Economic and Revenue Forecast

(Originally posted 9/17/09)

I serve on the Economic and Revenue Forecast Council for Washington, and today we had our quarterly “Governor’s Council of Economic Advisors” meeting. The state economist makes some projects and the economists in the room argue about it for a couple of hours. This is more fascinating than you might think, or at least it’s interesting to me.

Dr. Raha’s full presentation can be found here. If you’re a numbers geek it’s worth reading.

The short story is that it looks like we’re at the bottom of the recession, but that the recovery will not be all that sudden. Employment recovery typically lags the economic recovery as companies put off hiring as long as they can to reduce risk. It looks like the residential housing market has hit bottom and started back up. This is one of the big drivers in the WA economy.

ERFC-1

The commercial real-estate market is another story, as are many of the local banks that invest heavily in these projects.

EFRC-2

The big teaser for us is the following slide. On sept. 17th we receive the revenue forecast, which has lots more data folded into it. This is a hopeful piece of data – we don’t want continued deterioration in the revenue model. I still expect us to enter the session with some significant work to do on the budget.

EFRC-3

Information Services Board

I serve on the Information Services Board, (ISB) a group of high-level state and private sector people who review and approve the state’s investment in information technology. Specific projects that are high risk get a lot of attention from the group. It’s interesting to me, and one of the few things I do that’s directly related to my previous life at Microsoft.

I wrote the following text as I sat in the meeting last week.

We are reviewing a number of programs:

FamLink, a replacement of an ancient dysfunctional system to keep track of outcomes for children in the care of the state in some way or another. We track cases of child abuse and other problems, plus placements of foster children, etc. The system handles payments and outcomes. They’ve done a reasonable job replacing the system. The first part went live in February 2009. Phase 2 of the project is a little late, and we’re giving them a few more months. (It’s not like we have any choice – the project is late.)

The old data about outcomes for kids is intractible and hard to translate into new formats. This doesn’t affect payments to vendors, but does affect the amount of information that’s available to people who track placements. They’ve done a reasonable job of releasing functionality one step at a time, and fitting it into the middle of complex web of accounting softare at the state. I’m comfortable with the risk choice here.

Another project we’re looking at is a system the Office of Financial Management (OFM) wanted to use to manage grants, loans and contracts across the whole state. This was a disaster, and we would up not delivering a system. We pulled the plug a while ago and today we’re hearing the post-mortem.

Unfortunately, it seems from the presentation that we’re paying the post-mortem vendor by the word. The short story is that OFM tried to do too many things in one system and didn’t ask enough specific questions in the planning. It’s not a huge system, but a painful lesson that we learn over and over again.

The Court system is the next presenter (this is a half-day meeting.) an aside during their presentation is that they are expecting 6000 new “infractions” a day as a result of the tolling methodology being chosen for the 520 bridge scheme. I had realized that there would be some interaction with the court as a result of all electronic tolling, but this seems over the top. I will investigate this and see if we can come up with a better system. (Later update: this was a big problem and is getting fixed. The interesting question is “How do we most efficiently allow people to pay online?” rather than “How do we give people tickets when they don’t pay in advance?” We are working on changing the approach.)

Interesting Presentation on California’s Education Funding Issues

 California’s issues are in many ways similar to Washington’s. Doing a constitutional re-write to allow the locals to carry the costs of education would be interesting, and his solution would probably result in more funding across the board. I would have to play with some numbers (a lot) to see if met my fairness bar, but it’s worth pursuing.

Ross

Presentation by Jeff Camp at “Repairing California: Time for a California Constitutional August 11th 2009

2009 Session Notes – Tax Policy

(I orginally posted this on a different blog in April 2009. I am consolidating into a single presence and am re-posting here. )

A number of key tax policy bills were passed this year. These are interesting to me because I chair the Finance committee and am responsible for making sure the system works.

I sponsored HB 2075, a complete re-write of how sales taxes are figured out on digital products. This was an interesting situation – the tax rules hadn’t been revisited for 30 years, long before Al Gore invented the Internet. My goal was to make sure that the tax system taxes the same thing in the same way – downloaded music should have the same tax treatment as stuff you buy on disks. I worked out a deal with the business community that we all agree on. It protects state revenue from deteriorating as usage shifts to downloaded products and fixes related problems for business, making sure that Washington is hospitable for Internet businesses into the future.

