Washington Research Council Blog

Strassel on the Budget

The state legislature has finished work on the 2011-13 budget, but the federal government is still in budget mode.  In her column this week, Kimberley Strassel (our annual dinner speaker this year) asks who is winning the budget war: 

By refusing to blink, Republicans keep forcing Democrats to acknowledge a very simple political reality: Voters do want spending reform, and do not want tax hikes.

That will certainly ring true to Washington voters, whose support for I-1053 in November ensured budget reforms instead of higher taxes to cover the remaining 2009-11 and 2011-13 shortfalls.

Preliminary June Economic Forecast

Economic and Revenue Forecast Council has posted the preliminary June economic forecast (available here). Under the new forecast, growth rates for Washington employment and personal income are a bit lower than under the forecast ERFC adopted in March, while the new forecast for the unemployment rate is correpondingly higher than the March forecast (see table 3 in Arun Raha's memo to the Governor's Council of Economic Advisers).

The 2011-13 Budget Deal

The 2011-13 budget deal announced today includes NGFS+ expenditures of $32.203 billion.  That's $237.1 million less than in the House-passed budget, and $77.0 million more than the Senate-passed budget.

According to the budget documents, the proposal includes $4.1 billion in spending reductions, $459 million in transfers to the general fund, $57 million in budget driven revenue, and the unanticipated $200 million from the recent tax amnesty.  In the end, $723 million is expected to remain in reserves ($282 million of that in the Budget Stabilization Account). 

Some quick items of note: the proposal includes the salary reduction for K-12 and state employees, suspends certain cost of living adjustments, continues the Basic Health Plan enrollment freeze, and makes some Disability Lifeline reforms.  Also, as in the House-passed budget, it would shift Medicaid purchasing from DSHS to the Health Care Authority.

Workers' compensation agreement reached

The major policy obstacle to ending the special sessions was lifted Sunday when negotiators reached agreement on workers' compensation reform. It does less than business wanted, arguable much less, and goes further than union leaders deem acceptable. So, by the common standard that a good compromise is one that leaves all parties at least partially dissatisfied, this is a good compromise. And, objectively, it does take the step further toward stabilizing financies in the state's troubled workers' compensation system.

The Olympian has initial comments.

"There's no one here who won. There's no one here who lost," Gregoire said while looking around at Democratic and Republican leaders from both chambers.

And...

"This is a fair deal for everyone involved," House Speaker Frank Chopp said.

(Here for the Speaker's official statement.)

Washington State Labour Council president Jeff Johnson disagrees.

"It is atrocious," Johnson said. "For workers, it's a loser."

Association of Washington Business president Don Brunell considers the reform an improvement, but notes that more work remains to be done.

"Washington state's workers' compensation system cannot continue indefinitely in its current state - even with the changes reflected in this agreement," Brunell said.

Erik Smith at Washington State Wire gives a good overview. The key provision is a "structured settlement" option - not the compromise-and-release or voluntary settlement option supported by reformers - for workers age 55 or older, dropping to age 50 by 2016. We'll have more details in an upcoming WRC policy brief.

Overall: Progress. Smith calls it a baby step, which reminded me of one of my favorite movie clips.

Washington Fares Poorly in New Business Tax Rankings

According to calculations by Ernst & Young LLP, the state and local tax burden faced by businesses siting new facilities or expanding existing facilities in Washington ranks among the highest in the nation. Our Policy Brief on the report is available here. The Ernst & Young report itself is available here.

House leadership should allow vote on needed workers' comp reform

In my column today, I call on Democratic leaders in the House to bring to the floor legislation that would allow voluntary settlement agreements for workers' compensation claims. This is not a new theme.

An excellent editorial in the Herald of Everett urged the bipartisan majorities in both houses of the Legislature to hold firm and demand a vote. Similarly, in his column AWB president Don Brunell, acknowledging the boost tax amnesty gave state revenues, made the point that more substantive reforms - like the stalled workers' comp bill - are necessary to get the economy moving again.

The politics are frustrating. The policy is important. The Research Council has written several extended analyses of workers compensation reform (for example here and here).

Sure, most lawmakers want to get out of Olympia and back home. Most of them also want to pass good, mainstream workers' compensation reform. House leadership should give them the chance. It's worth holding out for.

Update on Higher Education Tuition

Last week, we posted a policy brief comparing the House and Senate budgets’ treatments of higher education. Both budgets propose significant tuition hikes on state-resident undergraduate students, with the increases in the Senate budget somewhat greater than those in the House budget (11–16 percent vs. 11–13 percent).

