studies, it would also add significant costs with regard to health care and public safety systems in the state.*

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The proposed elimination would put us out of step with the rest of the country (see map). Most states in the nation recognize the importance of meeting this need. Thirty-one states across the country have statewide GA-U programs with financial and/or medical benefits. Another nine states have GA-U programs available in some counties, but not in others. In total, only 11 states (Oregon, Wyoming, and nine Southern states) do not have comparable programs.

This post is available as a one-page pdf handout.

 

* For example, see Mancuso, David, Ph.D., and Sharon Estee, Ph.D., Washington State Mental Health Services Cost Offsets and Outcomes: Technical Report, Washington State Dept. of Social and Health Services, Research and Data Analysis Division, Olympia, WA, Dec, 2003 and Wickizer, Thomas, Ph.D., M.P.H., The Relationship between Chemical Dependency Treatment and Criminal Activity among Clients on General Assistance-Unemployable (GA-U), Oct. 2005 (working paper).

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.

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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.

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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.

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HIGHLIGHTS

Our Seattle Policy Summit

You can watch our Budget Matters 2017 Seattle Policy Summit, which took place on December 6, online. The first part of the day (watch here) featured Washington State Lt. Governor Cyrus Habib and Race Forward President Glenn Harris. The second part of the day (watch here) featured Budget & Policy Center Senior Policy Analyst Jennifer Tran, and a panel of local leaders moderated by Michael Brown of the Seattle Foundation. 

Our Policy Priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance to build a better Washington.

Testimonies in Olympia

To advance our legislative priorities, the Budget & Policy Center team was in the state capitol throughout session testifying on a wide range of bills. Watch our testimonies on TVW:
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