At the very end of the session we had a little fire drill to deal with. One the last weekend the Senate passed a bill (SB 6173) with little public scrutiny that was intended to eliminate some of the fraud associated with misuse of sales tax resale certificates. Businesses are entitled to not pay sales tax on items that they will eventually resell, on the theory that they’ll pay the tax then.

The Senate version of this bill solved the problem by denying anyone in the construction industry the ability to avoid paying the tax up front and giving them a credit they could use when they eventually sold the product. This makes builders and remodelers carry the float on everything they buy for resale. I arrived on Monday to read through the bill and we had an army of angry guys with nail guns outside my door.

I was able to re-write the bill in cooperation with all the business groups to be much smarter about how we went about fixing the problem. We got a solution at the last minute that both the Republicans and I agreed with and that the business community was OK with. It passed overwhelmingly and should help homebuilders by eliminating a lot of the fly-by-night contractors who never pay sales tax, unemployment insurance, or workers compensation premiums.

The Master Builders of King and Snohomish County made me their legislator of the session for my work here.

Changes to Sales Tax Resale Certificates (SB 6173)

The Senate budget assumed a change in how sales tax resale certificates worked. As the bill implementing this idea came over from the Senate it made substantial changes to how resale certificates work for retailers and wholesalers (which was fine) but also made a change I found punitive to how resale certificates worked for contractors and builders. The final bill is described below and is a much better process. I believe it will result in significantly less sales tax avoidance without significant negative impacts on our beleaguered building industry.

We estimate that the bill will fix at least $100,000,000 (one hundred million dollars) of illegal tax avoidance.

I worked with my Republican counterparts Rep. Ed Orcutt and Rep. Cary Condotta, the Associated General Contractors, the Master Builders, the Building Industry Association of Washington, the Association of Washington Business, the Independent Businesses Association, the National Federation of Independent Businesses and a host of others in reviewing the results. These associations, while not wildly excited by the bill, do not oppose the final product as it passed the House. The vote was 86-9, with a substantial bi-partisan majority.

Continue reading “Changes to Sales Tax Resale Certificates (SB 6173)”

Eastside state representatives vote no on 520 tolling legislation

Reps. Eddy and Hunter say legislation does not address key issues related to funding, process or Eastside projects

For immediate release

April 17, 2009

OLYMPIA – The Legislature today narrowly approved HB 2211 which authorizes early tolls to finance the SR 520 floating bridge and gives the Washington State Department of Transportation authority to spend toll-backed bonds for the floating bridge portion of the project.

Eastside state representatives Deb Eddy (D-Kirkland) and Ross Hunter (D-Medina) both voted no on the legislation. While they are happy to see the legislation now go to the Senate for consideration, they say they’ll press for changes that address critical issues the current legislation ignores.

Continue reading “Eastside state representatives vote no on 520 tolling legislation”

Tuition Increases?

The Seattle Times wrote an interesting article in this morning’s paper about the budget question facing us about higher education. Both House and Senate proposals do terrible things to the higher education system in Washington. It’s worth the read. We have to decide if we want to allow the universities to raise tuition, or just continue to reduce the state’s investment in higher ed – something that will have devastating long-term consequences for economic competitiveness of the state if we do so.

http://seattletimes.nwsource.com/html/education/2009063657_tuition16m.html

HB 2343 – National Board Certification Bonus

HB 2343 does a number of ugly things to the K12 system as part of the terrible, devastating budget cuts to education and everything else the state does. One of the proposed changes is to permanently eliminate the inflation adjustment to the bonus we pay to teachers who have achieved National Board Certification. I do not support this change. I will attempt to amend the provision out of the bill. While we are not able to provide the cost of living adjustment in this year’s budget, we should re-start our commitment next year. The bill is permanent. My amendment makes it temporary for this budget only.

The National Board system is the one performance-based element of our compensation system. There is reasonably strong experimental evidence that students who have a National Board certified teacher learn 7-14% more material in a given year than students who have a similarly situated teacher who is not certified. I worked for 5 years to get this element into the law and will work equally hard to keep in play. We cannot expect teachers to make the investment in the training and the extensive application process if we are going to frequently change the availability of the funds for the bonus.