These proposals are now irrelevant, however. Early this week both chambers approved Engrossed Second Substitute House Bill 1795. This bill gives the four-year institutions authority to set their own resident undergraduate tuition rates for the next eight academic years. Gov. Gregoire has said that she will sign the bill (Seattle Times story here).

The Costliness of Washington's Workers' Compensation System

As the debate over workers’ compensation reform continues, a questionable number keeps popping up related to the costs of Washington’s system compared to other states. 

As we have consistently argued (see here, here, and here), the workers’ compensation system in Washington must be reformed.  Washington has the nation’s second highest benefits per covered worker ($778.36 in 2008) and the third highest benefits paid as a percent of covered wages (1.69 percent in 2008).  Washington’s Department of Labor and Industries (L&I) awarded 1,542 total permanent disability pensions in 2009; Oregon awarded only 13.  These high benefits contribute to high costs.

The Oregon Department of Consumer and Business Services publishes a study every two years comparing workers’ compensation premium rates by state.  We have long argued that this study is flawed as it relates to Washington.  The industry sample used in the study is tailored to Oregon’s mix of industries, not ours.  The study itself notes that because Washington’s data must be converted from an hourly rate to a payroll rate measure, the comparison is not exact.

Even so, supporters of Washington’s system have used the Oregon study to try to make the case that Washington is a high benefits and low cost state.  If that were ever correct, it certainly isn’t now:  In 2010, Washington’s ranking was 26^th, lower than only 25 other states.  This is a significant drop from our 2008 ranking of 38^th.  (Compare this to Oregon, which ranked 39^th in 2008 and improved to 41^st in 2010.)

Some are claiming that Washington’s premium costs are really 36^th in the nation.  The Oregon study doesn’t take into account the fact that employees in Washington are statutorily required to pay a share of the premiums, unlike every other state.  (Employees pay 50 percent of the Medical Aid account premiums, 50 percent of Supplemental Pension Fund premiums, and none of the Accident Fund premiums.  According to L&I, in 2011, the employee contribution to the total premium burden is about 24 percent.)  The Oregon study also does not include Washington’s Supplemental Pension Fund.  Thus, supporters are now saying that the Oregon study must be adjusted to take these into account, resulting in much lower costs (36^th).  We have seen no basis for this calculation.

Whether or not their math is correct is a moot point, however.  The employee share is certainly factored into compensation.  (And can we doubt that union contracts include provisions to ensure that?) 

It makes no sense to pull out the statutory employee share from the premium rankings.  The fact is that the statutory incidence of the premiums is irrelevant; it is settled economics that payroll taxes are largely if not entirely ultimately borne by the employee.   Consequently, reforming the system to cut costs will benefit workers.

State Agency Consolidations Under Consideration

Before the legislative session began this year, Governor Gregoire made several suggestions to reorganize and consolidate state agencies.  She recommended that the state consolidate education agencies, natural resource agencies and central services; centralize IT by creating the Consolidated Technology Services agency; create an Office of Civil Rights; eliminate 36 boards and commissions; and consolidate the state’s health care purchasing.  

Some of these suggestions (and some others) have advanced in the House and/or Senate, where they are being considered in the context of the 2011-13 budget.  All numbers cited below are for the 2011-13 biennium, and all bills have been re-introduced in the special session.  Only a few have been passed by either house at this point.

NLRB's Boeing complaint generating plenty of heat

The NLRB's Acting General Counsel Lafe Solomon lodged a complaint alleging the Boeing company's decision to expand in South Carolina amounted to impermissible retaliation against the union. I wrote about it in this column.

Unsurprisingly, the complaint has become a national issue, properly, because of its sweeping consequences. In the Wall Street Journal, Boeing CEO Jim McNerney explains the damaging effects certain to follow from the NLRB's logic:

The world the NLRB wants to create with its complaint would effectively prevent all companies from placing new plants in right-to-work states if they have existing plants in unionized states. But as an unintended consequence, forward-thinking CEOs also would be reluctant to place new plants in unionized states—lest they be forever restricted from placing future plants elsewhere across the country.

Read the whole thing. McNerney effectively lays out the company's position and counters the NLRB allegations.

The Shopfloor blog points out that the NLRB appears to ready to reconsider. Assessing a statement Solomon issued Monday, Carter Wood notes that Solomon said, "At any point in this process, the parties could reach a settlement agreement and we remain willing to participate in any such discussions at the request of either or both parties." According to Wood,

We read the statement to be Solomon acknowledging the weakness of the NLRB’s complaint against Boeing, which he filed at the behest of the International Association of Machinists and Aerospace Workers.

Jennifer Rubin writes in the Washington Post that the complaint makes little sense, legally or politically.