For more information on the bill click here.

National Popular Vote

The national popular vote proposal is an interesting approach to changing the 222 year old way we elect US Presidents.The idea is to have a compact between states totally more than 50% of the electoral college. We would all agree that we would allocate all of our electoral votes to the winner of the national popular vote. It’s implemented in SB 5599. Bill details here.

There is concern from many people that small states have disproportionate impact on the election of the president, and that some states (the “swing” states) are the only places that are paid attention to. For example a lot of sugar cane is grown in Florida and we consequently have import quotas on sugar cane. This causes us to use a lot of high fructose corn syrup in products in America instead of sugar, because it’s cheaper only due to the quotas.

These are real concerns. The proposal lays out a scheme that I believe would actually work to elect the president by direct popular vote. Nevertheless, I’m really concerned about changing something that has worked for 222 years. Winston Churchill spoke (more generally) about democracy by saying “Many forms of Government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.” Speech in the House of Commons (1947–11-11)

I think we should be very, very careful about changing a system that, even with occasional hiccups, has done an amazing job of providing a stable government. America is an experiment in self government that worked.

“The full experiment of a government democratical, but representative, was and is still reserved for us.” — Thomas Jefferson to Isaac H. Tiffany, 1816

We have to think about the “representative” part. With the electoral college we are representative of small states. This was the great bargain between the small states and the large, the North and the South, the manufacturing and the agricultural. America is a very different place than it was 222 years ago, but I am not voting for this proposal yet. I may be more comfortable with the idea as more people think about it and write deep analysis of it, but for now I’m not comfortable enough to change something this fundamental in the American electoral system.

Misc. Budget Notes

I’ve answered a lot of mail on the budget so far. Some items come up over and over again – Adult family homes, family planning funding, Children’s Hospital, and the State Auditor and his I-900 audits. Here are some notes on these things.

Family Planning

There has been about $10 million in the state budget for family planning services. Since the state pays for 57% of all births in the state, increases in the ability of couples to plan for when they will have a child can save us a lot of money – this is a reasonable investment, and with a short return timeframe (9 months.) The $10 million has been in the budget to backfill a federal cut during the Bush administration. We’re expecting the feds to restore this cut in the 2011 budget. Our money is in the first year of the biennium, with the expectation that we’ll come back next year and put the money back in if the feds don’t come through.

Children’s Hospital

The original budgets had a provision that had a disproportionate effect on Children’s Hospital and the Seattle Cancer Care Alliance (theOutpatient Prospective Payment System.) These facilities interact differently with Medicaid than “regular” hospitals do, and one of the cuts seemed to have an overly large cuts to children’s and SCCA. We’re still working on fixing this. Something was done to help Children’s in a different way which somewhat mitigates the problem, but that is not to say that the budget doesn’t affect Children’s and SCCA – we make devastating cuts to our healthcare safety net in order to deal with the most dramatic economic downturn since the great depression.

Adult Family Homes (AFHs)

AFHs are part of the network of businesses that provide long-term care for our seniors and those who are disabled enough to not be able to care for themselves. Our support ranges from paying for individual providers of home care services, adult family homes, nursing homes, skilled nursing facilities, etc. We have a Medicaid responsibility to provide this care in nursing homes, which are very expensive. Most folks would prefer to have care at home, in a small facility, or somewhere in their community rather than go to a nursing home, so we apply for several federal waivers to allow us to provide care that’s lower cost and more popular with the recipient. We provide about half of the money and the federal government provides half.

We try our best to be balanced and cut all of these providers about 5% in their reimbursement rate. The federal stimulus plan provided some additional short-term funds which we apply to this part of the system. Before we used this money it was 14%.

I-900 Audits

The auditor started up his performance audit program after the passage of I-900, an initiative I supported. It took some time for him to expand the program to the level provided for in the initiative, a reasonable measured approach. He didn’t use all the money the initiative provided in the early years of this program, and we use some of that to rebalance the current budget shortfall. We fund his entire current workplan, but are trying to share the overall budget cuts fairly across the entire government operation.